Apparel Sourcing Intelligence - Worldwide

2014’s Next Big Things that weren’t.2: Onshoring

In spite of endless newspaper articles about onshoring, there’s not actually been any serious, specific, forecast of substantial growth in rich-country garment production. Just as well, since there simply wan’t a shift to onshore garment manufacture in 2014.

Some of the arguments for shifting garment sources make a lot of sense. But whatever the future brings, in the first 11 months of 2014 the volume of garments rich countries bought from poorer ones grew 6.2% on 2013 – faster than any estimate of onshore manufacture.

1. The Forecasts

It’s hard to find any serious forecasts that any more garments would be made in rich countries during 2014 than during earlier years. The better-known consultancies have argued for a couple of years that Chinese wages have been growing so fast manufacturing in the US would be cheaper by 2015 than in China. But those predictions have always avoided concluding garment and textiles production would move back to rich countries.

The belief remains, though – at least among onshoring advocates  – that it’s just a matter of time before apparel making in affluent countries makes better economic than manufacturing thousands of miles away..

2. What happened

In the third quarter of 2014, the volume (cash value minus inflation) of clothing made in the EU fell 4.4% on the previous year: the volume of apparel imported grew 8.1%. Over the same period the volume of apparel made in the US grew 1%:  the volume of apparel imported grew 4.3%.

The number of people working in the EU garment making industry fell 6.9% in the third quarter of 2014 (though only 5.4% in the richest 15 countries) on Q3 of 2013: in the US the numbers fell  6.2%. There is not a shred of evidence that journalists’ excitement , or consultants’ nationalistic extravagance, have  any basis in reality.

3. Is it really that simple?

Some argue garment sourcing IS re-shoring back to rich countries –  or inevitably WILL: others argue that it SHOULD DO (because they argue it’s in rich countries’ interest). The loudest claims that  the process is happening already are in English-speaking countries (possibly because I don’t read then French press enough). But obviously, demonstrating that there’s no growth in garment manufacturing or employment doesn’t demonstrate there won’t be. So:

a. Is it really true that nothing’s happened?

That’s not what I’m arguing. The past 20 years have seen massive change in garment and textile making. In rich countries, that change is more complicated than a simple universal decline.

  • In Europe

Onshoring Europe

Taken overall, both textile and apparel production have flattened out since 2010. There’s no real sign of any growing production – but there’s a real story in the fact that production has stopped falling. Jobs in garment-making, though, are still falling: they’ve stopped falling in textile making. In practice, of course, this doesn’t mean businesses have stayed static: it means that production and jobs in new businesses more or less balance lost production and jobs in declining or closed businesses.

Behind the top-level numbers: the apparel workforce in Portugal, Italy and Germany halved over the 20 years: it fell about twice as fast in Britain and France.

  • In the US:

Onshoring US

US textile production and employment have both flattened out at a much higher level, relative to 1995, than in the EU. Apparel production and jobs have flattened out at a lower level. The US apparel workforce in 1995 was slightly larger than it was in the textile industry: now it’s half the textile size.

  • In both

In both, though, jobs have fallen faster than production (so productivity has improved), while apparel has fallen faster than textiles have fallen. Most reported onshoring initiatives have been in textiles – where the leadtime between announcing a new plant and bringing it into production is far longer than in apparel. 

b. Aren’t there lots of new textile announcements?

Among many summaries of textile investment announcements, special editions of the US magazine Textile World  probably made the most conscientious attempt to quantify the cash and jobs involved. Over the previous year, it reported, $4 bn worth of new investments had been announced in the US, bringing with them 6,000 new jobs. But the value of these announcements must be seen in context – and they contain serious lessons for Europe

