South East Asia: the fastest growing apparel hubs of the world

THE global textiles and clothing (T&C) exports have reached at US$ 695 billion in 2012 and are growing at a CAGR of 5.94 percent over the last decade (2003 – 2012). The major contributors to T& C Trade in the world are China, European Union, South East Asian nations (ASEAN), India, Hong Kong, Bangladesh, and Turkey etc. The Asian continent has already emerged as the largest sourcing hubs of T & C in the world. China is the major textiles and clothing exporter in the world during 2012 cornering an export share of 35.42 percent of the total textiles and clothing exports of the world, followed by European Union (7.39%), ASEAN (7.13%), India (4.70%), Hong Kong (4.60%), etc. With an exception of Hong Kong, rest of the exporters is posting positive and impressive growth rates. Among them, the Association of South Asian Nations (ASEAN), the third largest exporter of T&C to the world is the strongest growing T& C supplier (16.65%). The ASEAN as a trade block has a population of more than 600 million and a combined GDP of more than 2.2 trillion USD. The recent years have seen fierce competition amongst the nations of ASEAN in manufacturing and export of high value chain textiles products particularly the apparels.The share of textile and clothing products in the total T&C exports and the growth rates of these players have been detailed in table-I.

Among the sourcing destinations of the world, ASEAN has been becoming a popular sourcing destination of the world as the member countries like Cambodia, Indonesia, Thailand and Vietnam are becoming major sourcing hubs for apparels. During 2012, ASEAN has put a total trade of US$ 49.53 billion. The growth of the T & C of the partner countries put together has been estimated at 16.65 percent which is more than that of China and India. Since apparel is becoming a major export product for some of the members of ASEAN coupled with their strong export growth, it has become impulsive to study the export performance of the apparel items of the ASEAN (falling under the 2-digit HS 61 & 62), followed by an in-depth analysis of the products competitiveness at 6-digit HS in the world market. While doing so, two important factors of competitiveness such as unit value realization (UVR) and resource endowments have been examined not only to compare the competitiveness but also their long term sustainability in the world market.

TABLE I
T&C EXPORTS IN THE WORLD (Billion $)

Note: T&C: Textiles & Clothing, T: Textiles, C: Clothing
Source: Authors calculations based on data sourced from www.wits.worldbank.org

Methodology:

The analysis of member countries' export performance has been examined in the perspective of their strength in the world market in terms of export shares, competing or complementary interests among the member countries of ASEAN and export competitiveness as evidenced through the Revealed Comparative Advantages (RCA), cost of the product and resource endowments. The cost of the product is taken as a proxy from the available numbers of Unit Value Realizations (UVR) for the products of the countries supplied to the world markets.

Product Diversification and Competition:

In a $ 32.73 billion apparel exports (HS 61 & 62) of ASEAN during 2012, the major contributors are Vietnam ($ 14.08 billion) followed by Indonesia ($ 7.18 billion), Cambodia ($ 4.28 billion) and Thailand ($ 2.98 billion). Together these four member countries have contributed 87 percent of the total apparel exports of ASEAN to the world. Hence these countries are here after called as “ASEAN 4”. The clothing export performance of Vietnam in terms of the CAGR (2003-2012) has been a whopping 14.62 percent as against the ASEAN growth rate of about 7.01 percent. Cambodia has posted an apparel export growth rate of 12.30 percent. Except Thailand, the other performing members have also performed significantly higher than ASEAN.

The second underlying fact is that the ASEAN4 has been producing a large number of similar products; and most fibres used in the production of these items are from cotton as well as manmade fibres. The average number of products exported from ASEAN (at 6-digit HS) during the period stands at 234. Though the export values of the members vary largely and only four out of ten members export about 87 percent of the apparels of ASEAN’s combined exports, there seems to have deep integration of product manufacturing in each of the members. With the exception of Brunei, Laos PDR and Myanmar, rest of the members have exported more than 200 products. This clearly indicates the ASEAN's deep integration to the product diversification in exports. It is further notable that the ASEAN 4 in the ASEAN regions i.e. Vietnam, Indonesia, Cambodia and Thailand has exported as large a number of products as the ASEAN exports. Getting further deep into the analysis of the performance of these products in the export basket of each country in the region, it is revealed that Vietnam's 211 products, Indonesia's 182 products, Thailand's 100 products and Cambodia's 89 products that have cornered more than 10 percent of their respective export basket shares during 2012.  Other countries in the region have lower number of products in their export baskets; clearly indicating ASEAN 4's diversification of their garment export basket in ASEAN.

Most of the member countries in the region produce more apparel compared to textiles; and compete in these product categories. Since the member countries do produce a large number of apparel products, which are high value added and extensively integrated into the world markets, it is obvious that there is competition in the export market of each of the members. A similarity index was used to measure the product level competing interests of the member countries in their export destinations and it is revealed from the table II below that the level of competition is very high amongst the ASEAN4. The largest number of similar products (about 74%) is exported by Vietnam and Indonesia to the world followed by Indonesia and Thailand (66%).  Serious product level competitions have also been observed among Cambodia, Indonesia and Thailand.

