Making apparel in the USA and retail prices

An article in the New York Times titled “That ‘Made in the USA’ Premium (December 1,2013) describes the growth in US manufacturing of higher end apparel but the continued difficulty in domestic production of lower cost items. It cites production in New York of women’s clothing sold at Saks and Bloomingdale’s but overseas production for items by the same designers that are sold at JC Penneys. With US labor costs 40% higher than China, retail prices have to increase up to 20% more for domestic manufacturing. Competing on speed of response by US manufacturers is matched by air freight offered by Chinese competitors. Should US manufacturers compete by emphasizing quality, rather than production source alone, to justify the higher prices ? Should the guarantee of production environments and ethical practices be emphasized as a reason for US production ? How should volume retailers like WalMart enable US manufacturing while also serving customer interests ?

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50 Responses to Making apparel in the USA and retail prices

  1. Nachiketa Mohanty says:

    This is a perfect example of Prisoner’s Dilemma. As long as there is a cheaper alternative available, customers wont care much for the production source, provided the quality remains constant. Not every customer has the capability to pay a premium for “ethical” production sources and thus, there would always be demand for lower priced products. In such a scenario, retailers are hard pressed to keep their prices low. To be profitable, they have to source materials/products from the cheapest available manufacturer. Thus, retailers have mostly turned to China for sourcing cheaper products. Whoever can offer their products at a lower price in the market, will capture the dominant market share. And in the end, that is the objective of each and every business – To earn profits. A supply chain cannot be ethical if it cant even sustain itself in the market. Thus, the guarantee of production environments and ethical practices cannot be the sole differentiator for any retailer.

    That said, US retailers can think of differentiating their products along the lines of quality and superior service. If customers see that products being manufactured in the US are of higher quality than products being manufactured in China, they would be willing to pay a premium for it. Moreover, providing some value-added service only for products manufactured in the US can provide some incentive to the customer for procuring US-based goods.

  2. Prasant Goel says:

    Domestic manufacturing in US is growing at rate of 4 to 6% owing the growing demand for high quality American goods and fast fashion. Although most of the manufacturing growth is from a few select categories including dance and sports apparel or college paraphernalia. There are several brands that have successfully shifted to made in America especially in the high end garments for e.g. Men’s Wearhouse acquired Joseph Abboud in an effort to expand its Made In America Collection similarly high end brand Samuelsohn bought the Hickey freeman’s Rochester based facility for 100% American garments with an expected growth of 50 percent in the coming 4 years. Moreover, premium denim market brands like True religion and high end brands like Rag & Bone also experienced growth with a series of stores rolling out every year. Moreover, Walmart has plans of investing close to $28 million in socks, and leggings in America. And all these decision by major brands are driven by 2 important reasons. Firstly Made in America tag helps boost sales as 72% Americans in a survey vouched for Made in America goods and 75% are ready to a pay a premium not only for patriotic purpose or job creation but also because they find the “made in America “ product more authentic and higher in quality . Moreover reshoring to America allows more flexibility in supply chain with quick review of samples by moving the factory closer to designers and thus speeding up the design process. Most importantly the small and medium sized enterprises which are not able to pull the minimum viable production from the overseas factories would be gaining the most from the reshoring of facilities. Moreover shorter lead times especially in fashion world help convert time into money by matching the trends quickly . It is for the same reason that PVH now manufactures all the shirts from its North Carolina Factories. Moreover the growth in the Chinese labor rates has been over 106% from 2008 to 2013 and is expected to grow even faster in the future. With such emerging trends, the Manufacturing shift from overseas to American factories is soon going to be reality even in the mid and lower segment of Fashion Apparels.

  3. Rohit Mohan says:

    1.US Manufacturers need to analyze if they really need to have manufacturing in the US, the labor cost arbitrage with China and other emerging markets is too big to ignore and as long as quality is maintained with sufficient monitoring manufacturing can be safely off-shored
    2. Walmart’s customers expect everyday low prices and hence will not take higher priced products for the sake of the Made in USA stamp. Walmart needs to ensure that low prices are maintained and hence should consider suppliers outside USA.
    3. If moving manufacturing outside USA is not an option then they can only differentiate themselves on innovative products and high quality service with guarantees from low cost manufacturers in China.

  4. Ashish Trivedi says:

    The question is simple. Perform or perish!
    You can reduce costs or you can increase willingness to pay for a product. If you do not outsource manufacturing you need to come up with other differentiating factors such as made in USA. This means you are now targeting a niche segment that can afford higher priced products as the labour cost in US is much higher.
    Most companies target the common mass and thus need to offer products which are priced lower. Thus outsourcing today is a much more viable option. The risks with poor labour laws and dubious labour practices adopted in the host countries is always present. A company should thus ensure contractually that the products made in the outsourced locations conform to good manufacturing practices and the message for which the company stands.

  5. Gautham Ravindar says:

    Cost Leader Vs Differentiation. Points discussed in the “Global Supply Chain Musings” articles apply for this one as well. To be a cost leader and to produce a differentiated product is an improbable thing to pull off (Excluding Samsung – Semiconductor Industry). Women’s clothing product sold in Saks and Bloomingdale’s New York being produced domestically and internationally produced products at JCP is proof of the above statements. This clearly shows the difference in Willingness To Pay (WTP) being a key factor. A product priced at a premium of 20% won’t sell in JCP where the WTP is less and there are more cost-effective options.
    In order to Make In US and to ensure that this doesn’t cause a dent in the income statement companies would have to pursue differentiation strategies that would work with the majority of the consumers. Appeal to both their rational and emotional sides. Quality, service etc on the rational front and employment to their countrymen, boosting their economy etc on the emotional/patriotic appeal. Only then will they have an incentive to shift their production from China to US.

