Mexico: Is the bloom off the rose?

Citation

Campaniaris, C. (2005), "Mexico: Is the bloom off the rose?", Journal of Fashion Marketing and Management, Vol. 9 No. 1. https://doi.org/10.1108/jfmm.2005.28409aaa.001

Mexico: Is the bloom off the rose?

Mexico: Is the bloom off the rose?

Eight years ago, Mexico was crowned the primary apparel source for North America. The industry watched in awe as it surpassed the almighty China in apparel exports to the United States and made the top ten list of apparel exporting countries to Canada. Mexico's apparel exports growth to its NAFTA partners continued until 2000, at which time exports to the US and Canada were C$12,954 million and C$207 million, respectively (Tables I and II).

Country	1999	2000	2001	2002	2003
China (excl. Mongolia)	10,597	12,189	13,270	14,531	15,455
Mexico	11,635	12,954	12,563	12,117	10,062
Hong Kong	6,447	6,804	6,660	6,207	5,297
Honduras	3,265	3,590	3,775	3,933	3,599
Vietnam	54	70	75	1,425	3,348
Indonesia	2,757	3,331	3,708	3,450	3,184
Thailand	2,665	3,216	3,362	3,331	3,048
India	2,449	2,975	2,998	3,243	3,024
Dominican Republic	3,499	3,640	3,532	3,419	2,991
South Korea	3,364	3,671	3,658	3,472	2,703
Sub-total	46,730	52,441	53,601	55,127	52,710
Others	36,811	42,789	44,899	44,623	42,366
Total (all countries)	83,541	95,230	98,500	99,750	95,075

Source: Statistics Canada Table I. Top ten apparel export countries to the USA (millions of Canadian dollars)

But then:

1. 1.

   In 2001, after years of continuous growth, Mexico's exports to the US declined by 3 percent.

2. 2.

   In 2001, China regained the crown as the top apparel exporter to the US with total apparel exports of C$13,270 million.

3. 3.

   In 2003, Mexico's apparel exports to the US were C$10,062, a 22.3 percent decline from its peak in the year 2000.

And in Canada:

1. 1.

   China continued its unprecedented growth (at an average annual rate of approximately 18 percent since 1999) of apparel exports, reaching C$1,965 million in 2003.

2. 2.

   Mexico continued its growth (at an average annual rate of approximately 30 percent since 1999) to C$318 million in 2003.

3. 3.

   Mexico placed fifth in 2003 in the top ten exporting countries to Canada, fast approaching Hong Kong, which declined from its third position in 2001 to fourth in 2002 when India gained the third spot.

4. 4.

   The leading group of Mexican apparel exports to Canada, according to Industry Canada's Standard Industry Classification groupings, was Men's/Boys' clothing followed by Women's/Girls' apparel and foundation garments (Table III)

5. 5.

   Within the men's and boys' group, the pants/shorts product category accounted for 85.1 percent of this clothing group. With pants exports to Canada at approximately C$82.5 million, Mexico became, for the first time, the leading source in this product category in 2003.

6. 6.

   Another significant apparel product category in which Mexico placed first as an export source to Canada was T-shirts/vests. This category, valued at approximately C$67.1 million, accounted for approximately 55.6 percent of the all other Mexican apparel exports to Canada.

7. 7.

   Mexico, however, had also very significant decreases in export sales to Canada in, predominantly, women's/girls' apparel product categories, the most important of which were:

8. 8.
   • •

     foundation garments/bras, in which Mexico relinquished its top position to Thailand in 2003;

   • •

     lingerie and loungewear, which in 2003 dropped to C$26.5 million from C$54.8 million in 2002 and C$63.4 million in 2001; and

   • •

     nightdresses/pajamas, in which exports to Canada, in 2003, were 43 percent less than in 2002.

So what were the contributing factors to Mexico's recent apparel performance?

The general consensus as to the decline of Mexican apparel exports to the US is the increased cost of labor in Mexico. This, coupled with a slow US retail apparel market in 2001/2002, led to a shift in sourcing to lower cost countries such as China. The effect on Mexico's apparel industry was serious. According to the CANAINTEX (Camara Nacional de la Industria Textil), with information provided by IMSS (Instituto Mexicano del Seguro Social), there was a loss of 175,000 employees from the Mexican apparel sector between January 2001 and December 2003, a 28 percent drop in two years. In the same time period, 1,755 apparel companies stopped doing business.

Country	1999	2000	2001	2002	2003
China	1,075	1,298	1,509	1,886	1,966
United States	901	862	829	782	688
India	315	366	385	416	424
Hong Kong	488	512	515	394	333
Mexico	165	207	290	309	318
Bangladesh	129	155	160	141	302
Italy (incl. Vatican City State)	167	172	196	214	216
South Korea	269	315	348	279	200
Thailand	140	147	159	160	170
Indonesia (incl. East Timor)	135	143	192	168	149
Sub-total	3,784	4,177	4,583	4,749	4,766
Others	1,160	1,320	1,516	1,571	1,551
Total (all countries)	4,944	5,497	6,099	6,320	6,317

Source: Statistics Canada

Table II. Top ten apparel export countries to Canada (millions of Canadian dollars)

One can speculate as to the reason(s) that Canada did not react to the Mexican labor cost increases the way the US did. However, the most recent import figures from Statistics Canada show that, in the first quarter of 2004, apparel imports from Mexico are only 1.1 percent higher compared to the same period in 2003, which indicates a significant deceleration in apparel import growth from Mexico.

Industry	1999	2000	2001	2002	2003
Men's/boys' clothing	29,589	50,640	71,887	83,625	96,836
Women's/girls' apparel	48,400	58,406	81,939	82,650	69,691
Foundation garments	36,392	38,495	51,392	41,667	30,272
All other	50,748	59,371	84,236	100,909	120,765
Total	165,129	&nbsp206,912	289,454	308,851	317,564

Source: Statistics Canada

Table III. Top Mexican apparel exports to Canada (thousands of Canadian dollars)

So, is Mexico losing its edge as an apparel supplier to its NAFTA partners? It would certainly appear to be the case based on its recent performance. However, Mexico is at a critical juncture in its evolution as a global apparel supplier. It no longer is a low cost producer and its proximity to the US and Canadian markets is being offset by other factors, the obvious ones being the lower cost of production in certain Asian countries and the disappearance of quotas by the end of this year. This means that Mexico needs to redefine and redevelop its positioning (perhaps one of higher added value that would justify the higher costs) in the markets that it serves. It is a necessary adjustment in its life cycle as an apparel supplier, which will determine its ability to compete successfully not only in the NAFTA arena but globally.

I would like to express my sincere thanks to Messrs. Rafael Cortes, Trade Commissioner for Mexico in Toronto, and Carlos Espinosa, Deputy Trade Commissioner for Mexico in Toronto, for their assistance and support in the development of this overview.

Constantine CampaniarisPresident, Apparel Management Insights