Forotex 2011 Camtex Walter Wilhelm

Walter Wilhelm Associates 2011 1

Forotex Strategy MeetingSan Salvador

Apparel/Textile Positioning & Opportunities November 16, 2011

Walter Wilhelm


Contents

• Revisiting 2004• Today - How is 2011 Different• 2012 – 2014 A Window of Opportunity• El Salvador is Well Positioned (but ONLY if it is seized) • Summary/Recommendations

Page 3

U.S. Garment Imports: El Salvador

U.S. Garment Imports: El Salvador

0

400

800

1,200

1,600

2,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

$ M

illio

ns

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Mar

ket S

hare

ImportsMarket Share

Source: TASP Report 2004

Walter Wilhelm Associates 2010 4Page 4

Product Mix

El Salvador Garment Exports By Product

0%10%20%30%40%50%60%70%80%90%

100%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2,004

Year

PCT

Mar

ket S

ahre Other

Cotton Pants

Underwear

T-Shirts

Source: TASP Report 2004


2004 - Fundamental Industry Change

The reality –• Quota elimination represents the most fundamental change in the

history of the global apparel/textile industry.• “…. American and European companies that now buy from about 60

countries might source from only 20 by 2006 and fewer than 10 by 2010.” (Time Magazine, December 13, 2004, Pg. A12-A13).

The bottom line –• Major brands and retailers will source in dramatically fewer countries

with significantly fewer factories.• There will be big losers - countries and companies. • There will be big winners - companies and countries.


2004 - Global Impact of Quota Elimination

• Every garment producing country has the potential for significant job loss except China and perhaps India.

• For many countries, the risk of job loss is severe.

Anticipated Impact on El Salvador• El Salvador exported $1.8 billion in apparel in 2003.• Industry employed 90,000 direct workers at its peak.• Employment has declined to 84,000 direct workers today.• In 2005/2006, apparel exports will decline and at least 20,000

jobs will be lost.• Without effective and immediate action, job losses could claim 60% of

the industry or 50,000 jobs.


2004 - Tactical and Strategic Plan (TASP)

WWA’s Mission• Recommend and help launch tactical (near-term) plans to minimize

expected job losses after quota elimination.• Recommend strategic (long-term) initiatives to transform

apparel/textile industry to allow El Salvador to eventually become one of the “winner” countries in the new global order.

The challenge is daunting but not impossible if: • All parties collaborate: private sector, banking community

government and external catalysts; and• Focused action is taken immediately.


2004 TASP - Tactical (Near term) Initiatives

• Data Collection & Impact Study – Basic industry data has been gathered, albeit with great difficulty. Further improvement of the data base is required to properly support the industry.

• Banking and Finance – The domestic banking industry appears to have frozen lending to the apparel/textile sector. Presentations have been made aimed at regaining lender support for the sector. Their active participation is crucial for survival of the industry.

• Textile Investment – WWA has worked closely with Proesa tohelpattract textile investors andfinalize textile deals in the pipeline. Bringing additional targeted textile investment to El Salvador is critical to to future success.


2004 TASP - Tactical (Near term) Initiatives

• Academic Infrastructure – A plan has been developed to upgrade curriculum and technology to provide full-package training and to develop a world-class middle management educational program.

• Achieving Speed-to-Market –Significant efforts are underway through TASP Task Force Committees in the areas of testing labs, compliance certification, and freight forwarder/shipper collaboration. All of these elements are critical to achieving speed-to-market.

• Logistics – WWA has supported efforts to lobby the US government forin-country customs clearance in El Salvador. Such an arrangement is unprecedented and exists nowhere else in the world outside agriculture. However, this effort must be aggressively pursued as it could provide a massive boost to employment and position El Salvador as the regional service center for many industries.


2004 – TASP Tactical (Near term) Initiatives

• Virtual Vertical Company (VVC) – This concept has been developed and is being piloted to take China’s apparel/textile “cluster” concept to next level and aims to maximize geographic and trade preference advantages. VVC includes fabric /trim suppliers, full package manufacturers and the customer in a collaborative partnership. The VVC pilot must be replicated.


2004 Task Force Committee Leaders

• SWAT Team – Yolanda de Gavidia, Oscar Hernandez• Banking/Finance– Nicola Angelucci• Logistics – Jose Roberto Bodewig• Academic/Service Center – Joaquin Samayoa,

Jesus Hector Rosales• Testing Standards & Certification – Carlos Roberto Ochoa• Marketing/Textile/Apparel Strategy – Patricia Figueroa,

Juan Zepeda• Improving the Business Environment – Blanca Imelda de Magana,

Mauricio Lopez


And, as predicted, the industry did change


There were Some Winners and Some Losers

Source: OTEXA


In 2004, three countries in CAFTA ahead of El Salvador; in 2010, only one

Guatemala

El Salv

ador

Honduras

Nicarag

ua

Dominican Republic

Costa Rica

$0

$500,000,000

$1,000,000,000

$1,500,000,000

$2,000,000,000

$2,500,000,000

$3,000,000,000

200420072010

Source: OTEXA

Apparel Exports to the US


The BIG Winner was China CAFTA vs. ASEAN, CHINA, INDIA Textile and Apparel Exports to US in US$

