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ECRU - Global Sourcing Strategy

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Picha Choo

This document outlines Ecru's global sourcing strategy. Ecru is a luxury women's clothing brand based in New York that values aesthetics, creativity, fairness and integrity. To produce their line of basic tops, Ecru researched manufacturing facilities in 5 countries - India, China, Sri Lanka, El Salvador and the Philippines - to determine the best sourcing location based on factors like cost, quality and ethics. The document analyzes each country's textile industry and potential suppliers before developing a placement strategy to make the best sourcing decision.

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1 GLOBAL SOURCING STRATEGY Courtney Gill Jordan Causey Madison White Picha Choopojcharoen Teng Ma
2 3 ABSTRACT “Simplicity is the ultimate sophistication” Leonardo da Vinci At Ecru, we strive to provide the high quality, cutting edge garments to our consumers. Our company is based solely on social responsibility and code of ethics. Our basics line will be available all year round and is perfect for the trendy customer looking to make a smart addition to their wardrobe, while still standing out of the crowd. Through much research in sourcing and manufacturing we have determined the values in what Ecru is specifically looking for. In order to meet our margins and keep our costs down we have spent much time researching facilities all across the world in order to determine which will best suit our needs. These countries include, India, China, Sri Lanka, El Salvador and the Philippines. As an up and coming company it is very important to minimizeourrisks andultimately increaseouroverallopportunities for both our company and our supplier. We have developed a placement strategy that includes many factors such as country and supplier analysis and ranking, costing, negotiations, and the evaluation and analysis of the strategy development factors. This strategy will aid us in our ability to make the best decision when it comes to the manufacturing of the Ecru Basics garments.
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6 7 TABLE OF CONTENTS INTRODUCTION STRATEGY DEVELOPMENT PROCESS COUNTRY ANALYSIS SUPPLIER ANALYSIS COSTING Company Profile 8 Who We Are 10 Our Products 12 Target Market 14 Why Develop a Strategy? 16 Values 18 Sourcing Guidlines 21 Products, Volumes, & Seasons 22 Sales Plan 24 Countries’ Highlights & Textile Industies 27 Sri Lanka 28 El Salvador 42 India 52 Philippines 60 China 72 SWOT Analysis 79 Country Ranking 84 Suppliers’ Highlights & Textile Industies 92 Sri Lanka 93 El Salvador 99 India 104 Philippines 108 China 111 Suppllier Ranking 116 Preliminary Costing 122 Initial Costs vs Preliminary Costs 124 STRATEGY DEVELOPMENT SOURCING STRATEGY COMPARISON OF FINAL COSTING CONCLUSION APPENDIX Sales Plan 126 China 128 Sri Lanka 132 El Salvador 135 The Future of ECRU 139 China 141 Sri Lanka 144 El Salvador 147 Placement Strategy 150 Preliminary Costing vs. Final Negotiatiated Prices 153 Conclusion 157 Cost Sheets 161 Tech Packs 167 Sourcing Guidelines 213 Supplier Emails 220 Bibliography 234
8 9 Vision Enhancing Life with Grace and Simplicity Mission To be the ultimate house of simple sophistication and style through the creation of desire now and forever Values Aesthetic Competence Creativity Diplomacy COMPANY PROFILE Fairness Integrity Perseverance Teamwork ECRU is a high-end women sportswear retailer with its flagshipboutiqueinSoHo,NewYork.Weprovidewomenhigh- quality sportswear with minimal, natural, and sophisticated aesthetics and styles to our customers. ECRU also has an extension line called “ECRU Basics” which provides basic yet high quality garments throughout the year. ECRU incorporates its values throughout the company and its products since the main proirity is to assure our customers receive the best quality and fashionable outfits that reflect their lifestyles and identities.
10 11 WHAT WE STAND FOR ECRU is a French word for “unbleached“ or “raw”. It also means a shade of light greyish-pale yellow or beige-like tones. This type of color appears on raw and natural yarns and fabrics. The name reflects the company’s philosophy and core values in which we consider the pure quality and rawness throughout the products. That is why our designs and aesthetics are rather simple yet sophisticated in craftmanship. Ecru is the signature color palette through out our collections and packaging, which also makes us stand out and distinguishes our customers from other leading brands. ECRU also concerns about sustainability and corporate social resposibility. We take serious agreement on transparency and integrity with our partnerships from sourcing guideline to every process of the production. SInce ECRU values the importance of environment and sustainability, the products are made of 100% natural fiber yarns and fabrics such as cotton and linen. The company has been trying to reduce carbon- footprint by sourcing and utilsing fabrics within the same countries. Our company is also working toward more eco-friendly and organic fabrics in the future. ECRU offers both fashion and basic collections. Our products range from woven and knitted tops, bottoms, dresses, and accessories. Though ECRU basics collections have lower price range, we still maintain and assure our customers the same level of quality of our products. ECRU basics are offered throughout the whole year with new several pieces added to the collections each season to keep updated with current color trends for each season.
12 13 Style 1 - Latte Retail Price - $120 Style 2 - Barley Retail Price - $90 Style 3 - Ivory Retail Price - $140 Style 4 - Bisque Retail Price - $120 Style 5 - Desert Sand Retail Price - $180 OUR PRODUCTS ECRU Basics Woven Tops Spring/Summer 2014
14 15 TARGET MARKET ECRU caters toward female New Yorkers within ages of 25-40. Our customers are considered as young digerati living in the urban and afflu- ent lifestyles around Manhattan and Downtown Brooklyn. They are sophis- ticated, thoughtful, and stylish. With high level of education and career success, our women are independent and confident with their lifestyles and fashion choices. They are innovators and experiencers who always look forward and keep up with new trends and styles, but yet don’t want to overdress themselves. They want to dress well enough so that people can appreciate their looks as well as their status. Their preference in styles is considered clean, minimal, yet unique in design and aesthetic. Our cus- tomer also value high quality and craftmanship. ECRU Basics line serves as fundamental pieces that our women must have and wear them in their daily lives no matter what occasions or plac- es they go. CUSTOMER PROFILE Family Income: $308,721 (Personal - $97,000) Education: MBA in Marketing at NYU Competitive Stores/Brands: Stella McCartney, Chloe, and Bloomingdales Fashion Cycle: Innovation Stage VALS: Innovator/Experiencer Buying Behavior: • Expect great customer service / Enjoy shopping experience • Best quality products • High brand loyalty Grace Smith Age: 27 Marketing Consultant From Upper East Side, NYC
16 17 STRATEGY DEVELOPMENT PROCESS Ecru,meaningpure,simpleandclean,isaluxurywomen’sreadytowear brand with a mission to be the ultimate house of simple sophistication and style through the creation of desire now and forever. Ecru has a goal to create sophisticated and timeless pieces of women’s clothing while valuing aesthetic, diplomacy, fairness and integrity, as well as giving back philanthropically. These five country profiles from El Salvador, India, China, the Philippines and Sri Lanka is meant to overview the countries in all aspects from their culture, to their economy to their manufacturing, to ultimately determine which country is the best for Ecru to source their luxury garments from. When determining which country to chose for the manufacturing of our luxury women’s woven tops Ecru’s looked firstly at the codes of conduct for each of the manufacturers as well as the way the country does business overall. Because ethics and overall conduct is such a strong value for Ecru, it is very important that the manufacturers share these similar goals. Our other considerations must obviously include the overall cost of creating the garments, the export industry as well as the over textile and apparel industry of each of the five chosen countries. Why Develop a Strategy? Values Sourcing Guidlines Products, Volumes, & Seasons Sales Plan
18 19 VALUES ECRU is built upon several values we believe will allow our company to grow and be successful. We aspire to be a brand that is looked up to and respected by our competitors and customers alike. These same values helped build ECRU’s sourcing guidelines as we are committed to producing quality garments that will be worn with pride. Perseverance We believe in our company and its products and we will work hard to overcome obstacles in whatever form they may take in order to deliver apparel that lives up to our standards. Fairness We believe in equal opportunity and rights free from any form of discrimination. Diplomacy Working with foreign companies can bring its own set of challenges, but we are dedicated to resolving conflicts and finding common ground to benefit both ourselves and our manufactures as we wish to successfully grow our business as well as theirs. Creativity At ECRU we know the best solution isn’t always the most obvious and believe in the power of creative thinking and play to be innovative. Aesthetic We strive to deliver garments that will be appreciated by our customer for both the care that was put into its design and creation and for its overall look. We believe in simple luxury and want our customers to confident whether they are wearing our basic line or our fashion line. Teamwork ECRU is more than just a team; we are a family of people who all believe in our product and are committed to working efficiently not only within our company but also with our manufacturers in order to create the best products.
20 21 Integrity We stand by our beliefs and values and strongly believe in transparency. We are dedicated to making sure that our employees are happy and being treated fairly, especially those who are manufacturing for us. We strive to give everyone a voice, free from worry, to ensure that our standards are being lived up to. Competence At ECRU we strive to know our customer and her needs in order to meet them. We pride ourselves on every piece of merchandise that displays the ECRU name and go to great lengths to find manufacturers that are knowledgeable and reputable in the products they create for us. ECRU’s Code of Conduct is in line with values that are core to its company. Fairness, teamwork, diplomacy and integrity are some of the values that come across strongest in our code, as ECRU strongly believes in fair treatment of workers as they are more than just employees. They are people with their own families and needs, and we want to ensure their safety and well-being as we value them and the role they play in our brand. Our Code of Conduct is applicable to all suppliers, their subcontractors and other business partners that conduct business with Ecru. Our code can be found in the appendix and strongly details our requirements in regards to the health and safety of the work environment, worker’s rights with an emphasis on basic rights, wages and restrictions on working hours, and monitoring and enforcement which outlines transparency requirements, our right to make unannounced audits in addition to our scheduled bi-annual audits, our right to appoint an external auditor, should we see it fit and the consequences of not taking corrective action should a violation come to light. SOURCING GUIDELINES *See full sourcing guidelines in Appendix
22 23 Products, Volumes, & Seasons Look 1: Latte 76,000 Units Season: Year round Loose fitting women’s 100% pima cotton blouse with narrow, cowl neck and extended sleeve openings. Look 2: Barley 90,000 Units Season: Year round Loose fitting women’s 100% pima cotton blouse with ¾ length folded sleeves. Look 3: Ivory 105,000 Units Season: Year round Loose fitting women’s 100% pima cotton, sleeveless, collared button-down. Look 4: Bisque 85,000 Units Season: Year round Loose fitting, wide neck women’s 100% cotton poplin blouse with cutouts on sleeves. Look 5: Desert Sand 94,000 Units Season: Year round Women’s long-sleeved, 100% pima cotton, high-low, button-down shirt with princess seam, back detailing and right breast pocket. Total Annual Volume: 450,000 Units
24 25 SALES PLAN Because we are a high-end luxury company, our margins, princes and sales are quite high. In the first year after the Ecru Basics collection launches we are projecting to do over $59 million in sales. This number is derived from selling 450 units divided between 5 garments and sku numbers. Our retail prices are going to range from $90 up to $180, due to the fact that we are a luxury brand and retailer. We are selling these garments online and in our own flagship store solely at this current moment, which means will not have wholesale prices. This will reflect highly on our margins, resulting in them being between 65% and 66% for each garment. Our average cost for production is about $5 per garment, making our total production cost for 450,000 units, 2,250,000.
26 27 COUNTRY ANALYSIS COUNTRIES Sri Lanka El Salvador India Philippines China Countries’ Highlights & Textile Industies Country Selection Ratings Spreadsheet Sri Lanka India El Salvador Philippines China Our five countries, China, India, the Philippines, El Salvador and Sri Lanka were selected by our professor, but have been selected for a reason. During the duration of the strategy we have made it our goal to determine which countries are the best sources of manufacturing for creating our luxury, woven women’s tops. There are many determining factors, but most importantly we have looking into the business and textile climate and industry, the costs, the logistics as well as the manufacturers reliability and code of conduct. Each of these five countries has something different and special to offer to the world of manufacturing and we have taken great time and detail in assessing which of the five will rise to the top.
28 29 SRI LANKA Country Introduction Endless beaches, breathtaking ruins, flavorful food and teas, legendary temples and oodles of elephants packed into over 3000 years of history and culture on the island of Sri Lanka. Sri Lanka offers incredible experiences stretching from the mountains to the sea. The country is packed with rich history, diverse wildlife, a variety of climates and eco-systems, cultural and religious heritage, wide-spanning beaches and offers hundreds of ancient ruins to explore and discover. It is Southeast Asia’s hidden gem that is waiting to be traveled and charted by tourists, nature lovers and history enthusiasts alike. (Data Monitor) With all that this country has to offer, it has even more in manufacturing and business practices and has been awarded in many areas of “Green” business practices for their manufacturing facilities and factories. This country is beginning to thrive and make a name for itself on the map with tourists as well as import and trade businesses and manufacturers. (Data Monitor) Sri Lanka is an island country located of the southern most tip of India. The country has a rich history documenting back over 3000 years ago. Sri Lanka has a very strong Buddhist heritage. The country was very important during the time of the ancient Silk Road and has continued to grow and expand their trade and exports, making them the top contributors to Sri Lanka’s economy. Even though the country is just starting to rebuild it self from a thirty-year civil war which ended recently in 2009, Sri Lanka is beginning to thrive once again in manufacturing and tourism, giving them a strong and growing economy. (Data Monitor)
30 31 Sri Lanka, also known as, Ceylon, is an island in the Indian Ocean with a population of about 20 million people. The highest concentration of the population is located in the larger cities, particularly in Columbo, the countries capital, main port, and industrial center and hub. Sri Lanka is ethnically, linguistically and religiously diverse, with over ten different languages cultures and religious beliefs being practiced. (Data Monitor) The flag of Sri Lanka is also known as the Lion Flag. It depicts a gold lion holding a sword in its front paw, a dark red background, four golden leaves, one in each corner and two vertical stripes, one green and one orange. The lion represents the bravery of the Sri Lankan Nation, while the other symbols represent the countries past history, culture and religious beliefs. (Data Monitor) Socio-Economic-political Analysis: The Sri Lankan politics take place in a presidential representative democratic republic framework. This is where the president of Sri Lanka is both the head of the state and the head of the government. The political make up also includes legislative power, which act under both the government and the parliament. For many decades, politics in Sri Lanka have been dominated by the Sri Lankan Freedom Party and the Conservative United Nation Party. (Datamonitor) The president Mahinda Rajapaksa was elected in November of 2005 and is part of the Freedom Party. The Prime Minister, Disanayaka Mudiyanselage Jayaratne, who was elected in 2010, is also a member of the Freedom Party. The President is elected for six-year terms and has the power to hire and fire the Prime Minister. The day-to-day running of the government lies to the prime minister and his cabinet, which is drawn from the legislature. (Datamonitor) In July of 1983 the Sri Lankan Civil War broke out and began an on going conflict all across the island. The government rose to fight against the rebellious Liberation Tigers of Tamil Eelam (LTTE), also known as the Tamil Tigers. The Tamil Tigers are a military organization that formed in order to break away from Sri Lanka and form an independent Tamil state called Tamil Eelam in the north and eastern region of the island. The war led on for 26 years when the Tamil Tigers were finally defeated by the Sri Lankan military in 2009. (Datamonitor) This war lasting almost three decades left Sri Lanka in a sheer state of turmoil. Over 100,000 citizens were killed and even more were injured. The country was hurt culturally as well as economically. Much damage was done to the country physically which has detracted tourists, investors and has damaged manufacturing facilities. With all that being said, in the 5 years that the war has been over, Sri Lanka and its citizens have done all that they can to revitalize the country and restore it to what it once was. (Datamonitor)
32 33 The government figures in Sri Lanka have been stable for many years as well as their representative democratic republic political system. The country is swiftly able to make decisions that benefit the communities and the people as a whole. However, the war has certainly affected the country significantly and even though Sri Lanka is making all efforts to restore and revitalize, it is still a potential drawback when looking at prospective manufacturing locations. Economic traits: Sri Lanka has a world ranking of 90 from the 2014 Index of Economic Freedom and a ranking of 16 in the overall Southeastern Asian hemisphere. (IEF) The country is continuing to see strong economic growth following the conclusion of the 26-year Civil War. During the war there was much turmoil economically and the country suffered greatly. It is now that Sri Lanka is making all efforts to reconstruct and bring back one they once had. (CIA World Factbook) The Sri Lankan governments very high debt payments have contributed almost 100% to the country’s high budget and fiscal deficit. However, the global 2009 recession and economic crisis actually caused a boom for Sri Lanka and nearly balanced their debt payment crisis. This has given Sri Lanka the ability to now focus on their greatest assets, being their trade and exports, and agriculture. (CIA World Factbook) The Sri Lankan governments very high debt payments have contributed almost 100% to the country’s high budget and fiscal deficit. However, the global 2009 recession and economic crisis actually caused a boom for Sri Lanka and nearly balanced their debt payment crisis. This has given Sri Lanka the ability to now focus on their greatest assets, being their trade and exports, and agriculture. (CIA World Factbook) The country is constantly looking for new ways to expand and improve their most lucrative markets, apparel manufacturing and agriculture, which combined employ over two thirds of the population and bring in the majority of the revenues for the country. Because the main revenues and income for the country do come from trade and exports, particularly apparel but also tea, rubber and technology, there is a large incentive for the country to constantly keep up to date and advanced to beat out the competition across the world. Sri Lanka is currently ranked at number four of the top apparel manufacturing countries in the world and has great potential to reach number one in the upcoming years. (World Factbook) Sri Lanka’s currency is the Indian Rupee; and as of April 2014, the U.S Dollar is valued at .0077 of 1 Rupee. The current Sri Lankan unemployment rate is at 4%, ranking #49 in the world. Revenues in 2013 reached $8.43 Billion, while expenditures were at $12.57 Billion.
34 35 The Sri Lankan inflation rate both increased and decreased significantly over the past 10 years. In the past 3 years the rate of inflation has gone from 6.11% in 2012, to 9.9% in 2013 and all the way down to current 4.2% that it is today. This is very unusually for the rate to fluctuate so drastically, but the country has been in a serious state of turmoil after the war, which directly influenced their economic structure. Looking towards the future, Sri Lanka is making all the possible amends to even out and steady the drastically changing inflation rate. (Trading Economics) Due to these high rates of fluctuation in both revenues and the inflation rate, Sri Lanka does show potential risks when looking into supply and manufacturing. The country is still in quite a high amount of debt and is spending significantly more than they are bringing in. This, and the drastically changing inflation rate may cause serious problems and will be a great concern if Ecru business is done in Sri Lanka. Labor and Labor Laws: TheLaborforceinSriLankaisverystrongandmakesupasignificant amount of the population, of both males and females. About 48.2% of the population works in labor, 67.2% being male and 31.3% being female. The labor tasks in Sri Lanka include agriculture, industry and services. In 2012 30.7% of the population worked in agriculture, 26.6% worked in industry and 42.6% worked in services. (Labor Force Survey) The unemployment rate has seen a significant decrease in the past ten years dropping from 8.4% in 2003 down to 4.0% in 2012. The rate of unemployment for men is at about half the percentage of that for women. This is a significant decrease in a short period of time and is all due to the ending of the Civil War and Sri Lanka’s ability to quickly start rebuilding the country. (Labor Force Survey) Sri Lanka’s main exports are apparel, rubber and tea. These three categories make up a large percentage of revenues for the country. Sri Lankan apparel manufacturing supplies a wide variety of garments ranging from sportswear, lingerie, and lounge wear, to ready to wear, bridal, swimwear and children’s wear. This gives Sri Lanka the opportunity to supply to many different companies and with a wide variety of style, quality and price points. (Labor Force Survey) Since apparel manufacturing is such an important aspect to the economy in Sri Lanka, many laws have been put in place to protect the employees and their employers. Laws, codes of conduct and rules of ethics are made very clear to the employees and are 100% geared towards making their careers greater and more enjoyable. Companies in Sri Lanka have very in depth laws regarding workers rights, women’s rights, employee legal work rights and employee termination rights and once again these laws and how they work are made very clear to the apparel-manufacturing workers. Sri Lanka is currently close to being the number one apparel manufacturing country in the world
36 37 and they will be chosen so because of their incredible ethics and the amount of integrity with which they treat their employees, their customers and of course, the environment. (Labor Legislations) Sri Lanka is constantly making sure that they are treating their employees and their customers with the utmost respect and integrity. Because high integrity is one of Ecru’s top values, the way that Sri Lanka manages their facilities is something that really resonates with us. The ability to have respect in the workplace is something Ecru is certainly looking for when reviewing countries and manufacturing facilities. current Textile and Apparel Industry: Sri Lanka’s textile and apparel export industry is the largest and most significant contributor to the country’s economy. The industry has seen sizeable growth over the past four decades and today the apparel industry makes up 52% of the countries exports and economic stimulus. This fast growing industry also provides over 300,000 jobs to Sri Lankan men and women across the country. The 350 garment factories and 16 textile and fabric manufacturers are privately owned entities but do manage well with the Sri Lankan government, seeing that they are bringing in the majority of the countries revenues. These technologicallyinnovativefactoriesplayakeyroleintheadvancement of the Sri Lankan apparel industry and are quickly paving the way to be the top supplier country in the world. (EDB) The apparel manufacturing industry is incredibly competitive, but Sri Lanka has many attributes that make them stand out. Each factory in Sri Lanka is 100% environmentally friendly and many have won incredible awards including the world’s first LEED Platinum certification. They operate under strict ethical principles and guidelines that are made clear to the workers as well as the brands and companies. The manufacturing facilities are also highly focused on innovation, giving back to their country and maintaining a strong reputation all across the world. (EDB) Sri Lanka’s apparel categories include sportswear, lingerie, lounge wear, ready to wear, bridal, swimwear and children’s wear and the United States and the United Kingdom have been the largest apparel buyers for many years. Longstanding relationships with companies across the world, and a strong drive to make quality pieces, keeps buyers and brands coming back again and again to Sri Lanka. These relationships have made the apparel industry in Sri Lanka even more reputable, stronger and more prosperous. (EDB) Sri Lanka is a producer of Garments Without Guilt and the “Made in Sri Lanka” label, both of which are synonymous with high quality, reliability, social and environmental standards, code of ethics and accountability. Each of these standards is made present in each of the factories, the working environments, as well as how the garments are produced. Within the past three decades the country has evolved into creating high quality and sophisticated designs,
38 39 allowing the country to appeal to even more companies and brands. (EDB) Because the apparel industry makes up such a large percentage of Sri Lanka’s economic stability and make up, all of the factories and manufacturing facilities in the country take part in giving back to the community. This is a very important aspect of these facilities and shows a philanthropic side that will resonate with many different fashion brands, again making Sri Lanka an ideal country to source from. Businesses and manufacturers are always looking to grow and expand and currently there are 10 new facilities being built. Sri Lanka has recently been named one of the top three countries out of the top 50 most important suppliers and has promise of becoming the top supplier in the world in a few short years. (EDB) Because the textile and apparel industry in Sri Lanka is one of their top industries, they are constantly looking for new ways to improve and expand. With that being said, the manufacturers are still incredibly focused on building strong relationships and reputations with customers. This in turn helps Sri Lanka keep their best customers coming back and gives them potential new customers for additional revenues. Ecru would be happy to manufacturer in a country that is focused on giving the customer exactly what they are looking for and making sure they have a great experience along the way. Logistics and importation Exporting goods from Sri Lanka into the U.S. has become a very simple and quick task. There are many shipping and freight companies that service Sri Lanka and a large majority of the goods are going back to the Unites States. The routes are well established and there are multiple to choose from depending if the goods are being delivered to west coast or the east coast. Because the majority of the manufacturing facilities are located in Colombo, the port city capital, or very close by, getting the garments and apparel to the port is not an issue. Hundreds of shipping companies travel from Sri Lanka to the United States including ZIM Shipping Line, Maersk Line and Hapag-Lloyd. The majority of exporting and shipping out of Sri Lanka is done through sea and there are limited airfreight companies coming to Sri Lanka. ZIM Integrates Shipping Services ltd. was established in 1945 and has grown to be one of the largest container shipping companies in the industry. The company is committed to providing their customers with reliable shipping solutions around the world. An exporting container ship leaves from Colombo, Sri Lanka every two days and takes approximately 3 weeks to arrive in New York, United States. The container ship takes two routes: one from Sri Lanka through the Middles East and Mediterranean into southern Europe. From there it goes on to the port in New York. (ZIM)
40 41 Maersk Line is one of the top leading cargo-shipping companies in the world and has been rising to the top of the market since 1928. Their strong commitment to the environment as well as customer service keeps people coming back. The ship leaves the Colombo port every Friday at 12 pm and there is a one-day cut off period for canceling a shipment. The vessel takes about 3-4 weeks to arrive in New York. The line goes from Colombo to Rotterdam and then arrives in New York. (Maersk Line) Haypag-Lloyd is a container freight company operating in more than 300 locations across the world. The company has been in business for over 165 years and continues to keep their values of environmental protection, compliance and sustainability prevalent in their work. Exporting a container from Sri Lanka to New York will take about 22 to 28 days on a Haypag-Lloyd ship. The ship leaves twice a week and sails through the Middle East and Mediterranean, making one stop in Halifax before then landing in New York. (Haypag-Lloyd)
42 43 EL SALVADOR Country Overview El Salvador is a small Central American Country that has been gaining footing in the textile and apparel industries and is the closest country to ECRU’s New York headquarters out of the five countries we have been researching. This means that manufacturing in El Salvador gives the advantage of a short lead-time. It is also the only country we have researched which has established a free trade agreement with the United States, through the Central American Trade Agreement- Dominican Republic (CAFTA-DR). El Salvador was the first Latin American country to sign CAFTA-DR which was implemented in March 2006 and would allow ECRU to import any garments we manufacture there tariff-free, as long as the labor and all the materials originate from one of the countries within the agreement. This is not the only tie El Salvador has to the US, as El Salvador adopted the US Dollar in 2001 as its currency which gives control over its monetary policy to the United States (Coleman 63; “Country Intelligence” 7). This has helped to stabilize the country’s inflation rates which are now predicted to increase steadily around a 2% change from the previous year in the near future (“Country Intelligence” 5-6). The dollarization also has eliminated the need to keep an eye on exchange rates between the US and El Salvador. The United States is El Salvador’s main trading partner, which receives half of El Salvador’s exports. The United States has invested over $2.5 billion into the country to help boost industries and infrastructure. In addition, approximately 1 in 5 Salvadorans lives in the US, 1.2 million of which are immigrants (Meacham).
44 45 Political El Salvador is a Democratic Republic that has been gaining stability since it’s 12-year civil war. It has a president who is elected for a single five year term. Current President, Mauricio Funes will be succeeded by his Vice President, Salvador Sánchez Cerén in June; both of which are left-wing members of the Farabundo Marti National Liberation Front party, or FMLN (Meacham). Sánchez Cerén has proposed “expanding rehabilitation programs, job training for convicts, and increasing support for police” in addition to adding welfare programs and development projects to help strengthen the economy and reduce poverty (Meacham). Social and labor Nearly half of El Salvador’s labor force is employed in agricultural and commercial activities while manufacturing accounts for 15.5% (“Country Intelligence” 15). Men make up the majority of the workforce; however, women have been gaining footing in recent years. As of 2010, there were 4.13 million people who are of working age with a labor force of 2.58 million (“Country Intelligence” 15). The population growth has been slowing but remains positive at 0.7% per year; however, the labor-force is predicted surpass the population growth rate until 2040 due to El Salvador’s age structure, as there are more people entering the workforce then there are retiring (“Country Intelligence” 10). Both male and female children typically attend school for 12 years with an estimated 80.2% of the population over 15 years of age being literate (Coleman 115). El Salvador will not lack for intelligent employees in the years to come as literacy has been increasing and a strong amount of the population is young. El Salvador is often listed as one of the most dangerous countries, having a murder rate over 40 per 100,000 people in 2013, wide spread gang problems (particularly with the Mara Salvatrucha and the Barrio 18), drug trafficking and corruption; however, it often ranks among the top ten happiest countries (Klahn; Meacham). Economy El Salvador has had a mixed economy since the 60’s and 70’s when expanded into manufacturing and it is currently one of the most industrialized countries in Central America. Agriculture employs half of the country’s work force and includes the growing of sugarcane, coffee and cotton. Currently El Salvador has a “sluggish economic performance” with imports exceeding exports although the growth rate has been taking a turn for the positive and is predicted to remain so in the medium-term. The country has low investment rates resulting in slow capital accumulation that “reflect a low national savings rate, a weak investment climate and poor human capital development” (Country Intelligence” 10). As El Salvador adopted the US Dollar as its currency, it no longer has control over its monetary policy which is dictated by the United States (“Country Intelligence” 7). Inflation is
46 47 clearance, port and terminal handling and inland transportation and handling (“Doing Business”). Acajutla is El Salvador’s major cargo seaport, followed by Puerto de La Union Central. The Cutuco Port had been inactive since 1996 and underwent renovations in January 2005, making it the most important port infrastructure project in over 30 years as it would double the cargo holding abilities of Acajutla (“Puerto”). It was inaugurated Puerto de La Union Central on June 21, 2008. By ocean, ships can travel from one of El Salvador’s ports through the Panama Canal and on to one of many U.S. ports where it can then travel by train or truck to its destination. Cargo can also travel across El Salvador to either Honduras or Guatemala as both countries have sea ports along the Atlantic coast. Crowley is a shipping company headquartered in Jacksonville, Florida with capabilities to transport merchandise from El Salvador to ECRU’s New York City location. Crowley would transport ECRU’s cargo from El Salvador to a port in Guatemala where it would then sail to the Fort Lauderdale Port (Port Everglades) in Florida. Next the cargo would ship via motor rail to New York City. Ships travel from Guatemala to Fort Lauderdale 3 times a week with a transport time of 5 days. Trains set out daily and cargo will reach New York in 4 days. Crowley gave a quote of $5,755 for the transportation of a filled 40ft shipping container of apparel from El Salvador to New York City (Phone Interview). predominantly driven by food, fuel and energy related wares and El Salvador’s adoption of the US dollar has helped to stabilize inflation which is expected to increase by 1.9% in 2014, a much lower rate than surrounding countries (“Country Intelligence” 5). Exporting Exporting from El Salvador requires 7 documents including a bill of landing,acargoreleaseorder,acommercialinvoice,acustomsexport declaration, a packing list, a technical standard/health certificate and terminal handling receipts (“Doing Business”). According to the World Bank Group, it takes 13 days and around $980 to prepare a container for export: this accounts for document preparation, customs
48 49 Textile Industry El Salvador has built a vertically integrated supply chain and is the only Central American country that has developed a full synthetic cluster, producing nylon, polyester and microfiber fabrics which ECRU may wish to utilize at a later date (“Specialized Textiles”). Apparel production cost per minute in El Salvador is $0.10; which in line with many of El Salvador’s neighbors including the Dominican Republic and Guatemala. Mexico and Colombia on the other hand are more pricy with costs around $0.12-$0.14 per minute. El Salvador’s textile and apparel association, the Chamber of the Textile, Clothing and Free Zones of El Salvador (CAMTEX), makes its mission “To promote, represent and support the textile, clothing and free zones of El Salvador, to strengthen their competitiveness,” and is a valuable resource when sourcing and learning about the industry (CAMTEX). The apparel and textile industry in El Salvador has been growing; production saw an increase of 4.1% in 2013, while exports grew by 9% to 2.394 billion (Melara). The industry accounts for 44% of the country’s exports; broken down further, fabrics accounted for 64%, followed by synthetic garments and fibers at 25% and woven apparel and fibers at 11% (Melara). 73,795 direct jobs were created in the industry during October 2013: a 3% increase from October of the previous year (CAMTEX). El Salvador’s agency for Promotion of Exports and Investments (PROESA) held a seminar in November of 2013 with aims to identify new opportunities in the textiles and apparel industry with a focus on how to utilize benefits of the CAFDA-DR trade agreement (“Salvadoran Government”). Due to the textile and apparel industry accounting for 16.3% of industrial GDP (2013) and 44% of exports, it was identified as one of the sectors with strong growth prospects in the short term (Salvadoran Government; Melara). As a result, the government will develop training programs to shift human resource’s focus to identifying new business opportunities in this sector. Climate A variety of natural disasters affect El Salvador typically causing the evacuation of thousands, the destruction of infrastructure, homes, buildings and land. These natural disasters could result in the destruction of manufacturing buildings or the evacuation of employees that would render them unable to work, affecting product production and the ability for goods to be transported. El Salvador experiences two seasons; the rainy season occurring between June and November, and the dry season, between December and May. During the rainy season, flooding and landslides have proven to be risky. Deforestation has been a problem in El Salvador which increases its susceptibility to these occurrences as roughly 85% of the country’s natural land-cover has been removed: making 65% of the country vulnerable to landslides (“Disasters Risk” 19). El Salvador has been called the Land of Volcanos and has over 20 volcanoes, 3 of which have been active in recent years and have resulted in the evacuation of thousands (“Disasters
50 51 Risk” 20). El Salvador is known for its vulnerability to hurricanes and tropical storms as well as for earthquakes, as it is located on one of Earth’s most seismically active regions (“Disasters Risk” 18-19).
