California Apparel News

GUATEMALA CITY, Guatemala—Inside one of Guatemala’s largest apparel factories, hundreds of nimble workers stitch colorful knit shirts to the rhythm of Latin music interspersed with rock ’n’ roll tunes.

The music is selected by Julio Chavez, a professional disc jockey who sits in a semi-dark, soundproof studio overlooking the production floor. Surrounded by mountains of compact discs, the deep-voiced spinmeister breaks into the music broadcast over a loudspeaker to send out a birthday greeting to a worker or to praise one of the sewing lines for doing a particularly outstanding job that day.

Six months ago, Chavez was brought in to increase production at Shin Won Guatemala S.A., a Korean-owned factory using out-of-the-ordinary methods to compete with China now that apparel and textile quotas for the 148 members of the World Trade Organization have been lifted.

Shin Won Guatemala—which sews garments for Wal-Mart Stores Inc., Target Corp. and Kmart—is just one of dozens of Central American factories mounting an uphill struggle to remain competitive with Asian factories, where workers often earn two-thirds less than their Central American counterparts.

Many factories in the region had been counting on the Central American Free Trade Agreement to be in place by now so the area could send goods quota- and duty-free to the United States. Duty-free status is one of the few perks that give Central America a leg up on Asian factories still subject to import duties.

But CAFTA has been bogged down by uncertain approval in the U.S. Congress. Opposition is being mounted by the sugar and textile industries in the South as well as by labor unions throughout the United States.

Since the beginning of the year, 20 of Guatemala’s 220 apparel factories have closed while three new factories have opened, according to a representative of Vestex, Guatemala’s apparel and textile exporters’ commission.

Guatamala is the 16th-largest apparel supplier to the United States. For the 12-month period ending Feb. 28, 2005, Guatemala exported $2 billion worth of apparel to the United States. About 41 percent of that was knit shirts, and 22 percent was cotton pants and shorts.

China’s growing importance in apparel manufacturing was evident at the 14th annual Apparel Sourcing Show, held May 3–5 at the Grand Tikal Futura Convention Center in Guatemala City.

This year, participation in the show decreased slightly. Only 230 booths were set up on the conference floor, compared with 245 booths last year, said Liggia Barrios, the show’s promotion and marketing manager.

Reclaiming lost business

Those who did attend the show were looking to replace the business that has gone to Asia. One of those was Michael Patillo, an American who moved to Guatemala nearly 20 years ago. He owns the Central American Sourcing Agency, a Guatemalan-based company that does production for such Los Angeles labels as juniors line Self Esteem.

In recent months, Patillo has seen a large chunk of his business wither away. “During the first six months of 2005 is when our business started to flatten. People started placing orders with China,” said the veteran apparel industry expert, who helped Ocean Pacific set up its sourcing operations in Guatemala in 1986. “Right now we are doing quick-turn items that take six to eight weeks to do from order to warehouse.”

Patillo had several meetings set up with U.S. manufacturers looking to hedge their bets against potential safeguard measures, or temporary quotas, the Bush administration might impose on 12 apparel and textile categories produced in China.

Jose Denys, the vice president of international sales for Rayones De El Salvador, which produces knits and wovens in Ilopango, El Salvador, experienced a similar downturn in business that started last November. The company’s woven business has declined 30 percent and its knit production has decreased 40 percent, Denys said. A large chunk of that business disappeared when Sara Lee Corp., a mega-corporation based in Chicago, moved its Hanes underwear business from El Salvador to Asia. Sara Lee used to buy 40 percent of Rayones De El Salvador’s knits.

The company, however, has seen a flurry of business return in the last three weeks because of the threat of safeguard measures.

Safeguard measures prompted Ken Berger, owner of World Tex, a sourcing company based in Woodland Hills, Calif., to check out Central America for the first time. Currently 100 percent of his full-package business is done in Asia, with 90 percent of that being completed in China. “I don’t want to keep all my eggs in Asia,” said the businessman, who had set up appointments with a number of Central American manufacturers.

California turnout

Even though CAFTA has not passed, several California textile and accessories companies were at the Apparel Sourcing Show looking for new customers. Many believe there is business to be done under the previous trade agreement, the Caribbean Basin Trade Partnership Act of 2000.

CBTPA allows apparel made in Central America with U.S. yarns or fabrics to return to the United States duty- and quota-free. Also, knitwear made in Central America from U.S. yarns gets a green light for duty- and quota-free status.For five years, this agreement has helped many U.S. textile businesses survive. More than 25 percent of all U.S. fabric exports and 40 percent of all U.S. yarn exports go to Central America and the Dominican Republic, according to the American Apparel & Footwear Association in Washington, D.C.

The trade pact has been a boost for Antex Knitting Mills, a decades-old textile company in Los Angeles that set up a booth for the first time at the Apparel Sourcing Show. The company ships 30 percent to 40 percent of its knit fabric production to Central America. Another 20 percent to 30 percent goes to Mexico, said Aaron Tavdi, the company’s vice president of sales.

Since January, Tavdi and his crew have been increasing their focus on Central America by making monthly visits to scout out new clients. “Right now, El Salvador has the biggest potential,” he said.

Executives from U.S. Dye and Finishing, which has the capacity to produce 120,000 pounds of knit fabric a day at its Garden Grove, Calif., facility, were also looking for new clients to round out business. The plant is working at 75 percent capacity, said President Michael Chang, who is gambling on Central America to fill the other 25 percent. U.S. Dye concentrates on quick-turn fabrics and premium fabrics, including Tencel and Modal, which are difficult to dye and finish.

Another Southern California company at the show was Tag-It Pacific Inc., which distributes zippers under its Talon brand name and specializes in the distribution of trim items.

Pilar Charo, president of Tag-It’s Latin American division in Mexico, said his company believes there is growth potential for the region and wants to help create cluster manufacturing, where various inputs into clothing—such as fabric, trim and other items—are stored or manufactured near factories. This would allow apparel factories to turn their goods faster.

Tag-It plans to open a zipper manufacturing facility this year in Guatemala to service Central American manufacturers.

But some California companies are worried about the region’s future. Twin Dragon Marketing Inc., based in Gardena, Calif., has a joint-venture operation in Nicaragua to dye and finish cotton woven fabrics brought from Asia. The plant was built to capitalize on CAFTA.

“If CAFTA doesn’t pass, I won’t be here next year,” said Bo Dean, Twin Dragon’s senior vice president of sales and marketing, who had a booth at the Apparel Sourcing Show. “If CAFTA does pass, I’ll be one of the most popular people around.”