  6. I believe that the part of value chain that the developed country is mostly that adds most value to the entire business. In that sense the products ( apparels here ) made in US have to be of high value. Hence there positioning should be that ” They proudly represent the high quality of USA made products”. For giants like Walmart sourcing high quality/ high response products from US is still a viable part of their business and will continue to be like that. However, the made in china apparels also do not have a bad quality perception hence the way forward would be segmentation of consumers who prefer made in US high value add products or otherwise their buying patterns are such that they are not looking for anything specific and hence don’t need any external validation of their choices.
    Made in US apparels should improve operations and have high local responsiveness and made in china apparels can still appeal to larger audience.

  7. Chinmay Sahoo says:

    The biggest reason Walmart became successful as a retailer is their “Everyday low prices”. Outsourcing actually helped them do that. Contrast their financial success with the attitudinal response that a consumer has shown – that they would prefer to buy american made, and that american made clothes are of better quality. Both have a significant minority protesting the very opposite thing. However, these are only words. When it comes to actual purchasing behaviour, they go to a Walmart to buy the good manufactured overseas. Why? Lower prices!

    The only way for companies to counter is by the following three things:

    1. Signalling – In our current society, with the torrent of information available, we are always looking for heuristics to make our decision processes easier. Production source as USA will help not only project image of quality, but also make the keeping jobs in america arguement stronger – thereby a combo of patriotism and perceived quality as emotional attributes will help brand associations stronger.

    2. Judo Strategy & Value Add – USA can’t compete on the cost front. Hence, playing the game on rules dictated by China/Vietnam will not help. What is important is a Judo strategy. (see California Review – Judo Strategy). An opponent’s strength can be leveraged against them by balance and movement. Hence, high value add, high-end fashion, customized dresses, and designer dresses can be sources of this value add that can help manufacturers counter the China threat. Plus, one will be targeting the non-price conscious customers.

    3. Ethics & Business: While it is desirable as well as required in today’s times for industries to be ethical, customers may not care about ethical practices. Here, unless industry body steps in as unison, or there is a different wave among consumers, things may not change, as customers may get shocked at labour practices, but later they conveniently forget them, as public memory is short.

    4. Bundle & Mix: Volume retailers can go for Private labels. they can bundle, and go for mix of USA and foreign clothing. Private labels especially can help as there will not be the associated manufacturing expenses. Hence, if done on a large scale with automation, factories can make in USA with the integration of digital. It will be useful to see if 3D printing can radically change everything!

  8. Amandeep Tandon says:

    US manufacturers should try to outsource the less value added component of the value chain i.e ‘manufacturing’ to countries with lower manufacturing cost and keep the high value added activity like ‘design’ to themselves. This way they will be able to take advantage of the Labour arbitrage and reduce their cost of production. Focussing on design activities by keeping it in house will help them differentiate their product (in terms of design) from that of their competitors. For example – Zara differentiates its product on the basis of unique design as its design team is centralised. Positioning the product based on superior design may help the US firms attract a higher WIP from the non-premium customers also.

  9. Mayank Agrawal says:

    With growing automation and efficient technology process being incorporated in apparel manufacturing industry , the developing countries would slowly loose the labor cost advantage they enjoy.
    With the cost disparity minimizing in future the sourcing decision will boil down to the location which offers more supply chain efficiency to counter the high demand uncertainty the Fashion industry faces. Hence as we go into future, sourcing of mass volume low-price items from developed economies for home market will be become viable and preferred.
    The rising focus on supply chain transparency and customers demanding responsible sourcing , manufacturing in USA further boosts these aspects and can be used by firms to market their products to conscious customer bases.

  10. Nishant Dhiman says:

    Flexibility vs efficiency is one common theme which keeps on coming in any supply chain related discussion. Manufacturing units are being shifted to China considering the lower labor costs in comparison to the USA. Though having manufacturing located at China increases the lead time if air freight is not used, firms find it still lucrative enough to locate the manufacturing in China or other regions with lower labor costs.
    Let us take the example of Zara, which outsourced its regular products like white t-shirt, etc. to regions like Bangladesh for which the demand estimation is fairly accurate as well as there’s no particular fashion season for these products. Whereas, on the other side getting the products manufactured in Europe makes sense for the products with lower product life cycles and fast changing fashion products. An analysis done by a research agency indicates that the labor cost is cheapest in the USA amongst all the developed nations and the benefits achieved due to lower lead times through more accurate demand planning can certainly outweigh the benefits of just the labor in regions like China.
    It also reduces the cost of information management and transactional costs due to lower supply chains which are not spread too much geographically. This can also enable to ensure compliances to ethical practices and ensure higher quality products. Manufacturing in the USA will also contribute towards employment and utilization of automation to achieve higher efficiencies to compete manufacturing in other regions.

  11. Syed Qaim Mujtaba Kamoonpuri says:

    In USA, producing low end products has always been a challenge because of the high labor cost. However, there are ways to encourage firms to produce in US over low-cost labor countries.

    Given the wave of nationalist movements sweeping the world, firms are actually selling the idea of why domestically made products should be supported by the loyal citizens of the country. I’m not saying whether this is a morally/ethically correct, all I’m saying is that this is a way of marketing to differentiate even a low cost apparel in the USA.

    Your blog talks about how speed of response of US manufacturers can be matched by air transportation by Chinese manufacturers. However, for products sold online, there is a significant reverse logistics cost as well. Therefore, US manufacturers can provide the facility of purchase after cost, with minimal incremental costs. This is something which the Chinese manufacturers can’t replicate.

