Cross-border procurement report: Five factors affecting the global clothing procurement pattern

The "Transnational Sourcing Report" compiled by the Li & Fung Research Center of the Fung Group, a global leader in the consumer goods supply chain, was officially released at the 3rd China International Import Expo. The report believes that the medium- and long-term global procurement pattern will depend on five major factors: including the COVID-19 pandemic, geopolitics, free trade agreements and trade preferences, procurement costs, and domestic development policies of production locations.

The Fung Group's business covers the global consumer goods supply chain, and this year marks the third consecutive year that it has participated in the CIIE. The "Transnational Sourcing Report" compiled by Li & Fung Research Center deeply analyzes the first-hand data of the Fung Group's global business network and compares the procurement costs and capabilities of 18 economies, including more mature production bases such as China and Vietnam, rising stars such as Bangladesh and Indonesia, and relatively emerging production bases such as Egypt and Jordan. The report points out that the COVID-19 pandemic and other market uncertainties have caused brands and retailers to further diversify and readjust their procurement portfolios, building resilient and flexible supply chains to cope with major disruptions that are difficult to predict in the future.

The report pointed out that some multinational companies have transferred their manufacturing processes from China to other countries to avoid tariff pressure and minimize geopolitical risks. Some Chinese companies exporting to the US market have also adopted the same strategy. However, in the process of decentralized procurement, China, as a textile supplier to Asian clothing exporting countries, will play a more important role.

"It is worth noting that China's position and importance in the global supply chain will increase. On the one hand, China's low-value-added and labor-intensive industries are gradually moving abroad, while China is moving upstream in the value chain; on the other hand, many manufacturing bases still need to import raw materials, equipment, instruments, and technology from China," said Ms. Qian Huimin, Vice President of Li & Fung Research Center of the Fung Group.

At the same time, as fast fashion and personalized products are emerging driven by e-commerce, the importance of nearshore procurement and supply chain regionalization will be further enhanced to meet consumer demand for shorter delivery times. As the world's fastest growing clothing product consumer market, sourcing in China means being closer to local consumer needs and bringing products to market quickly.

The report details five factors that will shape the future of apparel sourcing, including:

COVID-19

• The important impact of the global COVID-19 crisis is not to restructure the global procurement landscape, but to accelerate and deepen some pre-existing trends, including the decentralization of procurement bases; the nearshoring and regionalization of supply chains; the dual or multi-site procurement of key raw materials, components and intermediate inputs and consumables; and the electronicization of supply chains to make them more transparent, traceable and flexible.
• The procurement model will evolve into "China + Vietnam + many Asian countries with low-cost production lines".

Geopolitics

• Some Asian and Central American countries are expected to benefit from this, with their clothing exports to the United States increasing.

Free Trade Agreements and Trade Preferences

• The rise of trade protectionism around the world will continue to affect cross-border procurement.
• Multinational corporations may be able to develop effective strategies to avoid higher tariffs by taking advantage of free trade agreements and preferential trade arrangements.
• But regulatory regimes such as tariffs and guidelines will complicate its strategy.

Procurement costs

• Although automation and robotics are becoming more common, the apparel industry remains largely labor-intensive.
• Sub-Saharan African countries have a rapidly growing labor force and will become a new sourcing base for low-cost and labor-intensive manufacturing.
• The existing sourcing base must transform towards high-end consumer goods and high value-added production activities, otherwise it may be eliminated.

Domestic development policy in production areas 

• Factors such as supplier ecology, infrastructure development, logistics efficiency and business environment will affect the decision of clothing companies to relocate or establish production sites.
• For example, India is actively improving its domestic business environment and infrastructure.

The PDF version will be shared on 199IT Knowledge Planet, just scan the QR code below!