Forotex 2011 Camtex Walter Wilhelm


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Forotex 2011 Camtex Walter Wilhelm

  1. 1. Forotex Strategy Meeting San Salvador Apparel/Textile Positioning & Opportunities November 16, 2011 Walter Wilhelm Walter Wilhelm Associates 2011 1
  2. 2. 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 Walter Wilhelm Associates 2011 2
  3. 3. U.S. Garment Imports: El Salvador U.S. Garment Imports: El Salvador 2,000 3.5% 3.0% 1,600 Market Share 2.5%$ Millions 1,200 2.0% Imports 1.5% Market Share 800 1.0% 400 0.5% 0 0.0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Year Source: TASP Report 2004 Pag e3
  4. 4. Product Mix El Salvador Garment Exports By Product 100% 90% 80%PCT M arket Sahre 70% Other 60% Cotton Pants 50% 40% Underwear 30% T-Shirts 20% 10% 0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2,004 YearSource: TASP Report 2004 Page 4 Walter Wilhelm Associates 2010 4
  5. 5. 2004 - Fundamental Industry ChangeThe 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. Walter Wilhelm Associates 2010 5
  6. 6. 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. Walter Wilhelm Associates 2010 6
  7. 7. 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. Walter Wilhelm Associates 2010 7
  8. 8. 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. Walter Wilhelm Associates 2010 8
  9. 9. 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 for in-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. Walter Wilhelm Associates 2010 9
  10. 10. 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. Walter Wilhelm Associates 2010 10
  11. 11. 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 Page 11 Walter Wilhelm Associates 2010 11
  12. 12. And, as predicted, the industry did change Walter Wilhelm Associates 2010 12
  13. 13. There were Some Winners and Some Losers Source: OTEXA Walter Wilhelm Associates 2010 13
  14. 14. In 2004, three countries in CAFTA aheadof El Salvador; in 2010, only one Apparel Exports to the US $3,000,000,000 $2,500,000,000 $2,000,000,000 $1,500,000,000 $1,000,000,000 2004 $500,000,000 2007 $0 2010 Source: OTEXA Walter Wilhelm Associates 2010 14
  15. 15. The BIG Winner was ChinaCAFTA vs. ASEAN, CHINA, INDIA Textile and Apparel Exports to US in US$ Source: OTEXA Walter Wilhelm Associates 2010 15
  16. 16. But, China is changingChina: the 800 pound panda for international sourcing, dominated the marketfrom 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 Walter Wilhelm Associates 2010 16
  17. 17. India has its difficulties as wellIndia: 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 Walter Wilhelm Associates 2010 17
  18. 18. Asean Region Gaining SteamAsean:(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 Walter Wilhelm Associates 2010 18
  19. 19. CAFTA Trends, US Apparel Imports Source: David Birnbaum Report, October 2011 Walter Wilhelm Associates 2010 19
  20. 20. An Ignored Opportunity, Europe CAFTA/DR Not a Serious Sourcing Destination for the EU (yet)Source: UNCTAD Walter Wilhelm Associates 2010 20
  21. 21. The Technical Performance Apparel ClusterIn El Salvador Should Appeal to Europe Technical Biking Short Fleece jacket Padded Liner Walter Wilhelm Associates 2010 21
  22. 22. “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)
  23. 23. In Case you Haven’t Noticed,Today’s Environment is Challenging Walter Wilhelm Associates 2010 23
  24. 24. In Today’s Market If you are standing still (and this includes “business as usual”) You are losing ground Walter Wilhelm Associates 2010 24
  25. 25. Reaching your DestinationMay Mean Many Curves Walter Wilhelm Associates 2010 25
  26. 26. Or, if you are lucky, a straight path Walter Wilhelm Associates 2010 26
  27. 27. But, try to avoid going in circles Walter Wilhelm Associates 2010 27
  28. 28. And, sometimes you need to be daring!! Courtesy of Juan Zighelboim, TexOps Walter Wilhelm Associates 2010 28
  29. 29. 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 Walter Wilhelm Associates 2010 29
  30. 30. Perceived Sourcing Risk Factors Most Significant Risks to Sourcing Strategy 60% 2010 2011 50% 40% 30% 20% 10% 0%Source: KSA Global Sourcing, Apparel Magazine, August 2011 Walter Wilhelm Associates 2010 30
  31. 31. The Balancing Act of Industrial SuccessIndustrial success in a country requiresa delicately balanced collaborationbetween Management, Labor andGovernment, analogous to a threelegged stool• Relatively stable with three legs• Precarious with two legs• Almost certain to collapse with only one leg Walter Wilhelm Associates 2010 31
  32. 32. Management, Labor, GovernmentEach 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 Walter Wilhelm Associates 2010 32
  33. 33. And one more Essential “Player”Industrial success in a country requires a delicately balancedcollaboration between Management, Labor and Government andcollaboration with other countries/companies in the regionCAFTA must be sold as a region Walter Wilhelm Associates 2010 33
  34. 34. Near-Term Initiative ExecutionCommunication 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, energizedMomentum, 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 be real and the story must be told.• Industry initiatives (and progress) must be marketed internally and in customer countries (US, Canada, Western Europe, South America) Walter Wilhelm Associates 2010 34
  35. 35. Near-Term ChallengesChallenges• 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. Page 35 Walter Wilhelm Associates 2010 35
  36. 36. Thank you ….. Walter T. Wilhelm Chairman/CEO Walter Wilhelm Associates LLC Tele: 801.582-1967 Email: Walter Wilhelm Associates 2010 36