    One long term approach to this problem is that the USA can invest in mechanization and automation of the production process. I’m assuming this technology would be available in USA at a cheaper cost than in China. This way US manufacturing firms can target high volume low-end products at stores like Walmart.

    As far as low-end product customers are concerned, I’m not sure how much they would be influenced by the emphasis on ethical practices and safe production environments. Moreover, unless and until the low end product customers are not satisfied by the quality of foreign products, there is no incentive for them to shift to US made products. Hence such kind of differentiation might not work.

  12. Surbhi Sachdeva says:

    The value chain activities in any business models are performed at locations based on the value they add to the final product. Is the design of the apparels more value adding or the manufacturing? I believe that a standardized task like manufacturing should be done by exploiting the cost arbitrage advantage advantage. The countries with low cost labor and utilities should be targeted to set up the manufacturing facilities. That doesn’t necessarily mean that the company is compromising on quality, the company can still boast of a high quality product. Hence, I would say that it is better to stamp the product “designed in USA” than “manufactured in USA”.
    The argument of manufacturing in the USA to ensure ethical practices is not valid in an era when the world is moving towards the concept of economic corridors and unifying towards low cost and efficient practice.
    Walmart should continue to serve its customers based on the every day low prices model and not start offering SKUs just for the sake of made in USA stamp.

  13. Aditya Jain says:

    Fashion industry typically has a markup of 40% and is typically a very price insensitive segment.
    We can easily see various price ranges for similarly styled apparels. And all of them doing fairly well. Clearly, there is a lot more than the price that meets the eye.
    Being successful in fashion is more about following the trend than providing right prices. Thus, if the US with high labor cost wishes to compete against low-cost Chinese manufacturers, then they should focus on getting the design to launch cycle as agile as possible. This will help them focus only on the trending designs and not waste bandwidth and money on the other non-performing ones.
    This would further save cost and help them generate more profits at lower margins, even if they wish to compete with Chinese manufacturers at the low cost.
    Large retailers like Walmart, have a key advantage of large footfalls, thus these can be very interesting avenues for getting more customer insight on what’s trending. Customer feedback, video-based customer behavior tracking, identifying trends by tracking where the customer is spending more time on while purchasing are some of the important insights that American fashion industry can get while designing.

  14. Revanth Raju says:

    The business model of Walmart is to source the goods at low cost and sell it to price sensitive customers. They are not responsible for maintaining the jobs in US where US does not have a comparative advantage. Their business model falls off if they start sourcing high cost items as customers would not buy. The customers decide whether to buy trading off and quality of the goods. Similarly customers decide if ethical work practices in the manufacturing is an important driver in their decision making process. As long as the customers of Walmart are aware and indifferent to the practices, Walmart has no necessity to shift to new suppliers.
    The US manufacturers, if they believe that the customers care for ethical practices, should lobby for greater transparency in the supply chain of firms like Walmart and create awareness about the non-US origin and environmental and ethical practices and then let the final consumers put pressure on the retailers. Otherwise they should look at investing in technology and achieving low cost production.

  15. Ayush Bajaj says:

    There are a lot of advantages of manufacturing in the host country: It raises employment which in turn raises the income levels of people. Secondly, the supply chain becomes more responsive and easy customization is possible. To enable the adoption of Made in USA products the companies/Government must make use of this and ensure adequate differentiation of its products [Quality, Design, Ease of Return] vis-a-vis the products coming from China. Once such a differentiation is established the companies must market its products to the quality conscious and nationalistic consumers.
    There must be a constant effort to drive down the costs by using automation and Lean techniques such that the forecasting errors are minimized and costs are controlled

  16. Pulkit Gupta says:

    Both manufacturing in US and outsource to gain cost arbitrage have their pros and cons. Companies like Walmart which work on the motto – “Everyday low prices” cannot afford to go by manufacturing in US where cost of production is much higher. While a store like Saks and Bloomingdale’s could easily afford to manufacture their product in US because their motto is not to provide low cost but to provide high quality clothing. Basically, both types of firms have different value proposition and different customer base. A high end store tries to capture the willingness of its customers and maximize profit margins, they target a niche customer set who might as well value Made in America tag much more than Made in China tag. While a retail store that serves customers with low cost and prices, do not play the margin game but the volume game. They target customers who maximizes their returns by value for money and not the differentiating factors of a product. Therefore, depending on who a firm tries to target with what value proposition will help in making decision of where to manufacture and what should be their targets.

  17. Aayush Jain says:

    The advantages of sourcing in the home country are not just limited to smaller lead times but it also has several other advantages. It allows for better marketing by leveraging a sense of patriotism amongst people as was seen in the case of the Motorola X range of smartphones with the ‘Made in America’ campaign. Sourcing in home country also allows for better quality control as its easier to monitor the manufacturing practices as compared to when the sourcing is from China. Providing better quality products translates to better customer satisfaction. Additionally, with the aging population in China and the rising labor charges, the difference in manufacturing costs between US and China is decreasing with time. Therefore, it makes sense to shift the manufacturing to US keeping in mind the diminishing cost differences in the future. Lastly, its also important to consider the social and environmental aspects while making the procurement decisions. Its difficult to monitor the suppliers in China and there have been several cases of unethical practices with Chinese manufacturers; sourcing in the home country would minimize the risks of such unethical practices.

  18. bharath chintapatla says:

    First thing we need to understand is why do retailers want to move the manufacturing back to US, looking at the cost arbitrage manufacturing in Asian countries is much cheaper than anywhere in US. Firms need to understand who are they are responsible for, it is only their customers and shareholders if both of them are going to be better off manufacturing in China then they should do just that.

