Fashion companies, eager to diversify their supply chains, were already expanding into production sites in Southeast Asia as alternatives to China. Then the trade war happened.

Now, with tariffs on products such as Chinese handbags set to rise, nations like Cambodia and Vietnam are looking more attractive than ever for consumer-goods makers such as Steven Madden Ltd. and Tapestry Inc.’s Coach. And while the Trump administration has slapped duties on goods from many of its largest trading partners this year, it’s allowed some Cambodian products to continue duty-free access to the U.S. market.

A study released in July by the U.S. Fashion Industry Association showed that, while all of the companies participating in the survey sourced goods from China, 67 percent expected to decrease the value or volume of production in the country over the next two years. U.S. trade protectionism was listed as the number one challenge for the industry.

Investment Incentives

“Cambodia does offer pretty good investment incentives like tax holidays,” said Matt van Roosmalen, country manager for Cambodia at Emerging Markets Consulting, an investment advisory firm focused on Southeast Asia. “As long as the tariff exemptions persist, companies will be more incentivized to invest production capacity in Cambodia.”

The moves to shift production have had an impact in China: Hong Kong-based Stella International Holdings Ltd. — which develops and manufactures footwear for brands like Prada SpA and Guess? Inc. — has seen its stock drop to its lowest point since 2009 as China and the U.S. ratchet up the trade rhetoric.

Cambodia footwear exports rose 25 percent in 2017, while garment exports increased 8 percent in the same period, according to an annual report by the National Bank of Cambodia, which attributed the growth in part to increased demand from the U.S.

Vietnam, meanwhile, has enjoyed a foreign investor-led economic boom for years, attracting billion-dollar investments from the likes of Samsung Electronics Co. and Intel Corp. It is transforming from mainly an exporter of agricultural commodities, such as rice and coffee, to a Southeast Asian manufacturing hub.

“The country enjoys relatively low inflation, a stable currency, and political stability – all of which helps to attract foreign investment,” said Adam Sitkoff, executive director of the American Chamber of Commerce in Hanoi. “The opportunities are clear – Vietnam is a country of 95 million people traveling pretty quickly on the path from bicycles to motorbikes to BMWs.”

In addition to the tariff threat, wages have risen steadily in China, while Cambodia remains one of the lowest-cost countries when it comes to labor. According to estimates provided by Oxford Economics, labor cost in Cambodia is a quarter of China’s.

 

(20-08-2018, Source: Bloomberg)