52 53 INDIA Social India has the second largest population in the world with around 1.2 billion people in 2012. The social environment is very stable and people live together harmoniously since many are religious and live their lives under the doctrine of karma (over 80.5% are identified as Hindus) Indian cultures have been perceived as diverse and exotic. There are 18 major languages in India. However, many Indians can speak English since it is the second official language. Hierarchy is influenced by the caste system and still important in Indian society. Younger people respect the elders, and lower rank employees also have to respect their bosses and higher executives. Indiaisstillamale-dominatedsocietywherewomenhavelowerpriorities and wages than their male counterparts. Poverty and healthcare are still major problems in India. Many water resources are contaminated in India, and air pollution is almost the worst in the world. Many people have diseases and are unable to obtain adequate healthcare (only 7-8% of the central budget is allocated for healthcare). Even though the caste system was eliminated, people from lower caste ancestry are still regarded as unclean and are given less priority and benefits than higher-status people. There are still issues related to the large wealth gap and disparities in the society that cannot be improved within the short period of time (Marketline). Economic In 2011, India’s estimated GDP was $1.843 trillion with 7.8% growth rate. Indiaeconomyhasbeenimprovingandgrowingsteadilyinthepastfew
54 55 years. Middle class populations are increasing in numbers and earning higher disposable incomes. Foreign portfolio and direct investment inflows also have risen significantly in the recent years. Proposals for direct foreign investment are supported by the government and are also considered by the Foreign Investment Promotion Board. US-India bilateral merchandise trade in 2008 was almost nearly $50 billion. Major US imports from India include textiles, ready-made garments, internet-enabled and IT services, gems, leather products, and chemicals. The US is also India’s largest investment partnet with a 13% share. India exports have also grown at a very fast pace accounting for 23.9% of the country GDP in 2012 (Marketline) However, India’s economic growth is constrained by inadequate infrastructure (usually electricity), a cumbersome bureaucracy, corruption in service sectors and governments, regulatory and foreign investment controls, and high fiscal deficits. The rising fiscal deficits, inflation, and external debt have resulted in depreciation of rupee and negative credit rating (BBB-) India’s stage of economy has rather been a mixed between positive and negative aspects. Political According to Globaledge, the Indian government is considered as federal republic, however “ the central government has greater power in relation to its states and also has adopted a British-style parliament system; the parliament consists of Council of States (Rajya Sabha) and House of People (Lok Sabha)”. “The President of Indian is elected by an electoral collage of elected members from both houses of Parliament and the legislatures of the states for a five-year term” (CIA). India has 28 states and 7 union territories. President Pranab Kumar Mukherjee is the Chief of State, and Prime Minister Manmohan Singh is the Head of Government (Global Edge). The current diplomatic representative from US is Ambassador Nancy J. Powell (CIA). Labor India has the second-largest labor force in the world, which accounts around487 million workers.In2013, India’s unemploymentratewas 8.8% with 29.8% of population below poverty line (CIA). Textile and apparel industry employs over 35 million workers and is also the second largest provider of employment after agriculture. Many unskilled workers are well-trained in their sectors. The current labor cost in apparel manufacturing sector is $0.51 per hour; the overall wage is still higher than the same sectors in Bangladesh, Cambodia, Pakistan, Vietnam, Sri Lanka, and Indonesia (Emerging Textiles). The growing number of young population in India implies the potential and active workforce in the world which looks positive for outsourcing for skilled and talented labors; more than 70% of population will be working age in 2025. Trade Agreement India has no Free Trade Agreement partnership with the US. However,
56 57 the country has several bilateral trade agreements with other countries and within WTO such as AIFTA (ASEAN-India Free Trade Area) which allows tariff liberalization over 90% of products including textiles. The trade agreement is however beneficial to the US companies in the way that they can gain benefit from cost reduction if they decide to use materials such as raw materials, fabrics, or components from one of the ASEAN countries, which will be delivered to India to be made into final garments. India also has SAFTA (South Asian Free Trade Area) and with the new government recently has agree to start on bilateral trade ties with the EU and Canada in the future. Risks Though India has a potential growth in manufacturing and labor force. There are still some problem associated with poor infrastructure and business protocol that might create risks to the production and company such as punctuality and discipline issue. There are high risks associated with late inadequate shipment and time consuming process, which will tremendously cause the loss of profit in the business. Inefficient implementation of regulations and Code of Conduct is also another risk. Child labor, unhealthy and unsafe working environments, and unfair wages are still considered major issues. Many companies have a hard time identifying the transparency level of the suppliers since the production is done oversea. It is a huge risk in losing reputation of the company if any unlawful or inhumane practices are discovered at the partnered suppliers Textile and Apparel Industry The domestic apparel market in India was worth about $38 billion in 2012. India is ranked as the sixth largest apparel exporter in 2013 with the total estimated value of $14.4 billion. The apparel sector accounts for almost 10% of the overall exports. India has been regarded as one of the best producers of cotton fabrics (especially hand-loomed) as well as raw cotton exporters (ranking #2 in 2013) in womens wear, blouses and Indian ethnic wear comprise the largest segment with 75% share of the entire segment. The market is expected to grow at 9% for the next five years at the value of 22.3 $billion. The monthly wages of a worker in the Indian apparel industry was approximately $169.67 which was also the fourth lowest paying following Bangladesh, Cambodia, and Haiti. The overall apparel industry is expected to grow at a compound average growth rate of 9% over the next decade. In 2012, there was an introduction of 10% excise duty on branded apparel with an abatement rate of 55%. There are also differences in tax rates depending on the states; “the government in Delhi, Uttar Pradesh, Punjab, and Rajasthan charge a VAT of 5% on apparel”, while other states charge 4%. The service tax was also increased by 2% in 2012 (Gugnani) The rise in taxes resulted in increased average sales price of
58 59 apparel by 5-6% Most retailers had encountered a negative growth of 4-5% in sales during the fiscal year of 2012 (Gugnani). According to Indian Ministry of Textile, the textile and apparel industry in India have strong growth in demand and policy support, which has resulted in government investment schemes (TCIDS and APES) and commitment of both domestic and foreign investments ($140 billion in value) (IBEF). The Technology Upgradation Fund Scheme (TUFS) provides budget of $0.5 billion for modernization of the power loom sector and stress more on mechanization (IBEF). The FY14 union budget also provides infrastructure support and tax sops and financial packages that help reducing duty for imported textile and machinery and eliminate excise duty for the cotton and manmade garments as well (IBEF). Why we didn’t choose India: Even though India is known for cheap labor costs (in general), ready-made apparel industry, woven and knitted cotton fabrics, there are some factors that made us had to eliminate India over other smaller countries like Sri Lanka and El Salvador. First problem is poor infrastructure, especially electricity and roads; losing power during the production process might create huge loss of time and profits, and might also delay the production. Poor road condition and environment also create problems with delivery as well. Second problem is poor atmospheric and working environment; India is known for having very high level of air pollution and contaminated water resource, water is needed in production and it’s vital that it’s clean before manufacturing into actual products. Dirty environment and poor air condition will also affect the workers’ health which might result with problems in the future. The third issue is about sourcing guideline in which many places in India still don’t comply to the code of conduct honestly and child labors and unfair payments to the workers still happen everywhere. India also has no free trade agreements with the US which means it is automatically subjected to 15.4% tax over every product imported to the US. Though the suppliers that ECRU contacted are very professional and have higher rank scores on ECRU supplier ranking, their price quotes are very high compared to ECRU initial estimated costs.
60 61 PHILIPPINES INTRODUCTION There is more involved in the design process of apparel than sketches and swatches. After all of the designs and measurements have been made, it is required to source a manufacturer who will be capable of fulfilling production needs at the right price, in the right time, and incurring minimal risk. The purpose of this report is to analyze manufacturing opportunities in the Philippines to determine where ERCU will entrust its designs. We want to keep rational feasibility in mind while also not compromising our core values and ethics in the creation, distribution, and lifecycle of our proposed products. SOCIAL The total population of the Philippines as of June 2012 was 103,775,002, evenly divided between males and females with an average age of 23.1 years. According to philstar.com, about 40 million of these make up the labor force while the unemployment rate stands around 6.9% and the inflation rate as of May 9, 2013, was at 3.2%. Because of their Spanish background, religion in the Philippines mostly consists of Roman Catholics (81%) and Protestants (12%), followed by Muslims (5%) and others (2%), which should not pose any serious restraints on conducting business. It is also convenient that in addition to speaking their native language, Filipino, the nation also lists English as their second official language.
62 63 POLITICAL In February 1987, the Philippines adopted a new constitution that instituted the presidential-style republican form of democracy, which resembles the U.S. model much more than the European parliamentary system. One key difference between the Philippines and U.S. systems is that the Philippines is a unitary republic, whereas the United States is a federal republic, with significant powers reserved for the states. In the Philippines, by contrast; the national government is not challenged by local authority. The ratification of the 1987 constitution—the fourth in the nation’s history—by national referendum signaled the country’s return to democracy following the autocratic rule of Fernando Marcos (1965–86). Politics in the Philippines is somewhat tumultuous. In February 2006, the president declared a state of emergency after quashing the attempted coup staged by the political opposition. The current president of the Philippines is Benigno Aquino and Philip Goldberg is the current ambassador to the Philippines from the United States. ECONOMY The economy of the Philippines is an anomaly in the Asia-Pacific region in that it has lagged behind other economies, such as those of Singapore, South Korea, and Taiwan. From a position as one of the wealthiest countries in Asia after World War II, the Philippines is now one of the poorest. Since the 1970s, which were a relatively prosperous decade, the Philippines has failed to achieve a sustained period of rapid economic growth and has suffered from recurring economic crises. This persistent underperformance has occurred in spite of the Philippines’ rich natural and human resources. The reasons are rooted partly in history, partly in policy. As a legacy of the U.S. colonial period, oligopolies have dominated the economy, particularly in agriculture, where farmland continues to be concentrated in large estates. In the post-World War II period, the Philippines pursued a strategy of import substitution industrialization, whereby domestic goods are substituted for imports. This strategy required protectionist measures, which led to inefficiencies and the misallocation of resources. Although some trade protectionist measures were relaxed in the early twenty-first century, the Supreme Court continues to support restrictions on foreign ownership of land and other assets in effect since the constitution of 1935. These restrictions, plus widespread graft and corruption, have suppressed inbound foreign direct investment. A historically low rate of taxation—only about 15 percent of gross domestic product (GDP), partly as a result of widespread tax evasion—has led to underinvestment in infrastructure and uneven economic development. Although trade barriers were scaled back, industrial cartels split up, and limited reform measures taken in the late twentieth century, political instability, continuing high levels of corruption, and resistance to reforms by entrenched interests have prevented the Philippines from pursuing a consistent and effective economic course. The
64 65 industrial sector continues to decline relative to services, an economic bright spot in which the Philippines apparently enjoys a comparative advantage, although some argue that services represent an employer of last resort. As of April 13, 2014, one Philippine Peso (PHP) was equal to $0.023 (USD). In 2005 the services sector accounted for about 53.5 percent of GDP; industry, 31.7 percent; and agriculture, forestry, and fishing, 14.8 percent. GEOGRAPHY The Philippines are made of about 7,107 islands located off Southeast Asia, between the South China Sea on the west and the Philippine Sea on the east. The major islands are Luzon in the north, the Visayan Islands in the middle, and the Mindanao in the south. The total area is about 186,411 square miles including about 185,168 square miles of land and about 1,243 square miles of water. The Philippines consists of volcanic islands, including active volcanoes, with mostly mountainous interiors surrounded by flat lowlands and alluvial plains of varying widths along the coasts. Research on the Philippines by the Library of Congress indicates that the islands are also prone to floods, landslides, earthquakes, and tsunamis. This and the fact that the islands are located along the typhoon belt which experiences 15 to 20 typhoons a year, of which five or six may cause serious distraction and/or death, makes the Philippines a very risky location to choose to manufacture ECRU’s woven tops. TRADE The United States and the Philippines have had a very close trade relationship for more than a hundred years. According to the Office of the United States Trade Representative, the US meets regularly with the Philippines under the auspices of a Trade and Investment Framework Agreement (TIFA) signed in November 1989. Several additional agreementshavebeensignedunderTIFAauspices,includingacustoms administration and trade facilitation protocol (2010), a memorandum of understanding to cooperate on stopping illegal transshipments of textiles and apparel (2006), and a memorandum of understanding regarding the implementation of minimum access commitments by the Philippines (1998). U.S.-Philippines Trade Facts The United States is among the Philippines’ top trading partners, and it traditionally has been the Philippines’ largest foreign investor. Two- way goods and services trade between the United States and the Philippines totaled to $22 billion in 2011. Exports totaled $9.9 billion; imports totaled $12.1 billion. The U.S. goods and services trade deficit with the Philippines was $2.2 billion in 2011. The stock of U.S. foreign direct investment in the Philippines exceeded $5 billion. Data from the United States Embassy in Manila indicates that the Philippines is currently the United States’ 36th largest goods trading partner with $17.6 billion in total (two ways) goods trade during 2012.
66 67 Goods exports totaled $8.1 billion; goods imports totaled $9.6 billion. The U.S. goods trade deficit with the Philippines was $1.5 billion in 2012. Trade in services with the Philippines (exports and imports) totaled $5.2 billion in 2011. Services exports were $2.2 billion; services imports were $3.0 billion. The U.S. services trade deficit with the Philippines was $827 million in 2011. Exports and Imports The Philippines was the United States’ 33rd largest goods export market in 2012. U.S. goods exports to the Philippines in 2012 were $8.1 billion, up 4.6% ($355 million) from 2011, but down 8.3% from 2000. The top export categories (2-digit HS) in 2011 were: Electrical Machinery ($2.7 billion), Machinery ($867 million), Cereals (wheat) ($618 million), Flour and soybean meal ($511 million), and Aircraft ($453 million). U.S. exports of private commercial services (i.e., excluding military and government) to the Philippines were $2.2 billion in 2011, 8.7% ($173 million) more than 2010 and 38% greater than 200 levels. The other private services (business, professional, and technical services) and travel categories accounted for most of U.S. exports in 2011. The Philippines was the United States’ 35th largest supplier of goods imports in 2012. U.S. goods imports from the Philippines totaled $9.6 billion in 2012, a 4.8% increase ($436 million) from 2011, but down 31.3% from 2000. The five largest import categories in 2012 were: Electrical Machinery ($4.0 billion), Machinery ($1.1 billion), Knit Apparel ($617 million), Fats and Oils (mainly coconut oil) ($532 million), and Woven Apparel ($531 million). U.S. imports of agricultural products from the Philippines totaled $2.3 billion in 2012. Leading categories include: coconut oil ($531 million), raw beet and sugar cane ($107 million), processed fruit ($131 million), tree nuts ($97 million), and fruit and vegetable juices ($68 million). U.S. imports of private commercial services (i.e., excluding military and government) were $3.0 billion in 2011, up 12.2% ($324 million) from 2010, and up 94% from 2000 levels. Other private services (business, professional and technical services) travel and passenger fares categories account for most of U.S. services imports from the Philippines. Investment U.S. foreign direct investment (FDI) in the Philippines (stock) was $5.3 billion in 2011, a 1.1% decrease from 2010. Reported U.S. FDI in the Philippines is mostly in the manufacturing sector. Philippines FDI in the United States (stock) was $114 million in 2011, up 10.7% from 2010. The distribution of Philippines FDI in the United States is not available. The Office of the United States Trade Representative also indicates that sales of services in the Philippines by majority U.S.- owned affiliates were $3.3 billion in 2010 (latest data available), while sales of services in the United States by majority Philippines-owned firms were $37 million.
68 69 US & PHILIPPINES TRADE AGREEMENT TheUnitedStatesandthePhilippineshavehadaclosetraderelationship for more than a century. The two sides meet regularly under the auspices of the TIFA, which is the coordinating mechanism for trade and investment policy discussions between our two governments. Total goods trade between the United States and the Philippines is about $18 billion, up 41 percent since 2009. Services trade is growing rapidly and exceeded $6 billion in 2012, also up 41 percent from 2009. U.S. foreign direct investment in Philippines is roughly $5 billion, concentrated in manufacturing. The United States and the Philippines today concluded a two-day meeting under the Trade and Investment Framework Agreement (TIFA), agreeing to a program of expanded engagement in coming months on bilateral, regional, and multilateral issues. The meetings were chaired by Assistant U.S. Trade Representative Barbara Weisel and Philippine Undersecretary of Trade Adrian Cristobal. In addition, senior officials from other agencies on both sides participated in the meeting, including Philippine Agriculture Department under Secretary Segfredo Serrano and Edgardo Albon, Chairman of the Philippine Tariff Commission. On bilateral issues, the United States recognized the considerable efforts the Philippines has made to strengthen its intellectual property regime and overall framework for protecting worker rights, two areas of focus of recent U.S.-Philippine cooperation. The two sides agreed to establish a new work program on labor affairs under the TIFA to further our efforts. In addition, the United States and Philippines held detailed discussions of agricultural trade, including related to rice and meat, and these discussions will continue in the coming weeks. In response to Philippine interest in the Trans-Pacific Partnership (TPP) agreement, the United States briefed the Philippines on the goals and objectives that the twelve TPP countries are seeking to achieve. The two sides began a program of technical consultations to provide the Philippine government the detailed information it will need to consider whether to seek to join the TPP agreement. The Office of the United States Trade Representative also found that the United States and Philippines also agreed to intensify cooperation on U.S.-ASEAN issues and on the trade and investment agenda for APEC, which the Philippines will host in 2015.
70 71 CONCLUSION There are many benefits to come of manufacturing in the Philippines, however there are great risks, specifically the unpredictable nature of their numerous natural disasters. The quality of their manufacturers is still unclear as far as meeting the standards of ECRU, however, I am very interested in the technology of creating eco-friendly and sustainable fiber from pineapple and banana, which would certainly coincide with the ECRU values. In closing, the Philippines may not be a viable first candidate in our search for a manufacturer, but it cannot be overlooked given it’s recent advances in technology and sustainability. Why we didn’t choose Philippines: The Philippines was eliminated for many reasons. First, the political environment is not very assuring. More specifically, the ease of corruption makes for a disheartening business climate. If the Philippines government is unreliable to their own business climate, they surely will not be flexible to foreign businesses. Also, the textile industry is not supported by the government and there are currently no trade agreements in place between the Philippines and the United States. In addition, the natural disasters in the Philippines are numerous and would not support ECRU’s need to have a steady flow of product for our Basic’s line. There is a monsoon season that could be tolerable as long as we manage the amount of product being manufactured at that time, however there are also active volcanos, earthquakes, and tsunamis that could make product investment more of a risk than affordable for a small company like ECRU. Finally, of the five countries researched, the Philippines had great potential in their manufacturing facilities, however there was little information to be found and contact was very difficult to establish. The selection highlighted more disposable bag manufacturers, weavers, and sports bag manufacturers. Of the seemingly suitable manufacturers, none replied to ECRU’s emails. The emails were either invalid or kicked back due to a full inbox. When phoned, the manufacturers failed to answer. Of those who had voicemails, none of the calls were returned - even when we provided our country code in the telephone number and spelled out our email address. All of these reasons, when compared to the other four countries, presented us with a situation where we saw it best to move on without the Philippines.
72 73 CHINA Economic Climate Economy Structure and History • Market socialism economic system • GDP-real growth ranked 14 and GDP-purchasing power ranked 3 • The economic development started since the economy reformin1978 Currency • Use Yuan /RMB as currency unit • Current currency 1 USD= 6.25 Chinese Yuan • Currency rate is controlled by the government Inflation •Inflation rate has a increasing tend Unployment Rate • Current unemployment rate is 4.1% • Stable near 4% since 2008 Labor Cost • Minimum monthly wage is $293, $0.085 per minute in Apparel Industry • Rising minimum wage for couple times in past years • Labor cost will continue in growth Reform and Promoting • Reform in 1978, joined WTO in 2001, Free Trade Zone in Shanghai 2013 • Chinese governor state China rules out strong economy stimulus
74 75 Political Climate Voice and Accountability • Government controls over the freedoom of expression • The Media is controled by the government as well • Government lack of accountability Political Stability • Taiwan and Tibet Indpendence issue • Xinjiang Violence against government Government Effectiveness and Corruption • Government effectiveness rated 60.7 (100 is highest) is at an acceptable level • Goverment is corrupted • Some companies violate the regulation and bribe the governors for avoiding punishment Counterfeiting • Chinese government lack of protection of Intellectual property • Counterfeiting is a big isssue in Chinese Apparel industry   China's Free TradeAgreements   Name   Effective Date   Countries   Textile and Apparel Related Regulation       China-ASEAN FTA       January 1st 2005   Indonesia, Brunei,Malaysia,Vietnam, Singapore, Burma, Thailand,Cambodia, Phillipines,Laos   Using "negatvie list" method for FTA for goods. Goods not on the negative list are regarded as regular goods. ( woven apparel falls into the regular goods category) Tariff to the old members of ASEAN was removed since 2010 Jan 1st ( for regular goods) and Tariff to the new members of ASEAN will be removed in 2015.       China-Pakistan FTA       July1st 2007       Pakistan       Most of the woven fabric falls in the list of "Zero Tariff to Pakistan" Detail on fta.mofcom.gov.cn -"zero tariff list to Pakistan"       China-Chile FTA       Apirl 13th 2008       Chile       No tariff for apparel and textile     China-New Zealand FTA     October 1st 2008     New Zealand New Zealand will remove all the tariff for leather garment, knitting apparel, shoes in 2016 Jan 1st (part of them was removed in 2014 Jan1st) Since 2009 China has signed the preferential agreement for all wool and wool products imported from New Zealand and no tariff       China-Singapore FTA       January 1st 2009       Singapore     No tariff for goods export from China to Singapore since January 1st 2009 No Tariff for 97.1% goods import from singapore since January 1st 2012     China-Peru FTA     April 28th 2009     Peru   The goods were divided into 5 different categories and most of the apparel and textile products fall into the first two categories and the tariff would be removed within 5 years after the FTA signed. Mainland-Hong Kong Closer Economic and Partnership (CEPA)Arrangement     2003     Mainland-Hongkong     "One country, Two system" No tariff     Mainland-Macau CEPAArrangement     2003     Mainland- Macau     "One country, Two system" No tariff     China-Costa Rica FTA     Nov-08     Costa Rica   No tariff for 90% of the goods (both export and import) since August 1st 2011, Textile and Apparel falls into the 90%       China-Iceland FTA       April 15th 2013       Iceland     No tariff for 99.7% of the goods export from china to Iceland, and no tariff for 81.56% of the goods import from Iceland to China. Textile and Apparel falls into these categories.     China-Switzerland FTA       July 6th 2013       Switzerland       Reduced the tariff for textile and apparel that export from China to Switzerland     The Asia-Pacific Trade Agreement (APTA)       1975   China,Bangladesh, India, Republic of Korea, Lao People's Democratic Republic and Sri Lanka   1767 Tariff lines originating from Bangladesh and the Lao People's Democratic Republic are given conventional tariff rates for exports to China. These countries are trading with a preferential tariff 0.5% to 5.0% lower than the applied MFN tariff for 50-63 HS   Trade Agreeements
76 77 Textile Industry TheApparel/industrywasoneoftheindustriesthatChinesegovernment choice to start for the open door policy (the reform in 1978) and it is one of the essence industry since then. The industry had a sign of continuing growth since 1979, the average annual growth rate of total value of textile and clothing output was 13.2%, the total industrial value increase about 7% every year from 1997 to 2002 (except the year Asian financial crisis,1998). And after 2002, the year China joined the WTO, most of the products in this industry grow even faster. (See detail in the image 4.7) Currently, China is the biggest player in producing apparel and textile including cotton, yarn, wool fiber, cotton fabric, silk fabric, garments, chemical fibers and knitted goods. (Detail data in the size section) It has a trend of reduced employment in the apparel/ textile industry, however, it is a sign of development in productivity and efficiency. The industry will be continuing in growth, and with the rise of labor cost and advancing technology it has a trend of entering the high-end market section. The Chinese textile market has a total value of 161.7 billion dollars (2012) and in the past five years the CAGR is 10.8 %. The Fabrics account 76.5% of the total and yarns account for 23.5%. In Asia-Pacific industry, it accounts 41.0% of the total. (Marketline) Position in the Country Apparel and Textile industry is one of the pilar Industry in China since the release of open door policy. Since then, China gained a substantial market share in the international apparel and textile trade. In 1980, China was accounting for 4.6% of the world’s total exports, and ranked as number nine and then since 1995, it ranked number 1 in the world and the growth steadily continued. (Qiu) From China National Textile and Apparel Council statistics, the value of China exported garment and textile products worth $42.4 billion in first two months of 2013 and it was 34.1 percent higher than the same period in 2012 and 8.3 percent higher than the general export growth in the country. (Xinhua) All these data showed evidence of the importance of apparel/ textile industry in China and its steadily growing trend. Government Support &WTO There are three major supports to the apparel/textile industry from government, since the release of 11th 5-Year Plan for the Textile Industry in 2006 by the State Development and Reform Commission. These policies are, develop the innovation and building Chinese brand to the world market, and improve the technologies and equipment and restricting inefficient polluting. (Qiu) Another important action made by the government was being member of WTO. Since WTO allow Members to seek resource in WTO organization, it benefited Chinese Apparel/Textile industry because of the limitation reduction on exporting.
78 79 Reasons for Business China is known as the biggest manufacturer in the world especially in apparel industry. There are several reasons made China to be the first choice of manufacturing for their garments. First, China has the biggest textile industry, which is the nature advantage for manufacturing apparel. China produces bulk amount of silk, cotton, and wool. Besides, China has Free Trade agreement with Australia (known for best quality wool) and could import wool from Australia without tariff and FTA with Peru for high quality cotton, Thailand for high quality silk as well. Second, China has abundant experience of exporting. China is the biggest exporter and second largest importer. Since the revolution in 1979, Chinese government started to support international trading. Nowadays, they are really experienced in trading internationally and strong government support. Thirdly, Sophisticated logistic system and various choices of suppliers are other advantages of manufacturing our garments. China has more than 1500 apparel manufacturers and manyofthemalsoprovideP.Oserviceandclearcustomsforcustomers. This could bring convenience to us for avoiding extra process to bring the merchandise into U.S COUNTRIES - SWOT ANALYSIS SWOT ANALYSIS                           Strength   - Green Conscious   -Sufficient Labor Force   - Strong Connections with Customers   - High Standards For Quality and Craftsmanship         Weakness   - 30-Year Civil War Ended in 2009   - Sri Lankan People Lost Trust in Government   - StrictBusinessEtiquetteto FollowWhenConducting Business       Opportunity   - Becoming Number One Apparel Exporter in World - Political and Economic Stability - Leaders in Green and Sustainable Manufacturing       Threat   - High Amount of Debt   - Losing Revenues After War   - Much Competition Throughout the World   - Monsoon and Typhoon Season 9 Months/Year               SRI LANKA
80 81 SWOT ANALYSIS                           Strength   - Dollarized   - Close ties to the US - Stable labor force - $0.10 /min manufacturing cost - Government support for apparel and textile industry   - Part of CAFTA-DR       Weakness   - Gang violence - Corruption - Costly transportation - Weak accountability of government - Apparel focus is predominantly on knitwear and synthetics       Opportunity   - Elimination of tariffs with CAFTA-DR - Government held conference to identify opportunities in Apparel sector - Close proximity could result in receiving product quicker - Recently rebuilt port may become a hub for transportation   Threat   - Prone to natural disasters - Political uncertainty with newly elected president                   EL SALVADOR INDIA SWOT ANALYSIS                   Strength - Skilled and specialized labors in apparel sector. - Second largest young workforce in the world - The largest cotton producer as well as cotton products. - Supportive foreign policy - Many English spoken professionals - Cost advantage         Weakness   - Poor infrastructure - Inadequate discipline and management - Corruption - Weak implementation on compliance in code of conducts - Unclean environment - Uncertain time management Opportunity - Ease of investment - New government supporting Free Trade Agreements and other policies - Improving economy - Readymade garments dominate exports - Rising incomes and growing middle-class - Increase in exports     Threat     - Low proportion of high technology exports - Increasing air pollution - Recent terrorisms discourage investors           INDIA
82 83 SWOT ANALYSIS                           Strength   -High growth potential   -Young & growing labor force   -Developing textile technologies   -Logistic convenience       Weakness   -Corrupt government   -Long lead times   - Limitedproductplacement -No Trade Agreements with the U.S.         Opportunity   - Free Trade Zone, remove trading barriers   - Continuing trend for industrialization   -­‐  Opportunity  for   investment       Threat   -Natural Disasters   -High inflation rate   -Currency manipulation allegation   -Government Restriction                     Philippines SWOT ANALYSIS                           Strength   -High growth potential   -Sufficient Labor Force   -Leading position in the industry   -Government support for apparel and textile industry   -Logistic convenience       Weakness   -Unstable government   -Lack of Intellectual Property right protection   - Weak accountability of government   -High tariff     Opportunity   - Free Trade Zone, Remove trading barriers   - Continuing trend for industrialization   -­‐  Huge  market  for       investment     Threat   -Increasing labor cost   -High inflation rate   -Currency manipulation allegation   -Government Restriction                           CHINA
84 85   The factors we took into consideration to compare the countries for placing our products are listed in the chart. Overall, El Salvador has the highest score, follow by China and India, Sri Lanka, and Philippines was rated to be the lowest.   We broke down 6 factors, including communication convenience, textile industry condition, labor cost, trade agreement, overall atmosphere in trading apparel and location, to evaluate the benefits for each country. Based on this evaluation chart, we rated China, India and El Salvador to be the higher ones. China has the most sophisticated textile industry and FTA with many other countries could with the textile- supplying sources. India has the cheapest labor cost compare to other countries, and communication convenience. El Salvador is the nearest country to the United States and has assigned CAFTA with the U.S. Philippines and Sri Lanka have fewer benefits. COUNTRY RANKINGS
86 87   We evaluated countries’ business climate based on 5 aspects, the logistic performance, lead time to export, ease of doing business, government support, opennes to foreigners. China and Sri Lanka were rated to be highest countries, India and El Salvador were slightly lower, Philippines has the lowest score majorly because apparel industry is not supported by government and people are more likely to make money in other industries. Cost India has the lowest labor cost among these five selected countries, which is $0.080 per minute for apparel industry, and $200 dollars per month for general minimum wage. China is the second lowest, $0.085 per minute and $240/month minimum wage, however because of the continuing growth of labor cost recent years, China was rated the same as Philippines and Sri Lanka (around $0.10 per minute). El Salvador was rated slightly higher than China, Philippines and Sri Lanka because of the exemption of tariff that lower the total cost. Government Generally, these five countries’ government overall are not in positive position, and each country has its own issues. The Chinese government hasalackofaccountability,overcontrolofmedia,lackoftransparency and has some corruption issues as well. Sri Lanka just ended the Civil war in 2009, the government lack supports by citizens and has corruption issues as well. The Philippines’ government is heavily corrupted and has many embezzlement issues. El Salvador has a newly selected president with anti-US associates, and the government has foreseen instability concerns. So, these four countries were all rated as 5. Comparatively, India has a more stable government. India has a new government with promising bilateral trade ties but some corruption issues still exist.
88 89 Location India, Sri Lanka, and the Philippines are all located in southwest Asia and have long lead-times for shipping merchandise to the U.S. China is closer to the U.S and has a more sophisticated logistic system which made China’s rating 1 point higher than the other three countries. El Salvador, located in Central America, has the advantage of having the shortest leading time.   The comparison factors of risks for selected five countries are listed in the chart above and evaluated threats from these aspects. Each country has its own issues and generally China, India and El Salvador have fewer risks for conducting business. Social Stability Factors such as, the happiness of people in the country, uprisings, war, gang violence, population growth were taken into consideration to evaluate social stability of the selected countries. China’s biggest concern for social stability is the internal terrorist threats, and the Xinjiang violence. The Tibet independence issues are also influencing
90 91 the Chinese society in a very negative way. India has internal and external terrorist as well. In Sri Lanka, citizens are not happy with the new government that just established after the civil war. The major concern for El Salvador’s social stability is the gang violence, and the crime and violence is threatening the social development. The Philippines has a more stable society with no big threats compared to other four countries. Sourcing Guidelines Sri Lanka, the Philippines, and El Salvador companies all have acceptable sourcing guidelines that match with ECRU’s, especially Sri Lanka which known for green production. China’s sourcing guideline is not matching international standard and had several issues while trading, but the latest news indicate the government is enforcing the labor laws and trying to improve the current condition. India has child labor issues but the overall sourcing guidelines control is not as bad as China. Textile Industry Among these five countries, China has the biggest strength in textile industry with abundant raw materials like silk, cotton and wool. Besides, the Chinese government has also invested large amounts of money in purchasing high quality facilities with new technology. India is the second strongest, it has abundant raw materials as well and the overall industry is in a high growth condition. The supply for raw material in Sri Lanka is not as strong as China and India, but they have many factories and textile/ apparel industry is their biggest industry in the country. El Salvador is specialized for producing knits and synthetic textile but lack of raw materials and versatile for production. The Philippines was rated to be lowest because of the textile and apparel industry, which is not supported by the government and in a slow development pace especially in infrastructure. Trade Agreements El Salvador is the only country that has a Free Trade Agreement with U.S. The CAFTA-DR gives free trade if all parts of product are sourced in a participating country. No quotas on imports to U.S. China has 12 FTA with other countries, like Australia, Peru, ASSEAN (south east Asian countries) that could bring benefits for sourcing materials from other countries with lower costs. India only has FTA with ASSEAN and negotiation FTA with Canada and EU countries. Sri Lanka has FTA with Pakistan and India. Philippines has no trade agreement could benefit apparel and Textile industry
92 93 SUPPLIER ANALYSIS Sri Lanka • Brandix Lanka Limited Pvt. Ltd. • Hirdaramani International Export Pvt. Ltd. • Eam Maliban Textiles Pvt. Ltd. El Salvador • Industrias Merlet S.A. de C.V. • Picacho S.A. DE C.V. • Vexsal, S.A. De C.V. Supplier Selection Suppliers’ Highlights & Textile Industies Country Selection Ratings Spreadsheet India • Karle International Ltd. • Mira Exim, Ltd • Eves Fashion Philippines • Reliance Apparel & Fashion Manufacturing, Inc. • Hamlin Industrial Corporation • Excellent Quality Apparel Inc. China • SC International Garment & Accessories Ltd. • Jiaxiang Jingle Fashion • Hangzhou Ourun Fashion Co. Ltd. Countries with Top 3 Suppliers SRI LANKA - SUPPLIERS Sri Lanka’s apparel industry is the highest contributor to the Sri Lankan exports as well as the countries over all economy. The manufacturing industry has grown significantly in the past three years and now employs 600,000 workers. Sri Lanka benefits highly from its positioning at the intersection of the major trade routes between Africa, South and East Asia, Europe and the Persian Gulf. The manufacturers and factories in Sri Lanka have won numerous awards for their “Green” practices and are setting the bar very high for other top manufacturers in countries around the world. Sri Lanka manufactures apparel for companies ranging from high end to low end, including Burberry, Fifth and Pacific Companies, Ralph Lauren, Levi Strauss, Nike, Patagonia, Guess, Gap, Banana Republic and many more. (Panjiva)
94 95 1) Brandix Lanka Limited Pvt. Ltd. 409 Galle Road, Colombo 3 Sri Lanka Phone: +94 11 4727222 Fax: +94 11 2575485 Email: info@brandix.com www.brandix.com Specialization: Woven, Knitted Garments, Intimates and Activewear Brandix is the largest apparel exporter in Sri Lanka. The company opened its first plant in 1972 and they now operate 42 plants across the island and employ over 47,000 individuals. The company sends about 80 shipments a month and they also create their own buttons, thread, fabric and hangers in house. Brandix’s customers include Gap, Old Navy, Lands End, Banana Republic, Lucy Active Wear and Diesel USA. (Panjiva) The company has very strong ties to creating green, environmentally friendly factories and have created the worlds first even LEED Platinum rated manufacturing facility. Brandix values integrity, teamwork, customer service, learning and development, ownership and commitment. The company’s values and commitment to the environment match Ecru’s company make up seamlessly. The fact that this company has worked with well known brands and goes above and beyond to make the customer, as well as their employees happy is something that certainly resonates with Ecru. (Panjiva) (brandix.com) 2) Eam Maliban Textiles Pvt. Ltd. 261, Siri Dahmma, Mawaatha Colombo, Sri Lanka Phone: +94 1268 6391 Fax: +94 1269 9513 Email: nelum@triburgsl.com www.maliban.com Specialization: Blouses, Shirts and Bottoms Eam Maliban Textiles opened 38 years ago in 1976. The factory delivers anywhere from 20 to 200 shipments each month and produced a total of 1200 shipments in 2012. Their customers include Gap, Lands End Joseph A. Banks, Banana Republic, Burberry, Brooks Brother and Ralph Lauren. The company is part of the Garments Without Guilt Organization and adheres to a strict code of ethical guidelines and practices to develop their products economically. (Panjiva) This manufacturer takes part in corporate social responsibility and maintains sustainable levels of water, chemical and energy usage, practices safe waste disposal and continuously acts to improve their carbon footprint. Eam Maliban contributes much of its efforts
96 97 to improving the country, community and lifestyles of its employees and offers them and their families many benefits outside of the work environment. (Panjiva) Eam Maliban is “committed to producing world class products”, and again they would be a great manufacturer for us to work with. They have supplied to top retailers, on the same level, quality and price points of our garments. But, they also have a strong social, economically and philanthropic commitment to their country, their community and their workers, which is very important to Ecru. (Panjiva) (maliban.com) 3) Hirdaramani International Export Pvt. Ltd. Level 23, West Tower, World Trade Center Echelon Square, Colombo, Sri Lanka Phone: +94 77 7744180 Fax: +94 11 2446135 Email: vinod@hirdaramani.com www.hirdaramani.com Specialization: Woven Garments Hirdaramani International Export has been in business for 120 years and operates 28 factories in Sri Lanka, Bangladesh and Vietnam. The Sri Lankan Factory opened in 1954 and has grown to reach a capacity of 1 million garments per month. The facility delivers about 250 shipments each month. Their customers again range from high-end to lower end but the facility mainly specializes in woven garments. Their customers include, Levi’s, Patagonia, The North Face, Guess, Fifth and Pacific Companies, Liz Claiborne, Ralph Lauren, Nike, Eddie Bauer and many more. (Panjiva) The company’s main focus has always been on fit, style and quality and they have been called “the pioneers in the apparel industry”. Hirdaramani has a high focus on corporate social responsibility and has become the first carbon neutral factory in Asia. They are constantly looking for new ways to cut back to improve their carbon footprint and help the environment. Hirdaramani also adheres to a strict ethical code of conduct and standards. The company offers free healthcare to their employees and their families, they offer free training programs and leadership opportunities for staff members and are constantly investing back into the community in local sports and schools to help further the country as a whole. (Panjiva) This manufacturer would be perfect for Ecru. Their amazing sustainability act and their motivation to cut back on emissions and help save the environment is something Ecru is very passionate about as well. Creating a business that has strong integrity and gives back to the community is what Ecru has made it our mission to do. Creating garments with such a sustainable and philanthropic manufacturer like Hirdaramani is exactly the right partner to have on our mission. (Panjiva) (hirdaramani.com)
98 99 EL SALVADOR - SUPPLIERS El Salvador has 62 suppliers that manufacture apparel, 15 of which manufacture women’s apparel. Many of the manufacturers lack a website and several show inactivity in recent years on Panjiva. Although El Salvador produces both woven and knit apparel, the woven apparel is predominantly for bottoms, children’s wear and men’s button down shirting while knit apparel has greater diversity and is produced in much larger quantities. 1) Industrias Merlet S.A. de C.V. Merlet was established in 1980 and specializes in knitwear, loungewear and active-wear but also produces women, misses and juniors blouses (Merlet). They are located at Industrias Merlet, S.A. de C.V. Calle Why we selected these manufacturers: When looking at these manufacturers it is clear that they are all very concerned with the quality and craftsmanship of their garments as well as their ethical standings in the workplace and with the environment. Because both Sri Lanka and Ecru very invested in keeping the environment safe, this country and its apparel facilities is a very strong contenders for manufacturers Ecru’s women’s woven tops. Due to the fact that not all of these manufacturers specialize in woven wear, we have narrowed down the selection to the top three; Hirdaramani, Eam Maliban and Trendy Wear.