    If the retailer is trying to setup manufacturing in US because of ethical practices then they need to find a way to signal this to the end customers. Just putting a Made in USA logo won’t do the job, but they need to communicate to customers how by moving manufacturing back to US they are helping the community. Also at the same time you need to make sure it just can’t be an emotional appeal as it won’t sustain for long, firm should be able to provide something more utilitarian as well like quality etc.

  19. Abhijit Saurav says:

    If the US manufacturer wants to justify their higher prices, they should focus on quality. A customer will only be willing to pay a higher price for a product if he or she sees a differentiated value for the product. Quality is an important aspect in this business which can help the US manufacturer to justify their higher prices. Moreover, another focus in this regard should be the use of ethical means in production. With the growing rage over use of child labor in low cost manufacturing companies located in countries like Bangladesh, China etc., US manufacturer can highlight their ethical methods of production. US is a country where issues of human rights violation and child rights are significantly held in high priority. Customers would be more willing to buy a product and associate with a company which has not violated such issues in production. Another factor that could influence the cost of apparels would be the supply chain of the industry. Having an advantage of in-country production, the manufacturers should focus on strategy to optimize the supply chain through better forecasts of demand and cost reductions in logistics. Such kind of strategy would help the manufacturers to pass a part of the benefits from supply chain optimization to consumers and make the products more attractive in terms of values of quality as well as price.

  20. Gaurav Suri says:

    The firms want to shift back the production and manufacturing to China in order to ensure ethical practices are adopted in the supply chain. I feel that though it is of utmost importance to ensure ethical practices are adopted throughout the supply chain it shouldn’t be the primary reason to shift manufacturing back to the U.S, an alternative to this should be to adopt a third-party supply chain auditing service provider to ensure that all the ethical standards are met throughout the supply chain and continue making use of the cost arbitrage opportunities in China. If however, manufacturing in China or any other country offering cost arbitrage opportunities is not an option, firms should try to optimise their supply chains in the region and preferably transfer some benefits to the consumer. Customers would always want to be associated with a firm which is ethical in its processes but not all customers would be willing to pay the premium and low-cost goods would always be required especially for firms such as Wallmart which have the motto of “every day low prices”. Wallmart, if it has to enable U.S manufacturing has to optimise its supply chain to the maximum level and ensure that all cost benefits are transferred to the end consumer.

  21. Sankalp Srivastava says:

    If we think from the customers’ perspective, customers are more interested in the quality, price, and the brand rather than the production source, ethical practices, production environments, etc. Adding to that, in a typical buying behavior/purchase journey, the customers are :
    1. Boundedly rational – and want an easy way to buy (without doing a rational/economics analysis)
    2. Already burdened with a lot of information.
    Hence burdening the customer with extra information on production environment and production source unless there is a strong positive or negative connotation attached to the sourcing country seems to be a not so good strategy.
    Further, customers really like the quality of the products and quality of services offered. Once customers start attaching themselves to the positive experience in buying, they would start becoming loyal to the brand. Hence, it sounds plausible to justify the higher costs with the quality of both services and products.
    Lastly, for the volume retailers like Walmart, becoming extremely technology sensitive – using automation and data analytics serves two purposes: a) smoothen the supply chain – thereby reducing the entire production costs b) making the customer experience positive. One of the examples of this is the use of POS systems and customized satellites to share information on inventory and point of sales that helped Walmart decrease the entire cost of inventory on one hand and provide lower prices to customers on the other hand.

  22. Joydeep Kundu says:

    The “Made in the USA” campaign is all about ensuring jobs for the American people and encouraging millions of Americans to buy products only made in US to support this campaign. But, this is practically infeasible when it comes to low margin commodity type products. Since, the labor & facility costs are way higher in the US, it makes no economical sense to produce the same in the States. They will never be able to achieve the cost efficiency that China has achieved. Although, a fraction of the population will support the movement, others will always buy a cheaper product that serves their purpose. Most people would not like to pay a premium just because it is made in the US. Having said this, the manufacturing and labor cost deltas are gradually decreasing which makes “Made in the USA” campaign more viable. But this will still take quite some time and with countries like Vietnam, Cambodia opening up their economies and offering lucrative trade conditions, I feel it doesn’t make sense to produce commodity items in the US at this moment.
    What the campaign can try and do for the short term is to concentrate on the higher end premium products. The margins are there to make it in the US & people would always pay for these kind of products.
    For Walmart to enable US manufacturing it needs to reduce its costs in supply chain and implement a pull based replenishment model for all SKUs. This way it will be able to cut down on its inefficiencies and increase sales. Since, Walmart has a broader reach than any of the other retail chains, it can use its customer reach to generate a higher volume sale to compensate for the lower margins for products made in the USA.

  23. Ankit Singh says:

    A customer may not be always willing to pay a premium for products manufactured in USA if the quality of same is at par with the products manufactured in China and there is no issue of inhumane working condition or ecological damage associated with the product manufactured in China. Hence, the manufactures in USA should focus on product differentiation rather than focusing only on cost if they want their consumers to pay a premium for their products. USA manufacturers should invest in improving the efficiency of their manufacturing process so that the difference in manufacturing cost between USA and China can be brought down. Also, with a consistent increase of the labor cost in China, the difference in manufacturing cost between China and USA is bound to come down.

  24. Ramya Janakiraman says:

    ‘Made in USA’ stands more of a brand image to a particular consumer segment.So the designers trying to manufacture clothes in USA are trying to portray the clothes as higher quality stuff in comparison to the imported ones in alignment with the perception.So this is for the niche segment but people , who don’t bother much about branding and image , would obviously move toward imported pieces as it is more bang for the buck.

