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Southeast Asia's garment supply chain torn up by virus

Inventories under pressure at Uniqlo

Garment factories in Vietnam and elsewhere in Southeast Asia rely heavily on China for supplies. (Photo by Rie Ishii)

HANOI/TOKYO/PHNOM PENH -- The coronavirus outbreak is wreaking havoc on Southeast Asia's garment supply chain, threatening the inventories of international brands such as Uniqlo, Gap and Nike.

Uniqlo's shipments from Vietnamese suppliers have been delayed by about two weeks, according to a source familiar with the Japanese fashion brand's supply structure, potentially leading to stock shortages by March. Uniqlo has already pushed back the launch of some new product lines.

Southeast Asian suppliers, not only in Vietnam but also Cambodia and Myanmar, have become increasingly important to global fashion brands. Nearly 20% of Uniqlo owner Fast Retailing's disclosed core sewing factories are in Vietnam, though China is still home to about half. 

These garment makers, however, still depend on Asia's biggest economy for raw materials -- 60% of the materials used for Vietnam’s sewn products, for example, come from China. And transport and supply chain disruptions in that country are spilling over into Southeast Asia.

Local media in Vietnam, including Voice of Vietnam and the Cong Thuong newspaper, have named some factories that are affected by the shortages of materials supply. May 10, a supplier for brands such as GAP and Tommy Hilfiger, imports 50% of raw material from China and is facing difficulties meeting March and April orders. Saigon 3 Garment Joint-Stock Company, which produces for Uniqlo and Nike, has only enough materials for production until March.

Textile production is more capital intensive than sewing, and China remains dominant in material production even as brands diversify their manufacturing bases.

"While Vietnam can produce textiles itself and can maintain certain production levels, the impact may be bigger in countries such as Cambodia that are more dependent on Chinese production of textiles," the source familiar with Uniqlo said.

He added that customs clearance is delayed, while factories in China are operating at a reduced rate due to staff shortages caused by restrictions on movement of people imposed by the Chinese government.

Concerns are already running high in Cambodia.

Ken Loo, secretary general of the Garment Manufacturers Association in Cambodia, told Nikkei that more than 60% of raw material for the country's apparel industry came from China.

Suspensions or shutdowns of factories are "something that's on the horizon," he said.

Even though more than half of raw material factories in China have resumed production, Loo explained, it will take time for them to get back up to full speed, and that is only one hurdle.

"With the controls that the Chinese government has put in place, it's extremely difficult for not [in terms of] movement of goods, but the movement of personnel across provincial lines or sometimes even across townships."

Alternative sourcing, Loo added, was not a practical solution.

Heng Sour, a Labor Ministry spokesman, told local media outlet the Khmer Times last week that 90,000 workers at more than 200 factories would be suspended if new supplies do not arrive in March.

Uniqlo, meanwhile, has already announced on its Japanese website that "there are delays in production and logistics due to the novel coronavirus." The company has delayed the launch of some products, including the Uniqlo U jacket for the Spring-Summer collection, which was supposed to go on sale from Friday. Its release has now been pushed back to early March. 

"If there are additional delays in reopening [Chinese factories], there could be further impact," a spokesperson for Uniqlo owner Fast Retailing said, adding that the company is "closely monitoring" the situation.

A garment industry insider in Cambodia, meanwhile, predicts the epidemic will do far more than create temporary shortages.

"As companies increasingly look at supply chain efficiency in this time of tariffs, EBA and reduction emissions, the impact of the virus will likely have a legacy on how companies source in the future," the source said, referring to the EU's Everything But Arms trade scheme. "Having yarn/fabric/product finishing all done domestically will reduce future risks to global supply of materials.

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