Buyers in the European Union (EU) have been exploring near-shoring alternatives by reduced trade duties in countries such as Bulgaria, Egypt, Morocco and Turkey, which are already key garment suppliers to many European brands.
However, a new research brief by the International Labour Organisation (ILO) explains that the advantages of near-shoring might be limited due to manufacturing capacity constraints in many such countries.
Near-shoring, a recently popular practice in the post-pandemic world, is the re-emergence of garment manufacturing closer to the major markets of Europe and North America.
The revival of near-shoring in the United States is the result of rising trade friction with China and multiple supply chain disruptions that occurred during the pandemic, allowing US-bound garment manufacturing to come closer to parts of Central America in the post-pandemic period.
Based on a comparison of ‘landed costs’ for garments manufactured in Bangladesh, China and Mexico, the benefits of relocating production despite long-term trade agreements with Guatemala, Haiti, Honduras, Mexico and Nicaragua amount to a negligible benchmark.
Capacity is a common challenge in near-shoring for both, the EU and Central America, particularly due to the limited infrastructure for fabric production. While experts have suggested that US buyers might seek opportunities to explore the region after the pandemic, factors like availability of raw materials shall continue to loom large benefits to the Asian manufacturers.
Even in the post-COVID era, China’s dominant inputs in the supply chain and consistently low-wage labour supplies in parts of Southern and Southeast Asia critically contribute towards the geography of the sourcing industry.
Nevertheless, for goods such as high-quality clothing and footwear with highly automated production systems, a rise in near-shoring after the pandemic is predicted, despite existing capacity constraints near the US and EU markets.
The rise of near-shoring is also due to the shift towards circular business models as sustainable alternatives, rather than the linear ‘take-make-dispose’ production systems.
Manufacturing hubs like Asia will, however, continue production of essentials, such as socks and underwear, owing to fewer speed imperatives.
The research guide by ILO can be referred to by following the link below.