100 101 Circunvalación, Polígono A #3, Urbanización Industrial La Laguna, Antiguo Cuscatlán, La Libertad, El Salvador, C.A. and can be found online at http://www.imerlet.com/. Merlet’s Vision is “To become a leading international apparel company, providing integrated production capabilities, design and commercialization services with the highest quality standards; thus satisfying our customers’ demands in a prompt, efficient and reliable manner, which permits us to enhance and support the economic and social development of our associates and Country” (Merlet). They are well developed in knit apparel and capabilities include design, development, manufacturing and distribution of fabrics and apparel. Customers include Levi Strauss, Tailgate Clothing Co. and Carhartt. Merlet has experience with over 1,754 shipments and is able to produce 400,000 units/week, while lead time varies between 2-12 weeks (“Technical Profile”). Merlet’s values appear to be in line with that of Ecru’s as they practice nondiscrimination and equal opportunities and value safety and hygiene through the conduction of internal and external audits. They do not employ anyone under the age of 18 and abide by all government laws including hours of work, overtime compensation, minimum wage and fringe benefits. 2) Picacho S.A. DE C.V. Picacho is a woven apparel manufacturing company located at Km. 26.5 Carretera a Santa Ana La Libertad, El Salvador which was established in 1992 with a mission to become the regional leader in quality dress shirt manufacturing. In 2006 Picacho merged with BVM which has their corporate headquarters in New York. Picacho’s website can be found at www.picacho.com.sv/home.htm and more information can be found at www.B-W-A.com under manufacturing. Picacho’s customers include Ben Watcher Associates which has orderedover900shipmentsprimarilyofmen’spoplinshirts,LizClaiborne, LL Bean, Dillard’s, DKNY and Izod. The majority of their orders have been cotton shirting although products include woven sport shirts and blouses, high end security uniforms, sleepwear and loungewear. Although their orders are predominantly men’s wear, they produce women’s and children’s wear as well as their “main goal is to be flexible, to respond quickly and efficiently, making sure that your order is processed promptly and according to your exact specifications” (Products and Services). Their capacity is 350,000 units a month and 50,000 units per week specifically in woven shirts (“Manufacturing Specs”). Lead times for garment production are 30 days from date of fabric received at the factory and garments are shipped FOB from El Salvador or LDP from BVM public warehouses in Miami Florida (http:// b-w-a.com/manufacturing-2/ ). Production facilities include a sewing room, a cutting room, a trims warehouse, a fabric warehouse, a product development office and an administrative building. The company strongly believes in in the well-being of their employees and invests in them through the offering
102 103 of a healthcare clinic where employees and their families receive free medical attention, a community school for the children of employees ages 5 through 17, a free daycare open to the community as well as employees staffed by trained nannies, a cafeteria and bakery and a discount store in addition at having recreation facilities such as a soccer field and volleyball court (“Social Responsibility”). 3) Vexsal, S.A. De C.V. Vexal is a manufacturing company which specializes in men’s woven shirts. Of the 242 shipments that appear on Panjiva, 170 utilized cotton fabric, while 53 included woven shirts. Clients include Wal-Mart, Nu Image Fabrics, Paris Accessories Inc and Ben Elias Industries Corp. Vexal is located at Carretera Panamericana Ote Km 15 San Martin and although they lack a website, they were recommended to me by the Vice President of Pro Dept, Ali Gitomer. In speaking to Roberto Bonilla, I learned that Vexal has been in business for 22 years and produces 60,000 units/week with a 2.5 week lead time. The company values their employees and only hires those ages 18 and above although most employees hired are age 20 and above. Employees work 44 hour weeks, earn minimum wage plus a bonus and are subsidized food. In the same phone interview I learned that Vexel strives to be ecofriendly and recycles bi-products and all cartons and gives left over fabric to recycling companies for reuse. While El Salvador has been making advancements in the apparel and textile industry, it is knitwear and synthetic textiles that they predominantly produce. Some woven apparel is made but it is almost always for bottoms. In speaking with some of the manufacturing companies, it became very apparent that El Salvador is not the place for ECRU to manufacture it’s woven tops as they could only direct me to 2 companies that produce woven tops, and one of them only makes wovenshirtsformen.IfforsomereasonnoneoftheothercountriesECRU is sourcing are a better option, I would recommend manufacturing with Picacho as they already work with several American companies and their values seem align with those of ECRU. I would suggest visiting the factory and talking to the owners and employees prior to making any decision if ECRU does decide to manufacture in El Salvador.
104 105 India has almost 850 suppliers that manufacture and specialize in woven apparels. Women apparel industry in India is very competitive and many companies’ contact and information are available online through individual and trade websites. However, many companies don’t provide valid information about their customers, product quality, and sourcing guidelines; some produce only knitted clothing, some don’t have adequate services, and some don’t even do businesses with the US companies. ECRU was able to find several suppliers that meet the criteria in terms of ability in making quality women’s woven cotton tops, valid customers, services, production capability, and management. Among the 5 suppliers we initially selected, we narrowed down to 3 potential suppliers that are able INDIA - SUPPLIERS to produce ECRU’s products. Not only these suppliers can make women’s woven tops but also their customers are notable and high- end US retailers that provide similar products to ECRU. They provide other services and capability that will help ECRU grow as a company in the future. Ecru looks for suppliers who have these following criteria: 1) Karle International Ltd. This supplier can produce any type of garments from basic to fashion. It can also manufacture casual wear, activewear (seam sealed jackets, rain gear, jogging suits, swim shorts), and refined collections. Products offered range from tops (shirts/blouses), bottoms (pants/skirts/crop), and outer wears (jackets/blazers/ overcoat) The supplier not only specializes in womenswear but also have abilities to make menswear and childrenswear as well. The most important thing is that Karle International is able to produce women woven tops from cotton fabrics for ECRU. The factory locates in Bangalore where it’s known for IT hub and woven apparel area. There are over 6500 employees working in four manufacturing units. The company has annual turnover around $55 US million and manufacturing capacity of 450,000 units monthly. Its customers consist of notable retailers such as Ann Taylor, J. Crew, Esprit, Express, Ralph Lauren, American Eagle Outfitters, Eddie Bauer, Nordstrom,
106 107 Superdry, and Coldwarer Creek. The supplier provides multiple services from design development, raw material sourcing, sampling, lab test, cutting, sewing, finishing, and washing. The company takes approximately 90 days for the lead time. The factories are audited and approved by nominated auditor for Compliance and Social accountability. The company has participated in conservation of Environment and prepare Environment policy, waste management & rain water harvesting. The supplier is highly committed to new innovation and creativity. Its core values consist of excellent quality, corporate social responsibility, transparency, and sustainability. The products are also very well constructed and professional made. 2) Mira Exim, Ltd The supplier are specialized in women’s woven and knitted clothing. Its customers consist of high-end retailers such as JP Boden, Sugartown Worldwide Inc, Stella McCartney, Nicole Farhi, Bebe, Burberry, Diane Von Furstenberg. The supplier takes approximately 90 to 120 days for the lead time. The supplier offers the highest standard of quality and punctual delivery at competitive prices. Mira Exim Ltd is also an ISO 9001:2008 and SA 8000:2008 certified organization in which it follows international standards and regulations. The company emphasizes its sourcing guideline which include ethical business practices, sustainability concern, safe and healthy environment, as well as opposing child labor, forced labor, or any unethical practices. All these qualities are relevant to Ecru’s business practices and sourcing guidelines as well. 3) Eve Fashion The supplier is specialized in women’s woven tops, readymade garments, and accessories. Its customers consist of notable retailers like Benetton, DW Shop and Primark. The company has annual turnover around $3 US million and manufacturing capacity of 125,000 units monthly with approximately 75-90 days lead time. The company has adequate quality control such as fabric inspection, cutting control, fabric process control, and In-house inspection. The factory is fully equipped with updated technology and modern manufacturing facilities. The company also operates with integrity and has concern over social environmental responsibility and sourcing guideline such as air cooled and well lit facilities, fire safety measures, water treatment plant, prohibition of child labor, first-aid facilities, recycling of resources, and energy efficient devices.
108 109 PHILIPPINES - SUPPLIERS 1) Reliance Apparel & Fashion Manufacturing, Inc. Producing 200,000 pieces per month, Reliance Apparel seems to be the most qualified and skilled manufacturer in the Philippines regarding woven apparel. Reliance has a commitment to pursue excellence and always invests in new machinery, upgrades their technology, and improves processes, systems, and procedures in order to be in the forefront of the industry. Out of the five manufacturers researched in the Philippines, Reliance would be the best facility to entrust with creating our products. 2) Hamlin Industrial Corporation Hamlin offers various capabilities in product assortment and quality for men’s and women’s contemporary sportswear. According to the information available, they are able to produce about 50,000 items per month. Hamlin has potential to be a good manufacturer for ECRU’s woven tops.
110 111 3) Excellent Quality Apparel Inc. Excellent Quality Apparel promises a lot in its name, however very little is delivered as far as available information. Although EQ conducts business with reputable brands, the lack of information available is disheartening and may not be viable for ECRU to do business with. CHINA - SUPPLIERS 1) Jiaxiang Jingle Fashion
112 113 Evaluation The biggest advantage of Jiaxing Jingle is their high quality of garments, as well as their specialization in tops. The company has had much experience supplying to high-end brands such as Burberry, CK and Guess. The only issue may potentially be the longer lead time. Since we do not have sufficient experience with scheduling, the long lead-time might pose a problem for the release of new collection. 2) SC International Garment & Accessories Ltd. Evaluation SC is not as experienced as other companies since it has only been in business for 8 years. However, they do specialize in shirts and have a great deal of experience in working with American customers such as Tommy Hilfiger. SC may be a very good choice for our manufacturing because they do accept small quantity orders. Furthermore, they provide a very in depth code of conduct matching very closely to that of Ecru’s. 3) Hangzhou Ourun Fsshion Co. Ltd. Evaluation Ourun could be considered as a very internationalized company. According to their company introduction, they are able to produce
114 115 garments with consistent quality and in short lead-time in bulk. The company has a significant amount of experience, especially for international customers and language barriers will not pose problems when conducting business. However, most of the products they make are for mass-market or fast fashion, the quality control could be a major issue. In the initial process of selecting suppliers in China the first factor we took into consideration are the sourcing guidelines from the suppliers and their quality because these are the core value of our company. China has a very negative reputation in the past years following the government policy and obeying the sourcing guidelines. The sourcing guidelines established by companies in China are lower than the international standard. Even Chinese government is trying to reinforce related labor laws and policies, investigate suppliers’ sourcing guidelines is an important process for selection. Besides, as a high end store in NYC quality is our key competence especially for our basic items (woven tops), which need to be worn year round by customers. In order to avoid loosing customers, we need to select the suppliers that have strict quality control on their produced products. One of the strategies we used to evaluate their code of conduct and quality control is view their previous customers. Companies and brands that have good reputation and abundant experience sourcing manufacture internationally are more likely to build relationship and conduct cooperation with reliable suppliers. In the chosen 3 suppliers, especially Jiaxing Jingle, they all have a strong customer list consists reputable brands like Burberry, Guess and Adolfo Dominguez. Besides the quality and sourcing guidelines of the suppliers we also evaluated their capacity, lead-time, customers, experience, focus, whether they could produce satisfactory level woven garments. Based on these evaluations we selected Hangzhou Ourun Fashion Co., Ltd, because of its shortest lead-time and high efficiency customer service; SC International Garments and Accessories Co. Ltd. since its code of conduct highly matches with ECRU’s, they are also very experienced in producing woven garments and they have work with Tommy Hilfiger for many years; Jiaxing Jingle is the best one among three suppliers not only because of their excellent customer portfolio but also their well-organized company management system and great customer services.
116 117 The abilities of manufacturing are mostly based on the range and variety of their products. For example, companies like Jiaxing jingle, SC, Karle Int. Eam Maliban could produce both men and women’s apparel, woven, knitting, tops, buttons and jeans..etc. In comparison companies like Hirdaramani, Industrials Merlet, Vexsal have much narrower focus, and some of them only provide knitting products, SUPPLIER RANKINGS In order to make a better selection for our final placement strategy, we broke down the suppliers rating into 12 aspects to evaluate the 15 suppliers, 3 from each country selected earlier. And as the total and average scores shows, Jiaxing Jingle from China, Karle Int. from India, and Eam Maliban from Sri Lanka are the best suppliers among the 15 and where our final placement could be.
118 119 also willing to build relationship with different kinds of new companies. Companies that tend to produce for mass market or lower level brand were rated lower since ECRU is considered as a high-end brand in the market position. We evaluated the flexibility of a company by how fast the company could turn from one category of products to another. Other factors we took into consideration to evaluate the flexibility is how many production lines suppliers have and the variety of categories they produce. Based on the information provided by the suppliers, lead-time for manufacturing generally ranges from 2 weeks to 120 days. Ourun has the highest score because they could make sample within 24 hrs and has the shortest lead-time compare to other suppliers. Vexsal was rated to be the lowest since they need 120 days for manufacturing. The way we evaluate the level of management for suppliers based on how they organized the structures of their companies. Whether they have sophisticated method to mange the producing chain and how they organize the production teams. For example, companies like Jiaxing Jingle, Karle Int. provide image and word description of how the process of production was organized and function as a big team. Besides, they are also vertical integrated could provide convenience for sourcing fabrics. which made them rated to be much lower than other companies. We evaluated the capacity of suppliers by view how many pieces they produce monthly. Industrias Merlet and Hirdaramani have the largest capacity among 15 suppliers, Industrias Merlet produces around 1600,000 pieces per month and Hirdaramani produces 100,000 pieces per month. Companies produce 100,000 pieces per month or lower were rated to be comparatively lower. We received price quotation from Jiaxing Jingle and Karle Int. and Eam Maliban, the price offered by these three suppliers are all higher than our estimated costs. Karle Int. is the company gave the highest price offer, which almost doubled our estimation. Jiaxing Jingle and Eam Maliban provided comparatively reasonable costs and Jiaxing Jingle is lower than Eam Maliban. From the communication process with the suppliers we evaluated and scored their customer services based on their attitude of conducting business, whether they reply emails on time and the information provided by their customer service officers. Companies such as Jiaxing Jingle, SC, Karle Mira Exim, Eam Maliban, Reliance have a long list in their customer portfolio and they have been worked with many reputable brands like Stella McCartney, Burberry, Guess, Ralph Lauren..etc Besides, they are very versatile as well, they have established long term cooperation with reputable brands and
120 121 We evaluated the suppliers’ quality based on the quality level of their previous customers and how they organize the quality control team and process. The companies offer other services after production are evaluated to have higher score. And companies offer sewing and cutting service only were scored to be lower. Jiaxing Jingle, and Karle int. have their own mills and they have FOB destination, could cover the freight, insurance and clear the customs for products importing to U.S. We compared companies’ sourcing guidelines to ECRU’s and evaluate whether they match with ours. The companies have more strict control of their sourcing guidelines and matches ECRU’s code of conduct best were rated to be highest. The companies do not provide code of conduct or with very limited info about it were rated to be lower. We evaluated the strategic outlook of companies based on the direction they are tending to lead their companies to, whether the companies are looking for growth in the future and how much their growth space is. COSTING Preliminary Costing Initial Costs VS Preliminary Costs
122 123 countries. Overall, the cost ranged between $4.19 and $7.25 in China, $4.16 and 7.25 in India, $4.33 and $7.74 in Sri Lanka, $4.41 and 8.04 in the Philippines and $3.78 and $7.04 in El Salvador. In all countries, every look is expected to exceed an average margin of 94.98% when looking at initial cost comparisons. Style Name Style # Retail Price China Cost Margin% India Cost Margin% Sri Lanka Cost Margin% Philippines Cost Margin% El Salvador Cost Margin% Latte WS#3100 $ 120.00  $                        4.19   96.51%  $                        4.16   96.53%  $                                    4.33   96.39%  $                                            4.41   96.33%  $                                      3.78   96.85% Barley WS#3202 $ 90.00  $                        4.27   95.26%  $                        4.23   95.30%  $                                    4.43   95.08%  $                                            4.52   94.98%  $                                      3.86   95.71% Ivory WS#3400 $ 140.00  $                        4.92   96.49%  $                        4.86   96.53%  $                                    5.20   96.29%  $                                            5.35   96.18%  $                                      4.59   96.72% Bisque WS#3500 $ 120.00  $                        4.35   96.38%  $                        4.30   96.42%  $                                    4.52   96.23%  $                                            4.61   96.16%  $                                      3.94   96.72% Desert Sand WS#3600 $ 180.00  $                        7.25   95.97%  $                        7.11   96.05%  $                                    7.74   95.70%  $                                            8.04   95.53%  $                                      7.04   96.09% Average Price $ 130.00 Average Cost $ 5.04  $                        5.00    $                        4.93    $                                    5.24    $                                            5.39    $                                      4.64   Average Margin 96.12% 96.16% 96.21% 95.97% 95.86% 96.43% ECRU Initial Cost Comparison by Countries PRELIMINARY COSTING In looking at initial costing figures for each country, El Salvador offered the cheapest average cost with an average margin of 96.43%. India and China were close behind with average costs of $4.93 and $5.00 respectively. With an average cost of $5.39 and an average margin of 95.86, the Philippines is by far the most costly country to manufacture in and has the lowest average margin between the Style Name Style # Retail Price China Cost Margin% India Cost Margin% Sri Lanka Cost Margin% Philippines Cost Margin% El Salvador Cost Margin% dsion) Latte WS#3100 $ 120.00  $                        4.19   96.51%  $                        4.16   96.53%  $                                    4.33   96.39%  $                                            4.41   96.33%  $                                      3.78   96.85% urtney) Barley WS#3202 $ 90.00  $                        4.27   95.26%  $                        4.23   95.30%  $                                    4.43   95.08%  $                                            4.52   94.98%  $                                      3.86   95.71% ha) Ivory WS#3400 $ 140.00  $                        4.92   96.49%  $                        4.86   96.53%  $                                    5.20   96.29%  $                                            5.35   96.18%  $                                      4.59   96.72% dan) Bisque WS#3500 $ 120.00  $                        4.35   96.38%  $                        4.30   96.42%  $                                    4.52   96.23%  $                                            4.61   96.16%  $                                      3.94   96.72% g) Desert Sand WS#3600 $ 180.00  $                        7.25   95.97%  $                        7.11   96.05%  $                                    7.74   95.70%  $                                            8.04   95.53%  $                                      7.04   96.09% Average Price $ 130.00 Average Cost $ 5.04  $                        5.00    $                        4.93    $                                    5.24    $                                            5.39    $                                      4.64   Average Margin 96.12% 96.16% 96.21% 95.97% 95.86% 96.43% ECRU Initial Cost Comparison by Countries
124 125 cost which averages $4.64 per unit with an average margin of 96.43%. The average margin when looking at the preliminary costs of ECRU’s top countries is 95.88%. In looking at the preliminary costs, we believe that ECRU has great opportunity for profiting due to the high margin predictions. The high margins also allow ECRU to have some wiggle room if it is necessary when conducting negotiations to settle on final costs. Style Name Style # Retail Price China Margin% China Margin% Sri Lanka Margin% Sri Lanka Margin% El Salvador Margin% El Salvador Margin% Latte WS-3100 120.00$ 4.19$ 96.51% 4.81$ 95.99% 4.33$ 96.39% 5.20$ 95.67% 3.78$ 96.85% 3.78$ 96.85% Barley WS-3202 90.00$ 4.27$ 95.26% 4.69$ 94.79% 4.43$ 95.08% 5.53$ 93.86% 3.86$ 95.71% 3.86$ 95.71% Ivory WS-3400 140.00$ 4.92$ 96.49% 5.75$ 95.89% 5.20$ 96.29% 6.24$ 95.54% 4.59$ 96.72% 4.59$ 96.72% Bisque WS-3500 120.00$ 4.35$ 96.38% 5.00$ 95.83% 4.52$ 96.23% 5.65$ 95.29% 3.94$ 96.72% 3.94$ 96.72% Desert Sand WS-3600 180.00$ 7.25$ 95.97% 8.56$ 95.24% 7.74$ 95.70% 9.68$ 94.62% 7.04$ 96.09% 7.04$ 96.09% 130.00$ 4.96$ 5.00$ 5.24$ 4.64$ 5.62$ 5.76$ 6.46$ 4.64$ 95.88% 96.16% 95.57% 95.97% 95.03% 96.43% 96.43% Average Price Average Initial Cost Average Prelim Cost Average Margin ECRU Initial Cost V.S Prelim Cost INITIAL PRELIM INITIAL PRELIM INITIAL PRELIM INITIAL COSTS VS. PRELIMINARY COSTS After sending tech packs to potential suppliers, we were able to compare ECRU’s initial cost sheets with the manufactures’ preliminary costs. China’s average cost grew by 15.2%, bringing its average cost up to $5.76 and its average margin down to 95.57%. Sri Lanka’s average cost increased by 23.28% decreasing its average margin down to 95.03% and raising the average unit cost to $6.46. El Salvador’s manufacturers did have yet to respond with their quote for ECRU’s five looks, and so the preliminary cost is merely a reflection of the initial Style Name Style # Retail Price China Margin% China Margin% Sri Lanka Margin% Sri Lanka Margin% El Salvador Margin% El Salvador Margin% Latte WS-3100 120.00$ 4.19$ 96.51% 4.81$ 95.99% 4.33$ 96.39% 5.20$ 95.67% 3.78$ 96.85% 3.78$ 96.85% Barley WS-3202 90.00$ 4.27$ 95.26% 4.69$ 94.79% 4.43$ 95.08% 5.53$ 93.86% 3.86$ 95.71% 3.86$ 95.71% Ivory WS-3400 140.00$ 4.92$ 96.49% 5.75$ 95.89% 5.20$ 96.29% 6.24$ 95.54% 4.59$ 96.72% 4.59$ 96.72% Bisque WS-3500 120.00$ 4.35$ 96.38% 5.00$ 95.83% 4.52$ 96.23% 5.65$ 95.29% 3.94$ 96.72% 3.94$ 96.72% Desert Sand WS-3600 180.00$ 7.25$ 95.97% 8.56$ 95.24% 7.74$ 95.70% 9.68$ 94.62% 7.04$ 96.09% 7.04$ 96.09% 130.00$ 4.96$ 5.00$ 5.24$ 4.64$ 5.62$ 5.76$ 6.46$ 4.64$ 95.88% 96.16% 95.57% 95.97% 95.03% 96.43% 96.43% Average Price Average Initial Cost Average Prelim Cost Average Margin ECRU Initial Cost V.S Prelim Cost INITIAL PRELIM INITIAL PRELIM INITIAL PRELIM
126 127 STRATEGY DEVELOPMENT When looking at Ecru Basic’s sales plan one can see that it is broken down by garment and then by month. Our top selling woven tops are the Ivory and the Desert Sand. Ecru feels that these two garments are going to be the most versatile as they do have a collar they can be worn to work, they can also be dressed down, and even layered to be worn in the colder months. We see these pieces to be at or over 100,000 units over the course of the first year. Our other pieces, while they are not the top sellers are still going to make up a large portion of sales for the first year and range from 76,000 to 90,000 total units for each look. Of course, our garments are going to fluctuate with the seasons and the holidays, making selling quantities higher between the months of May, June and July and then again during December. However, this is our basics line and we anticipate a steady sales flow all year round. Ecru has very high hopes for this Basics line and we feel that is it just what our loyal customers are asking for, which is why we are projecting large volumes of sale.
128 129 CHINA In the country-ranking chart, China was ranked second among 5 countries and China is known as world’s biggest manufacturer. For a new company like Ecru choosing a sophisticated market to source manufacturing is definitely a wise choice. Overall, China has better socio-eco-political climate in general compare to other countries, as well as business climate. China has very flexible business etiquette and it is easy to conduct business. China is the second biggest country in economic standing, after U.S. In recent years it has tended to have a slower growing rate but it is still in a positive shape. However,thewageofemployerisgrowingupaswellwhichmeans the cost of manufacturing in China will be drive up as well. From the research, China has a tendency to switch from manufacturing bulk products in low quality and low cost to high quality and the government has invested large amounts of money to purchase upgraded technologies and new facilities. This could benefits companies like us aiming to source high quality products in the long run. China is ranked No.1 for exporting especially apparel and textile, which means China, is the one of the most experienced traders. Many suppliers offer customer service in up to 15 languages and could cover freight, insurance, and clear the customs for buyers. Since the reform in 1979, the Chinese government started to reinforce laws and policies to support international trading. The business etiquette is not hard to follow as well, and since most Chinese people are atheist religion and suspicion issues would not need to be taken into consideration like many other countries. China’s apparel and textile market size is ranked as NO.1 as well. There are total of over 15,000 apparel manufacturers in China. Because of this fierce competition Chinese manufacturers are more likely to work hard on making deal and the high pressure from the market could avoid them to overprice the manufacturing. China also has the largest amount of workforce in the world. The majority of the population in China is still at the working age, there are some concerns for aging population in the future because of the one-child-policy, however it will not influence the industry within five years. China has and abundance of resources of raw materials. As we all know, China produces the largest amount of silk every year and they have wool, and cotton as well. The Chinese government has signed 12 Free Trade Agreements including with Australia (where has the best quality wools), Peru (well-known pima cotton productions), and Thailand (ASSEAN) (world’s best silk). These could benefits buyers to source high quality raw materials in a lower cost since the tariff is eliminated. However, the inflation rate has a trend to going up, which
130 131 could lead the increase of cost for raw materials in the future. Another major concern for conducting business in China is government’s weak control over the labor laws and policies reinforcement. Manufacturers are generally lacking awareness of the importance of sourcing guidelines. In recent years, the Chinese government started to focus on improving the market conditions, however,Romewasnotbuildinoneday,Sourcingguidelinesneedtobe ensured to match with our company’s while selecting manufacturers. After we went through the elimination process we selected three most qualified suppliers for our companies. We analyzed the three suppliers in depth by focusing on their quality, previous customer lists, customer service, sourcing guidelines and service offered. Since our company believes in quality over quantity, the capacity of manufacturers is not our biggest concern and the selected manufacturers are all capable of manufacturing our products within an acceptable time period. Overall, the biggest strength for Ourun is their short lead-time. They can manufacture the sample within 24 hours and finish the entire pack of merchandise with 20 days. However, compare to other two, it lack of brands with high quality products in their customer list. Most of their previous customers were fast fashion brands such as forever 21, H&M and ZARA, so that their standard of quality might not meet with ours. Further more, the information they provided on sourcing guideline is very vague and does not contain much information. SC and Jiaxing Jingle has very similar strengths, both of them have reputable brands in their customers lists, such as Ralph Laruen, Burberry, Guess, Tommy Hilfiger etc. Jiaxing Jingle is much more flexible even they have less employer but their capacity is much bigger than SC which means their manufacturing process might be more well organized and efficient. Jiaxing Jingle has more production lines as well so that they could switch from one to another easier. Both SC and Jiaxing Jingle are vertical integrated, they have own mills could provide dying services, and weave the fabrics the way customers wanted. This could highly reduce the lead-time and cost on sourcing fabrics and much more convenient to the buyers. In addition, Jiaxing Jingle is a full package manufacturer and could provide FOB destination service, and will clear the customs for buyers. They also have excellent customer services. All emails were replied in one day and their customer officer called us to ask for detail of the order. They provide step-by-step guides for customers to know their manufacturers better large amount production pictures were shown on their factory introduction brochure. SC is not as good as Jiaxing Jingle in the aspects list above, however, SC has much shorter lead time than Jiaxing Jingle (Jiaxing Jingle need 70 days and SC only needs 30 days), and SC’s sourcing guidelines is more detailed, and they took environment protection and intellectual property protection into consideration for their company.
132 133 SRI LANKA Sri Lanka’s textile and apparel industry generates the most revenues for the country and for its government. The Sri Lankan manufacturers are well renowned all over the world for their top customer service, high quality garments and strong commitment to the green manufacturing processes. At the end of 2013 it was announced that Sri Lanka was on its way to becoming the top garment exporter in the world in the next five years. The manufacturing facilities in Sri Lanka have been evaluated and ranked based on twelve different categories; abilities, capacity, costs, customer service, customers, flexibility, lead time, management, quality, service offered, strategic outlook and sourcing guidelines. It was very important for Ecru to deeply look into each one of these categories for potential manufacturing opportunities in Sri Lanka. Each of these twelve categories had very strong ratings and Ecrus top concerning categories such as quality, customer service, costs, and current customers had very strong numbers and near perfect scores making Eam Maliban the winner out of the top five proposed Sri Lankan manufacturers. Risks: - Long distance from the U.S. - Potential high lead times and freight costs - Country is in a lot of debt - Lower capacities than other larger countries are capable of - Typhoons and Monsoons 9 months out of the year Benefits: - Over 100 years of apparel manufacturing experience as a country - Top green manufacturer ranking country in the world - Won LEED Platinum Rated Manufacturing award - Well known, high-end, reputable customer base - Apparel is the country’s main export and brings in the highest revenues - Updated technology - In depth code of ethics and conduct for factory workers - Takes pride in the quality and craftsmanship of their work After much deliberation and ranking it has been determined that Eam Maliban is the top apparel supplier in Sri Lanka with many benefits and attributes outweighing its competitors. These benefits include there high focus on quality craftsmanship, their corporate social responsibility and their code of ethics describing and showing the fair and upstanding treatment of their workers. Eam Maliban focuses much of its efforts on the well being of its staff as well as practicing
134 135 EL SALVADOR Manufacturers were selected based on many factors, including their abilities, flexibility, lead-time, capacity, customer service, value added services, management, quality, customers, their values and how well they align to ECRU’s sourcing guidelines, and their outlook towards the future. In evaluating manufacturers it was important to look at the range of apparel that can be developed as well as the ability to product the products we intend to make at the quality we find acceptable. As a relationship develops, ECRU will benefit most from a manufacturer that is flexible in its abilities and diverse so that ECRU can grow into new product categories and lines. Capacities, lead-time and distance were weighted against each other. The weighing of risks and benefits was utilized to compare manufacturers. Looking at how long a company has been in business and the clients that they work with will help to gain insight into how experienced and knowledgeable a company is, how secure their business is financially, the level of quality a manufacture provides and the level of customer service offered. The location also needs to be considered as different times of year bring different weather patterns, some of which can cause devastating natural disasters that could interrupt production if a factory is destroyed or if evacuations are ordered. green manufacturing techniques all throughout the facility. It is no wonder that this facility has been ranked to high and is sought after by many name brands clothiers. Eam Maliban Textiles is known for their commitment to creating world-class products. Customers include Gap, Lands End, Joseph A. Banks, Banana Republic, Burberry, Brooks Brothers and Ralph Lauren. Eam Maliban is also a major part of the Garments Without Guilt Organization, which contains a group of manufacturers all adhering to a strict code of ethics and conduct, who develop their products economically and environmentally friendly. The customer and company ethics align seamlessly with our luxury fashion brand, Ecru giving us piece of mind knowing that Eam Maliban will provide us with the quality and ethical standing that we are ultimately looking for. Sri Lanka is a wonderful country to do business with; the people are very friendly and welcoming and the manufacturing facilities are very up to date and are able to produce a large variety of garments and styles. There are many mills close by the Eam Maliban facility, so outsourcing fabric will not be an issue. Even though Sri Lanka is quite far from New York labor and freight prices are very competitive and reasonable and Ecru feels very comfortable working with Sri Lanka on their new Basics Collection
136 137 For El Salvador, Picacho ranked highest among the potential manufacturers. Although Picacho has a lower capacity, producing 50,000 woven apparel units per week, its close proximity to the US and 30 day lead-time from when fabrics are received at the factory make up for the lower production abilities: as product will be received more regularly and quicker than more distant manufacturers. Picacho ranked highly in the category of meeting our sourcing guidelines. The company puts such a great emphasis on the heath and safety of its employees, providing them with a cafeteria that subsidizes its prices, recreational areas such as volleyball courts and soccer fields to encourage teamwork and a healthy lifestyle. Picacho also offers employees and their family free, on-site medical care, free daycare and free schooling for their children. In working with customers such as Liz Claiborne, LL Bean, Dillard’s, DKNY and Izod, we can be assured that Picacho produces quality garments that also meet sourcing guidelines. In evaluating future requirements, the company’s history, ability to product an array of products, the machines utilized and the value they place on their employees were taken into consideration. Picacho which was found in 1992 has been around for over two decades, which has allowed them to develop specializations in the woven apparel industry. Picacho merged with the American company, BWA, in 2006 which benefited the company’s growth by strengthening and creating connections with mills in other parts of the world and by creating a -Risks • El Salvador’s climate is a risk as it is prone to earthquakes, volcanic activity, hurricanes, flooding and mud slides. • Slow economic growth • Corruptionandgangviolence,althoughnomoreriskythanothercountries • Low capacity- 50,000 woven apparel units/week • Uncertain political environment with a new left? Wing president -Benefits • Over 20 years’ experience • FreetradewithCAFTA-DRifmaterialsaresourcedforanincludedcountry. • Short lead time- 30 days • Close proximity to the US- quick transportation of goods • Same time zone, conversations can take place in real time • The US dollar is the official currency- no currency exchange fluctuations • Democratic • No terrorist threats • Apparel is the county’s main export • Well known customer base • Takes pride in its employees • Updated technology • Versatile in product capabilities
138 139 stronger link between El Salvador and the US. The company is also experienced in utilizing CAFTA-DT to eliminate tariffs. Picacho has also expanded into the knitwear sector, allowing them to create a broader range of apparel styles and now manufactures clothing for men, women and children. Should ECRU decide to start a menswear line or an intimate line in the future, Picacho would be a great manufacturer to work with as it is well known in both areas and allows ECRU room to diversify its products all in one location. Picacho also puts great value on their employees and in doing so; they are investing in their trained workforce, which allows for fewer mistakes and greater productivity. THE FUTURE OF ECRU The future of Ecru is very bright, with many possibilities for growth and expansion. The brand plans to extend into accessory design and production in the following year, as well as leather goods. Our goal is to create a lifestyle for the customer and a brand where she feels comfortable wearing a look from head to toe, as well as mixing and matching with other pieces from her wardrobe. We are currently in the works with creating a specialty line for Bergdorf Goodman, giving our company a chance to grown and expand even further. Ecru has had much press and industry exposure in magazine and articles that has contributed largely to the brands success and it is our goal to continue as much as possible down that path. With 2014 projected sales at over $59 Million, we hope to see over $85 Million in the year 2015. Our company has great potential for high amounts of growth. With 40% of sales online, we plan to keep all of our sales channels cohesive and user friendly to bring in as many customers and sales as possible. The most important thing for Ecru now and moving into the future is to be true to our brand, while making our customers happy and satisfying our company’s strong ethical standards.
