Global supply chains are changing. Speed, cost, security, geopolitics, sustainability, and logistics concerns are just some of the reasons behind a growing interest in nearshoring. In relation to the US market, Latin America could be the primary beneficiary of nearshoring: the Inter-American Development Bank (“IADB”) has forecast an annual increase in exports of USD 78 billion as a direct result of nearshoring. The fashion industry in Central America and Mexico is at the forefront of this change with 71% of apparel and fashion companies planning to increase nearshoring, according to a recent a study by McKinsey.
A Peruvian fashion designer and brand owner echoed the opportunity for Central America and Mexico to service the US market, “Access to high-quality raw materials and rapid production are the main advantages for Central America and Mexico. In China it can take 6 months for development, plus 60-100 days of production plus the time of customs clearance and shipping. With the Free Trade Agreements and certification of raw materials from Latin America, this time can be shortened drastically. Furthermore, Latin America is flexible with quantities per shipment, instead of 1,000 items per product as is the case in China, we can have a minimum of 50, in jewellery we have 24 items.”
“Access to high-quality raw materials and rapid production are the main advantages for Central America and Mexico.”
Fashion designer and brand owner, Peru
Rapid production and small volumes are increasingly important to a fashion industry that is being moved by short-lived micro trends marketed through viral social media activities. An industry executive explained, “The industry has moved from 4 seasons towards 8 and even 16 and some micro trends may only last for 3 weeks. If you don’t have rapid production and delivery you can’t capitalise on these trends. Another advantage for Mexico and Central America is the Free Trade Agreements with the USA for dropshipping, which helps local designers a lot, as companies are investing in small warehouses with integration of certain items, so that when the retailer wants to place the order in less than 48 hours you can send it from the warehouse.”
Traceability is also an increasingly important consideration for fashion brands, the industry executive continued, “Even micro enterprises in Central America and Mexico can deliver direct to a consumer in the US within 3 working days with a low carbon footprint, both in raw materials and shipping distance. Also, comparing Latin America to China, there are better working conditions for labour and it is much easier to trace the product from raw materials to the consumer. It is also simple to visiting the production plants in Latin America and to see first-hand the ethics of production (which is not always respected in China).”
“Even micro enterprises in Central America and Mexico can deliver direct to a consumer in the US within 3 working days with a low carbon footprint.”
Fashion industry executive, Mexico
These favourable market dynamics have led to a growing number of countries getting in on the act, an industry executive in Panama explained, “It used to just be Mexico and the Andean countries, but we are now seeing Costa Rica, Honduras, and Nicaragua entering as active competitors. Panama is not far behind either, as there are several projects in development that, taking advantage of the excellent geographical position, the competitive US dollar as a base currency, and the multiculturalism that is so prominent in Panamanian society, we are sure will offer new and better opportunities to the fashion industry not only regionally, but also globally.”
The market is moving quickly and the winners are likely to be those prepared to invest in training and technology, “To deliver high-quality product at the height of the international market, you need staff who are properly trained,” said the owner of a fashion brand in Panama, “also, you need to stay ahead of the continuous change and evolution of technology for the manufacture of clothing and accessories. New materials are especially important to offer a sustainable and eco-friendly product, such as leather based on pineapple or mushrooms, or other products.”
Countries like Mexico, Colombia, and Peru have a long record of technical industry knowledge and industry experts to produce and supply top fashion quality products but Central American producers are catching up rapidly.