Source: OTEXA


But, China is changingChina: the 800 pound panda for international sourcing, dominated the market from 2004 – 2010 but is now a volatile region…• Social – large emerging middle class• Driving internal consumption• Putting demands on production capacity available for export

•Political – government subsidies, raw material through end products•Economic – China’s mercantilism and currency manipulation•Business Climate - Union organizations for the first time • Inflation and operating costs rising more than other regions• Forcing Chinese companies to relocate production to the interior • With the penalty of less skill, longer shipping times, higher freight costs

• China uncertainty makes buyers nervous; creating desire to balance risk• And, concerns about social responsibility and environmental sustainability remain


India has its difficulties as well

India: population growing rapidly, will surpass China by 2030 ….

• Infrastructure struggling to support growth• Very well educated and aggressive in the business world• Lacking Chinese production processes, efficiency and discipline (so far)• And, some limits on Full-Package (compared to China) • Long lead-times, no Quick Response • Very high minimums

• Concerns about environmental sustainability and human rights, even greater than China


Asean Region Gaining Steam

Asean: (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam)

• Vietnam is the “superstar”• Complex high skill set production• Very strong government support• In some cases beating Central America with low costs including air

freight to US• Cambodia seems to be coming back• Indonesia continues to be strong in footwear and furniture• All of the above, preclude small minimums and quick response


CAFTA Trends, US Apparel Imports

Source: David Birnbaum Report, October 2011


An Ignored Opportunity, Europe

Source: UNCTAD

CAFTA/DR Not a Serious Sourcing Destination for the EU (yet)


The Technical Performance Apparel Cluster In El Salvador Should Appeal to Europe

Technical Fleece jacket

Biking Short Padded Liner

“The stakes have never been higher

and the need for technology never greater

as the sourcing landscape continues its evolution.”

(Cover of Apparel magazine, Fifth Annual Global Sourcing Report, August 2011)


In Case you Haven’t Noticed, Today’s Environment is Challenging


In Today’s Market

If you are standing still(and this includes “business as usual”)

You are losing ground


Reaching your Destination May Mean Many Curves


Or, if you are lucky, a straight path


But, try to avoid going in circles


And, sometimes you need to be daring!!

Courtesy of Juan Zighelboim, TexOps


The Sourcing Evolution= Opportunity

• Both North American and European buyers are trying to balance their sourcing risk.

• There is definitely more “prospecting” in Central America (but, so far, not a large increase in orders).

• If Central America takes advantage of lessons learned the past ten years and provides the products and services required to compete globally, the future is optimistic even when faced with global economic uncertainty

• But, there is only a window of opportunity, maybe two or three years to secure new and lasting relationships

• El Salvador is better prepared than most CAFTA countries to seize the opportunity but not without a coordinated effort


Perceived Sourcing Risk Factors

0%10%20%30%40%50%60% 2010 2011

Most Significant Risks to Sourcing Strategy

Source: KSA Global Sourcing, Apparel Magazine, August 2011


The Balancing Act of Industrial Success

Industrial success in a country requiresa delicately balanced collaboration between Management, Labor and Government, analogous to a threelegged stool

• Relatively stable with three legs• Precarious with two legs• Almost certain to collapse with only one leg


Management, Labor, Government Each play a delicate role

• Management – Responsible for providing strategy, guidance, finance

•Labor – Responsible for production, delivery and support of the product, ideally as a team with Management

• Government – Responsible for social infrastructure, health, education, roads, public safety and for promoting industry sectors


And one more Essential “Player”

Industrial success in a country requires a delicately balanced collaboration between Management, Labor and Government and collaboration with other countries/companies in the region

CAFTA must be sold as a region


Near-Term Initiative Execution Communication and Collaboration• Must be a more conscious effort to improve communication and

collaboration between all interested parties (government, private sector, other impacted organizations such as banking community)

• Task Forces and Sub-committees established. Need to be maintained, energized

Momentum, Tell the “story”• Industry is either declining (disappearing) or re-building. Momentum is

powerful force in stemming decline of companies and jobs but it must bereal and the story must be told.

• Industry initiatives (and progress) must be marketed internally and in customer countries (US, Canada, Western Europe, South America)


Near-Term Challenges

Challenges• Funding – More information on what is available and how

to get it needed (sector needs an education). • Vision/Commitment – Needed from all involved parties but

primarily from private sector. Must see and act beyond “day-to-day”.

• Outside “catalyst” probably required to bring all the “players” together but involvement of key leaders is critical.


Thank you …..

Walter T. WilhelmChairman/CEO

Walter Wilhelm Associates LLCTele: 801.582-1967

Email: [email protected]

mailto:[email protected]