140 141 For our final sourcing strategy, we decided to choose China to be our number one supplier. In our country-ranking chart, China was rated to be second and Jiaxing Jingle was rated to be the best among 15 suppliers. Overall, China’s Scio-eco-political climates are in comparatively stable position and China also has a very positive business climate especially in Apparel and Textile industry. The suppliers are well trained for conducting international business. Manufacturing our products in China could provide our company, Ecru, several benefits. First of all, since 1995 China was ranked Number one in exporting and China also has world’s largest apparel and textile industry. Ecru is a brand new company and lacks experience conducting business in foreign countries, by placing products in China Ecru could reduce the risk of countering some unexpected accidents. Besides, China’s business etiquette is very easy to follow which could avoid the failure caused by cultural gap. SOURCING STRATEGY #1 China #2 Sri Lanka #3 El Salvador Placement Strategy CHINA SOURCING STRATEGY
142 143 Second, China has abundant resources of raw materials and many suppliers have their own mills could customize the fabric for buyers, like Jiaxing Jingle where we decided to place our Ivory and Desert Sand. We want to provide comfort for our customers and most of our products are made in natural fibers, place the products in China could avoid extra concerns about sourcing fabrics. Besides, the price quotation offered by Jiaxing Jingle is acceptable andwecouldmaintainaveragemarginaround95%andtheyhavealso been worked with companies like Burberry, Guess, and BCBG, which means the quality of products could be guaranteed as well. We place our style WS#3400 (Ivory), and WS#3600 (Desert Sand) in China, Jiaxing Jingle fashion. Since they provided the lowest price quotation, and Ivory is planned to be our best seller with largest needed quantity our cost could maximize the margin. WS#3600 has very similar construction as WS#3400 could make the production easier if we place these two styles in same supplier and could shorten the lead-time as well since Jiaxing Jingle’s biggest weakness is their long lead-time. One of the major risks for choosing China is the tendency of increasing inflation rate and Chinese government has the control over the currency. Even overall China’s Scio-eco-political climate is comparatively positive compare to other countries, there are still some future risks need to be aware. The increasing inflation rate could increase the cost of raw materials and the increase the increasing labor cost could drive up the overall cost to be high which could directly lead to lower our margin. Second, even Chinese government is supporting the apparel industry, however lack of transparency and intellectual protection could be influence the industry in a very negative way. We need to be more cautious for conducting business with suppliers and make sure they will not make counterfeits for our products, which could bring bad reputation for our company and influence our sales performance.
144 145 however they are still pause for some concern. Sri Lanka is a long distance for the United States and shipments take about 3 weeks to reach our destination port in New York from Colombo. These lengthy shipping times may result in high freight costs and loss of margin from the lengthy lead-time. Sri Lanka’s facilities also have lower capacities than other much larger and more established countries like China. The benefits of the country and of its manufacturing processes and facilities are certainly very striking and cause the ranking for Sri Lanka to be quite high. Overall the country has had over 100 year of apparel manufacturing and export experience, which has paved the way for them to become such strong members of the current manufacturing market. The country creates garments for hundreds of well know, top brand name and high-end clothiers around the world, giving Sri Lanka a reputation for quality craftsmanship. Sri Lanka as a whole takes great pride in the way that their workers are treated and make their code of conducts very clear to their employees as well as any new clients. The treatment of employees is all very ethical and safe, wages are fair, facilities are clean and up to date and code, there are no children employed and the health, safety and education of Sri Lanka factory workers families is of the utmost concern as well. Sri Lanka is also the leader in green and environmental manufacturing practices in the world. They have paved the way for other facilities to follow in their footsteps and have When looking further in depth at all that Sri Lanka has to offer it is clear that they have the potential to be a top manufacturing country for Ecru basics. Apparel manufacturing and export brings in the top grossing revenues for Sri Lanka as a whole. It has also recently been announced that Sri Lanka is on its way to becoming the number one garment exporter and manufacturer in the world within the next five years. Ecru sees a big opportunity with doing business with Sri Lanka and is excited about the potential to work with top manufacturers in the country. We have ranked Sri Lanka in second place, just behind China and just in front of El Salvador. While the country has so many positives to offer our company they are still not as developed as China when it comes to garment manufacturing, which results in us placing Sri Lanka in second place. There are many positive attributes as well as some limited risks that still may pose a concern when doing business. However, the country has three very highly ranked manufacturing facilities that Ecru would be happy to negotiate and work with. The benefits of doing business in Sri Lanka certainly outweigh the risks, SRI LANKA SOURCING STRATEGY
146 147 won numerous awards for the never-ending efforts to help save the planet and the earth. Although ranked number two, Sri Lanka is certainly a country that Ecru would be happy to do business with. Their values and beliefs on how business should be done are synonymous with that of Ecrus. Ecru values ethical manufacturing practices and treatment of employees, keeping the environment safe, and high quality garments above all else, and that is just what Sri Lanka spends their time and energy towards as well. In evaluating El Salvador, it became apparent that El Salvador has a lot to offer ECRU as a country to manufacture in. El Salvador has one of the most developed apparel industry in Latin America and is known for its synthetic branch and knitting capabilities, in addition, apparel is the country’s top export. El Salvador is also in close proximity to the US, shortening transportation time and also allowing for real time communication and updates. One of the greatest benefits from working with El Salvador is being able to enjoy duty free importing into the US as long as materials are sourced from the surrounding countries that are a part of CAFTA-DR. El Salvador has also adopted the US dollar as its own currency eliminating the need to worry about currency exchange. We ranked El Salvador in third place, behind China and Sri Lanka. Like Sri Lanka, El Salvador is a small country and not as developed as Chinawhenitcomestomanufacturing;however,ElSalvadordoesoffer many benefits and high quality manufacturing facilities. Unfortunately many of the manufacturers specialize in knit wear rather than woven apparel, but a select few do exist and are highly reputable. EL SALVADOR SOURCING STRATEGY
148 149 Certain risks and downsides do come with manufacturing in El Salvador. The climate is risky as the country has a long rainy season making it vulnerable to hurricanes, flash floods, and mudslides. Due to its location earthquakes and volcanic activity also occur. Natural disasters have proven devastating in the past and have caused large scale evacuations and damage. Although El Salvador’s economy remains in the positive, it has been growing at a decreased rate. There are issues with corruption, laws not being strictly enforced, gang violence and drug trafficking, but these things occur in the other countries we sourced as well, although some countries are not as open about it. There is also some politically uncertainty surrounding the new president that will take office next month as he is very left wing and has been affiliated with Cuban spies. In choosing El Salvador’s manufacturer, Picacho has over 20 years’ experience with the woven apparel industry and a short lead time of only 30 days. In addition, El Salvador’s close proximity to the US allows for quick transportation of goods. Picacho has a strong customer base, versatile product capabilities and state of the art technology. The company also and puts great emphasis on quality as well as on its employees well-being. Picacho also has introduced knitting capabilities which allows for new product categories for ECRU to grow into in the future.
150 151 Ecru has decided to place their five woven women’s tops in manufacturing facilities in China, Sri Lanka and El Salvador. The garments are separated into each of these countries based on style, technicalities and quantities. We have also looked at the strengths and weaknesses from each country to better create a final placement plan for our products. PLACEMENT STRATEGY Two looks will be placed in China at the start of the manufacturing process. These looks are both collared button up shirts. Ecru feels that china is the best country to manufacture these garments as the country is well established in the industry and is highly capable to creating a well fitting, quality garment. We will be placing the full order of 94,000 units of Desert Sand and half of the Ivory order at 55,000 units. We will #WS-3400 Ivory #WS-3600 Desert Sand #WS-3100 Latte #WS-3500 Bisque #WS-3202 Barley #WS-3400 Ivory Total Units 450,000 55,000 94,000 76,000 85,000 90,000 50,000 Retail Price per unit 140.00$ 180.00$ 120.00$ 120.00$ 90.00$ 140.00$ Cost per Unit 4.52$ 6.95$ 3.96$ 4.00$ 3.55$ 4.22$ Margin 135.48$ 173.05$ 116.04$ 116.00$ 86.45$ 135.78$ % 96.77% 96.14% 96.70% 96.67% 96.06% 96.99% Total Retail 59,040,000$ 7,700,000.00$ 16,920,000.00$ 9,120,000.00$ 10,200,000.00$ 8,100,000.00$ 7,000,000.00$ Total Purchase 2,073,360$ 248,600.00$ 653,300.00$ 300,960.00$ 340,000.00$ 319,500.00$ 211,000.00$ total Margins 56,966,640$ 7,451,400$ 16,266,700$ 8,819,040$ 9,860,000$ 7,780,500$ 6,789,000$ % 96.49% 96.77% 96.14% 96.70% 96.67% 96.06% 96.99% Avg Retail 131.20$ Avg Purchase 4.61$ Avg Margins $ 126.59 Avg Margins % 96.49% Avg Cost/Unit 4.53$ El SalvadorSri LankaChina ECRU FINAL PLACEMENT & MARGINS #WS-3400 Ivory #WS-3600 Desert Sand #WS-3100 Latte #WS-3500 Bisque #WS-3202 Barley #WS-3400 Ivory Total Units 450,000 55,000 94,000 76,000 85,000 90,000 50,000 Retail Price per unit 140.00$ 180.00$ 120.00$ 120.00$ 90.00$ 140.00$ Cost per Unit 4.52$ 6.95$ 3.96$ 4.00$ 3.55$ 4.22$ Margin 135.48$ 173.05$ 116.04$ 116.00$ 86.45$ 135.78$ % 96.77% 96.14% 96.70% 96.67% 96.06% 96.99% Total Retail 59,040,000$ 7,700,000.00$ 16,920,000.00$ 9,120,000.00$ 10,200,000.00$ 8,100,000.00$ 7,000,000.00$ Total Purchase 2,073,360$ 248,600.00$ 653,300.00$ 300,960.00$ 340,000.00$ 319,500.00$ 211,000.00$ total Margins 56,966,640$ 7,451,400$ 16,266,700$ 8,819,040$ 9,860,000$ 7,780,500$ 6,789,000$ % 96.49% 96.77% 96.14% 96.70% 96.67% 96.06% 96.99% Avg Retail 131.20$ Avg Purchase 4.61$ Avg Margins $ 126.59 Avg Margins % 96.49% Avg Cost/Unit 4.53$ El SalvadorSri LankaChina ECRU FINAL PLACEMENT & MARGINS
152 153 be splitting up the Ivory piece because it is anticipated to be one of our top sellers and we do not want to risk any malfunctions by placing all of the order at one facility. Two pieces will also be manufactured in Sri Lanka. Sri Lanka’s manufacturing facilities have very high-end clientele and we feel that it is the perfect place for Ecru to make their more fashion forward and technologically made tops; Latte and Bisque. 76,000 units of the Latte will be manufactured and 85,000 units of Bisque will be manufactured. These pieces are going to be much more suited for a client who is looking for a piece that is a little more fashion forward and out of the box, which is why Ecru does not see the highest sales numbers for these looks. Finally in El Salvador we will be placing the second half of the order for Ivory as well as our take on the “basic tee”, the Barley. 90,000 units of Barley will be manufactured as well as 50,000 units for Ivory. These two pieces are anticipated to be our top sellers due to their silhouette as well as their functionality in a client’s wardrobe. We will be placing these looks in El Salvador because of the ability for incredibly short lead-times of under two weeks. This may be very helpful for us as orders grow and Ecru needs new pieces within a short amount of time. Our final average cost per unit comes out to be $4.53. The average retail price between our five luxury women’s tops is $131.20. The average purchase price for each unit is $4.61. Ecru is very happy to have such high margins at over 96%, which equates to $126.59. COMPARISON OF FINAL COSTING Preliminary Costing vs. Final Negotiatiated Prices Preliminary Margins vs. Archieved Margins
154 155 Allthepricesquotedfromsuppliersareallhigherthanourestimation and most of them squeezed the margins to be approximately 1% lower than our planned cost. The final negotiated prices are actually lower than we expected and drive up our margins about 0.5% higher for all five styles. Latte WS-3100 Latte is one of our basic items with high neck and were planned to be comparatively sale in a lower volume since it might not be widely accepted by majority. In both prelim cost and final cost, Latte has the highest margin among 5 styles. The Latte will be manufactured in Sri Lanka and the quoted price is $5.20 per unit, with 95.67% margin, and the final negotiated price is $3.96 with 96.70% margin. Barley WS-3202 Barley is planned to be one of our best sellers, because of its simple silhouette and could be easily accepted by majority. It has short sleeves and could be easily wear year round. Since Barley was planned to be sale in large amount we planned our margin per unit to be lower so that we could achieve the higher margin by selling larger amount. Besides, in order to turn out the products faster we will manufacture the Barley in El Salvador for the shortest lead-time. The prelim price were planned to be $3.86 with 95.71% and the final negotiated price is $3.55 with 96.06% margin. Ivory WS-3400 Style Name Style # Retail Price China Cost Margin% China Cost Margin% China Cost Margin% Sri Lanka Cost Margin% Sri Lanka Cost Margin% Sri Lanka Cost Margin% El Salvador Cost Margin% El Salvador Cost Margin% El Salvador Cost Margin% Latte WS-3100 120.00$ 4.19$ 96.51% 4.81$ 95.99% 3.83$ 96.81% 4.33$ 96.39% 5.20$ 95.67% 3.96$ 96.70% 3.78$ 96.85% 3.78$ 96.85% 3.45$ 97.13% Barley WS-3202 90.00$ 4.27$ 95.26% 4.69$ 94.79% 3.93$ 95.63% 4.43$ 95.08% 5.53$ 93.86% 4.08$ 95.47% 3.86$ 95.71% 3.86$ 95.71% 3.55$ 96.06% Ivory WS-3400 140.00$ 4.92$ 96.49% 5.75$ 95.89% 4.52$ 96.77% 5.20$ 96.29% 6.24$ 95.54% 4.78$ 96.59% 4.59$ 96.72% 4.59$ 96.72% 4.22$ 96.99% Bisque WS-3500 120.00$ 4.35$ 96.38% 5.00$ 95.83% 3.85$ 96.79% 4.52$ 96.23% 5.65$ 95.29% 4.00$ 96.67% 3.94$ 96.72% 3.94$ 96.72% 3.49$ 97.09% Desert Sand WS-3600 180.00$ 7.25$ 95.97% 8.56$ 95.24% 6.95$ 96.14% 7.74$ 95.70% 9.68$ 94.62% 7.42$ 95.88% 7.04$ 96.09% 7.04$ 96.09% 6.75$ 96.25% 130.00$ 4.96$ 5.00$ 5.24$ 4.64$ 5.62$ 5.76$ 6.46$ 4.64$ 4.59$ 4.62$ 4.85$ 4.29$                             96.18% 96.16% 95.57% 96.45% 95.97% 95.03% 96.27% 96.43% 96.43% 96.70% Average Price Average Initial Cost Average Prelim Cost Average Margin FINALFINAL Average Final Cost ECRU Initial Cost vs Prelim Cost vs Final Cost INITIAL PRELIM INITIAL PRELIM INITIAL PRELIM FINAL INITIAL COST vs PRELIMINARY COST vs FINAL COST Style Name Style # Retail Price China Cost Margin% China Cost Margin% China Cost Margin% Sri Lanka Cost Margin% Sri Lanka Cost Margin% Sri Lanka Cost Margin% El Salvador Cost Margin% El Salvador Cost Margin% El Salvador Cost Margin% Latte WS-3100 120.00$ 4.19$ 96.51% 4.81$ 95.99% 3.83$ 96.81% 4.33$ 96.39% 5.20$ 95.67% 3.96$ 96.70% 3.78$ 96.85% 3.78$ 96.85% 3.45$ 97.13% Barley WS-3202 90.00$ 4.27$ 95.26% 4.69$ 94.79% 3.93$ 95.63% 4.43$ 95.08% 5.53$ 93.86% 4.08$ 95.47% 3.86$ 95.71% 3.86$ 95.71% 3.55$ 96.06% Ivory WS-3400 140.00$ 4.92$ 96.49% 5.75$ 95.89% 4.52$ 96.77% 5.20$ 96.29% 6.24$ 95.54% 4.78$ 96.59% 4.59$ 96.72% 4.59$ 96.72% 4.22$ 96.99% Bisque WS-3500 120.00$ 4.35$ 96.38% 5.00$ 95.83% 3.85$ 96.79% 4.52$ 96.23% 5.65$ 95.29% 4.00$ 96.67% 3.94$ 96.72% 3.94$ 96.72% 3.49$ 97.09% Desert Sand WS-3600 180.00$ 7.25$ 95.97% 8.56$ 95.24% 6.95$ 96.14% 7.74$ 95.70% 9.68$ 94.62% 7.42$ 95.88% 7.04$ 96.09% 7.04$ 96.09% 6.75$ 96.25% 130.00$ 4.96$ 5.00$ 5.24$ 4.64$ 5.62$ 5.76$ 6.46$ 4.64$ 4.59$ 4.62$ 4.85$ 4.29$                             96.18% 96.16% 95.57% 96.45% 95.97% 95.03% 96.27% 96.43% 96.43% 96.70% Average Price Average Initial Cost Average Prelim Cost Average Margin FINALFINAL Average Final Cost ECRU Initial Cost vs Prelim Cost vs Final Cost INITIAL PRELIM INITIAL PRELIM INITIAL PRELIM FINAL
156 157 Ivory is considered as another item would sale year round, and it has the largest planned quantity, so we split the amount for manufacturing into two countries. The unit price for Ivory in China was quoted to be $5.75 with 95.89% margin, and negotiated down to $4.52 with 96.77% margin. Bisque WS-3500 Bisque is similar to latte, and was planned to be a more fashion items with lower quantity and will be manufactured in Sri Lanka. The quoted price for Bisque is $5.65 with 95.29% margin, and the final negotiated price was lower to $4.00 with 96.67% Desert Sand WS-3600 Desert Sand is a button up shirt and has similar construction techniques to Ivory and it does not need to be turn out as soon as the best sellers so that we decided to place Desert Sand in China for manufacturing. The quoted price from China for Desert Sand is $8.56with 95.24% and negotiated to$6.95 with 96.14%. CONCLUSION
158 159 During the final strategy process we eliminated India and the Philippines from our potential manufacturing locations. Each of these countries presented risks that were very difficult for Ecru to overlook in the process of manufacturing the Ecru Basics Collection. These factors overall for both countries include unstable government and economic positioning, the restricted size of the textile and apparel industry, high manufacturing costs, low quality and craftsmanship and unethical work and labor environments. Due to the fact that Ecru focuses highly on their ethics, code of conduct, craftsmanship and quality as well as the safety of the environment, we have chosen to focus our manufacturing in three potential countries, China, Sri Lanka and El Salvador. Prices are very strong and competitive in these three countries and Ecru feels comfortable working with each of them to negotiate a fair deal that will benefit both Ecru and the manufacturer. Our products will be placed in each of these three countries to minimize our risks and to maximize our opportunity to protect our products if something were to happen to the facility. This not only benefits us but it also gives Ecru a chance to learn more about each of these factories and potentially increase our quantities and ultimately give the facilities more business in the years to come. These manufacturers are looking to expand their portfolios and branch away from their standard big name companies by adding luxury, fashionable garments from a small privately owned brand to their portfolio. Both Ecru and the manufacturers in China, Sri Lanka and El Salvador have the ability to benefit from this new partnership and grow with Ecru as it expands into new products and lines in the future.
160 161 COST SHEETS Style 1 - Latte Style 2 - Barley Style 3 - Ivory Style 4 - Bisque Style 5 - Desert Sand APPENDIX Cost Sheets Tech Packs Sourcing Guidelines Supplier Emails Bibliography
162 163 STYLE 1 - CHINA STYLE 1 - EL SALVADOR
164 165 STYLE 1 - INDIA STYLE 1 - PHILIPPINES
166 167 STYLE 1 - SRI LANKA STYLE 2 - CHINA
168 169 STYLE 2 - EL SALVADOR STYLE 2 - INDIA
170 171 STYLE 2 - PHILIPPINES STYLE 2 - SRI LANKA
172 173 STYLE 3 - CHINA STYLE 3 - EL SALVADOR
174 175 STYLE 3 - INDIA STYLE 3 - PHILIPPINES
176 177 STYLE 3 - SRI LANKA STYLE 4 - CHINA
178 179 STYLE 4 - EL SALVADOR STYLE 4 - INDIA
180 181 STYLE 4 - PHILIPPINES STYLE 4 - SRI LANKA
182 183 STYLE 5- CHINA STYLE 5 - EL SALVADOR
184 185 STYLE 5 - INDIA STYLE 5 - PHILIPPINES
186 187 STYLE 5- SRI LANKA TECH PACKS Style 1 - Latte Style 2 - Barley Style 3 - Ivory Style 4 - Bisque Style 5 - Desert Sand
188 189 STYLE 1
190 191
192 193 STYLE 2
194 195
196 197
198 199 STYLE 3
200 201
202 203 STYLE 4
204 205
206 207
208 209 STYLE 5
210 211
212 213 CODE OF CONDUCT This Code of Conduct is applicable to all supplier, their subcontractors and other business partners that conduct business with Ecru. We require that parties which wish to conduct business with Ecru sign a completed vendor compliance agreement to acknowledge and abide by our Code of Conduct. It is the responsibility of Ecru’s suppliers and other business partners to inform any subcontractors about Ecru’s Code of Conduct to ensure that the requirements are abided by in every factory and workplace that contributes to Ecru’s merchandise.
214 215 1. Legal Requirements 1.1 All of Ecru’s suppliers and business partners must abide national laws in all activities in the country of operation. 1.2 Ecru’s requirements may go beyond the national law’s requirements 2. Child Labor Ecru does not permit child labor and no person under the age of 16 shall be employed even if the legal age for employment is less than 16 years of age. 3. Health and Safety 3.1 Working Environment Suppliers must adhere to all laws regarding health and safety. Suppliers shall provide workers with a clean, safe and healthy work environment. No exposed wires will be permitted. 3.2 Fire Safety Ecru requires emergency exits be well lit and clearly marked on every floor. All employees must receive training in regards to how to respond to fire or other cases of emergency. Fire extinguishers must be available for emergency use and their location made known during training exercises. 3.3 Accidents and First Aid First aid equipment must be available and its location know to all employees.Textiles). The growing number of young population in India implies the potential and active workforce in the world which looks positive for outsourcing for skilled and talented labors; more than 70% of population will be working age in 2025. 4. Worker’s Rights 4.1 Basic Rights 4.1.1 All workers are to be treated with respect and dignity, free from humiliation, corporal punishment or abuse of any kind.
216 217 4.1.2 No discrimination of workers based on sexual orientation, gender, religion, political opinion, race, ethnic origin, disability, pregnancy or age will be tolerated. Employees have the opportunity to anonymously report noncompliance with the Code of Conduct. 4.1.3 Forced labor is prohibited as is the use of illegal and prison labor. 4.1.4 All employees have the right to organize and join associations. 4.2 Wages Wages are to reflect the experience, qualifications and performance of an employee and are to be paid regularly and on time. Each employee will be paid at least legal minimum wages as determined by local government. 4.3 Working Hours 4.3.1 Ordinary working hours shall not exceed the legal limit and shall never exceed 48 hours per week. Overtime must be both voluntary and compensated and hours shall not exceed the legal limit and shall never surpass 8 hours per week. 4.3.2 Each employee is allotted a 30 minute lunch break and 2 15 minute breaks each day. 4.3.3 Ecru requires that all its business partners and Suppliers communicate the Code of Conduct with employees and supervisors in their native language. 5. Housing Conditions If employee housing facilities are provided by a company the health and safety requirements under clause 3 must be followed. 6. Environment Suppliers must comply with all laws regarding the environment in their country of location, this includes having any relevant environmental permits and licenses for its operations. 6.1 Water Management Wastewater from wet processes must be treated before disposal and meet requirements of local legislation when it comes to quality.
218 219 6.2 Waste Management Waste and hazardous materials must be disposed of in accordance with the law of the country in which the company operates. 7. Monitoring and Enforcement 7.1 Transparency Ecru expects the companies it works with to keep accurate records so that the company may be accurately assessed without the falsification of documents. We expect all business partners and suppliers to be transparent and to not purposefully mislead auditors. 7.2 Monitoring 7.2.1 Ecru will schedule 2 audits per year and reserves the right to make unannounced visits for purposes of auditing to all parties producing goods or services for Ecru. 7.2.2 We reserve the right to appoint an independent third party to conduct audits in order to evaluate compliance with Ecru’s Code of Conduct. 7.2.3 Suppliers may not coach employees on how to answer or respond to inquiries from Ecru representatives during audits. 7.3 Corrective Action Failure or unwillingness to correct violations of Ecru’s Code of Conduct and local law with in an allotted amount of time would damage the supplier’s relationship with Ecru and could lead to reduced business or termination of business between the two parties.
220 221 SRI LANKA SUPPLIER EMAILS & CALLS
222 223 EL SALVADOR INDIA
224 225
226 227
228 229 PHILIPPINES *None of the suppliers replied the emails, but we managed to call them. CHINA
230 231
232 233
234 235 "About Us." Srilanka Apparel Sourching Association About Us Comments. N.p., 2014. Web. 20 Apr. 2014.   "Business  Climate."  Sri  Lanka.  National  Branding  &  Investment,  2010.  Web.  12   Apr.     2014.     Cultural Bytes Sri Lanka. Edith Cowan University, 2014. Web. 23 Apr. 2014.     "Countries  and  Their  Cultures."  Culture  of  Sri  Lanka.  N.p.,  2014.  Web.  11  Apr.   2014.   Data  Monitor.  Sri  Lanka  Country  Profile.  Data  Monitor  Asia  Pacific,  Jan.  2013.   Web.     Apr.  2014.     "Eating and Drinking | About Sri Lanka." Rough Guides Eating and Drinking Comments. Sri Lanka Cuisine, 2014. Web. 19 Apr. 2014. "Fiscal  Policy  and  Government  Finance  Chapter  6."  Sri  Lanka  Fiscal  Policy  and       Government  Finance.  Central  Bank  of  Sri  Lanka,  2012.  Web.  12  Apr.  2014.     "Geography  of  Sri  Lanka."  Princeton  University.  N.p.,  2014.  Web.  11  Apr.  2014.     "Harmonized Tariff Schedule of the United States." Harmonized Tariff Schedule of the United States. N.p., 2014. Web. 17 Apr. 2014.     "Hirdaramani  International  Export  (Pvt)  Ltd."  ,  Level  23,  West  Tower,  World   Trade    Center,  Echelon  Square,  Colombo,  Sri  Lanka.  Hiradaramani  Internantional     Export  (Pvt)  Ltd.,  2014.  Web.  11  Apr.  2014.     "Haypag-Lloyd." Services between North America and Indian Ocean. Products and Services, 2014. Web. 25 Apr. 2014.     "India-­‐Sri  Lanka  FTA."  Department  of  Commerce,  Government  of  India.       International  Trade,  2006.  Web.  21  Apr.  2014.     "INTERCULTURAL CONSULTING." Information on Sri Lanka. N.p., n.d. Web. 23 Apr. 2014.   "Labour  Force."  Labour  Force.  Labour  Force  Survey,  2012.  Web.  13  Apr.  2014.     "Labour  Legislations."  Sri  Lanka  Labour  Legislations.  Department  of  Labour,   2014.    Web.  13  Apr.  2014.     "National Chamber of Exporters of Sri Lanka | Voice of the Exporter." National Chamber of Exporters of Sri Lanka Voice of the Exporter. N.p., 2014. Web. 20 Apr. 2014. BIBLIOGRAPHY - Sri Lanka "Pakistan-Sri Lanka FTA." Ministry Of Commerce. Government of Pakistan Ministry of Commerce, 2014. Web. 21 Apr. 2014.     "Ramya  Holdings."  Ramya  Holdings.  Trendy  Wear  Ltd.,  2014.  Web.  11  Apr.  2014.     "Routenet." Maersk Line. Shipping Services, 2014. Web. 25 Apr. 2014.   "South  Asia:  Sri  Lanka."  Central  Intelligence  Agency.  CIA:  The  World  Factbook,  27      Mar.  2014.  Web.  11  Apr.  2014.     "Sri  Lanka  Age  Structure."  -­  Demographics.  N.p.,  2014.  Web.  11  Apr.  2014.     "Sri Lanka Apparel Exporters Association - Sri Lanka Apparel Exporters Association." Sri Lanka Apparel Exporters Association - Sri Lanka Apparel Exporters Association. N.p., 2014. Web. 20 Apr. 2014.   "Sri Lanka Apparel - World's No1 Ethical Apparel Sourcing Destination." Sri Lanka Apparel - World's No1 Ethical Apparel Sourcing Destination. N.p., 2014. Web. 20 Apr. 2014.     "Sri Lanka - Boundless Open Textbook." Boundless. Art History, 2014. Web. 19 Apr. 2014.   "Sri  Lanka  Business  Portal  -­‐  Exporters."  Sri  Lanka  Business  Portal  -­  Exporters.   EDB,     2014.  Web.  11  Apr.  2014.     "Sri  Lanka."  Economy:  Population,  GDP,  Inflation,  Business,  Trade,  FDI,  Corruption.     Index  of  Economic  Freedom,  n.d.  Web.  12  Apr.  2014.     "Sri  Lanka  Inflation  Rate."  TRADING  ECONOMICS.  N.p.,  2014.  Web.  12  Apr.  2014.     "Sri  Lanka:  Introduction."  GlobalEDGE:  Your  Source  for  Global  Business   Knowledge.     N.p.,  2014.  Web.  11  Apr.  2014.     "Trendywear  Pvt  Ltd.",  459/1,  Kandy  Road,  Ranmuthugala,  Kadawatha,  Sri  Lanka.       Ramaya  Holdings,  2014.  Web.  11  Apr.  2014.   "US-Sri Lanka FTA." Office of the United States Trade Representative. N.p., 2014. Web. 21 Apr. 2014. ZIM. "Overview." ZIM. Cargo Services, 2014. Web. 25 Apr. 2014.
236 237 “Apparel Made in El Salvador.” Tradegood. Tradegood. 27 September 2013. Web. 15 Apr. 2014. http://www.tradegood.com/de/viewpoints/apparel-made-in-el-salvador.html CAMTEX: Chamber of the Textile, Clothing and Free Zones of El Salvador. CAMTEX. Web. 12 Apr. 2014. http://camtex.com.sv/. Coleman, Denise Youngblood. El Salvador Country Review (2013) Business Source Premier. Web. 9 Apr. 2014. “Country Intelligence Report: El Salvador.” El Salvador Country Monitor (2014): 1-17. Business Source Premier. 2 April 2014. Web. 9 Apr. 2014. “Data.” World Bank. http://data.worldbank.org/indicator/SP.POP.TOTL “Disaster Risk Management in Latin America and the Caribbean Region: GFDRR Country Notes, El Salvador.” The World Bank. GFDRR. Web. 3 Apr. 2014. “El Salvador.” World Factbook. Web. 9 Apr. 2014. “Employing workers in El Salvador.” Doing Business. The World Bank. June 2013. Web. 13 Apr. 2014. http://www.doingbusiness.org/data/exploreeconomies/el-salvador/employing-workers Klahn, Kirsten . "Top 10 Happiest Countries in the World." Wall St. Cheat Sheet. Wall St. Cheat Sheet, 20 Mar. 2014. Web. 26 Apr. 2014. <http://wallstcheatsheet.com/life/top-10- happiest-countries-in-the-world.html/?a=viewall>. Meacham, Carl. "Elections in El Salvador: What to Expect and Why They Matter for U.S. Security." Center for Strategic and International Studies. CSIS, 29 Jan. 2014. Web. 24 Apr. 2014. http://csis.org/publication/elections-el-salvador-what-expect-and-why-they- matter-us-security. BIBLIOGRAPHY - El Salvador Melara, Gabrela. "Textiles recorded 44% of Salvadoran export industry." La Prensa Grafica. Dutriz Hermanos SA de CV , 10 Apr. 2014. Web. 9 May 2014. <http://www.laprensagrafica.com/2014/04/10/textiles-registraron-el-44-de-las- exportaciones-salvadoreas-de-la-industria>. PROESA: Export and Investment Promotion Agency of El Salvador, Government of El Salvador. PROESA. Web. 10 Apr. 2014. www.proesa.gob.sv "Puerto de La Unión Centralamericana History." CEPA - Puerto La Unión, El Salvador, Centro America. Puerto La Union, n.d. Web. 10 May 2014. <http://www.puertolaunion.gob.sv/index.php?articulo=1023>. "Salvadoran Government Hosts Seminar For Textile & Apparel Sector." PROESA. PROESA, 12 Nov. 2013. Web. 6 May 2014. <http://www.proesa.gob.sv/latest-news/news/item/629- salvadoran-government-hosts-seminar-for-textile-apparel-sector>. "Specialized Textiles and Apparel." PROESA. PROESA, 26 May 2013. Web. 14 May 2014. <http://www.proesa.gob.sv/investment/sector-opportunities/specialized-textiles-and- apparel>.