    But I would suggest that it is a wake up call for the USA to bring automation at this point of time. Investment in automation and robots for stitching fabrics would help the designers avoid the shipping cost in import and also portray the clothing as country made that most of them would prefer.

    Hence more than using the differentiation strategy for the niche segment , these designers should leverage upon the Cost Leadership journey through technological upgrade.

  25. Monomit Nandy says:

    Even for companies like Walmart where low prices is the key manufacturing in countries like China is becoming less attractive as the labour costs is China is creeping up as shown by recent data. China will no longer enjoy low labour costs which once was one its USP. Also one should look at the total landed cost while comparing manufacturing in USA and China (this will include cost of manufacturing, transportation, reverse logistics etc.) Though the labour costs are more in the USA but as the productivity of the US workers is more, the transportation and reverse logistics costs less, the total landed cost to companies like Walmart for products manufactured in the USA maybe comparable to those manufactured in China. There are also many items whose demand is uncertain and therefore need less response time from manufacturers which might not be always possible from the Chinese manufacturers. In my opinion companies like Walmart and others have to carefully choose which items should be procured from China and which from the USA in order to keep the whole supply chain efficient and therefore may sometimes have to forego margins in order to retain market share. In the modern times I do not think there would be any company which makes 100% procurement from China or 100% procurement from the USA. Decisions such as these depend on other factors as well like supply chain efficiency, total landed cost, service levels, demand forecasting ability etc. Manufacturers from both USA and China have a place in the supply chain and it would not be wise to compare one against the other.

  26. Harihara Subramanian says:

    Made in USA does possess the potential to be a value proposition by itself, thus, a higher premium can indeed be charged for products made in the US. However, this cannot be extended to all the SKUs nor will this model last for a long time. Down the line, prices of goods will play a role and US manufacturers need to drive down their costs. Hence emphasis on better quality is the only sustainable proposition that these firms can capitalise upon to sell products at a higher price. Putting forth environment and other statutory reasons can act as only an addendum – this cannot be a standalone marketing strategy. People purchase from brands because of loyalty, experience or price. As long as a competitor is able to provide any one these and is not in the news for statutory norms violation, he/she will be able to sell big. It is more prudent for firms to compete on the former parameters than environmental adherence. In totality, reducing manufacturing costs in US becomes mandatory. Automation is one method that can wriggle through the high labour costs. Industries must be automated to the highest extent possible. Postponement of material differentiation can also help in this. Standardise products to the maximum extent to enable takeover by machines and minimal labour can be appointed for the final differentiation. Another method is to cross train workers to such an extent that they become credible of the existing wage amounts. They become inter-replaceable that they can multi-task and can fill in the gaps created by absence of others. Further, automation will also upgrade the labour requirement to that semi-skilled and skilled and thus making them worth of the high wages paid. Of course, there exists a lower limit for this beyond which prices cannot be driven to match the Chinese. At this juncture, additional values like higher quality, environmental adherence, ‘made in USA’ can compensate for this gap.

  27. Charu says:

    The US labour laws deem labour prices to be higher than that of China and other countries such as Bangladesh, India, Vietnam. Therefore, there is no way to produce cheaper clothing. The question therefore arises as how to justify the high MRP on the clothes manufactured in the US! A part of the problem can be solved by stressing on the quality of fabric, chique stitching. But it can be sustainable only for high end stores where customers have very high willingness to pay and the high input cost of production can be recouped. Yet another potential solution is to attain anough volume to set up automated machine production requiring minimal human intervention, hence, reduced input costs.

  28. Srishti says:

    ‘Made in USA’ indirectly signals the quality of production and that the entire supply chain followed ethical practices (with stringent rules in place in US, it can be assured that environment, safety standards and human rights are not violated). This is accompanied by higher labor costs as a result of which US manufacturing is limited to higher end goods.
    In order to expand Made in US to cheaper products, companies such as Walmart can focus on reduction of costs in other parts of the supply chain and by increasing the responsiveness of their supply chain in order to serve the interests of customers. Also, as discussed in the previous blog, companies must focus on certifying their suppliers and sub-contractors in order to ensure that ethical practices are followed, even when suppliers are present globally. This would increase the costs of the current supply chain and make manufacturing in US competitive on prices.

  29. Balabhadruni Kamaraju says:

    US companies in high end apparel manufacturing can focus on differentiation as they do not have cost advantage compared to China manufacturers.
    Following are the ways to build and leverage the brand and differentiation:
    1. US manufacturers can promote patriotism and to purchase from US companies or brands
    2. Proper consumer survey can be done and launch products that are more suitable with the tastes of US customers. US companies will have advantage in grasping tastes of consumers more than China companies. As product life-cycle time is small and consumer preferences change very dynamically, having updates of this is very important to increase sales.

    In parallel, US companies should take efforts in order to decrease the cost advantage of China companies by doing the following:
    1. Major costs in apparel industry is inventory. Efforts can be taken by US companies to forecast sales more accurately to decrease inventory costs.
    2. Manufacturing process can be automatized in order to decrease the variable cost and increase quality and consistency.

