By Evan Clark
WASHINGTON -THE MANUFACTURING OF BLUE jeans, a quintessential partof the American clothing culture since the Fifties, has gone global along with the rest of apparel production.
Domestic producers in the last decade or so have focused on the high end, as production of basic, volume-oriented styles migrated primarily south of the border to Mexico and Latin America.
That migration, driven largely by cheaper labor, is now continuingeastward, as Hong Kong, China and Cambodia pick up larger segments of the market and get better at working the laundries so essential to jeans production.
"We have seen a shift from Mexico to China, primarily because of the embellishments and the handcrafting that's done on jeans today," said Peter McGrath, chairman of purchasing for J.C. Penney Purchasing Corp.
Mexico still rules the roost in women's jeans, with 33.6 percent of the import market to the U.S. and 6.4 million dozen pairs shipped for the 12 months ended March 31. But that lead shrank 20.1 percent from a year earlier.
"When we get back into washes and finishes that are a little bit more straightforward and not as tricky, such as nicking and grinding, resin finishing, and we get back into more of a simplistic cycle, theMexican guys will pick some business up again," said McGrath.
Growing stronger, Hong Kong is the number-two player in women's jeans, with imports to the U.S. of 2.2 million dozen in the year, a 70.3 percent rise.
All eyes, though, are on China, the dominant apparel importer, with a third of the overall clothing manufacturing market. Though the country is restrained by quotas that run through 2008 on cotton trousers, its shipments of women's jeans shot up 139.9 percent for the year through March to 1.4 million dozen pairs.
Access to labor and raw materials, a developed manufacturing sector and an effective infrastructure spell success in apparel production, and China has a leg up on most of the rest of the world when it comes to combining these elements.
"The lead country in textile production is going to be China," said McGrath. "They're not necessarily fully verticalized in terms of sewing and washing, but, again, the infrastructure within the country permits you to be able to move your denim from your sewing facility toyour washing facility very quickly."
With an increasing expertise in the laundry processes critical to washes in jeans, China is also becoming more of an option for higher-priced jeans, said Michael Silver, president of the Silver and 1921 jeans lines, based in Winnipeg, Canada.
As recently as four years ago, Silver jeans, which retail for $70 to $75, were produced in Canada. Now they're made in Asia, a shift Silver attributed purely to low-cost labor in the region.
"Every month, I hear of someone new trying China," said Silver. "Is it a boomtown in denim there? I don't think it's at that level, butit's certainly increasing and getting bigger."
Even though the industry in Mexico benefits from duty-free treatment under the North American Free Trade Agreement, it is not as coordinated as the producers are in Asia.
"What happened to Mexico is we have factories set up and we have mills set up and we have washes set up, and they're all owned by different people, so there's no agency system," said Silver.
Changes in where jeans are made reverberate up and down the supplychain.
"Mexico is the 800-pound gorilla; the problem is, it's kind of on a diet," said Jack Mathews, vice president of sales and marketing forAmerican Cotton Growers, a denim fabric producer with a mill in Littlefield, Tex. "The low end is going to migrate to wherever the cheapest needle is."
That shift is likely to make business more difficult for denim producers in the Western Hemisphere.
"You still have a situation where you've got too much capacity in this hemisphere, and that will be rationalized over time," said Mathews.
Fabric producers in the U.S., though, would have trouble making money by following the production and selling to the Asian market.
"Whether you're talking about China or Vietnam or even India, a lot of these governments subsidize their textile industry in order to keep employment high," said Mathews. "We just can't compete. If the playing field was a bit more level, could it be a possibility, sure. But in reality, the key to survival for anybody in the Americas is to be able to ship their product south."
Domestic textile producers routinely voice similar concerns, and the evolution of the jeans business is illustrative of the dramatic impact trade policies can have.
U.S. textile concerns are up in arms about an agreement in principle the Bush administration reached with Vietnam that helps clear the way for that country to join the World Trade Organization. The deal allows the U.S. to reimpose some quotas on imports from Vietnam if that country does not dismantle its state subsidies, should its bid to join the global trading body succeed. Pressured by imports that they claim are unfairly subsidized, domestic producers want stronger restraints on Vietnam.
Still, it is a mix of trade policy and business incentives that determines where goods are produced.
"Trade agreements direct your attention to a particular country, and then you have to marry that up with, am I going to be able to produce the garment there, and is the fabric going to be available?" saidStephen Lamar, senior vice president of the American Apparel & Footwear Association.
The smart money - or perhaps this is just the companies that have enough financial strength - seems to be placing bets across the board.
"This hemisphere, if you look at total costs in certain segments, can be competitive," said Joseph Gorga, president and chief executiveofficer of International Textile Group, a major a denim fabric producer.
"Our strategy is not to play one hemisphere against the other," hesaid. "We think both are significant factors in the market, and we're going to participate in both. We still have significant production in Mexico, so we're still very bullish."
THE DENIM PIE
Top imports of women's blue denim trousers and breeches by country
12 months ended March 31
COUNTRY: VALUE; VOLUME IN DOZENS; % CHANGE*
Mexico: $750 million; 6.4 million; -20.1
Hong Kong: $276 million; 2.2 million; 70.3
China: $126 million; 1.4 million; 139.9
Cambodia: $119 million; 1.2 million; 35.2
Guatemala: $99 million; 722,000; -7.2
*PERCENTAGE OF CHANGE BY VOLUME.
SOURCE: U.S. COMMERCE DEPARTMENT
Caption(s): A port in Hong Kong, which is picking up share in the U.S. jeans market
LOAD-DATE: June 15, 2006