238 239 Works Cited CIA. "The World Factbook: India." Central Intelligence Agency. Open Government, n.d. Web. 13 Apr. 2014. <https://www.cia.gov/library/publications/the-world-factbook/geos/in.html>. Corporate Catalyst India, ed. A Brief Report Textile Industry in India: March, 2013. New Delhi: Corporate Catalyst India, 2013. PDF file. Global Edge. "India." Global Edge. Michigan State University, n.d. Web. 13 Apr. 2014. <http://globaledge.msu.edu/countries/india>. Government of India, comp. Labour Laws And Other Labour Regulations. New Delhi: Government of India, 2006. PDF file. MarketLine “India Country Profile.” India Country Profile (2013): 1-96. Business Source Premier. Web. 13 Apr. 2014. Ministry of Textiles, Government of India, comp. Annual Report 2012-2013. New Delhi: Ministry of Textiles, Government of India, 2013. PDF file. BIBLIOGRAPHY - India "Labor Codes." Department of Labor and Employment. Republic of the Philippines, n.d. Web. "Philippines." Office of the United States Trade Representative. The United States Government, n.d. Web. "Tax Incentives." Asia Regional Integration Center. Asian Development Bank, n.d. Web. "United States and Philippines Commit to Intensified Engagement on Trade." Office of the United States Trade Representative. The United States Government, Mar. 2014. Web. "Why the Philippines?" Embassy of the United States Manila, Philippines. The United States Government, n.d. Web. 13 Apr. 2014. Magtulis, Prinz P. "Inflation Seen Declining to 3.2%." Philstar.com. The Philippine Star, 9 May 2013. Web. "Philippines." The Library of Congress. The United States Government, June 2008. Web. "Philippines." Office of the United States Trade Representative. The United States Government, n.d. Web. Thomasson, Sarah C. "The Philippines: Textile And Apparel Industry On The Mend." Textile World Asia. Textile World Asia, Feb.-Mar. 2013. Web.   BIBLIOGRAPHY - Philippines
240 241 1   BBC news “ Shanghai free-trade zone launched” September 2013 http://www.bbc.com/news/business-24322313 Bruce Kenney “China increases minimum wage rates”,CBSNews, March31, 2014 Website http://www.cbsnews.com/news/china-increases-minimum-wage-rates/ “China Country Profile.” China Country Profile (2013): 1-79. Business Source Premier. Web. 14 Apr. 2014. “China’s Free Trade Agreements “China FTA Network: http://fta.mofcom.gov.cn/ Chen Yang “US trade with China seen rising”, Global Times 2013 -12-11 http://www.globaltimes.cn/content/831580.shtml#.U1rVUK1dUYQ “Customs Law of the People’s Republic of China”, Chinese customs official website, www.customs.gov.cn Donna W. Reamy, Cynthia W. Steele, “ Perry’s department store, an importing simulation” Fairchild Publications, Inc. 2006 print “Harmonized Tariff Schedule”, United States International Trade Commission http://hts.usitc.gov/ “Importing into the U.S” U.S Customs and Border Protection www.cbp.gov International Textile Manufacturer Federation, October 2011, http:www.cotlook.com/userfiles/file/Uzbek2011/06.pdf International Trade Centre (ITC) The Chinese Market for Clothing. Geneva: ITC, 2012. xi, 92 p. (Technical Paper) Jian Yang (April 2006). “Learners and users of English in China”. English Today 22 (2): 3–10. doi:10.1017/S0266078406002021.. Quote: “What this suggests, it seems, is that Yan’s (2004) ten million may after all be a more informed estimate of the actual regular users of English in China.” (page 9)” BIBLIOGRAPHY - China Loan university “ Letter of Credit explained what is a letter of credit?” 2011 http://www.loanuniverse.com/letters.php#sthash.f7VW0HE3.dpuf Matt Phillips , “�������������” Wall Street Journal, 2010 http://cn.wsj.com/gb/20100623/mkb082844.asp?source=article Qiu, Larry D. “ Textile and Clothing Industry” HKUST 2005 http://s3.amazonaws.com/zanran_storage/www.bm.ust.hk/ContentPages/18112599.pdf Tang Xiaoyang, “ Comparing Technological innovation of Textile industries in India and China” International Food Policy Research Institute 2011 Terence P. Steward, Esq. Stewart “China’s support program for selected industries Textiles and Apparel” Trade Lawyers Advisory Group LLC June 2007 The World Factbook 2013-14. Washington, DC: Central Intelligence Agency, 2013 .https://www.cia.gov/library/publications/the-world-factbook/index.html “U.S Imports”, Trade Data, Office of Textiles and Apparel, http://otexa.ita.doc.gov Xinhua “China’s 2013 urban unemployment rate at 4.1%” China org.cn January 24 2014 Website http://www.china.org.cn/business/2014-01/24/content_31297360.htm Xinhua “China rules out strong economic stimulus”, China org.cn, April 24, 2014 Website http://www.china.org.cn/business/2014-04/24/content_32191351.htm Xinhua “ China’s garment exports up 31.6%” China Daily, 2013 (http://www.chinadaily.com.cn/business/2013-04/03/content_16372693.htm) !
242

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ECRU - Global Sourcing Strategy

  • 1. 1 GLOBAL SOURCING STRATEGY Courtney Gill Jordan Causey Madison White Picha Choopojcharoen Teng Ma
  • 2. 2 3 ABSTRACT “Simplicity is the ultimate sophistication” Leonardo da Vinci At Ecru, we strive to provide the high quality, cutting edge garments to our consumers. Our company is based solely on social responsibility and code of ethics. Our basics line will be available all year round and is perfect for the trendy customer looking to make a smart addition to their wardrobe, while still standing out of the crowd. Through much research in sourcing and manufacturing we have determined the values in what Ecru is specifically looking for. In order to meet our margins and keep our costs down we have spent much time researching facilities all across the world in order to determine which will best suit our needs. These countries include, India, China, Sri Lanka, El Salvador and the Philippines. As an up and coming company it is very important to minimizeourrisks andultimately increaseouroverallopportunities for both our company and our supplier. We have developed a placement strategy that includes many factors such as country and supplier analysis and ranking, costing, negotiations, and the evaluation and analysis of the strategy development factors. This strategy will aid us in our ability to make the best decision when it comes to the manufacturing of the Ecru Basics garments.
  • 3. 4 5
  • 4. 6 7 TABLE OF CONTENTS INTRODUCTION STRATEGY DEVELOPMENT PROCESS COUNTRY ANALYSIS SUPPLIER ANALYSIS COSTING Company Profile 8 Who We Are 10 Our Products 12 Target Market 14 Why Develop a Strategy? 16 Values 18 Sourcing Guidlines 21 Products, Volumes, & Seasons 22 Sales Plan 24 Countries’ Highlights & Textile Industies 27 Sri Lanka 28 El Salvador 42 India 52 Philippines 60 China 72 SWOT Analysis 79 Country Ranking 84 Suppliers’ Highlights & Textile Industies 92 Sri Lanka 93 El Salvador 99 India 104 Philippines 108 China 111 Suppllier Ranking 116 Preliminary Costing 122 Initial Costs vs Preliminary Costs 124 STRATEGY DEVELOPMENT SOURCING STRATEGY COMPARISON OF FINAL COSTING CONCLUSION APPENDIX Sales Plan 126 China 128 Sri Lanka 132 El Salvador 135 The Future of ECRU 139 China 141 Sri Lanka 144 El Salvador 147 Placement Strategy 150 Preliminary Costing vs. Final Negotiatiated Prices 153 Conclusion 157 Cost Sheets 161 Tech Packs 167 Sourcing Guidelines 213 Supplier Emails 220 Bibliography 234
  • 5. 8 9 Vision Enhancing Life with Grace and Simplicity Mission To be the ultimate house of simple sophistication and style through the creation of desire now and forever Values Aesthetic Competence Creativity Diplomacy COMPANY PROFILE Fairness Integrity Perseverance Teamwork ECRU is a high-end women sportswear retailer with its flagshipboutiqueinSoHo,NewYork.Weprovidewomenhigh- quality sportswear with minimal, natural, and sophisticated aesthetics and styles to our customers. ECRU also has an extension line called “ECRU Basics” which provides basic yet high quality garments throughout the year. ECRU incorporates its values throughout the company and its products since the main proirity is to assure our customers receive the best quality and fashionable outfits that reflect their lifestyles and identities.
  • 6. 10 11 WHAT WE STAND FOR ECRU is a French word for “unbleached“ or “raw”. It also means a shade of light greyish-pale yellow or beige-like tones. This type of color appears on raw and natural yarns and fabrics. The name reflects the company’s philosophy and core values in which we consider the pure quality and rawness throughout the products. That is why our designs and aesthetics are rather simple yet sophisticated in craftmanship. Ecru is the signature color palette through out our collections and packaging, which also makes us stand out and distinguishes our customers from other leading brands. ECRU also concerns about sustainability and corporate social resposibility. We take serious agreement on transparency and integrity with our partnerships from sourcing guideline to every process of the production. SInce ECRU values the importance of environment and sustainability, the products are made of 100% natural fiber yarns and fabrics such as cotton and linen. The company has been trying to reduce carbon- footprint by sourcing and utilsing fabrics within the same countries. Our company is also working toward more eco-friendly and organic fabrics in the future. ECRU offers both fashion and basic collections. Our products range from woven and knitted tops, bottoms, dresses, and accessories. Though ECRU basics collections have lower price range, we still maintain and assure our customers the same level of quality of our products. ECRU basics are offered throughout the whole year with new several pieces added to the collections each season to keep updated with current color trends for each season.
  • 7. 12 13 Style 1 - Latte Retail Price - $120 Style 2 - Barley Retail Price - $90 Style 3 - Ivory Retail Price - $140 Style 4 - Bisque Retail Price - $120 Style 5 - Desert Sand Retail Price - $180 OUR PRODUCTS ECRU Basics Woven Tops Spring/Summer 2014
  • 8. 14 15 TARGET MARKET ECRU caters toward female New Yorkers within ages of 25-40. Our customers are considered as young digerati living in the urban and afflu- ent lifestyles around Manhattan and Downtown Brooklyn. They are sophis- ticated, thoughtful, and stylish. With high level of education and career success, our women are independent and confident with their lifestyles and fashion choices. They are innovators and experiencers who always look forward and keep up with new trends and styles, but yet don’t want to overdress themselves. They want to dress well enough so that people can appreciate their looks as well as their status. Their preference in styles is considered clean, minimal, yet unique in design and aesthetic. Our cus- tomer also value high quality and craftmanship. ECRU Basics line serves as fundamental pieces that our women must have and wear them in their daily lives no matter what occasions or plac- es they go. CUSTOMER PROFILE Family Income: $308,721 (Personal - $97,000) Education: MBA in Marketing at NYU Competitive Stores/Brands: Stella McCartney, Chloe, and Bloomingdales Fashion Cycle: Innovation Stage VALS: Innovator/Experiencer Buying Behavior: • Expect great customer service / Enjoy shopping experience • Best quality products • High brand loyalty Grace Smith Age: 27 Marketing Consultant From Upper East Side, NYC
  • 9. 16 17 STRATEGY DEVELOPMENT PROCESS Ecru,meaningpure,simpleandclean,isaluxurywomen’sreadytowear brand with a mission to be the ultimate house of simple sophistication and style through the creation of desire now and forever. Ecru has a goal to create sophisticated and timeless pieces of women’s clothing while valuing aesthetic, diplomacy, fairness and integrity, as well as giving back philanthropically. These five country profiles from El Salvador, India, China, the Philippines and Sri Lanka is meant to overview the countries in all aspects from their culture, to their economy to their manufacturing, to ultimately determine which country is the best for Ecru to source their luxury garments from. When determining which country to chose for the manufacturing of our luxury women’s woven tops Ecru’s looked firstly at the codes of conduct for each of the manufacturers as well as the way the country does business overall. Because ethics and overall conduct is such a strong value for Ecru, it is very important that the manufacturers share these similar goals. Our other considerations must obviously include the overall cost of creating the garments, the export industry as well as the over textile and apparel industry of each of the five chosen countries. Why Develop a Strategy? Values Sourcing Guidlines Products, Volumes, & Seasons Sales Plan
  • 10. 18 19 VALUES ECRU is built upon several values we believe will allow our company to grow and be successful. We aspire to be a brand that is looked up to and respected by our competitors and customers alike. These same values helped build ECRU’s sourcing guidelines as we are committed to producing quality garments that will be worn with pride. Perseverance We believe in our company and its products and we will work hard to overcome obstacles in whatever form they may take in order to deliver apparel that lives up to our standards. Fairness We believe in equal opportunity and rights free from any form of discrimination. Diplomacy Working with foreign companies can bring its own set of challenges, but we are dedicated to resolving conflicts and finding common ground to benefit both ourselves and our manufactures as we wish to successfully grow our business as well as theirs. Creativity At ECRU we know the best solution isn’t always the most obvious and believe in the power of creative thinking and play to be innovative. Aesthetic We strive to deliver garments that will be appreciated by our customer for both the care that was put into its design and creation and for its overall look. We believe in simple luxury and want our customers to confident whether they are wearing our basic line or our fashion line. Teamwork ECRU is more than just a team; we are a family of people who all believe in our product and are committed to working efficiently not only within our company but also with our manufacturers in order to create the best products.
  • 11. 20 21 Integrity We stand by our beliefs and values and strongly believe in transparency. We are dedicated to making sure that our employees are happy and being treated fairly, especially those who are manufacturing for us. We strive to give everyone a voice, free from worry, to ensure that our standards are being lived up to. Competence At ECRU we strive to know our customer and her needs in order to meet them. We pride ourselves on every piece of merchandise that displays the ECRU name and go to great lengths to find manufacturers that are knowledgeable and reputable in the products they create for us. ECRU’s Code of Conduct is in line with values that are core to its company. Fairness, teamwork, diplomacy and integrity are some of the values that come across strongest in our code, as ECRU strongly believes in fair treatment of workers as they are more than just employees. They are people with their own families and needs, and we want to ensure their safety and well-being as we value them and the role they play in our brand. Our Code of Conduct is applicable to all suppliers, their subcontractors and other business partners that conduct business with Ecru. Our code can be found in the appendix and strongly details our requirements in regards to the health and safety of the work environment, worker’s rights with an emphasis on basic rights, wages and restrictions on working hours, and monitoring and enforcement which outlines transparency requirements, our right to make unannounced audits in addition to our scheduled bi-annual audits, our right to appoint an external auditor, should we see it fit and the consequences of not taking corrective action should a violation come to light. SOURCING GUIDELINES *See full sourcing guidelines in Appendix
  • 12. 22 23 Products, Volumes, & Seasons Look 1: Latte 76,000 Units Season: Year round Loose fitting women’s 100% pima cotton blouse with narrow, cowl neck and extended sleeve openings. Look 2: Barley 90,000 Units Season: Year round Loose fitting women’s 100% pima cotton blouse with ¾ length folded sleeves. Look 3: Ivory 105,000 Units Season: Year round Loose fitting women’s 100% pima cotton, sleeveless, collared button-down. Look 4: Bisque 85,000 Units Season: Year round Loose fitting, wide neck women’s 100% cotton poplin blouse with cutouts on sleeves. Look 5: Desert Sand 94,000 Units Season: Year round Women’s long-sleeved, 100% pima cotton, high-low, button-down shirt with princess seam, back detailing and right breast pocket. Total Annual Volume: 450,000 Units
  • 13. 24 25 SALES PLAN Because we are a high-end luxury company, our margins, princes and sales are quite high. In the first year after the Ecru Basics collection launches we are projecting to do over $59 million in sales. This number is derived from selling 450 units divided between 5 garments and sku numbers. Our retail prices are going to range from $90 up to $180, due to the fact that we are a luxury brand and retailer. We are selling these garments online and in our own flagship store solely at this current moment, which means will not have wholesale prices. This will reflect highly on our margins, resulting in them being between 65% and 66% for each garment. Our average cost for production is about $5 per garment, making our total production cost for 450,000 units, 2,250,000.
  • 14. 26 27 COUNTRY ANALYSIS COUNTRIES Sri Lanka El Salvador India Philippines China Countries’ Highlights & Textile Industies Country Selection Ratings Spreadsheet Sri Lanka India El Salvador Philippines China Our five countries, China, India, the Philippines, El Salvador and Sri Lanka were selected by our professor, but have been selected for a reason. During the duration of the strategy we have made it our goal to determine which countries are the best sources of manufacturing for creating our luxury, woven women’s tops. There are many determining factors, but most importantly we have looking into the business and textile climate and industry, the costs, the logistics as well as the manufacturers reliability and code of conduct. Each of these five countries has something different and special to offer to the world of manufacturing and we have taken great time and detail in assessing which of the five will rise to the top.
  • 15. 28 29 SRI LANKA Country Introduction Endless beaches, breathtaking ruins, flavorful food and teas, legendary temples and oodles of elephants packed into over 3000 years of history and culture on the island of Sri Lanka. Sri Lanka offers incredible experiences stretching from the mountains to the sea. The country is packed with rich history, diverse wildlife, a variety of climates and eco-systems, cultural and religious heritage, wide-spanning beaches and offers hundreds of ancient ruins to explore and discover. It is Southeast Asia’s hidden gem that is waiting to be traveled and charted by tourists, nature lovers and history enthusiasts alike. (Data Monitor) With all that this country has to offer, it has even more in manufacturing and business practices and has been awarded in many areas of “Green” business practices for their manufacturing facilities and factories. This country is beginning to thrive and make a name for itself on the map with tourists as well as import and trade businesses and manufacturers. (Data Monitor) Sri Lanka is an island country located of the southern most tip of India. The country has a rich history documenting back over 3000 years ago. Sri Lanka has a very strong Buddhist heritage. The country was very important during the time of the ancient Silk Road and has continued to grow and expand their trade and exports, making them the top contributors to Sri Lanka’s economy. Even though the country is just starting to rebuild it self from a thirty-year civil war which ended recently in 2009, Sri Lanka is beginning to thrive once again in manufacturing and tourism, giving them a strong and growing economy. (Data Monitor)
  • 16. 30 31 Sri Lanka, also known as, Ceylon, is an island in the Indian Ocean with a population of about 20 million people. The highest concentration of the population is located in the larger cities, particularly in Columbo, the countries capital, main port, and industrial center and hub. Sri Lanka is ethnically, linguistically and religiously diverse, with over ten different languages cultures and religious beliefs being practiced. (Data Monitor) The flag of Sri Lanka is also known as the Lion Flag. It depicts a gold lion holding a sword in its front paw, a dark red background, four golden leaves, one in each corner and two vertical stripes, one green and one orange. The lion represents the bravery of the Sri Lankan Nation, while the other symbols represent the countries past history, culture and religious beliefs. (Data Monitor) Socio-Economic-political Analysis: The Sri Lankan politics take place in a presidential representative democratic republic framework. This is where the president of Sri Lanka is both the head of the state and the head of the government. The political make up also includes legislative power, which act under both the government and the parliament. For many decades, politics in Sri Lanka have been dominated by the Sri Lankan Freedom Party and the Conservative United Nation Party. (Datamonitor) The president Mahinda Rajapaksa was elected in November of 2005 and is part of the Freedom Party. The Prime Minister, Disanayaka Mudiyanselage Jayaratne, who was elected in 2010, is also a member of the Freedom Party. The President is elected for six-year terms and has the power to hire and fire the Prime Minister. The day-to-day running of the government lies to the prime minister and his cabinet, which is drawn from the legislature. (Datamonitor) In July of 1983 the Sri Lankan Civil War broke out and began an on going conflict all across the island. The government rose to fight against the rebellious Liberation Tigers of Tamil Eelam (LTTE), also known as the Tamil Tigers. The Tamil Tigers are a military organization that formed in order to break away from Sri Lanka and form an independent Tamil state called Tamil Eelam in the north and eastern region of the island. The war led on for 26 years when the Tamil Tigers were finally defeated by the Sri Lankan military in 2009. (Datamonitor) This war lasting almost three decades left Sri Lanka in a sheer state of turmoil. Over 100,000 citizens were killed and even more were injured. The country was hurt culturally as well as economically. Much damage was done to the country physically which has detracted tourists, investors and has damaged manufacturing facilities. With all that being said, in the 5 years that the war has been over, Sri Lanka and its citizens have done all that they can to revitalize the country and restore it to what it once was. (Datamonitor)
  • 17. 32 33 The government figures in Sri Lanka have been stable for many years as well as their representative democratic republic political system. The country is swiftly able to make decisions that benefit the communities and the people as a whole. However, the war has certainly affected the country significantly and even though Sri Lanka is making all efforts to restore and revitalize, it is still a potential drawback when looking at prospective manufacturing locations. Economic traits: Sri Lanka has a world ranking of 90 from the 2014 Index of Economic Freedom and a ranking of 16 in the overall Southeastern Asian hemisphere. (IEF) The country is continuing to see strong economic growth following the conclusion of the 26-year Civil War. During the war there was much turmoil economically and the country suffered greatly. It is now that Sri Lanka is making all efforts to reconstruct and bring back one they once had. (CIA World Factbook) The Sri Lankan governments very high debt payments have contributed almost 100% to the country’s high budget and fiscal deficit. However, the global 2009 recession and economic crisis actually caused a boom for Sri Lanka and nearly balanced their debt payment crisis. This has given Sri Lanka the ability to now focus on their greatest assets, being their trade and exports, and agriculture. (CIA World Factbook) The Sri Lankan governments very high debt payments have contributed almost 100% to the country’s high budget and fiscal deficit. However, the global 2009 recession and economic crisis actually caused a boom for Sri Lanka and nearly balanced their debt payment crisis. This has given Sri Lanka the ability to now focus on their greatest assets, being their trade and exports, and agriculture. (CIA World Factbook) The country is constantly looking for new ways to expand and improve their most lucrative markets, apparel manufacturing and agriculture, which combined employ over two thirds of the population and bring in the majority of the revenues for the country. Because the main revenues and income for the country do come from trade and exports, particularly apparel but also tea, rubber and technology, there is a large incentive for the country to constantly keep up to date and advanced to beat out the competition across the world. Sri Lanka is currently ranked at number four of the top apparel manufacturing countries in the world and has great potential to reach number one in the upcoming years. (World Factbook) Sri Lanka’s currency is the Indian Rupee; and as of April 2014, the U.S Dollar is valued at .0077 of 1 Rupee. The current Sri Lankan unemployment rate is at 4%, ranking #49 in the world. Revenues in 2013 reached $8.43 Billion, while expenditures were at $12.57 Billion.
  • 18. 34 35 The Sri Lankan inflation rate both increased and decreased significantly over the past 10 years. In the past 3 years the rate of inflation has gone from 6.11% in 2012, to 9.9% in 2013 and all the way down to current 4.2% that it is today. This is very unusually for the rate to fluctuate so drastically, but the country has been in a serious state of turmoil after the war, which directly influenced their economic structure. Looking towards the future, Sri Lanka is making all the possible amends to even out and steady the drastically changing inflation rate. (Trading Economics) Due to these high rates of fluctuation in both revenues and the inflation rate, Sri Lanka does show potential risks when looking into supply and manufacturing. The country is still in quite a high amount of debt and is spending significantly more than they are bringing in. This, and the drastically changing inflation rate may cause serious problems and will be a great concern if Ecru business is done in Sri Lanka. Labor and Labor Laws: TheLaborforceinSriLankaisverystrongandmakesupasignificant amount of the population, of both males and females. About 48.2% of the population works in labor, 67.2% being male and 31.3% being female. The labor tasks in Sri Lanka include agriculture, industry and services. In 2012 30.7% of the population worked in agriculture, 26.6% worked in industry and 42.6% worked in services. (Labor Force Survey) The unemployment rate has seen a significant decrease in the past ten years dropping from 8.4% in 2003 down to 4.0% in 2012. The rate of unemployment for men is at about half the percentage of that for women. This is a significant decrease in a short period of time and is all due to the ending of the Civil War and Sri Lanka’s ability to quickly start rebuilding the country. (Labor Force Survey) Sri Lanka’s main exports are apparel, rubber and tea. These three categories make up a large percentage of revenues for the country. Sri Lankan apparel manufacturing supplies a wide variety of garments ranging from sportswear, lingerie, and lounge wear, to ready to wear, bridal, swimwear and children’s wear. This gives Sri Lanka the opportunity to supply to many different companies and with a wide variety of style, quality and price points. (Labor Force Survey) Since apparel manufacturing is such an important aspect to the economy in Sri Lanka, many laws have been put in place to protect the employees and their employers. Laws, codes of conduct and rules of ethics are made very clear to the employees and are 100% geared towards making their careers greater and more enjoyable. Companies in Sri Lanka have very in depth laws regarding workers rights, women’s rights, employee legal work rights and employee termination rights and once again these laws and how they work are made very clear to the apparel-manufacturing workers. Sri Lanka is currently close to being the number one apparel manufacturing country in the world
  • 19. 36 37 and they will be chosen so because of their incredible ethics and the amount of integrity with which they treat their employees, their customers and of course, the environment. (Labor Legislations) Sri Lanka is constantly making sure that they are treating their employees and their customers with the utmost respect and integrity. Because high integrity is one of Ecru’s top values, the way that Sri Lanka manages their facilities is something that really resonates with us. The ability to have respect in the workplace is something Ecru is certainly looking for when reviewing countries and manufacturing facilities. current Textile and Apparel Industry: Sri Lanka’s textile and apparel export industry is the largest and most significant contributor to the country’s economy. The industry has seen sizeable growth over the past four decades and today the apparel industry makes up 52% of the countries exports and economic stimulus. This fast growing industry also provides over 300,000 jobs to Sri Lankan men and women across the country. The 350 garment factories and 16 textile and fabric manufacturers are privately owned entities but do manage well with the Sri Lankan government, seeing that they are bringing in the majority of the countries revenues. These technologicallyinnovativefactoriesplayakeyroleintheadvancement of the Sri Lankan apparel industry and are quickly paving the way to be the top supplier country in the world. (EDB) The apparel manufacturing industry is incredibly competitive, but Sri Lanka has many attributes that make them stand out. Each factory in Sri Lanka is 100% environmentally friendly and many have won incredible awards including the world’s first LEED Platinum certification. They operate under strict ethical principles and guidelines that are made clear to the workers as well as the brands and companies. The manufacturing facilities are also highly focused on innovation, giving back to their country and maintaining a strong reputation all across the world. (EDB) Sri Lanka’s apparel categories include sportswear, lingerie, lounge wear, ready to wear, bridal, swimwear and children’s wear and the United States and the United Kingdom have been the largest apparel buyers for many years. Longstanding relationships with companies across the world, and a strong drive to make quality pieces, keeps buyers and brands coming back again and again to Sri Lanka. These relationships have made the apparel industry in Sri Lanka even more reputable, stronger and more prosperous. (EDB) Sri Lanka is a producer of Garments Without Guilt and the “Made in Sri Lanka” label, both of which are synonymous with high quality, reliability, social and environmental standards, code of ethics and accountability. Each of these standards is made present in each of the factories, the working environments, as well as how the garments are produced. Within the past three decades the country has evolved into creating high quality and sophisticated designs,
  • 20. 38 39 allowing the country to appeal to even more companies and brands. (EDB) Because the apparel industry makes up such a large percentage of Sri Lanka’s economic stability and make up, all of the factories and manufacturing facilities in the country take part in giving back to the community. This is a very important aspect of these facilities and shows a philanthropic side that will resonate with many different fashion brands, again making Sri Lanka an ideal country to source from. Businesses and manufacturers are always looking to grow and expand and currently there are 10 new facilities being built. Sri Lanka has recently been named one of the top three countries out of the top 50 most important suppliers and has promise of becoming the top supplier in the world in a few short years. (EDB) Because the textile and apparel industry in Sri Lanka is one of their top industries, they are constantly looking for new ways to improve and expand. With that being said, the manufacturers are still incredibly focused on building strong relationships and reputations with customers. This in turn helps Sri Lanka keep their best customers coming back and gives them potential new customers for additional revenues. Ecru would be happy to manufacturer in a country that is focused on giving the customer exactly what they are looking for and making sure they have a great experience along the way. Logistics and importation Exporting goods from Sri Lanka into the U.S. has become a very simple and quick task. There are many shipping and freight companies that service Sri Lanka and a large majority of the goods are going back to the Unites States. The routes are well established and there are multiple to choose from depending if the goods are being delivered to west coast or the east coast. Because the majority of the manufacturing facilities are located in Colombo, the port city capital, or very close by, getting the garments and apparel to the port is not an issue. Hundreds of shipping companies travel from Sri Lanka to the United States including ZIM Shipping Line, Maersk Line and Hapag-Lloyd. The majority of exporting and shipping out of Sri Lanka is done through sea and there are limited airfreight companies coming to Sri Lanka. ZIM Integrates Shipping Services ltd. was established in 1945 and has grown to be one of the largest container shipping companies in the industry. The company is committed to providing their customers with reliable shipping solutions around the world. An exporting container ship leaves from Colombo, Sri Lanka every two days and takes approximately 3 weeks to arrive in New York, United States. The container ship takes two routes: one from Sri Lanka through the Middles East and Mediterranean into southern Europe. From there it goes on to the port in New York. (ZIM)
  • 21. 40 41 Maersk Line is one of the top leading cargo-shipping companies in the world and has been rising to the top of the market since 1928. Their strong commitment to the environment as well as customer service keeps people coming back. The ship leaves the Colombo port every Friday at 12 pm and there is a one-day cut off period for canceling a shipment. The vessel takes about 3-4 weeks to arrive in New York. The line goes from Colombo to Rotterdam and then arrives in New York. (Maersk Line) Haypag-Lloyd is a container freight company operating in more than 300 locations across the world. The company has been in business for over 165 years and continues to keep their values of environmental protection, compliance and sustainability prevalent in their work. Exporting a container from Sri Lanka to New York will take about 22 to 28 days on a Haypag-Lloyd ship. The ship leaves twice a week and sails through the Middle East and Mediterranean, making one stop in Halifax before then landing in New York. (Haypag-Lloyd)
  • 22. 42 43 EL SALVADOR Country Overview El Salvador is a small Central American Country that has been gaining footing in the textile and apparel industries and is the closest country to ECRU’s New York headquarters out of the five countries we have been researching. This means that manufacturing in El Salvador gives the advantage of a short lead-time. It is also the only country we have researched which has established a free trade agreement with the United States, through the Central American Trade Agreement- Dominican Republic (CAFTA-DR). El Salvador was the first Latin American country to sign CAFTA-DR which was implemented in March 2006 and would allow ECRU to import any garments we manufacture there tariff-free, as long as the labor and all the materials originate from one of the countries within the agreement. This is not the only tie El Salvador has to the US, as El Salvador adopted the US Dollar in 2001 as its currency which gives control over its monetary policy to the United States (Coleman 63; “Country Intelligence” 7). This has helped to stabilize the country’s inflation rates which are now predicted to increase steadily around a 2% change from the previous year in the near future (“Country Intelligence” 5-6). The dollarization also has eliminated the need to keep an eye on exchange rates between the US and El Salvador. The United States is El Salvador’s main trading partner, which receives half of El Salvador’s exports. The United States has invested over $2.5 billion into the country to help boost industries and infrastructure. In addition, approximately 1 in 5 Salvadorans lives in the US, 1.2 million of which are immigrants (Meacham).
  • 23. 44 45 Political El Salvador is a Democratic Republic that has been gaining stability since it’s 12-year civil war. It has a president who is elected for a single five year term. Current President, Mauricio Funes will be succeeded by his Vice President, Salvador Sánchez Cerén in June; both of which are left-wing members of the Farabundo Marti National Liberation Front party, or FMLN (Meacham). Sánchez Cerén has proposed “expanding rehabilitation programs, job training for convicts, and increasing support for police” in addition to adding welfare programs and development projects to help strengthen the economy and reduce poverty (Meacham). Social and labor Nearly half of El Salvador’s labor force is employed in agricultural and commercial activities while manufacturing accounts for 15.5% (“Country Intelligence” 15). Men make up the majority of the workforce; however, women have been gaining footing in recent years. As of 2010, there were 4.13 million people who are of working age with a labor force of 2.58 million (“Country Intelligence” 15). The population growth has been slowing but remains positive at 0.7% per year; however, the labor-force is predicted surpass the population growth rate until 2040 due to El Salvador’s age structure, as there are more people entering the workforce then there are retiring (“Country Intelligence” 10). Both male and female children typically attend school for 12 years with an estimated 80.2% of the population over 15 years of age being literate (Coleman 115). El Salvador will not lack for intelligent employees in the years to come as literacy has been increasing and a strong amount of the population is young. El Salvador is often listed as one of the most dangerous countries, having a murder rate over 40 per 100,000 people in 2013, wide spread gang problems (particularly with the Mara Salvatrucha and the Barrio 18), drug trafficking and corruption; however, it often ranks among the top ten happiest countries (Klahn; Meacham). Economy El Salvador has had a mixed economy since the 60’s and 70’s when expanded into manufacturing and it is currently one of the most industrialized countries in Central America. Agriculture employs half of the country’s work force and includes the growing of sugarcane, coffee and cotton. Currently El Salvador has a “sluggish economic performance” with imports exceeding exports although the growth rate has been taking a turn for the positive and is predicted to remain so in the medium-term. The country has low investment rates resulting in slow capital accumulation that “reflect a low national savings rate, a weak investment climate and poor human capital development” (Country Intelligence” 10). As El Salvador adopted the US Dollar as its currency, it no longer has control over its monetary policy which is dictated by the United States (“Country Intelligence” 7). Inflation is
  • 24. 46 47 clearance, port and terminal handling and inland transportation and handling (“Doing Business”). Acajutla is El Salvador’s major cargo seaport, followed by Puerto de La Union Central. The Cutuco Port had been inactive since 1996 and underwent renovations in January 2005, making it the most important port infrastructure project in over 30 years as it would double the cargo holding abilities of Acajutla (“Puerto”). It was inaugurated Puerto de La Union Central on June 21, 2008. By ocean, ships can travel from one of El Salvador’s ports through the Panama Canal and on to one of many U.S. ports where it can then travel by train or truck to its destination. Cargo can also travel across El Salvador to either Honduras or Guatemala as both countries have sea ports along the Atlantic coast. Crowley is a shipping company headquartered in Jacksonville, Florida with capabilities to transport merchandise from El Salvador to ECRU’s New York City location. Crowley would transport ECRU’s cargo from El Salvador to a port in Guatemala where it would then sail to the Fort Lauderdale Port (Port Everglades) in Florida. Next the cargo would ship via motor rail to New York City. Ships travel from Guatemala to Fort Lauderdale 3 times a week with a transport time of 5 days. Trains set out daily and cargo will reach New York in 4 days. Crowley gave a quote of $5,755 for the transportation of a filled 40ft shipping container of apparel from El Salvador to New York City (Phone Interview). predominantly driven by food, fuel and energy related wares and El Salvador’s adoption of the US dollar has helped to stabilize inflation which is expected to increase by 1.9% in 2014, a much lower rate than surrounding countries (“Country Intelligence” 5). Exporting Exporting from El Salvador requires 7 documents including a bill of landing,acargoreleaseorder,acommercialinvoice,acustomsexport declaration, a packing list, a technical standard/health certificate and terminal handling receipts (“Doing Business”). According to the World Bank Group, it takes 13 days and around $980 to prepare a container for export: this accounts for document preparation, customs
  • 25. 48 49 Textile Industry El Salvador has built a vertically integrated supply chain and is the only Central American country that has developed a full synthetic cluster, producing nylon, polyester and microfiber fabrics which ECRU may wish to utilize at a later date (“Specialized Textiles”). Apparel production cost per minute in El Salvador is $0.10; which in line with many of El Salvador’s neighbors including the Dominican Republic and Guatemala. Mexico and Colombia on the other hand are more pricy with costs around $0.12-$0.14 per minute. El Salvador’s textile and apparel association, the Chamber of the Textile, Clothing and Free Zones of El Salvador (CAMTEX), makes its mission “To promote, represent and support the textile, clothing and free zones of El Salvador, to strengthen their competitiveness,” and is a valuable resource when sourcing and learning about the industry (CAMTEX). The apparel and textile industry in El Salvador has been growing; production saw an increase of 4.1% in 2013, while exports grew by 9% to 2.394 billion (Melara). The industry accounts for 44% of the country’s exports; broken down further, fabrics accounted for 64%, followed by synthetic garments and fibers at 25% and woven apparel and fibers at 11% (Melara). 73,795 direct jobs were created in the industry during October 2013: a 3% increase from October of the previous year (CAMTEX). El Salvador’s agency for Promotion of Exports and Investments (PROESA) held a seminar in November of 2013 with aims to identify new opportunities in the textiles and apparel industry with a focus on how to utilize benefits of the CAFDA-DR trade agreement (“Salvadoran Government”). Due to the textile and apparel industry accounting for 16.3% of industrial GDP (2013) and 44% of exports, it was identified as one of the sectors with strong growth prospects in the short term (Salvadoran Government; Melara). As a result, the government will develop training programs to shift human resource’s focus to identifying new business opportunities in this sector. Climate A variety of natural disasters affect El Salvador typically causing the evacuation of thousands, the destruction of infrastructure, homes, buildings and land. These natural disasters could result in the destruction of manufacturing buildings or the evacuation of employees that would render them unable to work, affecting product production and the ability for goods to be transported. El Salvador experiences two seasons; the rainy season occurring between June and November, and the dry season, between December and May. During the rainy season, flooding and landslides have proven to be risky. Deforestation has been a problem in El Salvador which increases its susceptibility to these occurrences as roughly 85% of the country’s natural land-cover has been removed: making 65% of the country vulnerable to landslides (“Disasters Risk” 19). El Salvador has been called the Land of Volcanos and has over 20 volcanoes, 3 of which have been active in recent years and have resulted in the evacuation of thousands (“Disasters
  • 26. 50 51 Risk” 20). El Salvador is known for its vulnerability to hurricanes and tropical storms as well as for earthquakes, as it is located on one of Earth’s most seismically active regions (“Disasters Risk” 18-19).
