How Central America garment sourcing measures up
The Central American garment industries in El Salvador, Guatemala and Honduras must continue investing in growth and ensure factories are safe and ethical if they are to compete effectively against Vietnam for access to the US market.
A new research report by just-style, 'Central America strategic sourcing review – a focus on Guatemala, El Salvador and Honduras', takes a look at how the three countries measure up as sourcing destinations. It also considers whether they will remain competitive once the Trans-Pacific Partnership (TPP) Agreement – which includes Vietnam – comes into effect.
Central America has always been an interesting destination for investors in the garment sector. It benefits from preferential access into the US market through the CAFTA agreement which, in 2009, was extended to include Dominican Republic.
Additionally, proximity to the US market, lower labour costs, competitive tax laws, the growth of free trade zones and several investment incentives in the region have all helped maquilas to become one of the key export revenue generators across the Central American region.
However, under the proposed TPP trade pact, Vietnam is expected to become a direct competitor to Central American countries for access to the US market.
At present, Guatemala, El Salvador and Honduras are the main exporters of garments from Central America. More than 90% of these exports go to the US market. While some experts in the region are of the opinion that the TPP will not have an impact on trade with Central America, others are convinced that a significant quantity of business from the region will shift to Vietnam.
El Salvador, Guatemala and Honduras each have plans for growth. Guatemala is keen to focus on offering flexible, value added innovation, product design and development services. El Salvador's focus is to position itself as a 'full package' vertically-oriented destination with big factories, while Honduras is looking to expand its offer into new markets and implement its National Economic Development Project 20/20.
The report, however, discusses compliance and points out that while the bigger factories in the three regions have several certifications and mechanisms in place to address this area, almost none have a transparency programme or gender programme. Several have WRAP and CTPAT, as required by some US buyers, but the smaller factories, the report says, are far from having any forms of certifications.
"They will need to address safety issues as well as building safety urgently or make the decision to move into new premises," report author Rupa Ganguli explains. "Higher end fashion entrepreneurs are very aware of ethical standards and they are mostly set up as per international norms. But the mainstream apparel manufacturers still need to address many of these issues to avoid potential accidents or health hazards. This will become more important over the next five years as competition is expected to intensify."