Guatemala on Tenterhooks as Vietnam Targets Export Surge

Vietnam’s lead and growing market share of U.S. apparel imports is causing panic in Guatemala, Honduras, El Salvador and Nicaragua.

“They have found a ridiculously cheap factory in Vietnam, one that is 40 percent cheaper than us,” sighed Martin Hong, sales and production director at Guatemalan apparel factory Elim, which is, like most other of the country’s manufacturers, scrambling for ways to beat the fast-growing Asian garment exporter, now tackling $200 billion in exports by 2035. WWD reports

“We cannot fight with them, especially in price. We need to focus on speed to market and better fashion,” he said.Hong said Elim, which has Korean owners like many other Guatemalan garment suppliers, has frozen plans to double production to two million pieces annually to meet U.S. clients’ surging demand, which has Guatemala’s 220 top apparel factories rushing to meet orders.

Fresh off a New York flight where Hong met a New York-based client, which he would not reveal due to confidentiality agreements, he said Elim will wait before boosting output to see if its Vietnamese rival — Fashion Garments or FGL — can make better products, although he said the firm is seeking other potential customers.

“They [the client] have a very cheap factory in Bangladesh that makes basic T-shirts but has limited capacity. They said the Vietnamese plant can produce just as cheaply but is a much bigger and organized company.”

Hong’s concerns underscore how Vietnam’s lead and growing market share of U.S. apparel imports is causing panic in Guatemala, Honduras, El Salvador and Nicaragua, where clothing manufacturing accounts for the lion’s share of economic growth.

Membership in the newly struck Comprehensive and Progressive Partnership — an 11-country free trade accord replacing the failed Trans-Pacific Partnership — is expected to further boost Vietnam’s reign in the global apparel making business.In 2018, the Southeast Asian country is set to export $34.5 billion in textiles and apparel, fueled by new technology investments to shorten delivery times and efforts to tackle new markets in Russia and Australia. By 2035, there is potential for exports to reach $200 billion, executives from Vietnam’s National Textile and Garment Group Vinatex said recently.

That compares with just $8.2 billion for Central America, which sells its garments to the U.S. under the Dominican Republic-Central America Free Trade Agreement free-trade agreement, which has brought enormous progress but could benefit from more flexibility to access the U.S. market, according to Guatemalan executives.

Hong, who spoke to WWD on a factory visit organized by Guatemalan apparel lobby Vestex during the latest Apparel Show trade fair, said the country must step up technological and labor investments to compete against Vietnam.Large sums to boost investment in knit and synthetic fabric production machinery are urgently needed to help the nation win new fast-fashion customers, he said.

For instance, Elim and others are looking to bolster production of hacci, a loopy, open-knit fabric increasingly used to make women’s apparel and in rising demand from American customers.

Using the slogan “Happy People, Joyful Work,” the $30 million Elim is mainly a T-shirt and hoodie supplier, notably for Tommy Hilfiger, Calvin Klein’s children’s labels and Guess. With six in-house production lines and 320 workers, it boasts manufacturing compliance certificates from VF Corp., Walmart, PVH Corp., Costco and Disney, which Hong said give it an edge over FGL or other Asian players that may produce cheaper but at what he claimed are lower-quality rates.

Renato Lira, quality and costs manager at Guatemalan thread and fabric maker Liztex, agreed big investments are needed to improve delivery times, which he said are much slower than in Asia, especially when it comes to new product development.

“Delivering a new product to a [U.S.] brand’s door can take a week in China but three in Guatemala,” Lira told WWD during the fair, which is expected to generate over $100 million in sourcing contracts this year when Guatemalan exports could more than double from a forecast $1.6 billion last year.Guatemala and Central America “need leaner companies who can work faster,” added Lira, whose company is a major thread producer and part of an industrial group that owns the Grand Tikal Hotel and conference center where the exhibition took place.

He said most Guatemalan firms are raising investment in new textile machinery as well as in bigger planning and research departments and modernizing enterprise software.During the four-day exhibition, which boasted 130 stands, Chinese and German dyeing and sampling machine brands Fong and Thies, respectively, (and other general machine suppliers), chalked up big orders from producers looking to streamline their factories, added Lira.

Vestex’s president Alejandro Ceballos said Chinese investors are looking for land to set up five new synthetic yarn mills, notably to make polyester microfiber. This is to help meet a 100-million-ton regional shortage of technical/fashion fabrics which U.S. labels must import from China at higher, 30 percent-plus duties to assemble garments in the DR-CAFTA region.Ceballos expects much of that production will go to Guatemala, which has cheaper electricity costs than Nicaragua or Honduras but higher wages.“Guatemala is becoming a bigger textiles maker and less of an apparel hub,” he said.

“Our 220 factories are maxed out and investment is moving to Nicaragua, Honduras and El Salvador where fixed salaries are 50 percent lower than ours.”Guatemala is already on the job: For the first five months of 2018, it exported 28 million tons of synthetic fabric and some denim to help other Central American countries make clothes for export north of the border, up 36 percent from the same period last year, according to Ceballos.