While China still dominates sourcing, the tide is slowly turning to alternative regions. It’s a well-documented trend that as Chinese labor costs grow and its labor market shrinks, brands are seeking options to support their production. In addition to those pressures, the West Coast ports slowdown at the start of 2015 pushed more companies to diversify where and how they make their products, with 2014 the fifth year in a row that exports from China declined.
“The strategy of China plus one, two or three [locations] has been a big one for footwear,” said Matt Priest, president of the Footwear Retailers & Distributors of America. “Each of these other countries is interesting and has its own benefits and challenges, but none can equal Chinese capacity and output.”
While Vietnam and Indonesia remain top-tier secondary areas to source footwear, the U.S. market continues to trend toward smaller runs and custom production, making other locales more inviting as well. Here’s a look at four emerging spots to watch.
Cambodia is riding the wave of the Vietnam boom. The country exports through the Port of Vietnam, making it attractive to businesses that are familiar with Vietnam, and it’s also close to China for ease of access to imported raw materials.
The strong apparel industry in Cambodia, along with neighboring Bangladesh and Myanmar, means there’s some industry infrastructure, and the population of just under 16 million makes labor readily available.
Cambodian exports to the U.S. more than doubled last year, topping 13.6 million pairs, though experts are concerned that the country is quickly approaching its capacity. “Myanmar, Bangladesh and Cambodia still rely on the input infrastructure of China for the raw materials to produce the shoes,” said Priest. “While that creates a transit-time issue and supply-chain delays, that’s just something you’re going to be doing in countries that are close to China.”
Another challenge for production in Cambodia is that it doesn’t have a duty benefit, as other secondary sourcing options in the area do, and it’s not slated to be an inaugural member of the Trans-Pacific Partnership trade agreement.
Ethiopia has established itself as the dominant sourcing player in Africa, thanks to a concerted effort by the government and outside investors from China and Korea. The country had its sixth consecutive year of growth for footwear sourcing in 2014.
With this spring’s 10-year renewal by Congress of the African Growth & Opportunity Act, which encourages U.S. investment on the continent through tax and duty benefits, many companies will likely start eyeing the sub-Saharan nation.
Infrastructure has been developed in combination with the Ethiopian government and Chinese factory investors, resulting in a railroad line connecting the port of Djibouti and the capital city Addis Ababa. The railroad is expected to start running by early 2016. As more big-name players like Caleres Inc. expand production to Ethiopia, experts expect the country to become increasingly important as a sourcing location.
“The AGOA act being renewed by Congress means duty-free access for another 10 years, so that provides the certainty companies need [to invest],” said Nate Herman, VP of international trade for AAFA.
India — which has a vast number of tanneries and an established relationship with the European footwear industry — has been trying to become a more competitive player for decades. But sizable challenges remain.
“On paper, India looks like the replacement for China,” said Priest. But quality issues, delays in raw-material imports and infrastructure troubles have stymied development. “I think it can change. The ‘Make it India’ initiative [by the government] will help drive change in the supply chain and develop more efficiencies.”
The country lags behind when it comes to ease of producing plastic shoes. But like China, it has a young workforce, and the government push for development and duty benefits fueled a 10 percent jump in U.S. footwear imports from India in 2014, according to the U.S. International Trade Commission (USITC), which makes India the fourth-largest market for footwear production.
“One of the reasons India hasn’t been attractive is because it wasn’t set up to do large orders, but as the [U.S.] market turns in that direction [of small- er orders], it makes more sense,” said Herman.
In the past few years, companies such as Wolverine, Florsheim, Caleres and Kenneth Cole have expanded some production to India and have started working with established factory company Tata International, which has produced footwear for Zara and other fast-fashion European labels.
The Dominican Republic has become a significant option for U.S.-based firms, not just because of the country’s proximity to the States, but also because of the availabil- ity of leather and duty-free status for the imports, thanks to the Central America Free Trade Agreement.
In 2013, footwear exports from the Dominican Republic grew 4 percent over the previous year, according to the USITC, resulting in 10 million total pairs for the year. “The benefit is that you can do small runs, quick turnarounds and it’s close to home,” Herman said. For a shoe to qualify for duty-free status, however, a certain percentage of its components must be sourced from within the Dominican Republic, and the limited availability of those raw materials in the country remains a challenge.