  30. The premium for the “Make in India” brand is unjustified. Going back to the days when Steve Jobs headed Apple – he refused to divulge information on their suppliers, following up with a statement that he ensures the quality of the product regardless of the sourcing countries or organisations. I originate from the same school of thought. There are non governmental origanizations who are concerned with the origin of Apple’s supplies and the employee conditions in those areas but I feel that consumers are more sensitive towards product quality, experience of other users and product material. Hence if these are not compromised on, the company would remain profitable without the need for charging premiums.
    In India, the dispoable income of individuals is increasing; however the middle income groups are still very conscious on price points. For India consumers are insensitive about origin of spares except in case of defence organisations which have banned the use of Xiaomi phones from China for their personnel.

  31. Mrigank Mishra says:

    Manufactures in US need to analyze the benefits of manufacturing in the country. The only advantage is quality. In today’s scenario, goods manufactured in China offer similar quality at much low production cost. The tradeoff of manufacturing in US compared to China can be huge in terms of costs. Consumers at supermarkets such as Gap and Walmart demand low priced consumer products. If Walmart id not able to provide with everyday low prices, the customer may switch. Such competitive advantage can be alleviated if firms start manufacturing products in US. Labor costs in US are much high as compared to those in China. If firms do not have an option to manufacture outside US, they should try to differentiate their products and services. In manufacturing, the process should me automated to reduce labor costs.

  32. Abhishek Sharma says:

    Quality comes as a major differentiator and a savior for the US manufacturing companies, as they cannot compete on the cost front and only local manufacturing cannot be the sole base for them to charge premium over Chinese competitors. The guarantee of production environment and ethical practices could provide marginal benefit but a 20% premium would be too high to justify with touting better safety practices across the supply chain. Consumers won’t support high prices if something similar is available at lower price, hence higher quality will be pivotal for saving local (US) manufacturing firms. Volume retailers such as Walmart, etc can help serving interests of US manufacturing firms if they can help them with better consumer demand forecasts using their advance tracking and analytics enabled IT systems so that the manufacturer’s costs are reduced and also charge less premium on US made products so that they become further price competitive.

    Furthermore, as the responsiveness demands continue to increase with time and as China’s labor rates continue to increase, the gap between the prices of US and China manufactured products will continue to shorten and with other better attributes as mentioned above US manufacturers will see the traction soon.

  33. Bikas Panda says:

    As rightly mentioned earlier apparel manufacturing is bound to become expensive for retailers as the labor cost rises in US. This phenomenon is not just restricted to US but even a country like China in the coming future might not be the most preferred location due to its aging population and rise in labor cost. We can already see a lot of retailers shifting to Bangladesh, Vietnam, Sri-Lanka, Cambodia and Thailand.
    However, this is also a huge opportunity for manufacturers in US and China to build upon its research and expertise and move towards manufacturing Smart tech products and bring path breaking technology to apparel retailers like hi-tech garments and Nano-tech products. Today all the global retailers look at US and China for techno innovations for futuristic products as showcased in the global trade fairs like Inter-Tex in Shanghai and Tex-World in New York where companies like Du-Pont have showcased highest quality performance products to global retailers. American retailers must leverage and inculcate these high quality innovations into their product line and market the same to command a price premium. Even retailers like Walmart can leverage the techno innovation in US to bring a differentiating product for its consumers at a premium.
    Point here is that every country evolves with its value proposition in terms of what it offers as a manufacturer over few generations. It is important for retailers to also leverage the evolution and reap benefit from the value that the manufacturing of a country can provide. In case of US “made in US” tag will certainly mean techno innovations, performance product and higher end products in future which can be leveraged with the right marketing efforts.

  34. Chaitanya Vallabhaneni says:

    As long as there are cheaper options such as China are available to the volume retailers such as Walmart it gets difficult to get them to switch over to US manufacturers and with air freight reducing the lead time for the foreign suppliers the task gets even more difficult. Even if the retailers in general decide to compete on quality there are few Chinese suppliers who cant ramp up their standards for very little increase in cost of production, whatever the quality aspect US suppliers bring in, Chinese suppliers could do it for a much lower cost. Emphasizing on ethical practices can get difficult because the people being affected by unethical practices are far off from the consumers of the end products and as long as there is a cheaper option available US retailers would always be incentivized to switch to cheaper alternative. US retailers could do dual sourcing, using US suppliers for less labor intensive processes and foreign suppliers for more labor intensive one’s that way both US suppliers and consumers are kept happy.

  35. Gita Kumari says:

    In order to justify higher prices, US manufacturers would have to emphasize on quality, responsiveness as well as customized products and services. Differentiation is the need of the present situation as it is extremely difficult to achieve cost leadership over competitors from developing countries. Even though international competitors are offering air freight to provide speed of response to the customer, there is high level of risk associated with it. It would not be sustainable in the long run for the international players as changes in government regulations, increased in air fares and other political risks might impact the export, providing competitive advantage to US manufacturers.
    Also, US manufacturers can learn from the best practices of US Walmart. Use of advanced technology and POS data of customers, Walmart has been able to lower its cost by reducing the demand forecast error. With RFID and EDI techniques, transparency in information flow have been achieved, increasing the profitability of whole supply chain.

  36. Ankur Jain says:

    The situation here is about cost arbitrage and the solution is predictable. USA has to ensure higher efficiency in the production and the supply chain to ensure that the 20% premium costs are minimized. Only then they can compete with China on the labor costs front. Niche retailers can play the differentiation and high quality game as their target segment has higher willingness to pay. But most of the retailers like Walmart cater to the mass needs and hence the low prices are here to stay. Recent studies have shown that the Chinese are moving away from the manufacturing mindset and want to move up the value chain. The arbitrage has come down from 20% to 5%. But the nature of problem persists. Some other location on the globe will come up as the manufacturing hub. So with higher efficiency, if the US retailers can reduce costs inside their own country up to a limit where the customers are indifferent for paying a slight premium, the bar will turn in domestic retailers’ favor. Also, this has to be coupled with sensitizing the customers with the concepts of ethical sourcing and environment friendly value chain.