Table II
Export Similarity Index Of ASEAN Countries In Apparel Exports To World

Source: Authors calculations based on data sourced from www.wits.worldbank.org

The export competitiveness of the products of the ASEAN4 countries has been examined at 6- digit HS level through Revealed Comparative Advantage (RCA) methods. All the countries of the ASEAN4 has a number of products which are all time RCAs meaning the products enjoy advantages in the export market, while  a few number of products in this category are not enjoying the advantages. These products are said to be in Revealed Comparative Disadvantages (RCD). Interestingly many of the products of the ASEAN4 have recently moved from disadvantages to advantages in the export market indicating ASEAN's progress towards becoming an indomitable market player in the world.  

The UVR of the ASEAN4 has been examined at 6-digit HS for all the 234 products. Majority of these products are traded in the form of items i.e. 168 products (72%) and the remaining 66 products are traded in kilograms. The prices of the commodities were averaged out for 168 and 66 products separately for the 2003 - 12 period for each of the product chapter i.e., HS: 61 (Knitted apparels), HS: 62 (Woven Apparels). The UVR analysis shows that Thailand and Indonesia enjoy the price advantage in HS: 61 in 168 and 66 products respectively and reverse is the case in Chapter 62. The details are given in the following table III.

Table III
UVR Of Apparel Products Of ASEAN4 In The World

Note: C: Cambodia, I: Indonesia, T: Thailand, V: Vietnam; Av: Average, Mn: Minimum, Mx: Maximum
Source: Authors calculations based on data sourced from www.wits.worldbank.org

The textiles and clothing industry in ASEAN region is growing at a steady rate as evidenced from the import of textiles machinery into the region besides the strength of resource base for moving on the value added product manufacturing. During the year 2012, machinery worth $2.31 billion was imported to the region which is 11.31 percent of the world machinery imports. The ASEAN's machinery import growth has outweighed the world import of only 2.3 percent. The T & C machinery imports not only provide manufacturing impetus to the raw material production of the region but also support the manufacturing growth of the garment industry.  Manufacturing consolidation of the industry has been a consistent affair of ASEAN as import of T&C machinery has been seen to have increased over the years, clearly evidenced in the last decade. Cambodia's import of textiles and clothing machinery has grown at 16.65 percent, while it is 14.41 percent in case of Indonesia. Vietnam has also shown a growth of about 8 percent. The garment industry of ASEAN has also kept a similar pace of importing machines to the region and has consolidated in these years. The growth rates of import of machines in the ASEAN4 have also been significantly high. Vietnam, Cambodia and Indonesia are growing at 9.19 percent, 13.25 percent and 12.46 percent respectively.

Table IV
Textile Machinery Imports In The ASEAN Region
(in $ million)

Source: Authors calculations based on data sourced from www.wits.worldbank.org

The ASEAN region has been sourcing raw materials into the region from various countries of the world. Major suppliers of raw material are China, Japan, United States, India, Australia, Brazil and Pakistan. China is the major raw materials to the ASEAN region cornering a share of about 33 percent of the world supply and has a CAGR of about 25 percent. Brazil a small supplier of Raw material yester-years has been gaining significant ground in ASEAN. Brazil has indicated a whopping 60 percent CAGR in the last decade. Sustainable competition is in any export product stands in the premise that the exporting country should have a well-established resource base. ASEAN region is fortunate to have good resource bases in Korean Republic, Thailand, Indonesia and Vietnam.

Projected growth and conclusion

Given the progress in manufacturing and export at a steadily high growth rate, we projected the trade values of T&C, textiles, clothing and apparel in ASEAN4 and also in ASEAN for a period of 5 years from 2013 for which the data is still unavailable. It is expected that the ASEAN's T & C industry may reach an export value of US$ 68.70 billion by 2017 of which apparel will contribute to the extent of US$ 44.81 billion; about 65 percent of the total T&C trade volume.

Table V
Projected export values of total T & C, Textiles, Clothing and Apparels

Note: T: Textiles, C: Clothing and A: Apparels
Source: Authors calculations based on data sourced from www.wits.worldbank.org

ASEAN is the fastest growing apparel suppliers to the world. Evidence shows that there has been significant integration of the raw material in the region besides sourcing from many of the partner countries of the world. Machinery imports have established ASEAN's deep engagement in the production of apparels in this trade block. Given the level of trade integration and fast rate of growth in apparel trade coupled with the instruments of Free Trade Agreements and economic co-operation agreements with the major raw material suppliers in the world, no doubt the future of the leading apparel exporting nations of the ASEAN is bright. The decline of Chinese exports will support the furtherance of ASEAN's stride in its growth trajectory.