  • 27. 52 53 INDIA Social India has the second largest population in the world with around 1.2 billion people in 2012. The social environment is very stable and people live together harmoniously since many are religious and live their lives under the doctrine of karma (over 80.5% are identified as Hindus) Indian cultures have been perceived as diverse and exotic. There are 18 major languages in India. However, many Indians can speak English since it is the second official language. Hierarchy is influenced by the caste system and still important in Indian society. Younger people respect the elders, and lower rank employees also have to respect their bosses and higher executives. Indiaisstillamale-dominatedsocietywherewomenhavelowerpriorities and wages than their male counterparts. Poverty and healthcare are still major problems in India. Many water resources are contaminated in India, and air pollution is almost the worst in the world. Many people have diseases and are unable to obtain adequate healthcare (only 7-8% of the central budget is allocated for healthcare). Even though the caste system was eliminated, people from lower caste ancestry are still regarded as unclean and are given less priority and benefits than higher-status people. There are still issues related to the large wealth gap and disparities in the society that cannot be improved within the short period of time (Marketline). Economic In 2011, India’s estimated GDP was $1.843 trillion with 7.8% growth rate. Indiaeconomyhasbeenimprovingandgrowingsteadilyinthepastfew
  • 28. 54 55 years. Middle class populations are increasing in numbers and earning higher disposable incomes. Foreign portfolio and direct investment inflows also have risen significantly in the recent years. Proposals for direct foreign investment are supported by the government and are also considered by the Foreign Investment Promotion Board. US-India bilateral merchandise trade in 2008 was almost nearly $50 billion. Major US imports from India include textiles, ready-made garments, internet-enabled and IT services, gems, leather products, and chemicals. The US is also India’s largest investment partnet with a 13% share. India exports have also grown at a very fast pace accounting for 23.9% of the country GDP in 2012 (Marketline) However, India’s economic growth is constrained by inadequate infrastructure (usually electricity), a cumbersome bureaucracy, corruption in service sectors and governments, regulatory and foreign investment controls, and high fiscal deficits. The rising fiscal deficits, inflation, and external debt have resulted in depreciation of rupee and negative credit rating (BBB-) India’s stage of economy has rather been a mixed between positive and negative aspects. Political According to Globaledge, the Indian government is considered as federal republic, however “ the central government has greater power in relation to its states and also has adopted a British-style parliament system; the parliament consists of Council of States (Rajya Sabha) and House of People (Lok Sabha)”. “The President of Indian is elected by an electoral collage of elected members from both houses of Parliament and the legislatures of the states for a five-year term” (CIA). India has 28 states and 7 union territories. President Pranab Kumar Mukherjee is the Chief of State, and Prime Minister Manmohan Singh is the Head of Government (Global Edge). The current diplomatic representative from US is Ambassador Nancy J. Powell (CIA). Labor India has the second-largest labor force in the world, which accounts around487 million workers.In2013, India’s unemploymentratewas 8.8% with 29.8% of population below poverty line (CIA). Textile and apparel industry employs over 35 million workers and is also the second largest provider of employment after agriculture. Many unskilled workers are well-trained in their sectors. The current labor cost in apparel manufacturing sector is $0.51 per hour; the overall wage is still higher than the same sectors in Bangladesh, Cambodia, Pakistan, Vietnam, Sri Lanka, and Indonesia (Emerging Textiles). The growing number of young population in India implies the potential and active workforce in the world which looks positive for outsourcing for skilled and talented labors; more than 70% of population will be working age in 2025. Trade Agreement India has no Free Trade Agreement partnership with the US. However,
  • 29. 56 57 the country has several bilateral trade agreements with other countries and within WTO such as AIFTA (ASEAN-India Free Trade Area) which allows tariff liberalization over 90% of products including textiles. The trade agreement is however beneficial to the US companies in the way that they can gain benefit from cost reduction if they decide to use materials such as raw materials, fabrics, or components from one of the ASEAN countries, which will be delivered to India to be made into final garments. India also has SAFTA (South Asian Free Trade Area) and with the new government recently has agree to start on bilateral trade ties with the EU and Canada in the future. Risks Though India has a potential growth in manufacturing and labor force. There are still some problem associated with poor infrastructure and business protocol that might create risks to the production and company such as punctuality and discipline issue. There are high risks associated with late inadequate shipment and time consuming process, which will tremendously cause the loss of profit in the business. Inefficient implementation of regulations and Code of Conduct is also another risk. Child labor, unhealthy and unsafe working environments, and unfair wages are still considered major issues. Many companies have a hard time identifying the transparency level of the suppliers since the production is done oversea. It is a huge risk in losing reputation of the company if any unlawful or inhumane practices are discovered at the partnered suppliers Textile and Apparel Industry The domestic apparel market in India was worth about $38 billion in 2012. India is ranked as the sixth largest apparel exporter in 2013 with the total estimated value of $14.4 billion. The apparel sector accounts for almost 10% of the overall exports. India has been regarded as one of the best producers of cotton fabrics (especially hand-loomed) as well as raw cotton exporters (ranking #2 in 2013) in womens wear, blouses and Indian ethnic wear comprise the largest segment with 75% share of the entire segment. The market is expected to grow at 9% for the next five years at the value of 22.3 $billion. The monthly wages of a worker in the Indian apparel industry was approximately $169.67 which was also the fourth lowest paying following Bangladesh, Cambodia, and Haiti. The overall apparel industry is expected to grow at a compound average growth rate of 9% over the next decade. In 2012, there was an introduction of 10% excise duty on branded apparel with an abatement rate of 55%. There are also differences in tax rates depending on the states; “the government in Delhi, Uttar Pradesh, Punjab, and Rajasthan charge a VAT of 5% on apparel”, while other states charge 4%. The service tax was also increased by 2% in 2012 (Gugnani) The rise in taxes resulted in increased average sales price of
  • 30. 58 59 apparel by 5-6% Most retailers had encountered a negative growth of 4-5% in sales during the fiscal year of 2012 (Gugnani). According to Indian Ministry of Textile, the textile and apparel industry in India have strong growth in demand and policy support, which has resulted in government investment schemes (TCIDS and APES) and commitment of both domestic and foreign investments ($140 billion in value) (IBEF). The Technology Upgradation Fund Scheme (TUFS) provides budget of $0.5 billion for modernization of the power loom sector and stress more on mechanization (IBEF). The FY14 union budget also provides infrastructure support and tax sops and financial packages that help reducing duty for imported textile and machinery and eliminate excise duty for the cotton and manmade garments as well (IBEF). Why we didn’t choose India: Even though India is known for cheap labor costs (in general), ready-made apparel industry, woven and knitted cotton fabrics, there are some factors that made us had to eliminate India over other smaller countries like Sri Lanka and El Salvador. First problem is poor infrastructure, especially electricity and roads; losing power during the production process might create huge loss of time and profits, and might also delay the production. Poor road condition and environment also create problems with delivery as well. Second problem is poor atmospheric and working environment; India is known for having very high level of air pollution and contaminated water resource, water is needed in production and it’s vital that it’s clean before manufacturing into actual products. Dirty environment and poor air condition will also affect the workers’ health which might result with problems in the future. The third issue is about sourcing guideline in which many places in India still don’t comply to the code of conduct honestly and child labors and unfair payments to the workers still happen everywhere. India also has no free trade agreements with the US which means it is automatically subjected to 15.4% tax over every product imported to the US. Though the suppliers that ECRU contacted are very professional and have higher rank scores on ECRU supplier ranking, their price quotes are very high compared to ECRU initial estimated costs.
  • 31. 60 61 PHILIPPINES INTRODUCTION There is more involved in the design process of apparel than sketches and swatches. After all of the designs and measurements have been made, it is required to source a manufacturer who will be capable of fulfilling production needs at the right price, in the right time, and incurring minimal risk. The purpose of this report is to analyze manufacturing opportunities in the Philippines to determine where ERCU will entrust its designs. We want to keep rational feasibility in mind while also not compromising our core values and ethics in the creation, distribution, and lifecycle of our proposed products. SOCIAL The total population of the Philippines as of June 2012 was 103,775,002, evenly divided between males and females with an average age of 23.1 years. According to philstar.com, about 40 million of these make up the labor force while the unemployment rate stands around 6.9% and the inflation rate as of May 9, 2013, was at 3.2%. Because of their Spanish background, religion in the Philippines mostly consists of Roman Catholics (81%) and Protestants (12%), followed by Muslims (5%) and others (2%), which should not pose any serious restraints on conducting business. It is also convenient that in addition to speaking their native language, Filipino, the nation also lists English as their second official language.
  • 32. 62 63 POLITICAL In February 1987, the Philippines adopted a new constitution that instituted the presidential-style republican form of democracy, which resembles the U.S. model much more than the European parliamentary system. One key difference between the Philippines and U.S. systems is that the Philippines is a unitary republic, whereas the United States is a federal republic, with significant powers reserved for the states. In the Philippines, by contrast; the national government is not challenged by local authority. The ratification of the 1987 constitution—the fourth in the nation’s history—by national referendum signaled the country’s return to democracy following the autocratic rule of Fernando Marcos (1965–86). Politics in the Philippines is somewhat tumultuous. In February 2006, the president declared a state of emergency after quashing the attempted coup staged by the political opposition. The current president of the Philippines is Benigno Aquino and Philip Goldberg is the current ambassador to the Philippines from the United States. ECONOMY The economy of the Philippines is an anomaly in the Asia-Pacific region in that it has lagged behind other economies, such as those of Singapore, South Korea, and Taiwan. From a position as one of the wealthiest countries in Asia after World War II, the Philippines is now one of the poorest. Since the 1970s, which were a relatively prosperous decade, the Philippines has failed to achieve a sustained period of rapid economic growth and has suffered from recurring economic crises. This persistent underperformance has occurred in spite of the Philippines’ rich natural and human resources. The reasons are rooted partly in history, partly in policy. As a legacy of the U.S. colonial period, oligopolies have dominated the economy, particularly in agriculture, where farmland continues to be concentrated in large estates. In the post-World War II period, the Philippines pursued a strategy of import substitution industrialization, whereby domestic goods are substituted for imports. This strategy required protectionist measures, which led to inefficiencies and the misallocation of resources. Although some trade protectionist measures were relaxed in the early twenty-first century, the Supreme Court continues to support restrictions on foreign ownership of land and other assets in effect since the constitution of 1935. These restrictions, plus widespread graft and corruption, have suppressed inbound foreign direct investment. A historically low rate of taxation—only about 15 percent of gross domestic product (GDP), partly as a result of widespread tax evasion—has led to underinvestment in infrastructure and uneven economic development. Although trade barriers were scaled back, industrial cartels split up, and limited reform measures taken in the late twentieth century, political instability, continuing high levels of corruption, and resistance to reforms by entrenched interests have prevented the Philippines from pursuing a consistent and effective economic course. The
  • 33. 64 65 industrial sector continues to decline relative to services, an economic bright spot in which the Philippines apparently enjoys a comparative advantage, although some argue that services represent an employer of last resort. As of April 13, 2014, one Philippine Peso (PHP) was equal to $0.023 (USD). In 2005 the services sector accounted for about 53.5 percent of GDP; industry, 31.7 percent; and agriculture, forestry, and fishing, 14.8 percent. GEOGRAPHY The Philippines are made of about 7,107 islands located off Southeast Asia, between the South China Sea on the west and the Philippine Sea on the east. The major islands are Luzon in the north, the Visayan Islands in the middle, and the Mindanao in the south. The total area is about 186,411 square miles including about 185,168 square miles of land and about 1,243 square miles of water. The Philippines consists of volcanic islands, including active volcanoes, with mostly mountainous interiors surrounded by flat lowlands and alluvial plains of varying widths along the coasts. Research on the Philippines by the Library of Congress indicates that the islands are also prone to floods, landslides, earthquakes, and tsunamis. This and the fact that the islands are located along the typhoon belt which experiences 15 to 20 typhoons a year, of which five or six may cause serious distraction and/or death, makes the Philippines a very risky location to choose to manufacture ECRU’s woven tops. TRADE The United States and the Philippines have had a very close trade relationship for more than a hundred years. According to the Office of the United States Trade Representative, the US meets regularly with the Philippines under the auspices of a Trade and Investment Framework Agreement (TIFA) signed in November 1989. Several additional agreementshavebeensignedunderTIFAauspices,includingacustoms administration and trade facilitation protocol (2010), a memorandum of understanding to cooperate on stopping illegal transshipments of textiles and apparel (2006), and a memorandum of understanding regarding the implementation of minimum access commitments by the Philippines (1998). U.S.-Philippines Trade Facts The United States is among the Philippines’ top trading partners, and it traditionally has been the Philippines’ largest foreign investor. Two- way goods and services trade between the United States and the Philippines totaled to $22 billion in 2011. Exports totaled $9.9 billion; imports totaled $12.1 billion. The U.S. goods and services trade deficit with the Philippines was $2.2 billion in 2011. The stock of U.S. foreign direct investment in the Philippines exceeded $5 billion. Data from the United States Embassy in Manila indicates that the Philippines is currently the United States’ 36th largest goods trading partner with $17.6 billion in total (two ways) goods trade during 2012.
  • 34. 66 67 Goods exports totaled $8.1 billion; goods imports totaled $9.6 billion. The U.S. goods trade deficit with the Philippines was $1.5 billion in 2012. Trade in services with the Philippines (exports and imports) totaled $5.2 billion in 2011. Services exports were $2.2 billion; services imports were $3.0 billion. The U.S. services trade deficit with the Philippines was $827 million in 2011. Exports and Imports The Philippines was the United States’ 33rd largest goods export market in 2012. U.S. goods exports to the Philippines in 2012 were $8.1 billion, up 4.6% ($355 million) from 2011, but down 8.3% from 2000. The top export categories (2-digit HS) in 2011 were: Electrical Machinery ($2.7 billion), Machinery ($867 million), Cereals (wheat) ($618 million), Flour and soybean meal ($511 million), and Aircraft ($453 million). U.S. exports of private commercial services (i.e., excluding military and government) to the Philippines were $2.2 billion in 2011, 8.7% ($173 million) more than 2010 and 38% greater than 200 levels. The other private services (business, professional, and technical services) and travel categories accounted for most of U.S. exports in 2011. The Philippines was the United States’ 35th largest supplier of goods imports in 2012. U.S. goods imports from the Philippines totaled $9.6 billion in 2012, a 4.8% increase ($436 million) from 2011, but down 31.3% from 2000. The five largest import categories in 2012 were: Electrical Machinery ($4.0 billion), Machinery ($1.1 billion), Knit Apparel ($617 million), Fats and Oils (mainly coconut oil) ($532 million), and Woven Apparel ($531 million). U.S. imports of agricultural products from the Philippines totaled $2.3 billion in 2012. Leading categories include: coconut oil ($531 million), raw beet and sugar cane ($107 million), processed fruit ($131 million), tree nuts ($97 million), and fruit and vegetable juices ($68 million). U.S. imports of private commercial services (i.e., excluding military and government) were $3.0 billion in 2011, up 12.2% ($324 million) from 2010, and up 94% from 2000 levels. Other private services (business, professional and technical services) travel and passenger fares categories account for most of U.S. services imports from the Philippines. Investment U.S. foreign direct investment (FDI) in the Philippines (stock) was $5.3 billion in 2011, a 1.1% decrease from 2010. Reported U.S. FDI in the Philippines is mostly in the manufacturing sector. Philippines FDI in the United States (stock) was $114 million in 2011, up 10.7% from 2010. The distribution of Philippines FDI in the United States is not available. The Office of the United States Trade Representative also indicates that sales of services in the Philippines by majority U.S.- owned affiliates were $3.3 billion in 2010 (latest data available), while sales of services in the United States by majority Philippines-owned firms were $37 million.
  • 35. 68 69 US & PHILIPPINES TRADE AGREEMENT TheUnitedStatesandthePhilippineshavehadaclosetraderelationship for more than a century. The two sides meet regularly under the auspices of the TIFA, which is the coordinating mechanism for trade and investment policy discussions between our two governments. Total goods trade between the United States and the Philippines is about $18 billion, up 41 percent since 2009. Services trade is growing rapidly and exceeded $6 billion in 2012, also up 41 percent from 2009. U.S. foreign direct investment in Philippines is roughly $5 billion, concentrated in manufacturing. The United States and the Philippines today concluded a two-day meeting under the Trade and Investment Framework Agreement (TIFA), agreeing to a program of expanded engagement in coming months on bilateral, regional, and multilateral issues. The meetings were chaired by Assistant U.S. Trade Representative Barbara Weisel and Philippine Undersecretary of Trade Adrian Cristobal. In addition, senior officials from other agencies on both sides participated in the meeting, including Philippine Agriculture Department under Secretary Segfredo Serrano and Edgardo Albon, Chairman of the Philippine Tariff Commission. On bilateral issues, the United States recognized the considerable efforts the Philippines has made to strengthen its intellectual property regime and overall framework for protecting worker rights, two areas of focus of recent U.S.-Philippine cooperation. The two sides agreed to establish a new work program on labor affairs under the TIFA to further our efforts. In addition, the United States and Philippines held detailed discussions of agricultural trade, including related to rice and meat, and these discussions will continue in the coming weeks. In response to Philippine interest in the Trans-Pacific Partnership (TPP) agreement, the United States briefed the Philippines on the goals and objectives that the twelve TPP countries are seeking to achieve. The two sides began a program of technical consultations to provide the Philippine government the detailed information it will need to consider whether to seek to join the TPP agreement. The Office of the United States Trade Representative also found that the United States and Philippines also agreed to intensify cooperation on U.S.-ASEAN issues and on the trade and investment agenda for APEC, which the Philippines will host in 2015.
  • 36. 70 71 CONCLUSION There are many benefits to come of manufacturing in the Philippines, however there are great risks, specifically the unpredictable nature of their numerous natural disasters. The quality of their manufacturers is still unclear as far as meeting the standards of ECRU, however, I am very interested in the technology of creating eco-friendly and sustainable fiber from pineapple and banana, which would certainly coincide with the ECRU values. In closing, the Philippines may not be a viable first candidate in our search for a manufacturer, but it cannot be overlooked given it’s recent advances in technology and sustainability. Why we didn’t choose Philippines: The Philippines was eliminated for many reasons. First, the political environment is not very assuring. More specifically, the ease of corruption makes for a disheartening business climate. If the Philippines government is unreliable to their own business climate, they surely will not be flexible to foreign businesses. Also, the textile industry is not supported by the government and there are currently no trade agreements in place between the Philippines and the United States. In addition, the natural disasters in the Philippines are numerous and would not support ECRU’s need to have a steady flow of product for our Basic’s line. There is a monsoon season that could be tolerable as long as we manage the amount of product being manufactured at that time, however there are also active volcanos, earthquakes, and tsunamis that could make product investment more of a risk than affordable for a small company like ECRU. Finally, of the five countries researched, the Philippines had great potential in their manufacturing facilities, however there was little information to be found and contact was very difficult to establish. The selection highlighted more disposable bag manufacturers, weavers, and sports bag manufacturers. Of the seemingly suitable manufacturers, none replied to ECRU’s emails. The emails were either invalid or kicked back due to a full inbox. When phoned, the manufacturers failed to answer. Of those who had voicemails, none of the calls were returned - even when we provided our country code in the telephone number and spelled out our email address. All of these reasons, when compared to the other four countries, presented us with a situation where we saw it best to move on without the Philippines.
  • 37. 72 73 CHINA Economic Climate Economy Structure and History • Market socialism economic system • GDP-real growth ranked 14 and GDP-purchasing power ranked 3 • The economic development started since the economy reformin1978 Currency • Use Yuan /RMB as currency unit • Current currency 1 USD= 6.25 Chinese Yuan • Currency rate is controlled by the government Inflation •Inflation rate has a increasing tend Unployment Rate • Current unemployment rate is 4.1% • Stable near 4% since 2008 Labor Cost • Minimum monthly wage is $293, $0.085 per minute in Apparel Industry • Rising minimum wage for couple times in past years • Labor cost will continue in growth Reform and Promoting • Reform in 1978, joined WTO in 2001, Free Trade Zone in Shanghai 2013 • Chinese governor state China rules out strong economy stimulus
  • 38. 74 75 Political Climate Voice and Accountability • Government controls over the freedoom of expression • The Media is controled by the government as well • Government lack of accountability Political Stability • Taiwan and Tibet Indpendence issue • Xinjiang Violence against government Government Effectiveness and Corruption • Government effectiveness rated 60.7 (100 is highest) is at an acceptable level • Goverment is corrupted • Some companies violate the regulation and bribe the governors for avoiding punishment Counterfeiting • Chinese government lack of protection of Intellectual property • Counterfeiting is a big isssue in Chinese Apparel industry   China's Free TradeAgreements   Name   Effective Date   Countries   Textile and Apparel Related Regulation       China-ASEAN FTA       January 1st 2005   Indonesia, Brunei,Malaysia,Vietnam, Singapore, Burma, Thailand,Cambodia, Phillipines,Laos   Using "negatvie list" method for FTA for goods. Goods not on the negative list are regarded as regular goods. ( woven apparel falls into the regular goods category) Tariff to the old members of ASEAN was removed since 2010 Jan 1st ( for regular goods) and Tariff to the new members of ASEAN will be removed in 2015.       China-Pakistan FTA       July1st 2007       Pakistan       Most of the woven fabric falls in the list of "Zero Tariff to Pakistan" Detail on fta.mofcom.gov.cn -"zero tariff list to Pakistan"       China-Chile FTA       Apirl 13th 2008       Chile       No tariff for apparel and textile     China-New Zealand FTA     October 1st 2008     New Zealand New Zealand will remove all the tariff for leather garment, knitting apparel, shoes in 2016 Jan 1st (part of them was removed in 2014 Jan1st) Since 2009 China has signed the preferential agreement for all wool and wool products imported from New Zealand and no tariff       China-Singapore FTA       January 1st 2009       Singapore     No tariff for goods export from China to Singapore since January 1st 2009 No Tariff for 97.1% goods import from singapore since January 1st 2012     China-Peru FTA     April 28th 2009     Peru   The goods were divided into 5 different categories and most of the apparel and textile products fall into the first two categories and the tariff would be removed within 5 years after the FTA signed. Mainland-Hong Kong Closer Economic and Partnership (CEPA)Arrangement     2003     Mainland-Hongkong     "One country, Two system" No tariff     Mainland-Macau CEPAArrangement     2003     Mainland- Macau     "One country, Two system" No tariff     China-Costa Rica FTA     Nov-08     Costa Rica   No tariff for 90% of the goods (both export and import) since August 1st 2011, Textile and Apparel falls into the 90%       China-Iceland FTA       April 15th 2013       Iceland     No tariff for 99.7% of the goods export from china to Iceland, and no tariff for 81.56% of the goods import from Iceland to China. Textile and Apparel falls into these categories.     China-Switzerland FTA       July 6th 2013       Switzerland       Reduced the tariff for textile and apparel that export from China to Switzerland     The Asia-Pacific Trade Agreement (APTA)       1975   China,Bangladesh, India, Republic of Korea, Lao People's Democratic Republic and Sri Lanka   1767 Tariff lines originating from Bangladesh and the Lao People's Democratic Republic are given conventional tariff rates for exports to China. These countries are trading with a preferential tariff 0.5% to 5.0% lower than the applied MFN tariff for 50-63 HS   Trade Agreeements
  • 39. 76 77 Textile Industry TheApparel/industrywasoneoftheindustriesthatChinesegovernment choice to start for the open door policy (the reform in 1978) and it is one of the essence industry since then. The industry had a sign of continuing growth since 1979, the average annual growth rate of total value of textile and clothing output was 13.2%, the total industrial value increase about 7% every year from 1997 to 2002 (except the year Asian financial crisis,1998). And after 2002, the year China joined the WTO, most of the products in this industry grow even faster. (See detail in the image 4.7) Currently, China is the biggest player in producing apparel and textile including cotton, yarn, wool fiber, cotton fabric, silk fabric, garments, chemical fibers and knitted goods. (Detail data in the size section) It has a trend of reduced employment in the apparel/ textile industry, however, it is a sign of development in productivity and efficiency. The industry will be continuing in growth, and with the rise of labor cost and advancing technology it has a trend of entering the high-end market section. The Chinese textile market has a total value of 161.7 billion dollars (2012) and in the past five years the CAGR is 10.8 %. The Fabrics account 76.5% of the total and yarns account for 23.5%. In Asia-Pacific industry, it accounts 41.0% of the total. (Marketline) Position in the Country Apparel and Textile industry is one of the pilar Industry in China since the release of open door policy. Since then, China gained a substantial market share in the international apparel and textile trade. In 1980, China was accounting for 4.6% of the world’s total exports, and ranked as number nine and then since 1995, it ranked number 1 in the world and the growth steadily continued. (Qiu) From China National Textile and Apparel Council statistics, the value of China exported garment and textile products worth $42.4 billion in first two months of 2013 and it was 34.1 percent higher than the same period in 2012 and 8.3 percent higher than the general export growth in the country. (Xinhua) All these data showed evidence of the importance of apparel/ textile industry in China and its steadily growing trend. Government Support &WTO There are three major supports to the apparel/textile industry from government, since the release of 11th 5-Year Plan for the Textile Industry in 2006 by the State Development and Reform Commission. These policies are, develop the innovation and building Chinese brand to the world market, and improve the technologies and equipment and restricting inefficient polluting. (Qiu) Another important action made by the government was being member of WTO. Since WTO allow Members to seek resource in WTO organization, it benefited Chinese Apparel/Textile industry because of the limitation reduction on exporting.
  • 40. 78 79 Reasons for Business China is known as the biggest manufacturer in the world especially in apparel industry. There are several reasons made China to be the first choice of manufacturing for their garments. First, China has the biggest textile industry, which is the nature advantage for manufacturing apparel. China produces bulk amount of silk, cotton, and wool. Besides, China has Free Trade agreement with Australia (known for best quality wool) and could import wool from Australia without tariff and FTA with Peru for high quality cotton, Thailand for high quality silk as well. Second, China has abundant experience of exporting. China is the biggest exporter and second largest importer. Since the revolution in 1979, Chinese government started to support international trading. Nowadays, they are really experienced in trading internationally and strong government support. Thirdly, Sophisticated logistic system and various choices of suppliers are other advantages of manufacturing our garments. China has more than 1500 apparel manufacturers and manyofthemalsoprovideP.Oserviceandclearcustomsforcustomers. This could bring convenience to us for avoiding extra process to bring the merchandise into U.S COUNTRIES - SWOT ANALYSIS SWOT ANALYSIS                           Strength   - Green Conscious   -Sufficient Labor Force   - Strong Connections with Customers   - High Standards For Quality and Craftsmanship         Weakness   - 30-Year Civil War Ended in 2009   - Sri Lankan People Lost Trust in Government   - StrictBusinessEtiquetteto FollowWhenConducting Business       Opportunity   - Becoming Number One Apparel Exporter in World - Political and Economic Stability - Leaders in Green and Sustainable Manufacturing       Threat   - High Amount of Debt   - Losing Revenues After War   - Much Competition Throughout the World   - Monsoon and Typhoon Season 9 Months/Year               SRI LANKA
  • 41. 80 81 SWOT ANALYSIS                           Strength   - Dollarized   - Close ties to the US - Stable labor force - $0.10 /min manufacturing cost - Government support for apparel and textile industry   - Part of CAFTA-DR       Weakness   - Gang violence - Corruption - Costly transportation - Weak accountability of government - Apparel focus is predominantly on knitwear and synthetics       Opportunity   - Elimination of tariffs with CAFTA-DR - Government held conference to identify opportunities in Apparel sector - Close proximity could result in receiving product quicker - Recently rebuilt port may become a hub for transportation   Threat   - Prone to natural disasters - Political uncertainty with newly elected president                   EL SALVADOR INDIA SWOT ANALYSIS                   Strength - Skilled and specialized labors in apparel sector. - Second largest young workforce in the world - The largest cotton producer as well as cotton products. - Supportive foreign policy - Many English spoken professionals - Cost advantage         Weakness   - Poor infrastructure - Inadequate discipline and management - Corruption - Weak implementation on compliance in code of conducts - Unclean environment - Uncertain time management Opportunity - Ease of investment - New government supporting Free Trade Agreements and other policies - Improving economy - Readymade garments dominate exports - Rising incomes and growing middle-class - Increase in exports     Threat     - Low proportion of high technology exports - Increasing air pollution - Recent terrorisms discourage investors           INDIA
  • 42. 82 83 SWOT ANALYSIS                           Strength   -High growth potential   -Young & growing labor force   -Developing textile technologies   -Logistic convenience       Weakness   -Corrupt government   -Long lead times   - Limitedproductplacement -No Trade Agreements with the U.S.         Opportunity   - Free Trade Zone, remove trading barriers   - Continuing trend for industrialization   -­‐  Opportunity  for   investment       Threat   -Natural Disasters   -High inflation rate   -Currency manipulation allegation   -Government Restriction                     Philippines SWOT ANALYSIS                           Strength   -High growth potential   -Sufficient Labor Force   -Leading position in the industry   -Government support for apparel and textile industry   -Logistic convenience       Weakness   -Unstable government   -Lack of Intellectual Property right protection   - Weak accountability of government   -High tariff     Opportunity   - Free Trade Zone, Remove trading barriers   - Continuing trend for industrialization   -­‐  Huge  market  for       investment     Threat   -Increasing labor cost   -High inflation rate   -Currency manipulation allegation   -Government Restriction                           CHINA
  • 43. 84 85   The factors we took into consideration to compare the countries for placing our products are listed in the chart. Overall, El Salvador has the highest score, follow by China and India, Sri Lanka, and Philippines was rated to be the lowest.   We broke down 6 factors, including communication convenience, textile industry condition, labor cost, trade agreement, overall atmosphere in trading apparel and location, to evaluate the benefits for each country. Based on this evaluation chart, we rated China, India and El Salvador to be the higher ones. China has the most sophisticated textile industry and FTA with many other countries could with the textile- supplying sources. India has the cheapest labor cost compare to other countries, and communication convenience. El Salvador is the nearest country to the United States and has assigned CAFTA with the U.S. Philippines and Sri Lanka have fewer benefits. COUNTRY RANKINGS
  • 44. 86 87   We evaluated countries’ business climate based on 5 aspects, the logistic performance, lead time to export, ease of doing business, government support, opennes to foreigners. China and Sri Lanka were rated to be highest countries, India and El Salvador were slightly lower, Philippines has the lowest score majorly because apparel industry is not supported by government and people are more likely to make money in other industries. Cost India has the lowest labor cost among these five selected countries, which is $0.080 per minute for apparel industry, and $200 dollars per month for general minimum wage. China is the second lowest, $0.085 per minute and $240/month minimum wage, however because of the continuing growth of labor cost recent years, China was rated the same as Philippines and Sri Lanka (around $0.10 per minute). El Salvador was rated slightly higher than China, Philippines and Sri Lanka because of the exemption of tariff that lower the total cost. Government Generally, these five countries’ government overall are not in positive position, and each country has its own issues. The Chinese government hasalackofaccountability,overcontrolofmedia,lackoftransparency and has some corruption issues as well. Sri Lanka just ended the Civil war in 2009, the government lack supports by citizens and has corruption issues as well. The Philippines’ government is heavily corrupted and has many embezzlement issues. El Salvador has a newly selected president with anti-US associates, and the government has foreseen instability concerns. So, these four countries were all rated as 5. Comparatively, India has a more stable government. India has a new government with promising bilateral trade ties but some corruption issues still exist.