  37. Sethuraman Subramanian says:

    While it would safe to assume that attributes like ethical manufacturing practices and environments certainly matter to an average consumer, there is not much empirical data to suggest that these attributes translate to a higher willingness to pay. Particularly, when the US markets are wide open to global vendors, it would be difficult for the US brands to make a cerebral appeal to the consumer to support their “For America by America” thought-process. It might only create avenues for new economy brands to breach the barricade and launch a frontal attack on the likes of Walmart and Macys. As much one may conceive that emotions create an impact in the short-term, the long term equilibrium has always been dictated by economics. As long there is a demand for value clothing in the US, other manufacturers from countries with lower labor and manufacturing costs will continue to flood the market. It would not be possible for the US to impose import sanctions to restrict free trade. If Walmart and Macys might choose to not support Chinese manufacturing, for instance, either the manufacturers could tie-up with other brands, or could entirely launch their own label. With countries like China having greatly benefited economically and technologically in the last 3 decades, it’s likely that they can launch their own global brand as a formidable competitor on the US soil. So, the decision to outsource manufacturing from the lower cost geographies will continue to remain a relevant and key strategy for these firms for the next 2-3 decades.

  38. Ankur Bansal says:

    I don’t think in today’s world when the borders are porous, producing same product at one location and selling it at a premium could be a viable option. It can never be a stable equilibrium. The only way this equilibrium can sustain in long run is if the cost of producing the product at a cheaper location that violates environmental practices or ethical practices attracts a fine big enough to make the domestic production competitive with them.
    Currently, if any firm boycotts any brand due to unethical practice, there are a number of other brands ready to source from them and bring them inside the country. So as long as a global consensus is not reached on how the exploitation of workforce and environment can be stopped in the name of “manufacturing outsourcing”, these practices are here to stay.

  39. Saurabh Wardhane says:

    US manufacturers can gain the cost advantages by outsourcing low value adding activities in their value chain by outsourcing it to emerging markets, but at what costs. US apparel makers can use their high-end design capabilities to design apparel that are far superior to its competitors plus they can follow a transparency approach (like Apple) to highlight its ethical value chain. This approach is much better than actively trying to compete based on ethical practices.
    This strategy may not work for US Walmart as its core value proposition is ELDP (Everyday Low Pricing) so it must try to cut its cost at every part of the value chain. The decision has to be strategic and there shall always be a trade-off between cost. and risks associated with low-cost manufacturing (reputational hit, emerging markets risks).

  40. Devika R Krishnan says:

    US manufacturers should compete on quality and not focus on “made in USA” sentiment. Customers might buy American made products paying a higher price for a short while. Once they realize they get the same quality at a lower price, they will look for value for money. Those who stick with the home manufacturing sentiment will be only a small percentage. Thus in order to make use of the economies opening up for global trade, manufacturers should outsource those activities in which their value addition is less to places where cost of operations is less, after doing a cost benefit analysis. At the same time, care should be taken to put measures in place to track the operations (environmental, safety, workplace regulations) of the downstream suppliers from tier 1 to the final entity. Still if the retailers are considering manufacturing in USA, they should invest in technology in a centralized location in USA that will reduce labor requirement and in turn labor costs and thus can also reach economies of scale in production. This will reduce costs in the areas of co-ordination, service etc. and thus can overall provide more value to the customer.

  41. Vasu says:

    US domestic laws guarantee certain rights to workers within the country borders thus impacting the higher domestic productions costs. These laws protect the workers from workspace abuse and allow high standard working conditions. The same is not true for developing economies such as Vietnam, Bangladesh, India, China and several others. Atleast for India and China, the mere high population numbers lead to availability of cheaper labor workforce. This allows for an opportunity for exploitation by several businesses across the world to create production centers in these countries.
    Domestic production increase is a dual function – driven by ethical business practices as well as regulatory policies.
    1. Large businesses that are in the growth phase and have global presence focus on low cost of production with enough service qualities to appeal to masses. These businesses can be incentivized to product locally within country borders by appropriating higher import taxes from production outside the country that nullifies the benefits.
    2. Government should work with its counterparts in developing economies to enforce stricter labor laws to ensure that there is no workforce exploitation. These laws need to be enacted strictly too.

  42. Simrat Bir says:

    The question is clearly one of cost arbitrage. The reason that most apparel firms offshore their operations to cost-effective countries like China, is so that they can maintain their margins while taking advantage of lower labor rates in countries like China. If a company wants to compete on the Quality game, it will have to segment its customer base very carefully and target those customers who have a higher willingness to pay for attributes such as quality. Although statistics show that labor rates have continuously been on the rise, it is still not cost-effective to produce in US. Also, companies located in China are matching US quality in several cases. Hence, this is more that just a battle of quality. A well thought out company strategy- either cost leadership or product differentiation, is the need of the day.

  43. Atul Shrimal says:

    The NYT article, “That ‘Made in the USA’ Premium” brings out an interesting change happening in US around 2013 – shoppers’ increasing interest for American-made goods. However, this interest is limited to higher end apparel, as customers on a budget don’t care about ‘made in us’ tag. Alternately, as the article argues there’s a premium paid on ‘Made in the USA’ tag which helps US manufacturers sustain their high costs. Article also discusses how majority of this production is machine-made and doesn’t build a new middle class in USA. It goes on to suggest that low price high volume retailers as well as majority of customers would continue to prefer apparel made outside USA. In this context, the higher end apparel made in USA need to do more than just flashing their ‘Made in the USA’ tag to justify their higher prices. One solution could be emphasizing quality. However, it remains to be seen how much customers value the better quality, if it is indeed the case. Some might argue that production in USA adheres to environmental and ethical practices and thus customers would be willing to pay a price premium if this aspect is emphasized and that they are educated in this regard. If that strikes a chord with the customers, then it would also enable volume retailers like WalMart to source more from US manufacturers while also serving customers’ interests.

