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Central America Emerges As Leading Source For Value-added Products

 

Image credit: Wikimedia; Mariordo (Mario Roberto Duran Ortiz)

Central America is working hard to present itself as a good alternative to Asian manufacturing, Sourcing Journal reported Monday, based on a panel discussion in New York City.

The region’s greatest advantages are flexibility for rules of origin, proximity to the U.S., quicker reaction and production time and competitive labor costs. While political stability is of concern, potential changes to U.S. trade policy caused greater apprehension.

Panelists said the gap in sourcing from Central America and Asia was closing, as proximity and free-trade benefits spurred investment. They added Central America can produce roughly 300 million more garments than Asia for these reasons, with a three-to-four-day lead time.

The debate on the pros and cons of sourcing in Central America — and its juxtaposition with Asia — reveal the various considerations in site selection and the changing trends affecting these.

It’s not all about labor costs; tax incentives, trade agreements, production quality, the length of lead times and logistics infrastructure all play a role when considering suppliers. Many of these are changing, to the benefit of Central America. A failed Trans-Pacific Partnership closed the door for greater U.S. access to Asian textiles, and major ocean carriers are investing more in North-South trade lanes, for example.

But the greatest change has nothing to do with the new administration or individual companies, but a new market dynamic prioritizing short fulfillment timelines.

This dynamic is not limited to apparel manufacturers. Tesla created its own “Tesla Town” near Fremont, CA, to speed up its own timeline. However, it first had to convince suppliers relocation was worth the cost, but once it did, the design-to-production process was expedited. Similar forces were likely behind Foxconn’s decision to build a new plant in Wisconsin.

Suppliers in Central America hope a similar scenario will prove their value to U.S. manufacturers. Thanks to its relatively close proximity to North American companies, transferring production from Asia could mean lowered risk and a happy medium between offshoring and reshoring.