  • 45. 88 89 Location India, Sri Lanka, and the Philippines are all located in southwest Asia and have long lead-times for shipping merchandise to the U.S. China is closer to the U.S and has a more sophisticated logistic system which made China’s rating 1 point higher than the other three countries. El Salvador, located in Central America, has the advantage of having the shortest leading time.   The comparison factors of risks for selected five countries are listed in the chart above and evaluated threats from these aspects. Each country has its own issues and generally China, India and El Salvador have fewer risks for conducting business. Social Stability Factors such as, the happiness of people in the country, uprisings, war, gang violence, population growth were taken into consideration to evaluate social stability of the selected countries. China’s biggest concern for social stability is the internal terrorist threats, and the Xinjiang violence. The Tibet independence issues are also influencing
  • 46. 90 91 the Chinese society in a very negative way. India has internal and external terrorist as well. In Sri Lanka, citizens are not happy with the new government that just established after the civil war. The major concern for El Salvador’s social stability is the gang violence, and the crime and violence is threatening the social development. The Philippines has a more stable society with no big threats compared to other four countries. Sourcing Guidelines Sri Lanka, the Philippines, and El Salvador companies all have acceptable sourcing guidelines that match with ECRU’s, especially Sri Lanka which known for green production. China’s sourcing guideline is not matching international standard and had several issues while trading, but the latest news indicate the government is enforcing the labor laws and trying to improve the current condition. India has child labor issues but the overall sourcing guidelines control is not as bad as China. Textile Industry Among these five countries, China has the biggest strength in textile industry with abundant raw materials like silk, cotton and wool. Besides, the Chinese government has also invested large amounts of money in purchasing high quality facilities with new technology. India is the second strongest, it has abundant raw materials as well and the overall industry is in a high growth condition. The supply for raw material in Sri Lanka is not as strong as China and India, but they have many factories and textile/ apparel industry is their biggest industry in the country. El Salvador is specialized for producing knits and synthetic textile but lack of raw materials and versatile for production. The Philippines was rated to be lowest because of the textile and apparel industry, which is not supported by the government and in a slow development pace especially in infrastructure. Trade Agreements El Salvador is the only country that has a Free Trade Agreement with U.S. The CAFTA-DR gives free trade if all parts of product are sourced in a participating country. No quotas on imports to U.S. China has 12 FTA with other countries, like Australia, Peru, ASSEAN (south east Asian countries) that could bring benefits for sourcing materials from other countries with lower costs. India only has FTA with ASSEAN and negotiation FTA with Canada and EU countries. Sri Lanka has FTA with Pakistan and India. Philippines has no trade agreement could benefit apparel and Textile industry
  • 47. 92 93 SUPPLIER ANALYSIS Sri Lanka • Brandix Lanka Limited Pvt. Ltd. • Hirdaramani International Export Pvt. Ltd. • Eam Maliban Textiles Pvt. Ltd. El Salvador • Industrias Merlet S.A. de C.V. • Picacho S.A. DE C.V. • Vexsal, S.A. De C.V. Supplier Selection Suppliers’ Highlights & Textile Industies Country Selection Ratings Spreadsheet India • Karle International Ltd. • Mira Exim, Ltd • Eves Fashion Philippines • Reliance Apparel & Fashion Manufacturing, Inc. • Hamlin Industrial Corporation • Excellent Quality Apparel Inc. China • SC International Garment & Accessories Ltd. • Jiaxiang Jingle Fashion • Hangzhou Ourun Fashion Co. Ltd. Countries with Top 3 Suppliers SRI LANKA - SUPPLIERS Sri Lanka’s apparel industry is the highest contributor to the Sri Lankan exports as well as the countries over all economy. The manufacturing industry has grown significantly in the past three years and now employs 600,000 workers. Sri Lanka benefits highly from its positioning at the intersection of the major trade routes between Africa, South and East Asia, Europe and the Persian Gulf. The manufacturers and factories in Sri Lanka have won numerous awards for their “Green” practices and are setting the bar very high for other top manufacturers in countries around the world. Sri Lanka manufactures apparel for companies ranging from high end to low end, including Burberry, Fifth and Pacific Companies, Ralph Lauren, Levi Strauss, Nike, Patagonia, Guess, Gap, Banana Republic and many more. (Panjiva)
  • 48. 94 95 1) Brandix Lanka Limited Pvt. Ltd. 409 Galle Road, Colombo 3 Sri Lanka Phone: +94 11 4727222 Fax: +94 11 2575485 Email: info@brandix.com www.brandix.com Specialization: Woven, Knitted Garments, Intimates and Activewear Brandix is the largest apparel exporter in Sri Lanka. The company opened its first plant in 1972 and they now operate 42 plants across the island and employ over 47,000 individuals. The company sends about 80 shipments a month and they also create their own buttons, thread, fabric and hangers in house. Brandix’s customers include Gap, Old Navy, Lands End, Banana Republic, Lucy Active Wear and Diesel USA. (Panjiva) The company has very strong ties to creating green, environmentally friendly factories and have created the worlds first even LEED Platinum rated manufacturing facility. Brandix values integrity, teamwork, customer service, learning and development, ownership and commitment. The company’s values and commitment to the environment match Ecru’s company make up seamlessly. The fact that this company has worked with well known brands and goes above and beyond to make the customer, as well as their employees happy is something that certainly resonates with Ecru. (Panjiva) (brandix.com) 2) Eam Maliban Textiles Pvt. Ltd. 261, Siri Dahmma, Mawaatha Colombo, Sri Lanka Phone: +94 1268 6391 Fax: +94 1269 9513 Email: nelum@triburgsl.com www.maliban.com Specialization: Blouses, Shirts and Bottoms Eam Maliban Textiles opened 38 years ago in 1976. The factory delivers anywhere from 20 to 200 shipments each month and produced a total of 1200 shipments in 2012. Their customers include Gap, Lands End Joseph A. Banks, Banana Republic, Burberry, Brooks Brother and Ralph Lauren. The company is part of the Garments Without Guilt Organization and adheres to a strict code of ethical guidelines and practices to develop their products economically. (Panjiva) This manufacturer takes part in corporate social responsibility and maintains sustainable levels of water, chemical and energy usage, practices safe waste disposal and continuously acts to improve their carbon footprint. Eam Maliban contributes much of its efforts
  • 49. 96 97 to improving the country, community and lifestyles of its employees and offers them and their families many benefits outside of the work environment. (Panjiva) Eam Maliban is “committed to producing world class products”, and again they would be a great manufacturer for us to work with. They have supplied to top retailers, on the same level, quality and price points of our garments. But, they also have a strong social, economically and philanthropic commitment to their country, their community and their workers, which is very important to Ecru. (Panjiva) (maliban.com) 3) Hirdaramani International Export Pvt. Ltd. Level 23, West Tower, World Trade Center Echelon Square, Colombo, Sri Lanka Phone: +94 77 7744180 Fax: +94 11 2446135 Email: vinod@hirdaramani.com www.hirdaramani.com Specialization: Woven Garments Hirdaramani International Export has been in business for 120 years and operates 28 factories in Sri Lanka, Bangladesh and Vietnam. The Sri Lankan Factory opened in 1954 and has grown to reach a capacity of 1 million garments per month. The facility delivers about 250 shipments each month. Their customers again range from high-end to lower end but the facility mainly specializes in woven garments. Their customers include, Levi’s, Patagonia, The North Face, Guess, Fifth and Pacific Companies, Liz Claiborne, Ralph Lauren, Nike, Eddie Bauer and many more. (Panjiva) The company’s main focus has always been on fit, style and quality and they have been called “the pioneers in the apparel industry”. Hirdaramani has a high focus on corporate social responsibility and has become the first carbon neutral factory in Asia. They are constantly looking for new ways to cut back to improve their carbon footprint and help the environment. Hirdaramani also adheres to a strict ethical code of conduct and standards. The company offers free healthcare to their employees and their families, they offer free training programs and leadership opportunities for staff members and are constantly investing back into the community in local sports and schools to help further the country as a whole. (Panjiva) This manufacturer would be perfect for Ecru. Their amazing sustainability act and their motivation to cut back on emissions and help save the environment is something Ecru is very passionate about as well. Creating a business that has strong integrity and gives back to the community is what Ecru has made it our mission to do. Creating garments with such a sustainable and philanthropic manufacturer like Hirdaramani is exactly the right partner to have on our mission. (Panjiva) (hirdaramani.com)
  • 50. 98 99 EL SALVADOR - SUPPLIERS El Salvador has 62 suppliers that manufacture apparel, 15 of which manufacture women’s apparel. Many of the manufacturers lack a website and several show inactivity in recent years on Panjiva. Although El Salvador produces both woven and knit apparel, the woven apparel is predominantly for bottoms, children’s wear and men’s button down shirting while knit apparel has greater diversity and is produced in much larger quantities. 1) Industrias Merlet S.A. de C.V. Merlet was established in 1980 and specializes in knitwear, loungewear and active-wear but also produces women, misses and juniors blouses (Merlet). They are located at Industrias Merlet, S.A. de C.V. Calle Why we selected these manufacturers: When looking at these manufacturers it is clear that they are all very concerned with the quality and craftsmanship of their garments as well as their ethical standings in the workplace and with the environment. Because both Sri Lanka and Ecru very invested in keeping the environment safe, this country and its apparel facilities is a very strong contenders for manufacturers Ecru’s women’s woven tops. Due to the fact that not all of these manufacturers specialize in woven wear, we have narrowed down the selection to the top three; Hirdaramani, Eam Maliban and Trendy Wear.
  • 51. 100 101 Circunvalación, Polígono A #3, Urbanización Industrial La Laguna, Antiguo Cuscatlán, La Libertad, El Salvador, C.A. and can be found online at http://www.imerlet.com/. Merlet’s Vision is “To become a leading international apparel company, providing integrated production capabilities, design and commercialization services with the highest quality standards; thus satisfying our customers’ demands in a prompt, efficient and reliable manner, which permits us to enhance and support the economic and social development of our associates and Country” (Merlet). They are well developed in knit apparel and capabilities include design, development, manufacturing and distribution of fabrics and apparel. Customers include Levi Strauss, Tailgate Clothing Co. and Carhartt. Merlet has experience with over 1,754 shipments and is able to produce 400,000 units/week, while lead time varies between 2-12 weeks (“Technical Profile”). Merlet’s values appear to be in line with that of Ecru’s as they practice nondiscrimination and equal opportunities and value safety and hygiene through the conduction of internal and external audits. They do not employ anyone under the age of 18 and abide by all government laws including hours of work, overtime compensation, minimum wage and fringe benefits. 2) Picacho S.A. DE C.V. Picacho is a woven apparel manufacturing company located at Km. 26.5 Carretera a Santa Ana La Libertad, El Salvador which was established in 1992 with a mission to become the regional leader in quality dress shirt manufacturing. In 2006 Picacho merged with BVM which has their corporate headquarters in New York. Picacho’s website can be found at www.picacho.com.sv/home.htm and more information can be found at www.B-W-A.com under manufacturing. Picacho’s customers include Ben Watcher Associates which has orderedover900shipmentsprimarilyofmen’spoplinshirts,LizClaiborne, LL Bean, Dillard’s, DKNY and Izod. The majority of their orders have been cotton shirting although products include woven sport shirts and blouses, high end security uniforms, sleepwear and loungewear. Although their orders are predominantly men’s wear, they produce women’s and children’s wear as well as their “main goal is to be flexible, to respond quickly and efficiently, making sure that your order is processed promptly and according to your exact specifications” (Products and Services). Their capacity is 350,000 units a month and 50,000 units per week specifically in woven shirts (“Manufacturing Specs”). Lead times for garment production are 30 days from date of fabric received at the factory and garments are shipped FOB from El Salvador or LDP from BVM public warehouses in Miami Florida (http:// b-w-a.com/manufacturing-2/ ). Production facilities include a sewing room, a cutting room, a trims warehouse, a fabric warehouse, a product development office and an administrative building. The company strongly believes in in the well-being of their employees and invests in them through the offering
  • 52. 102 103 of a healthcare clinic where employees and their families receive free medical attention, a community school for the children of employees ages 5 through 17, a free daycare open to the community as well as employees staffed by trained nannies, a cafeteria and bakery and a discount store in addition at having recreation facilities such as a soccer field and volleyball court (“Social Responsibility”). 3) Vexsal, S.A. De C.V. Vexal is a manufacturing company which specializes in men’s woven shirts. Of the 242 shipments that appear on Panjiva, 170 utilized cotton fabric, while 53 included woven shirts. Clients include Wal-Mart, Nu Image Fabrics, Paris Accessories Inc and Ben Elias Industries Corp. Vexal is located at Carretera Panamericana Ote Km 15 San Martin and although they lack a website, they were recommended to me by the Vice President of Pro Dept, Ali Gitomer. In speaking to Roberto Bonilla, I learned that Vexal has been in business for 22 years and produces 60,000 units/week with a 2.5 week lead time. The company values their employees and only hires those ages 18 and above although most employees hired are age 20 and above. Employees work 44 hour weeks, earn minimum wage plus a bonus and are subsidized food. In the same phone interview I learned that Vexel strives to be ecofriendly and recycles bi-products and all cartons and gives left over fabric to recycling companies for reuse. While El Salvador has been making advancements in the apparel and textile industry, it is knitwear and synthetic textiles that they predominantly produce. Some woven apparel is made but it is almost always for bottoms. In speaking with some of the manufacturing companies, it became very apparent that El Salvador is not the place for ECRU to manufacture it’s woven tops as they could only direct me to 2 companies that produce woven tops, and one of them only makes wovenshirtsformen.IfforsomereasonnoneoftheothercountriesECRU is sourcing are a better option, I would recommend manufacturing with Picacho as they already work with several American companies and their values seem align with those of ECRU. I would suggest visiting the factory and talking to the owners and employees prior to making any decision if ECRU does decide to manufacture in El Salvador.
  • 53. 104 105 India has almost 850 suppliers that manufacture and specialize in woven apparels. Women apparel industry in India is very competitive and many companies’ contact and information are available online through individual and trade websites. However, many companies don’t provide valid information about their customers, product quality, and sourcing guidelines; some produce only knitted clothing, some don’t have adequate services, and some don’t even do businesses with the US companies. ECRU was able to find several suppliers that meet the criteria in terms of ability in making quality women’s woven cotton tops, valid customers, services, production capability, and management. Among the 5 suppliers we initially selected, we narrowed down to 3 potential suppliers that are able INDIA - SUPPLIERS to produce ECRU’s products. Not only these suppliers can make women’s woven tops but also their customers are notable and high- end US retailers that provide similar products to ECRU. They provide other services and capability that will help ECRU grow as a company in the future. Ecru looks for suppliers who have these following criteria: 1) Karle International Ltd. This supplier can produce any type of garments from basic to fashion. It can also manufacture casual wear, activewear (seam sealed jackets, rain gear, jogging suits, swim shorts), and refined collections. Products offered range from tops (shirts/blouses), bottoms (pants/skirts/crop), and outer wears (jackets/blazers/ overcoat) The supplier not only specializes in womenswear but also have abilities to make menswear and childrenswear as well. The most important thing is that Karle International is able to produce women woven tops from cotton fabrics for ECRU. The factory locates in Bangalore where it’s known for IT hub and woven apparel area. There are over 6500 employees working in four manufacturing units. The company has annual turnover around $55 US million and manufacturing capacity of 450,000 units monthly. Its customers consist of notable retailers such as Ann Taylor, J. Crew, Esprit, Express, Ralph Lauren, American Eagle Outfitters, Eddie Bauer, Nordstrom,
  • 54. 106 107 Superdry, and Coldwarer Creek. The supplier provides multiple services from design development, raw material sourcing, sampling, lab test, cutting, sewing, finishing, and washing. The company takes approximately 90 days for the lead time. The factories are audited and approved by nominated auditor for Compliance and Social accountability. The company has participated in conservation of Environment and prepare Environment policy, waste management & rain water harvesting. The supplier is highly committed to new innovation and creativity. Its core values consist of excellent quality, corporate social responsibility, transparency, and sustainability. The products are also very well constructed and professional made. 2) Mira Exim, Ltd The supplier are specialized in women’s woven and knitted clothing. Its customers consist of high-end retailers such as JP Boden, Sugartown Worldwide Inc, Stella McCartney, Nicole Farhi, Bebe, Burberry, Diane Von Furstenberg. The supplier takes approximately 90 to 120 days for the lead time. The supplier offers the highest standard of quality and punctual delivery at competitive prices. Mira Exim Ltd is also an ISO 9001:2008 and SA 8000:2008 certified organization in which it follows international standards and regulations. The company emphasizes its sourcing guideline which include ethical business practices, sustainability concern, safe and healthy environment, as well as opposing child labor, forced labor, or any unethical practices. All these qualities are relevant to Ecru’s business practices and sourcing guidelines as well. 3) Eve Fashion The supplier is specialized in women’s woven tops, readymade garments, and accessories. Its customers consist of notable retailers like Benetton, DW Shop and Primark. The company has annual turnover around $3 US million and manufacturing capacity of 125,000 units monthly with approximately 75-90 days lead time. The company has adequate quality control such as fabric inspection, cutting control, fabric process control, and In-house inspection. The factory is fully equipped with updated technology and modern manufacturing facilities. The company also operates with integrity and has concern over social environmental responsibility and sourcing guideline such as air cooled and well lit facilities, fire safety measures, water treatment plant, prohibition of child labor, first-aid facilities, recycling of resources, and energy efficient devices.
  • 55. 108 109 PHILIPPINES - SUPPLIERS 1) Reliance Apparel & Fashion Manufacturing, Inc. Producing 200,000 pieces per month, Reliance Apparel seems to be the most qualified and skilled manufacturer in the Philippines regarding woven apparel. Reliance has a commitment to pursue excellence and always invests in new machinery, upgrades their technology, and improves processes, systems, and procedures in order to be in the forefront of the industry. Out of the five manufacturers researched in the Philippines, Reliance would be the best facility to entrust with creating our products. 2) Hamlin Industrial Corporation Hamlin offers various capabilities in product assortment and quality for men’s and women’s contemporary sportswear. According to the information available, they are able to produce about 50,000 items per month. Hamlin has potential to be a good manufacturer for ECRU’s woven tops.
  • 56. 110 111 3) Excellent Quality Apparel Inc. Excellent Quality Apparel promises a lot in its name, however very little is delivered as far as available information. Although EQ conducts business with reputable brands, the lack of information available is disheartening and may not be viable for ECRU to do business with. CHINA - SUPPLIERS 1) Jiaxiang Jingle Fashion
  • 57. 112 113 Evaluation The biggest advantage of Jiaxing Jingle is their high quality of garments, as well as their specialization in tops. The company has had much experience supplying to high-end brands such as Burberry, CK and Guess. The only issue may potentially be the longer lead time. Since we do not have sufficient experience with scheduling, the long lead-time might pose a problem for the release of new collection. 2) SC International Garment & Accessories Ltd. Evaluation SC is not as experienced as other companies since it has only been in business for 8 years. However, they do specialize in shirts and have a great deal of experience in working with American customers such as Tommy Hilfiger. SC may be a very good choice for our manufacturing because they do accept small quantity orders. Furthermore, they provide a very in depth code of conduct matching very closely to that of Ecru’s. 3) Hangzhou Ourun Fsshion Co. Ltd. Evaluation Ourun could be considered as a very internationalized company. According to their company introduction, they are able to produce
  • 58. 114 115 garments with consistent quality and in short lead-time in bulk. The company has a significant amount of experience, especially for international customers and language barriers will not pose problems when conducting business. However, most of the products they make are for mass-market or fast fashion, the quality control could be a major issue. In the initial process of selecting suppliers in China the first factor we took into consideration are the sourcing guidelines from the suppliers and their quality because these are the core value of our company. China has a very negative reputation in the past years following the government policy and obeying the sourcing guidelines. The sourcing guidelines established by companies in China are lower than the international standard. Even Chinese government is trying to reinforce related labor laws and policies, investigate suppliers’ sourcing guidelines is an important process for selection. Besides, as a high end store in NYC quality is our key competence especially for our basic items (woven tops), which need to be worn year round by customers. In order to avoid loosing customers, we need to select the suppliers that have strict quality control on their produced products. One of the strategies we used to evaluate their code of conduct and quality control is view their previous customers. Companies and brands that have good reputation and abundant experience sourcing manufacture internationally are more likely to build relationship and conduct cooperation with reliable suppliers. In the chosen 3 suppliers, especially Jiaxing Jingle, they all have a strong customer list consists reputable brands like Burberry, Guess and Adolfo Dominguez. Besides the quality and sourcing guidelines of the suppliers we also evaluated their capacity, lead-time, customers, experience, focus, whether they could produce satisfactory level woven garments. Based on these evaluations we selected Hangzhou Ourun Fashion Co., Ltd, because of its shortest lead-time and high efficiency customer service; SC International Garments and Accessories Co. Ltd. since its code of conduct highly matches with ECRU’s, they are also very experienced in producing woven garments and they have work with Tommy Hilfiger for many years; Jiaxing Jingle is the best one among three suppliers not only because of their excellent customer portfolio but also their well-organized company management system and great customer services.
  • 59. 116 117 The abilities of manufacturing are mostly based on the range and variety of their products. For example, companies like Jiaxing jingle, SC, Karle Int. Eam Maliban could produce both men and women’s apparel, woven, knitting, tops, buttons and jeans..etc. In comparison companies like Hirdaramani, Industrials Merlet, Vexsal have much narrower focus, and some of them only provide knitting products, SUPPLIER RANKINGS In order to make a better selection for our final placement strategy, we broke down the suppliers rating into 12 aspects to evaluate the 15 suppliers, 3 from each country selected earlier. And as the total and average scores shows, Jiaxing Jingle from China, Karle Int. from India, and Eam Maliban from Sri Lanka are the best suppliers among the 15 and where our final placement could be.
  • 60. 118 119 also willing to build relationship with different kinds of new companies. Companies that tend to produce for mass market or lower level brand were rated lower since ECRU is considered as a high-end brand in the market position. We evaluated the flexibility of a company by how fast the company could turn from one category of products to another. Other factors we took into consideration to evaluate the flexibility is how many production lines suppliers have and the variety of categories they produce. Based on the information provided by the suppliers, lead-time for manufacturing generally ranges from 2 weeks to 120 days. Ourun has the highest score because they could make sample within 24 hrs and has the shortest lead-time compare to other suppliers. Vexsal was rated to be the lowest since they need 120 days for manufacturing. The way we evaluate the level of management for suppliers based on how they organized the structures of their companies. Whether they have sophisticated method to mange the producing chain and how they organize the production teams. For example, companies like Jiaxing Jingle, Karle Int. provide image and word description of how the process of production was organized and function as a big team. Besides, they are also vertical integrated could provide convenience for sourcing fabrics. which made them rated to be much lower than other companies. We evaluated the capacity of suppliers by view how many pieces they produce monthly. Industrias Merlet and Hirdaramani have the largest capacity among 15 suppliers, Industrias Merlet produces around 1600,000 pieces per month and Hirdaramani produces 100,000 pieces per month. Companies produce 100,000 pieces per month or lower were rated to be comparatively lower. We received price quotation from Jiaxing Jingle and Karle Int. and Eam Maliban, the price offered by these three suppliers are all higher than our estimated costs. Karle Int. is the company gave the highest price offer, which almost doubled our estimation. Jiaxing Jingle and Eam Maliban provided comparatively reasonable costs and Jiaxing Jingle is lower than Eam Maliban. From the communication process with the suppliers we evaluated and scored their customer services based on their attitude of conducting business, whether they reply emails on time and the information provided by their customer service officers. Companies such as Jiaxing Jingle, SC, Karle Mira Exim, Eam Maliban, Reliance have a long list in their customer portfolio and they have been worked with many reputable brands like Stella McCartney, Burberry, Guess, Ralph Lauren..etc Besides, they are very versatile as well, they have established long term cooperation with reputable brands and
  • 61. 120 121 We evaluated the suppliers’ quality based on the quality level of their previous customers and how they organize the quality control team and process. The companies offer other services after production are evaluated to have higher score. And companies offer sewing and cutting service only were scored to be lower. Jiaxing Jingle, and Karle int. have their own mills and they have FOB destination, could cover the freight, insurance and clear the customs for products importing to U.S. We compared companies’ sourcing guidelines to ECRU’s and evaluate whether they match with ours. The companies have more strict control of their sourcing guidelines and matches ECRU’s code of conduct best were rated to be highest. The companies do not provide code of conduct or with very limited info about it were rated to be lower. We evaluated the strategic outlook of companies based on the direction they are tending to lead their companies to, whether the companies are looking for growth in the future and how much their growth space is. COSTING Preliminary Costing Initial Costs VS Preliminary Costs
  • 62. 122 123 countries. Overall, the cost ranged between $4.19 and $7.25 in China, $4.16 and 7.25 in India, $4.33 and $7.74 in Sri Lanka, $4.41 and 8.04 in the Philippines and $3.78 and $7.04 in El Salvador. In all countries, every look is expected to exceed an average margin of 94.98% when looking at initial cost comparisons. Style Name Style # Retail Price China Cost Margin% India Cost Margin% Sri Lanka Cost Margin% Philippines Cost Margin% El Salvador Cost Margin% Latte WS#3100 $ 120.00  $                        4.19   96.51%  $                        4.16   96.53%  $                                    4.33   96.39%  $                                            4.41   96.33%  $                                      3.78   96.85% Barley WS#3202 $ 90.00  $                        4.27   95.26%  $                        4.23   95.30%  $                                    4.43   95.08%  $                                            4.52   94.98%  $                                      3.86   95.71% Ivory WS#3400 $ 140.00  $                        4.92   96.49%  $                        4.86   96.53%  $                                    5.20   96.29%  $                                            5.35   96.18%  $                                      4.59   96.72% Bisque WS#3500 $ 120.00  $                        4.35   96.38%  $                        4.30   96.42%  $                                    4.52   96.23%  $                                            4.61   96.16%  $                                      3.94   96.72% Desert Sand WS#3600 $ 180.00  $                        7.25   95.97%  $                        7.11   96.05%  $                                    7.74   95.70%  $                                            8.04   95.53%  $                                      7.04   96.09% Average Price $ 130.00 Average Cost $ 5.04  $                        5.00    $                        4.93    $                                    5.24    $                                            5.39    $                                      4.64   Average Margin 96.12% 96.16% 96.21% 95.97% 95.86% 96.43% ECRU Initial Cost Comparison by Countries PRELIMINARY COSTING In looking at initial costing figures for each country, El Salvador offered the cheapest average cost with an average margin of 96.43%. India and China were close behind with average costs of $4.93 and $5.00 respectively. With an average cost of $5.39 and an average margin of 95.86, the Philippines is by far the most costly country to manufacture in and has the lowest average margin between the Style Name Style # Retail Price China Cost Margin% India Cost Margin% Sri Lanka Cost Margin% Philippines Cost Margin% El Salvador Cost Margin% dsion) Latte WS#3100 $ 120.00  $                        4.19   96.51%  $                        4.16   96.53%  $                                    4.33   96.39%  $                                            4.41   96.33%  $                                      3.78   96.85% urtney) Barley WS#3202 $ 90.00  $                        4.27   95.26%  $                        4.23   95.30%  $                                    4.43   95.08%  $                                            4.52   94.98%  $                                      3.86   95.71% ha) Ivory WS#3400 $ 140.00  $                        4.92   96.49%  $                        4.86   96.53%  $                                    5.20   96.29%  $                                            5.35   96.18%  $                                      4.59   96.72% dan) Bisque WS#3500 $ 120.00  $                        4.35   96.38%  $                        4.30   96.42%  $                                    4.52   96.23%  $                                            4.61   96.16%  $                                      3.94   96.72% g) Desert Sand WS#3600 $ 180.00  $                        7.25   95.97%  $                        7.11   96.05%  $                                    7.74   95.70%  $                                            8.04   95.53%  $                                      7.04   96.09% Average Price $ 130.00 Average Cost $ 5.04  $                        5.00    $                        4.93    $                                    5.24    $                                            5.39    $                                      4.64   Average Margin 96.12% 96.16% 96.21% 95.97% 95.86% 96.43% ECRU Initial Cost Comparison by Countries
  • 63. 124 125 cost which averages $4.64 per unit with an average margin of 96.43%. The average margin when looking at the preliminary costs of ECRU’s top countries is 95.88%. In looking at the preliminary costs, we believe that ECRU has great opportunity for profiting due to the high margin predictions. The high margins also allow ECRU to have some wiggle room if it is necessary when conducting negotiations to settle on final costs. Style Name Style # Retail Price China Margin% China Margin% Sri Lanka Margin% Sri Lanka Margin% El Salvador Margin% El Salvador Margin% Latte WS-3100 120.00$ 4.19$ 96.51% 4.81$ 95.99% 4.33$ 96.39% 5.20$ 95.67% 3.78$ 96.85% 3.78$ 96.85% Barley WS-3202 90.00$ 4.27$ 95.26% 4.69$ 94.79% 4.43$ 95.08% 5.53$ 93.86% 3.86$ 95.71% 3.86$ 95.71% Ivory WS-3400 140.00$ 4.92$ 96.49% 5.75$ 95.89% 5.20$ 96.29% 6.24$ 95.54% 4.59$ 96.72% 4.59$ 96.72% Bisque WS-3500 120.00$ 4.35$ 96.38% 5.00$ 95.83% 4.52$ 96.23% 5.65$ 95.29% 3.94$ 96.72% 3.94$ 96.72% Desert Sand WS-3600 180.00$ 7.25$ 95.97% 8.56$ 95.24% 7.74$ 95.70% 9.68$ 94.62% 7.04$ 96.09% 7.04$ 96.09% 130.00$ 4.96$ 5.00$ 5.24$ 4.64$ 5.62$ 5.76$ 6.46$ 4.64$ 95.88% 96.16% 95.57% 95.97% 95.03% 96.43% 96.43% Average Price Average Initial Cost Average Prelim Cost Average Margin ECRU Initial Cost V.S Prelim Cost INITIAL PRELIM INITIAL PRELIM INITIAL PRELIM INITIAL COSTS VS. PRELIMINARY COSTS After sending tech packs to potential suppliers, we were able to compare ECRU’s initial cost sheets with the manufactures’ preliminary costs. China’s average cost grew by 15.2%, bringing its average cost up to $5.76 and its average margin down to 95.57%. Sri Lanka’s average cost increased by 23.28% decreasing its average margin down to 95.03% and raising the average unit cost to $6.46. El Salvador’s manufacturers did have yet to respond with their quote for ECRU’s five looks, and so the preliminary cost is merely a reflection of the initial Style Name Style # Retail Price China Margin% China Margin% Sri Lanka Margin% Sri Lanka Margin% El Salvador Margin% El Salvador Margin% Latte WS-3100 120.00$ 4.19$ 96.51% 4.81$ 95.99% 4.33$ 96.39% 5.20$ 95.67% 3.78$ 96.85% 3.78$ 96.85% Barley WS-3202 90.00$ 4.27$ 95.26% 4.69$ 94.79% 4.43$ 95.08% 5.53$ 93.86% 3.86$ 95.71% 3.86$ 95.71% Ivory WS-3400 140.00$ 4.92$ 96.49% 5.75$ 95.89% 5.20$ 96.29% 6.24$ 95.54% 4.59$ 96.72% 4.59$ 96.72% Bisque WS-3500 120.00$ 4.35$ 96.38% 5.00$ 95.83% 4.52$ 96.23% 5.65$ 95.29% 3.94$ 96.72% 3.94$ 96.72% Desert Sand WS-3600 180.00$ 7.25$ 95.97% 8.56$ 95.24% 7.74$ 95.70% 9.68$ 94.62% 7.04$ 96.09% 7.04$ 96.09% 130.00$ 4.96$ 5.00$ 5.24$ 4.64$ 5.62$ 5.76$ 6.46$ 4.64$ 95.88% 96.16% 95.57% 95.97% 95.03% 96.43% 96.43% Average Price Average Initial Cost Average Prelim Cost Average Margin ECRU Initial Cost V.S Prelim Cost INITIAL PRELIM INITIAL PRELIM INITIAL PRELIM
  • 64. 126 127 STRATEGY DEVELOPMENT When looking at Ecru Basic’s sales plan one can see that it is broken down by garment and then by month. Our top selling woven tops are the Ivory and the Desert Sand. Ecru feels that these two garments are going to be the most versatile as they do have a collar they can be worn to work, they can also be dressed down, and even layered to be worn in the colder months. We see these pieces to be at or over 100,000 units over the course of the first year. Our other pieces, while they are not the top sellers are still going to make up a large portion of sales for the first year and range from 76,000 to 90,000 total units for each look. Of course, our garments are going to fluctuate with the seasons and the holidays, making selling quantities higher between the months of May, June and July and then again during December. However, this is our basics line and we anticipate a steady sales flow all year round. Ecru has very high hopes for this Basics line and we feel that is it just what our loyal customers are asking for, which is why we are projecting large volumes of sale.
  • 65. 128 129 CHINA In the country-ranking chart, China was ranked second among 5 countries and China is known as world’s biggest manufacturer. For a new company like Ecru choosing a sophisticated market to source manufacturing is definitely a wise choice. Overall, China has better socio-eco-political climate in general compare to other countries, as well as business climate. China has very flexible business etiquette and it is easy to conduct business. China is the second biggest country in economic standing, after U.S. In recent years it has tended to have a slower growing rate but it is still in a positive shape. However,thewageofemployerisgrowingupaswellwhichmeans the cost of manufacturing in China will be drive up as well. From the research, China has a tendency to switch from manufacturing bulk products in low quality and low cost to high quality and the government has invested large amounts of money to purchase upgraded technologies and new facilities. This could benefits companies like us aiming to source high quality products in the long run. China is ranked No.1 for exporting especially apparel and textile, which means China, is the one of the most experienced traders. Many suppliers offer customer service in up to 15 languages and could cover freight, insurance, and clear the customs for buyers. Since the reform in 1979, the Chinese government started to reinforce laws and policies to support international trading. The business etiquette is not hard to follow as well, and since most Chinese people are atheist religion and suspicion issues would not need to be taken into consideration like many other countries. China’s apparel and textile market size is ranked as NO.1 as well. There are total of over 15,000 apparel manufacturers in China. Because of this fierce competition Chinese manufacturers are more likely to work hard on making deal and the high pressure from the market could avoid them to overprice the manufacturing. China also has the largest amount of workforce in the world. The majority of the population in China is still at the working age, there are some concerns for aging population in the future because of the one-child-policy, however it will not influence the industry within five years. China has and abundance of resources of raw materials. As we all know, China produces the largest amount of silk every year and they have wool, and cotton as well. The Chinese government has signed 12 Free Trade Agreements including with Australia (where has the best quality wools), Peru (well-known pima cotton productions), and Thailand (ASSEAN) (world’s best silk). These could benefits buyers to source high quality raw materials in a lower cost since the tariff is eliminated. However, the inflation rate has a trend to going up, which
  • 66. 130 131 could lead the increase of cost for raw materials in the future. Another major concern for conducting business in China is government’s weak control over the labor laws and policies reinforcement. Manufacturers are generally lacking awareness of the importance of sourcing guidelines. In recent years, the Chinese government started to focus on improving the market conditions, however,Romewasnotbuildinoneday,Sourcingguidelinesneedtobe ensured to match with our company’s while selecting manufacturers. After we went through the elimination process we selected three most qualified suppliers for our companies. We analyzed the three suppliers in depth by focusing on their quality, previous customer lists, customer service, sourcing guidelines and service offered. Since our company believes in quality over quantity, the capacity of manufacturers is not our biggest concern and the selected manufacturers are all capable of manufacturing our products within an acceptable time period. Overall, the biggest strength for Ourun is their short lead-time. They can manufacture the sample within 24 hours and finish the entire pack of merchandise with 20 days. However, compare to other two, it lack of brands with high quality products in their customer list. Most of their previous customers were fast fashion brands such as forever 21, H&M and ZARA, so that their standard of quality might not meet with ours. Further more, the information they provided on sourcing guideline is very vague and does not contain much information. SC and Jiaxing Jingle has very similar strengths, both of them have reputable brands in their customers lists, such as Ralph Laruen, Burberry, Guess, Tommy Hilfiger etc. Jiaxing Jingle is much more flexible even they have less employer but their capacity is much bigger than SC which means their manufacturing process might be more well organized and efficient. Jiaxing Jingle has more production lines as well so that they could switch from one to another easier. Both SC and Jiaxing Jingle are vertical integrated, they have own mills could provide dying services, and weave the fabrics the way customers wanted. This could highly reduce the lead-time and cost on sourcing fabrics and much more convenient to the buyers. In addition, Jiaxing Jingle is a full package manufacturer and could provide FOB destination service, and will clear the customs for buyers. They also have excellent customer services. All emails were replied in one day and their customer officer called us to ask for detail of the order. They provide step-by-step guides for customers to know their manufacturers better large amount production pictures were shown on their factory introduction brochure. SC is not as good as Jiaxing Jingle in the aspects list above, however, SC has much shorter lead time than Jiaxing Jingle (Jiaxing Jingle need 70 days and SC only needs 30 days), and SC’s sourcing guidelines is more detailed, and they took environment protection and intellectual property protection into consideration for their company.
