What Will It Take to Diversify Sourcing in 2025?
Since the pandemic, the apparel sourcing landscape has been mired in uncertainty.
Supply chain and logistics issues persisted throughout 2024, tariff threats loomed large and geopolitical tensions simmered, leading many sourcing executives to conclude that they need to be ready for anything, from hurricanes to Houthi attacks in the Red Sea.
Diversification has been a major part of that strategy in recent seasons. There’s been talk of nearshoring as a means of bringing production closer to the end market; some enthusiasm about Africa, and much concrete growth across East and South Asia, according to Dr. Sheng Lu, professor of apparel studies at the University of Delaware.
Watch on FN
Lu spoke on a U.S. Fashion Industry Association (USFIA) webinar about his recent research.
“I found that most of the winners—the countries that enjoyed the fastest growth of their apparel exports to the U.S. market… from January to October, almost all of them are Asian countries,” he added.
India has been a major recipient of new business in 2024. Lu authored a study on India’s rise that was released earlier this fall, showing that the country is now being regarded as a “rising star” in the sourcing world due to several key factors.
“India makes more apparel than even Vietnam—and actually… it makes more textiles than Bangladesh,” he explained. While its output is still just a fraction of China’s, the country boasts a “more balanced textile to apparel production ratio, which means that India has a more vertically integrated regional supply chain.”
Countries like Bangladesh and Vietnam are still heavily reliant on China and other Asian markets for inputs, whereas India has the raw materials and upstream operations to facilitate more self-sufficiency. “And because of that, India has some very unique advantages,” Lu said.
Now the third most utilized clothing production base for U.S. companies, India exported about $15 billion worth of apparel in 2023.
While gains were modest, 2024 has also seen a 2.7-percent improvement in the utilization rate for the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), meaning that 73.2 percent of apparel and textile imports from the region enter the U.S. under the program.
“In the past, companies who have sourced from the region didn’t use the agreement often enough,” Lu said, meaning that they were not taking advantage of duty-free entry into the U.S. “But somehow, this year, the situation has changed; you can see the utilization rate improved.”
The problem? “The sourcing volume and sourcing value didn’t follow,” the professor said. In fact, CAFTA-DR members lost apparel market share in the U.S. even though more importers made use of the trade agreement.
While there’s been a wealth of investment in verticalizing operations in the region, in Lu’s estimation, the breadth of products that can be sourced from Central America is still limited by the inputs producers have access to. There’s a supply chain for cotton fabrics, but when it comes to synthetics and performance materials, yarns are still largely brought in from Asia.
According to Lu’s research, 26.9 percent of fabrics manufactured in the region were made with yarns imported from Asia in 2023, and 38.8 were made with yarns from the United States. Roughly 26 percent of yarns were sourced from within the region—an improvement of nearly 10 points from 2019, but still not a big enough acceleration to propel the region’s verticalization.
Sub-Saharan African nations that are a part of the Africa Growth and Opportunity Act (AGOA) have experienced similar constraints when it comes to the variety of their offerings.
“They may struggle with a shortage of different kinds of textile raw materials,” Lu said, noting that AGOA countries largely export basics to the U.S. market, like tops and bottoms, but few dresses or outerwear options, which can be more fashion-forward, complex or require more performance fabrics and inputs.
“Theoretically, AGOA members should not have to worry too much about access to different kinds of fabrics,” he added. “Why? Because AGOA allows countries to use a very liberal third-country fabric [rule], which means they can import yarn and fabrics from anywhere in the world, and still the finished garments will be qualified for duty-free benefits under AGOA.”
However, an examination of the fiber content of apparel imports making their way into the U.S. from AGOA nations shows that members are largely sticking to the basics.
Lu looked at a sampling of thousands of garments at retail and found that many contained cotton (38.2 percent), polyester (31 percent) and spandex (15.8 percent). Specialized materials like wool, viscose, linen and recycled or organic textiles were found in much smaller quantities, suggesting that African producers aren’t taking advantage of the trade benefits offered to them.
Liberal rules of origin, while beneficial to manufacturers that don’t have regional supply chains, “cannot replace” the need for localization, according to Lu. “If you want to diversify your sourcing base, I think still, the most effective way is to build a strong local textile industry.”
The winners in 2025 are likely to be the sourcing regions that work to establish holistic, efficient supply chains for apparel production, he added.