  • 6,000 jobs is just one-tenth of the 60,000 textile jobs lost every year between 1995 and 2014 in the US 
  • At $667,000 per job, these investments require cash-rich sponsors. A significant number require aid from Federal or local public sector funds that are simply illegal in the EU. They may well undermine free trade initiatives between the EU and US, and are almost certainly impossible to replicate
  • Even those numbers are hard to believe. The US textile industry claims to have invested $17.7 bn (allegedly in the US) between 2001 and 2011. But it shed 280,000 jobs over those ten years: an extraordinary story of 16 jobs lost for every million dollars invested. Worse, from a European point of view: the current raft of announcements requires very robust income projections. These made sense in the US in 2013, with an apparent future of limitless cheap energy from fracking giving US spinning an apparently unbeatable competitive edge over Asian mills: they make far less sense in Europe, with higher energy costs.
  • No-one has even begun yet to review those investments in the context of low energy prices – because no-one has fully grasped yet what low energy prices mean for the economics of fracking.
  • But, compared to these numbers, highly publicised grants (like Walmart’s $10 mn fund to help manufacturing innovation, or the UK government’s £12.8 mn Regional Growth Fund grant to help garment and textile making)  are just pinpricks. They may be highly effective – but not for developing mass industries.
  • We do know, though, that some assumptions are simply not materialising. Fruit of the Loom, for example (a former member of  the NCTO-sponsored Stop Exporting American Jobs lobby group, the publicly-accessible parts of whose website claimed that “Protecting American textile and apparel manufacturing jobs starts with you!”)  moved its Kentucky-based knitting to Honduras in April, and  in, October decided to sell its US spinning mills.  Delta Apparel, which uses US-spun yarn, announced in June it was moving its weaving to Honduras . Gildan, which also uses US-spun yarn, announced in May it would weave and knit that yarn in Costa Rica. Capital-intensive spinning plants in the US simply don’t create labour-intensive weaving or garment assembly jobs in the US

c. But what about Walmart and Inditex?

Excellent question. Walmart, the world’s biggest apparel retailer, started a “Buy American” programme in August 2013 – and proudly announced major new US apparel contracts, which stimulated investment in US factories. And Inditex, famously, grew to becoming  the world’s largest specialist apparel retailer by local procurement from its Spanish head office. Didn’t they? Not quite

d. What’s the problem?

There are two completely different sets of issues here.

1. The “our economy’s going to the dogs” problem.

What all the graphs above share is that they start flattening out about the time the recession hit Western economies. This isn’t because of the recession: by sheer chance, 2008 was when all quotas on Chinese exports to the EU and US were finally lifted. In the previous ten years or so, textile and apparel jobs declined at roughly the same rate in the US, France, Germany, Spain and the UK, but in the wider economy jobs grew far faster in the UK and US than in the Eurozone. Two different versions of the recession/recovery story then developed:

  • Many in the UK and US many believed this demonstrated the error of economic policy that encouraged job creation in retailing and banking, but allowed manufacturing to decline. They pointed to Germany, where job numbers fell much more slowly after 2008, as an example of how “more sustainable” jobs could be created by encouraging manufacture – and for this, garment making and textiles seemed a perfect example.

Projects in the UK and US to create new textile and garment manufacturing jobs have generally shared difficulties in finding staff – even in the depths of the recession. By 2014, though, new jobs were proliferating in the US and UK economies – while unemployment was growing in the Eurozone, including in Germany. The argument that more garment and textile making jobs was essential to economic rebirth was looking weaker

  • In the Eurozone, though, the commonest explanations for the recession revolved around the financial services industry, the folly of the Euro project or excess regulation. Reviving the textile or garment making industry seemed less relevant.

2. The problems for garment buying and manufacturing professionals. 

Enthusiastic responses from garment buyers asked on the record about their attitude to onshoring rarely means much for useful support

In a perfect world, most buyers would rather have their garments made near them, in a social and cultural environment they understand. But they’d also rather have those garments for half the price they’re paying now, and they’d rather have a dozen assistants.

But, as my Irish mother used to say ” ‘I want’ doesn’t mean ‘I get’ .” What buyers really want doesn’t exist – yet. Very few manufacturing facilities have emerged in developed countries that let major buyers source substantial amounts of garments.
Meanwhile: in some rich countries (especially the UK and US) there’s been a range of textile projects that are marginal to the mainstream garment industry. Spinning mills in the US (mostly at $100 mn and up each), lots of small factories making other kinds of textiles, and a smattering of small-scale, usually premium-priced, garment factories (more often: garment workshops.) Many other projects still struggle to find funding: almost all struggle to find staff. Today’s rapid new job creation in the UK and US isn’t making recruitment any easier.

4. So what’s the reality?

Most textile manufacturers’ projects aren’t aimed at getting a large share of the local market, and often aren’t about apparel anyway. But for projects in apparel there’s something of a race against time. All require workers and capital – and we’ve now got falling UK and US unemployment and interest rates lower than they’ll ever be again.

Acquiring investment for further expansion, or workers to move a project on, can only get pricier in the near future – depressing the returns for any new business.

It’s foolish to dismiss interest in onshore manufacture, because over the last few years the industry’s moved from constant decline to a position where new jobs roughly balance jobs being lost. That in itself is an achievement.

But, outside a few niches, there’s been no sign of onshore apparel suppliers becoming essential to major buyers in any substantial part of their business.

And the jury is still out on whether we will see one in the next few years.