Whenever the apparel supply chain is staring down some sort of upheaval—whether it’s the Tranche four tariffs, fires in Bangladesh or China wage hikes—many decide that it’s a good time to take another look at sourcing in Central America.
The textile and apparel industries have a long history in Central America, dating back to the early 1900s. The region has a population of approximately 60 million people and has started to assert its own identity especially in sectors like textiles, footwear, and apparel.
Central American countries are closer to each other, which has decreased transportation costs significantly. Almost all the countries are five days away from each other.
The CAFTA-DR trade agreement between the US and Honduras, El Salvador, Nicaragua, Guatemala, and the Dominican Republic facilitates the apparel industries to grow and expand. The manufacturing units in the region also accept smaller orders. Also, business prefers state-of-the-art technology for their companies.
The textile business in Latin America is projected to register a CAGR (compounded annual growth rate) of about 3.8% within the forecast interval (2019-2024).
Latin American countries Colombia, Brazil, and Peru have significant textile-producing companies.
- Peru is South America’s largest clothes exporter. Also, it is a source of exceptional raw materials such as Pima, Tangüis cotton and particularly alpaca fiber.
- Brazil, a BRIC (Brazil, Russia, India, China) nation, has huge development potential in its fabric supply chains with organic and artificial fibers, but in recent years its economic growth has stalled.
- Colombia has recently become more politically stable; the city of Medellin is becoming a major fashion center. It accounts for 70% of garment production and 38% of textile production.
Central American countries (CAFTA-DR) – Costa Rica, Dominican Republic, and Nicaragua have the greatest potential for development. El Salvador, Guatemala, and Honduras are plagued by civil unrest and political instability.
Opportunities for Manufacturers
Latin America and the Caribbean are emerging as potential growth markets, driven by the rising national demand, economic development, and power. Leading investment options include the Dominican Republic, Mexico, Argentina, Colombia, Chile, and Uruguay. Brazil, Venezuela, Peru, Ecuador have investment potential but serious problems to solve.
Spending on clothes and apparel, in the Latin American area, Revenue is expected to show an annual growth rate (CAGR 2020-2024) of 6.5%. More overseas brands are entering the marketplace such as Tommy Hilfiger and Nike.
During the previous ten years Colombia, the nation’s textile business achieved a compound yearly growth rate of 4.2 percent, closely following Brazil and Argentina.
Central and Latin American textile companies have full access to international markets. There is ever-increasing funding for start-ups. The government is backing these organizations and which allows them to compete with the world’s top textile manufacturers in terms of quality and cost. Yet there are many challenges faced by these companies.
There has been a minimum wage dispute in the textile sector in the past; however, the prices haven’t drastically increased. Increased productivity by skilled labor has kept the prices level. Prices have been slowly increasing which needs to be balanced by more efficient production.
Most Latin American countries are dependent on other nations for raw materials, generally from Asian countries. This is a hurdle for the American countries to overcome.
American countries are competing against nations like India, China, and Bangladesh, which are known for low wages and good quality apparel.
The new import restrictions from the USA are also affecting Latin America Industries.
The struggle of Latin American countries to figure out their position, globally and particularly the US-dominated western hemisphere is evident in the tactics used by clothing and textile manufacturers.
The intra competition among Central American countries like Nicaragua, Costa Rica, Guatemala, Dominican Republic, El Salvador, and Honduras are passionately competing with each other to dominate exports to the USA.
World events are changing rapidly. Central and Latin America nations will need to develop strategies to overcome the difficulties caused by Covid-19, worldwide financial markets, the oil-crisis, and the general panic in global affairs.