  • 67. 132 133 SRI LANKA Sri Lanka’s textile and apparel industry generates the most revenues for the country and for its government. The Sri Lankan manufacturers are well renowned all over the world for their top customer service, high quality garments and strong commitment to the green manufacturing processes. At the end of 2013 it was announced that Sri Lanka was on its way to becoming the top garment exporter in the world in the next five years. The manufacturing facilities in Sri Lanka have been evaluated and ranked based on twelve different categories; abilities, capacity, costs, customer service, customers, flexibility, lead time, management, quality, service offered, strategic outlook and sourcing guidelines. It was very important for Ecru to deeply look into each one of these categories for potential manufacturing opportunities in Sri Lanka. Each of these twelve categories had very strong ratings and Ecrus top concerning categories such as quality, customer service, costs, and current customers had very strong numbers and near perfect scores making Eam Maliban the winner out of the top five proposed Sri Lankan manufacturers. Risks: - Long distance from the U.S. - Potential high lead times and freight costs - Country is in a lot of debt - Lower capacities than other larger countries are capable of - Typhoons and Monsoons 9 months out of the year Benefits: - Over 100 years of apparel manufacturing experience as a country - Top green manufacturer ranking country in the world - Won LEED Platinum Rated Manufacturing award - Well known, high-end, reputable customer base - Apparel is the country’s main export and brings in the highest revenues - Updated technology - In depth code of ethics and conduct for factory workers - Takes pride in the quality and craftsmanship of their work After much deliberation and ranking it has been determined that Eam Maliban is the top apparel supplier in Sri Lanka with many benefits and attributes outweighing its competitors. These benefits include there high focus on quality craftsmanship, their corporate social responsibility and their code of ethics describing and showing the fair and upstanding treatment of their workers. Eam Maliban focuses much of its efforts on the well being of its staff as well as practicing
  • 68. 134 135 EL SALVADOR Manufacturers were selected based on many factors, including their abilities, flexibility, lead-time, capacity, customer service, value added services, management, quality, customers, their values and how well they align to ECRU’s sourcing guidelines, and their outlook towards the future. In evaluating manufacturers it was important to look at the range of apparel that can be developed as well as the ability to product the products we intend to make at the quality we find acceptable. As a relationship develops, ECRU will benefit most from a manufacturer that is flexible in its abilities and diverse so that ECRU can grow into new product categories and lines. Capacities, lead-time and distance were weighted against each other. The weighing of risks and benefits was utilized to compare manufacturers. Looking at how long a company has been in business and the clients that they work with will help to gain insight into how experienced and knowledgeable a company is, how secure their business is financially, the level of quality a manufacture provides and the level of customer service offered. The location also needs to be considered as different times of year bring different weather patterns, some of which can cause devastating natural disasters that could interrupt production if a factory is destroyed or if evacuations are ordered. green manufacturing techniques all throughout the facility. It is no wonder that this facility has been ranked to high and is sought after by many name brands clothiers. Eam Maliban Textiles is known for their commitment to creating world-class products. Customers include Gap, Lands End, Joseph A. Banks, Banana Republic, Burberry, Brooks Brothers and Ralph Lauren. Eam Maliban is also a major part of the Garments Without Guilt Organization, which contains a group of manufacturers all adhering to a strict code of ethics and conduct, who develop their products economically and environmentally friendly. The customer and company ethics align seamlessly with our luxury fashion brand, Ecru giving us piece of mind knowing that Eam Maliban will provide us with the quality and ethical standing that we are ultimately looking for. Sri Lanka is a wonderful country to do business with; the people are very friendly and welcoming and the manufacturing facilities are very up to date and are able to produce a large variety of garments and styles. There are many mills close by the Eam Maliban facility, so outsourcing fabric will not be an issue. Even though Sri Lanka is quite far from New York labor and freight prices are very competitive and reasonable and Ecru feels very comfortable working with Sri Lanka on their new Basics Collection
  • 69. 136 137 For El Salvador, Picacho ranked highest among the potential manufacturers. Although Picacho has a lower capacity, producing 50,000 woven apparel units per week, its close proximity to the US and 30 day lead-time from when fabrics are received at the factory make up for the lower production abilities: as product will be received more regularly and quicker than more distant manufacturers. Picacho ranked highly in the category of meeting our sourcing guidelines. The company puts such a great emphasis on the heath and safety of its employees, providing them with a cafeteria that subsidizes its prices, recreational areas such as volleyball courts and soccer fields to encourage teamwork and a healthy lifestyle. Picacho also offers employees and their family free, on-site medical care, free daycare and free schooling for their children. In working with customers such as Liz Claiborne, LL Bean, Dillard’s, DKNY and Izod, we can be assured that Picacho produces quality garments that also meet sourcing guidelines. In evaluating future requirements, the company’s history, ability to product an array of products, the machines utilized and the value they place on their employees were taken into consideration. Picacho which was found in 1992 has been around for over two decades, which has allowed them to develop specializations in the woven apparel industry. Picacho merged with the American company, BWA, in 2006 which benefited the company’s growth by strengthening and creating connections with mills in other parts of the world and by creating a -Risks • El Salvador’s climate is a risk as it is prone to earthquakes, volcanic activity, hurricanes, flooding and mud slides. • Slow economic growth • Corruptionandgangviolence,althoughnomoreriskythanothercountries • Low capacity- 50,000 woven apparel units/week • Uncertain political environment with a new left? Wing president -Benefits • Over 20 years’ experience • FreetradewithCAFTA-DRifmaterialsaresourcedforanincludedcountry. • Short lead time- 30 days • Close proximity to the US- quick transportation of goods • Same time zone, conversations can take place in real time • The US dollar is the official currency- no currency exchange fluctuations • Democratic • No terrorist threats • Apparel is the county’s main export • Well known customer base • Takes pride in its employees • Updated technology • Versatile in product capabilities
  • 70. 138 139 stronger link between El Salvador and the US. The company is also experienced in utilizing CAFTA-DT to eliminate tariffs. Picacho has also expanded into the knitwear sector, allowing them to create a broader range of apparel styles and now manufactures clothing for men, women and children. Should ECRU decide to start a menswear line or an intimate line in the future, Picacho would be a great manufacturer to work with as it is well known in both areas and allows ECRU room to diversify its products all in one location. Picacho also puts great value on their employees and in doing so; they are investing in their trained workforce, which allows for fewer mistakes and greater productivity. THE FUTURE OF ECRU The future of Ecru is very bright, with many possibilities for growth and expansion. The brand plans to extend into accessory design and production in the following year, as well as leather goods. Our goal is to create a lifestyle for the customer and a brand where she feels comfortable wearing a look from head to toe, as well as mixing and matching with other pieces from her wardrobe. We are currently in the works with creating a specialty line for Bergdorf Goodman, giving our company a chance to grown and expand even further. Ecru has had much press and industry exposure in magazine and articles that has contributed largely to the brands success and it is our goal to continue as much as possible down that path. With 2014 projected sales at over $59 Million, we hope to see over $85 Million in the year 2015. Our company has great potential for high amounts of growth. With 40% of sales online, we plan to keep all of our sales channels cohesive and user friendly to bring in as many customers and sales as possible. The most important thing for Ecru now and moving into the future is to be true to our brand, while making our customers happy and satisfying our company’s strong ethical standards.
  • 71. 140 141 For our final sourcing strategy, we decided to choose China to be our number one supplier. In our country-ranking chart, China was rated to be second and Jiaxing Jingle was rated to be the best among 15 suppliers. Overall, China’s Scio-eco-political climates are in comparatively stable position and China also has a very positive business climate especially in Apparel and Textile industry. The suppliers are well trained for conducting international business. Manufacturing our products in China could provide our company, Ecru, several benefits. First of all, since 1995 China was ranked Number one in exporting and China also has world’s largest apparel and textile industry. Ecru is a brand new company and lacks experience conducting business in foreign countries, by placing products in China Ecru could reduce the risk of countering some unexpected accidents. Besides, China’s business etiquette is very easy to follow which could avoid the failure caused by cultural gap. SOURCING STRATEGY #1 China #2 Sri Lanka #3 El Salvador Placement Strategy CHINA SOURCING STRATEGY
  • 72. 142 143 Second, China has abundant resources of raw materials and many suppliers have their own mills could customize the fabric for buyers, like Jiaxing Jingle where we decided to place our Ivory and Desert Sand. We want to provide comfort for our customers and most of our products are made in natural fibers, place the products in China could avoid extra concerns about sourcing fabrics. Besides, the price quotation offered by Jiaxing Jingle is acceptable andwecouldmaintainaveragemarginaround95%andtheyhavealso been worked with companies like Burberry, Guess, and BCBG, which means the quality of products could be guaranteed as well. We place our style WS#3400 (Ivory), and WS#3600 (Desert Sand) in China, Jiaxing Jingle fashion. Since they provided the lowest price quotation, and Ivory is planned to be our best seller with largest needed quantity our cost could maximize the margin. WS#3600 has very similar construction as WS#3400 could make the production easier if we place these two styles in same supplier and could shorten the lead-time as well since Jiaxing Jingle’s biggest weakness is their long lead-time. One of the major risks for choosing China is the tendency of increasing inflation rate and Chinese government has the control over the currency. Even overall China’s Scio-eco-political climate is comparatively positive compare to other countries, there are still some future risks need to be aware. The increasing inflation rate could increase the cost of raw materials and the increase the increasing labor cost could drive up the overall cost to be high which could directly lead to lower our margin. Second, even Chinese government is supporting the apparel industry, however lack of transparency and intellectual protection could be influence the industry in a very negative way. We need to be more cautious for conducting business with suppliers and make sure they will not make counterfeits for our products, which could bring bad reputation for our company and influence our sales performance.
  • 73. 144 145 however they are still pause for some concern. Sri Lanka is a long distance for the United States and shipments take about 3 weeks to reach our destination port in New York from Colombo. These lengthy shipping times may result in high freight costs and loss of margin from the lengthy lead-time. Sri Lanka’s facilities also have lower capacities than other much larger and more established countries like China. The benefits of the country and of its manufacturing processes and facilities are certainly very striking and cause the ranking for Sri Lanka to be quite high. Overall the country has had over 100 year of apparel manufacturing and export experience, which has paved the way for them to become such strong members of the current manufacturing market. The country creates garments for hundreds of well know, top brand name and high-end clothiers around the world, giving Sri Lanka a reputation for quality craftsmanship. Sri Lanka as a whole takes great pride in the way that their workers are treated and make their code of conducts very clear to their employees as well as any new clients. The treatment of employees is all very ethical and safe, wages are fair, facilities are clean and up to date and code, there are no children employed and the health, safety and education of Sri Lanka factory workers families is of the utmost concern as well. Sri Lanka is also the leader in green and environmental manufacturing practices in the world. They have paved the way for other facilities to follow in their footsteps and have When looking further in depth at all that Sri Lanka has to offer it is clear that they have the potential to be a top manufacturing country for Ecru basics. Apparel manufacturing and export brings in the top grossing revenues for Sri Lanka as a whole. It has also recently been announced that Sri Lanka is on its way to becoming the number one garment exporter and manufacturer in the world within the next five years. Ecru sees a big opportunity with doing business with Sri Lanka and is excited about the potential to work with top manufacturers in the country. We have ranked Sri Lanka in second place, just behind China and just in front of El Salvador. While the country has so many positives to offer our company they are still not as developed as China when it comes to garment manufacturing, which results in us placing Sri Lanka in second place. There are many positive attributes as well as some limited risks that still may pose a concern when doing business. However, the country has three very highly ranked manufacturing facilities that Ecru would be happy to negotiate and work with. The benefits of doing business in Sri Lanka certainly outweigh the risks, SRI LANKA SOURCING STRATEGY
  • 74. 146 147 won numerous awards for the never-ending efforts to help save the planet and the earth. Although ranked number two, Sri Lanka is certainly a country that Ecru would be happy to do business with. Their values and beliefs on how business should be done are synonymous with that of Ecrus. Ecru values ethical manufacturing practices and treatment of employees, keeping the environment safe, and high quality garments above all else, and that is just what Sri Lanka spends their time and energy towards as well. In evaluating El Salvador, it became apparent that El Salvador has a lot to offer ECRU as a country to manufacture in. El Salvador has one of the most developed apparel industry in Latin America and is known for its synthetic branch and knitting capabilities, in addition, apparel is the country’s top export. El Salvador is also in close proximity to the US, shortening transportation time and also allowing for real time communication and updates. One of the greatest benefits from working with El Salvador is being able to enjoy duty free importing into the US as long as materials are sourced from the surrounding countries that are a part of CAFTA-DR. El Salvador has also adopted the US dollar as its own currency eliminating the need to worry about currency exchange. We ranked El Salvador in third place, behind China and Sri Lanka. Like Sri Lanka, El Salvador is a small country and not as developed as Chinawhenitcomestomanufacturing;however,ElSalvadordoesoffer many benefits and high quality manufacturing facilities. Unfortunately many of the manufacturers specialize in knit wear rather than woven apparel, but a select few do exist and are highly reputable. EL SALVADOR SOURCING STRATEGY
  • 75. 148 149 Certain risks and downsides do come with manufacturing in El Salvador. The climate is risky as the country has a long rainy season making it vulnerable to hurricanes, flash floods, and mudslides. Due to its location earthquakes and volcanic activity also occur. Natural disasters have proven devastating in the past and have caused large scale evacuations and damage. Although El Salvador’s economy remains in the positive, it has been growing at a decreased rate. There are issues with corruption, laws not being strictly enforced, gang violence and drug trafficking, but these things occur in the other countries we sourced as well, although some countries are not as open about it. There is also some politically uncertainty surrounding the new president that will take office next month as he is very left wing and has been affiliated with Cuban spies. In choosing El Salvador’s manufacturer, Picacho has over 20 years’ experience with the woven apparel industry and a short lead time of only 30 days. In addition, El Salvador’s close proximity to the US allows for quick transportation of goods. Picacho has a strong customer base, versatile product capabilities and state of the art technology. The company also and puts great emphasis on quality as well as on its employees well-being. Picacho also has introduced knitting capabilities which allows for new product categories for ECRU to grow into in the future.
  • 76. 150 151 Ecru has decided to place their five woven women’s tops in manufacturing facilities in China, Sri Lanka and El Salvador. The garments are separated into each of these countries based on style, technicalities and quantities. We have also looked at the strengths and weaknesses from each country to better create a final placement plan for our products. PLACEMENT STRATEGY Two looks will be placed in China at the start of the manufacturing process. These looks are both collared button up shirts. Ecru feels that china is the best country to manufacture these garments as the country is well established in the industry and is highly capable to creating a well fitting, quality garment. We will be placing the full order of 94,000 units of Desert Sand and half of the Ivory order at 55,000 units. We will #WS-3400 Ivory #WS-3600 Desert Sand #WS-3100 Latte #WS-3500 Bisque #WS-3202 Barley #WS-3400 Ivory Total Units 450,000 55,000 94,000 76,000 85,000 90,000 50,000 Retail Price per unit 140.00$ 180.00$ 120.00$ 120.00$ 90.00$ 140.00$ Cost per Unit 4.52$ 6.95$ 3.96$ 4.00$ 3.55$ 4.22$ Margin 135.48$ 173.05$ 116.04$ 116.00$ 86.45$ 135.78$ % 96.77% 96.14% 96.70% 96.67% 96.06% 96.99% Total Retail 59,040,000$ 7,700,000.00$ 16,920,000.00$ 9,120,000.00$ 10,200,000.00$ 8,100,000.00$ 7,000,000.00$ Total Purchase 2,073,360$ 248,600.00$ 653,300.00$ 300,960.00$ 340,000.00$ 319,500.00$ 211,000.00$ total Margins 56,966,640$ 7,451,400$ 16,266,700$ 8,819,040$ 9,860,000$ 7,780,500$ 6,789,000$ % 96.49% 96.77% 96.14% 96.70% 96.67% 96.06% 96.99% Avg Retail 131.20$ Avg Purchase 4.61$ Avg Margins $ 126.59 Avg Margins % 96.49% Avg Cost/Unit 4.53$ El SalvadorSri LankaChina ECRU FINAL PLACEMENT & MARGINS #WS-3400 Ivory #WS-3600 Desert Sand #WS-3100 Latte #WS-3500 Bisque #WS-3202 Barley #WS-3400 Ivory Total Units 450,000 55,000 94,000 76,000 85,000 90,000 50,000 Retail Price per unit 140.00$ 180.00$ 120.00$ 120.00$ 90.00$ 140.00$ Cost per Unit 4.52$ 6.95$ 3.96$ 4.00$ 3.55$ 4.22$ Margin 135.48$ 173.05$ 116.04$ 116.00$ 86.45$ 135.78$ % 96.77% 96.14% 96.70% 96.67% 96.06% 96.99% Total Retail 59,040,000$ 7,700,000.00$ 16,920,000.00$ 9,120,000.00$ 10,200,000.00$ 8,100,000.00$ 7,000,000.00$ Total Purchase 2,073,360$ 248,600.00$ 653,300.00$ 300,960.00$ 340,000.00$ 319,500.00$ 211,000.00$ total Margins 56,966,640$ 7,451,400$ 16,266,700$ 8,819,040$ 9,860,000$ 7,780,500$ 6,789,000$ % 96.49% 96.77% 96.14% 96.70% 96.67% 96.06% 96.99% Avg Retail 131.20$ Avg Purchase 4.61$ Avg Margins $ 126.59 Avg Margins % 96.49% Avg Cost/Unit 4.53$ El SalvadorSri LankaChina ECRU FINAL PLACEMENT & MARGINS
  • 77. 152 153 be splitting up the Ivory piece because it is anticipated to be one of our top sellers and we do not want to risk any malfunctions by placing all of the order at one facility. Two pieces will also be manufactured in Sri Lanka. Sri Lanka’s manufacturing facilities have very high-end clientele and we feel that it is the perfect place for Ecru to make their more fashion forward and technologically made tops; Latte and Bisque. 76,000 units of the Latte will be manufactured and 85,000 units of Bisque will be manufactured. These pieces are going to be much more suited for a client who is looking for a piece that is a little more fashion forward and out of the box, which is why Ecru does not see the highest sales numbers for these looks. Finally in El Salvador we will be placing the second half of the order for Ivory as well as our take on the “basic tee”, the Barley. 90,000 units of Barley will be manufactured as well as 50,000 units for Ivory. These two pieces are anticipated to be our top sellers due to their silhouette as well as their functionality in a client’s wardrobe. We will be placing these looks in El Salvador because of the ability for incredibly short lead-times of under two weeks. This may be very helpful for us as orders grow and Ecru needs new pieces within a short amount of time. Our final average cost per unit comes out to be $4.53. The average retail price between our five luxury women’s tops is $131.20. The average purchase price for each unit is $4.61. Ecru is very happy to have such high margins at over 96%, which equates to $126.59. COMPARISON OF FINAL COSTING Preliminary Costing vs. Final Negotiatiated Prices Preliminary Margins vs. Archieved Margins
  • 78. 154 155 Allthepricesquotedfromsuppliersareallhigherthanourestimation and most of them squeezed the margins to be approximately 1% lower than our planned cost. The final negotiated prices are actually lower than we expected and drive up our margins about 0.5% higher for all five styles. Latte WS-3100 Latte is one of our basic items with high neck and were planned to be comparatively sale in a lower volume since it might not be widely accepted by majority. In both prelim cost and final cost, Latte has the highest margin among 5 styles. The Latte will be manufactured in Sri Lanka and the quoted price is $5.20 per unit, with 95.67% margin, and the final negotiated price is $3.96 with 96.70% margin. Barley WS-3202 Barley is planned to be one of our best sellers, because of its simple silhouette and could be easily accepted by majority. It has short sleeves and could be easily wear year round. Since Barley was planned to be sale in large amount we planned our margin per unit to be lower so that we could achieve the higher margin by selling larger amount. Besides, in order to turn out the products faster we will manufacture the Barley in El Salvador for the shortest lead-time. The prelim price were planned to be $3.86 with 95.71% and the final negotiated price is $3.55 with 96.06% margin. Ivory WS-3400 Style Name Style # Retail Price China Cost Margin% China Cost Margin% China Cost Margin% Sri Lanka Cost Margin% Sri Lanka Cost Margin% Sri Lanka Cost Margin% El Salvador Cost Margin% El Salvador Cost Margin% El Salvador Cost Margin% Latte WS-3100 120.00$ 4.19$ 96.51% 4.81$ 95.99% 3.83$ 96.81% 4.33$ 96.39% 5.20$ 95.67% 3.96$ 96.70% 3.78$ 96.85% 3.78$ 96.85% 3.45$ 97.13% Barley WS-3202 90.00$ 4.27$ 95.26% 4.69$ 94.79% 3.93$ 95.63% 4.43$ 95.08% 5.53$ 93.86% 4.08$ 95.47% 3.86$ 95.71% 3.86$ 95.71% 3.55$ 96.06% Ivory WS-3400 140.00$ 4.92$ 96.49% 5.75$ 95.89% 4.52$ 96.77% 5.20$ 96.29% 6.24$ 95.54% 4.78$ 96.59% 4.59$ 96.72% 4.59$ 96.72% 4.22$ 96.99% Bisque WS-3500 120.00$ 4.35$ 96.38% 5.00$ 95.83% 3.85$ 96.79% 4.52$ 96.23% 5.65$ 95.29% 4.00$ 96.67% 3.94$ 96.72% 3.94$ 96.72% 3.49$ 97.09% Desert Sand WS-3600 180.00$ 7.25$ 95.97% 8.56$ 95.24% 6.95$ 96.14% 7.74$ 95.70% 9.68$ 94.62% 7.42$ 95.88% 7.04$ 96.09% 7.04$ 96.09% 6.75$ 96.25% 130.00$ 4.96$ 5.00$ 5.24$ 4.64$ 5.62$ 5.76$ 6.46$ 4.64$ 4.59$ 4.62$ 4.85$ 4.29$                             96.18% 96.16% 95.57% 96.45% 95.97% 95.03% 96.27% 96.43% 96.43% 96.70% Average Price Average Initial Cost Average Prelim Cost Average Margin FINALFINAL Average Final Cost ECRU Initial Cost vs Prelim Cost vs Final Cost INITIAL PRELIM INITIAL PRELIM INITIAL PRELIM FINAL INITIAL COST vs PRELIMINARY COST vs FINAL COST Style Name Style # Retail Price China Cost Margin% China Cost Margin% China Cost Margin% Sri Lanka Cost Margin% Sri Lanka Cost Margin% Sri Lanka Cost Margin% El Salvador Cost Margin% El Salvador Cost Margin% El Salvador Cost Margin% Latte WS-3100 120.00$ 4.19$ 96.51% 4.81$ 95.99% 3.83$ 96.81% 4.33$ 96.39% 5.20$ 95.67% 3.96$ 96.70% 3.78$ 96.85% 3.78$ 96.85% 3.45$ 97.13% Barley WS-3202 90.00$ 4.27$ 95.26% 4.69$ 94.79% 3.93$ 95.63% 4.43$ 95.08% 5.53$ 93.86% 4.08$ 95.47% 3.86$ 95.71% 3.86$ 95.71% 3.55$ 96.06% Ivory WS-3400 140.00$ 4.92$ 96.49% 5.75$ 95.89% 4.52$ 96.77% 5.20$ 96.29% 6.24$ 95.54% 4.78$ 96.59% 4.59$ 96.72% 4.59$ 96.72% 4.22$ 96.99% Bisque WS-3500 120.00$ 4.35$ 96.38% 5.00$ 95.83% 3.85$ 96.79% 4.52$ 96.23% 5.65$ 95.29% 4.00$ 96.67% 3.94$ 96.72% 3.94$ 96.72% 3.49$ 97.09% Desert Sand WS-3600 180.00$ 7.25$ 95.97% 8.56$ 95.24% 6.95$ 96.14% 7.74$ 95.70% 9.68$ 94.62% 7.42$ 95.88% 7.04$ 96.09% 7.04$ 96.09% 6.75$ 96.25% 130.00$ 4.96$ 5.00$ 5.24$ 4.64$ 5.62$ 5.76$ 6.46$ 4.64$ 4.59$ 4.62$ 4.85$ 4.29$                             96.18% 96.16% 95.57% 96.45% 95.97% 95.03% 96.27% 96.43% 96.43% 96.70% Average Price Average Initial Cost Average Prelim Cost Average Margin FINALFINAL Average Final Cost ECRU Initial Cost vs Prelim Cost vs Final Cost INITIAL PRELIM INITIAL PRELIM INITIAL PRELIM FINAL
  • 79. 156 157 Ivory is considered as another item would sale year round, and it has the largest planned quantity, so we split the amount for manufacturing into two countries. The unit price for Ivory in China was quoted to be $5.75 with 95.89% margin, and negotiated down to $4.52 with 96.77% margin. Bisque WS-3500 Bisque is similar to latte, and was planned to be a more fashion items with lower quantity and will be manufactured in Sri Lanka. The quoted price for Bisque is $5.65 with 95.29% margin, and the final negotiated price was lower to $4.00 with 96.67% Desert Sand WS-3600 Desert Sand is a button up shirt and has similar construction techniques to Ivory and it does not need to be turn out as soon as the best sellers so that we decided to place Desert Sand in China for manufacturing. The quoted price from China for Desert Sand is $8.56with 95.24% and negotiated to$6.95 with 96.14%. CONCLUSION
  • 80. 158 159 During the final strategy process we eliminated India and the Philippines from our potential manufacturing locations. Each of these countries presented risks that were very difficult for Ecru to overlook in the process of manufacturing the Ecru Basics Collection. These factors overall for both countries include unstable government and economic positioning, the restricted size of the textile and apparel industry, high manufacturing costs, low quality and craftsmanship and unethical work and labor environments. Due to the fact that Ecru focuses highly on their ethics, code of conduct, craftsmanship and quality as well as the safety of the environment, we have chosen to focus our manufacturing in three potential countries, China, Sri Lanka and El Salvador. Prices are very strong and competitive in these three countries and Ecru feels comfortable working with each of them to negotiate a fair deal that will benefit both Ecru and the manufacturer. Our products will be placed in each of these three countries to minimize our risks and to maximize our opportunity to protect our products if something were to happen to the facility. This not only benefits us but it also gives Ecru a chance to learn more about each of these factories and potentially increase our quantities and ultimately give the facilities more business in the years to come. These manufacturers are looking to expand their portfolios and branch away from their standard big name companies by adding luxury, fashionable garments from a small privately owned brand to their portfolio. Both Ecru and the manufacturers in China, Sri Lanka and El Salvador have the ability to benefit from this new partnership and grow with Ecru as it expands into new products and lines in the future.
  • 81. 160 161 COST SHEETS Style 1 - Latte Style 2 - Barley Style 3 - Ivory Style 4 - Bisque Style 5 - Desert Sand APPENDIX Cost Sheets Tech Packs Sourcing Guidelines Supplier Emails Bibliography
  • 82. 162 163 STYLE 1 - CHINA STYLE 1 - EL SALVADOR
  • 83. 164 165 STYLE 1 - INDIA STYLE 1 - PHILIPPINES
  • 84. 166 167 STYLE 1 - SRI LANKA STYLE 2 - CHINA
  • 85. 168 169 STYLE 2 - EL SALVADOR STYLE 2 - INDIA
  • 86. 170 171 STYLE 2 - PHILIPPINES STYLE 2 - SRI LANKA
  • 87. 172 173 STYLE 3 - CHINA STYLE 3 - EL SALVADOR
  • 88. 174 175 STYLE 3 - INDIA STYLE 3 - PHILIPPINES
  • 89. 176 177 STYLE 3 - SRI LANKA STYLE 4 - CHINA
  • 90. 178 179 STYLE 4 - EL SALVADOR STYLE 4 - INDIA
  • 91. 180 181 STYLE 4 - PHILIPPINES STYLE 4 - SRI LANKA
  • 92. 182 183 STYLE 5- CHINA STYLE 5 - EL SALVADOR
  • 93. 184 185 STYLE 5 - INDIA STYLE 5 - PHILIPPINES
  • 94. 186 187 STYLE 5- SRI LANKA TECH PACKS Style 1 - Latte Style 2 - Barley Style 3 - Ivory Style 4 - Bisque Style 5 - Desert Sand
  • 107. 212 213 CODE OF CONDUCT This Code of Conduct is applicable to all supplier, their subcontractors and other business partners that conduct business with Ecru. We require that parties which wish to conduct business with Ecru sign a completed vendor compliance agreement to acknowledge and abide by our Code of Conduct. It is the responsibility of Ecru’s suppliers and other business partners to inform any subcontractors about Ecru’s Code of Conduct to ensure that the requirements are abided by in every factory and workplace that contributes to Ecru’s merchandise.
  • 108. 214 215 1. Legal Requirements 1.1 All of Ecru’s suppliers and business partners must abide national laws in all activities in the country of operation. 1.2 Ecru’s requirements may go beyond the national law’s requirements 2. Child Labor Ecru does not permit child labor and no person under the age of 16 shall be employed even if the legal age for employment is less than 16 years of age. 3. Health and Safety 3.1 Working Environment Suppliers must adhere to all laws regarding health and safety. Suppliers shall provide workers with a clean, safe and healthy work environment. No exposed wires will be permitted. 3.2 Fire Safety Ecru requires emergency exits be well lit and clearly marked on every floor. All employees must receive training in regards to how to respond to fire or other cases of emergency. Fire extinguishers must be available for emergency use and their location made known during training exercises. 3.3 Accidents and First Aid First aid equipment must be available and its location know to all employees.Textiles). The growing number of young population in India implies the potential and active workforce in the world which looks positive for outsourcing for skilled and talented labors; more than 70% of population will be working age in 2025. 4. Worker’s Rights 4.1 Basic Rights 4.1.1 All workers are to be treated with respect and dignity, free from humiliation, corporal punishment or abuse of any kind.
  • 109. 216 217 4.1.2 No discrimination of workers based on sexual orientation, gender, religion, political opinion, race, ethnic origin, disability, pregnancy or age will be tolerated. Employees have the opportunity to anonymously report noncompliance with the Code of Conduct. 4.1.3 Forced labor is prohibited as is the use of illegal and prison labor. 4.1.4 All employees have the right to organize and join associations. 4.2 Wages Wages are to reflect the experience, qualifications and performance of an employee and are to be paid regularly and on time. Each employee will be paid at least legal minimum wages as determined by local government. 4.3 Working Hours 4.3.1 Ordinary working hours shall not exceed the legal limit and shall never exceed 48 hours per week. Overtime must be both voluntary and compensated and hours shall not exceed the legal limit and shall never surpass 8 hours per week. 4.3.2 Each employee is allotted a 30 minute lunch break and 2 15 minute breaks each day. 4.3.3 Ecru requires that all its business partners and Suppliers communicate the Code of Conduct with employees and supervisors in their native language. 5. Housing Conditions If employee housing facilities are provided by a company the health and safety requirements under clause 3 must be followed. 6. Environment Suppliers must comply with all laws regarding the environment in their country of location, this includes having any relevant environmental permits and licenses for its operations. 6.1 Water Management Wastewater from wet processes must be treated before disposal and meet requirements of local legislation when it comes to quality.
  • 110. 218 219 6.2 Waste Management Waste and hazardous materials must be disposed of in accordance with the law of the country in which the company operates. 7. Monitoring and Enforcement 7.1 Transparency Ecru expects the companies it works with to keep accurate records so that the company may be accurately assessed without the falsification of documents. We expect all business partners and suppliers to be transparent and to not purposefully mislead auditors. 7.2 Monitoring 7.2.1 Ecru will schedule 2 audits per year and reserves the right to make unannounced visits for purposes of auditing to all parties producing goods or services for Ecru. 7.2.2 We reserve the right to appoint an independent third party to conduct audits in order to evaluate compliance with Ecru’s Code of Conduct. 7.2.3 Suppliers may not coach employees on how to answer or respond to inquiries from Ecru representatives during audits. 7.3 Corrective Action Failure or unwillingness to correct violations of Ecru’s Code of Conduct and local law with in an allotted amount of time would damage the supplier’s relationship with Ecru and could lead to reduced business or termination of business between the two parties.
  • 111. 220 221 SRI LANKA SUPPLIER EMAILS & CALLS
  • 115. 228 229 PHILIPPINES *None of the suppliers replied the emails, but we managed to call them. CHINA
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  • 121. 240 241 1   BBC news “ Shanghai free-trade zone launched” September 2013 http://www.bbc.com/news/business-24322313 Bruce Kenney “China increases minimum wage rates”,CBSNews, March31, 2014 Website http://www.cbsnews.com/news/china-increases-minimum-wage-rates/ “China Country Profile.” China Country Profile (2013): 1-79. Business Source Premier. Web. 14 Apr. 2014. “China’s Free Trade Agreements “China FTA Network: http://fta.mofcom.gov.cn/ Chen Yang “US trade with China seen rising”, Global Times 2013 -12-11 http://www.globaltimes.cn/content/831580.shtml#.U1rVUK1dUYQ “Customs Law of the People’s Republic of China”, Chinese customs official website, www.customs.gov.cn Donna W. Reamy, Cynthia W. Steele, “ Perry’s department store, an importing simulation” Fairchild Publications, Inc. 2006 print “Harmonized Tariff Schedule”, United States International Trade Commission http://hts.usitc.gov/ “Importing into the U.S” U.S Customs and Border Protection www.cbp.gov International Textile Manufacturer Federation, October 2011, http:www.cotlook.com/userfiles/file/Uzbek2011/06.pdf International Trade Centre (ITC) The Chinese Market for Clothing. Geneva: ITC, 2012. xi, 92 p. (Technical Paper) Jian Yang (April 2006). “Learners and users of English in China”. English Today 22 (2): 3–10. doi:10.1017/S0266078406002021.. Quote: “What this suggests, it seems, is that Yan’s (2004) ten million may after all be a more informed estimate of the actual regular users of English in China.” (page 9)” BIBLIOGRAPHY - China Loan university “ Letter of Credit explained what is a letter of credit?” 2011 http://www.loanuniverse.com/letters.php#sthash.f7VW0HE3.dpuf Matt Phillips , “�������������” Wall Street Journal, 2010 http://cn.wsj.com/gb/20100623/mkb082844.asp?source=article Qiu, Larry D. “ Textile and Clothing Industry” HKUST 2005 http://s3.amazonaws.com/zanran_storage/www.bm.ust.hk/ContentPages/18112599.pdf Tang Xiaoyang, “ Comparing Technological innovation of Textile industries in India and China” International Food Policy Research Institute 2011 Terence P. Steward, Esq. Stewart “China’s support program for selected industries Textiles and Apparel” Trade Lawyers Advisory Group LLC June 2007 The World Factbook 2013-14. Washington, DC: Central Intelligence Agency, 2013 .https://www.cia.gov/library/publications/the-world-factbook/index.html “U.S Imports”, Trade Data, Office of Textiles and Apparel, http://otexa.ita.doc.gov Xinhua “China’s 2013 urban unemployment rate at 4.1%” China org.cn January 24 2014 Website http://www.china.org.cn/business/2014-01/24/content_31297360.htm Xinhua “China rules out strong economic stimulus”, China org.cn, April 24, 2014 Website http://www.china.org.cn/business/2014-04/24/content_32191351.htm Xinhua “ China’s garment exports up 31.6%” China Daily, 2013 (http://www.chinadaily.com.cn/business/2013-04/03/content_16372693.htm) !
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