  44. Hanumantharao V says:

    As long as there is the possibility of enforcing the contracts in the entire supply chain to eradicate dubious labor practices and minimum quality standards are maintained in the imported items I feel it is always advantageous to utilize the low cost manufacturing of China, Vietnam etc. However, if enforcing such contracts is difficult and if the cost of manufacturing in China goes up then the supply chain will become ineffective in terms of cost and moral practices and manufacturing in US will be the option. If sourcing from China is still viable then market segmentation is the way to go for US manufacturing with Chinese products in Walmart for mass markets and Specialty stores for premium segment with emphasis more on quality.

  45. Prateek Tiwari says:

    If a retailer can ensure that its suppliers located in China and other locations are following a safe and ethical practice, and total cost of production is lower in these places, then I don’t see any reason as to why they should still stick to domestic production. Every company is in the market for making a profit and if outsourcing to these countries gives them extra margin it is perfectly okay to do so. For the domestic market, there can be two steps which can be taken –
    1)Focus on the technology and R&D aspect which brings down the labor cost and increases productivity. These will vary, but if a company can offset the higher costs by employing lesser labor for same work, domestic production can be utilized.
    2)Segmentation and differentiation: Higher end apparels with “made in the USA” tag can be kept for a different segment of the market who will be willing to pay the higher premium for better quality or feel better in buying domestically produced goods. Completing factors here cannot be quality alone as most suppliers today can meet stringent quality standards. The idea should be more about the tag and premium label rather than just quality.

  46. Sowmya Dasika says:

    Whether to have a manufacturing unit in the US or have an over seas production at lower labour costs is a question of business model. For instance , companies like Walmart follow “low-cost leadership” strategy where the margin are very thin. In such scenarios, companies cannot afford leverage “Made in the US” theme and pass on the additional labour costs as price to the customers. If the emphasis on quality is of paramount importance, still producing in the US may not be the one stop solution , given the quality that is maintained outside is not of any lower value.
    More than show-casing the US stamp on the products , the companies should understand what the customers and what is the core competency of the company. considering , high-end apparel industry , to compete on the trends and fashion design having an in-house may provide comparative advantage by delivery high quality products with a sense of local manufacturing.
    In sum, the answer is far more than yes or no. It is highly dependent on the nature of business model.

  47. Debojyoti Ray says:

    I do believe that it makes sense to shift some of the production of the higher end apparel. back to the United States. Some of the reasons could be –
    i) It would allow faster and agile response to the variation in demand;
    ii) The demand could be placed closer to the start of the fashion season;
    iii) The quality of the products could be better monitored;
    iv) A ‘Made in the USA’ premium could be charged;
    v) A higher point of preventing unethical labor practices in SE Asia, could help build the brand.

    All the above points, taken together with the fact that the population in China is ageing and manufacturing being mostly automated, makes the point of shifting production back to US all the more engaging, even for volume retailers like WalMart.

  48. asimanpanda says:

    I agree that one of the ways to market US-made items is to charge a premium while stirring up the patriotic fervour. To this end, I believe, manufacturers can have separate tiers for the same product – one tier produced in US and the other, outside – of course the quality and indigenous aspects of the home-made products could be emphasized in marketing efforts. Eventually, the market will tell the retailers which way the wind is blowing – or which ways customers are tending.
    This is of course in addition to all the other benefits that a local manufacturing option affords – agility in the supply chain, delayed prediction of trends (leading to more accuracy), offsetting air freight costs that accompany transportation closer to the season, and better visibility and control over the supply chain. I also believe with increased local production, subsequently the labour prices will also stabilize or become more rational.

  49. Bhawarth Sangwan says:

    US manufacturers should compete by emphasizing quality because it can increase the Willingness to Pay (WTP) of consumers. Completing alone on production source doesn’t make any sense because in today’s globalized world, consumers are least bothered about the production source. I agree, that consumers might have quality concerns regarding the products produced in the third world countries. However, taking the example from Apple (which is operating in high-end electronics segment) which do all of it’s production in China and still commands the premium for its product, we can safely assume that consumers give precedence to quality over source of production. Moreover, production in US will give the retailers more visibility into the contractors manufacturing practices. This fact can be leveraged to further increase the WTP of the products.
    Retailers like Walmart are at disadvantage to serve customers with US based products due to their, “Everyday Low Price” tag. Walmart, JC Penny etc. should try to ensure the quality production in the third world country itself. It will be expensive to ensure the quality production abroad due to higher visibility/transparency costs, disruption risks, etc. However, it might seems a plausible solution till the time US can reduce its production cost to a competitive level.

  50. Mahesh Sharma says:

    I believe moving production to US is suboptimal and no rational manager will go ahead with that move. Also, convincing consumers based on such a logic is highly improbable. Ultimately, managers will do a cost-benefit analysis of meeting demand better by moving production to US vs lower labour cost by keeping production in China.
    The only other party interested in moving production to US is the government itself. They can do that by providing subsidy in terms of reduced taxes to make it a financially sound decision for managers.
    Secondly, since apparel is a low pollution industry, government can charge penalties on high pollution industries and pass on those benefits to manufacturing of apparel in US.

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