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The days of stack-them-high, sell-them-cheap "fast fashion" are coming to an end, casting a shadow over the South and Southeast Asian economies that, for decades, positioned themselves as hubs for the most basic elements of the garment supply chain. (Photo by Rie Ishii)
The Big Story

How the death of fast fashion is transforming Asia's garment industry

New technology and demanding consumers unravel a decadeslong race to the bottom

GWEN ROBINSON, Nikkei Asian Review editor-at-large, and MARRIAN ZHOU and ERWIDA MAULIA, Nikkei staff writers | Indonesia

BANGKOK/TOKYO/JAKARTA/LITTLE ROCK, U.S. -- In Tuntex's sprawling factory on the outskirts of Jakarta, self-guided vehicles trundle across the shop floor, carrying materials between auto-cutting stations -- which churn out jigsaw pieces of fabric -- and semi-automated sewing machines, where more than 1,000 workers oversee the construction of finished garments.

Tuntex, which supplies Adidas, Nike, Puma and other global clothing brands, has always had to be fast, turning around product lines quicker than its rivals to compete in the relentless cycles of the fast fashion market. Today, though, the pressure is growing on them to be ever quicker, ever more reactive.

"The average lead time went from 120 days to 90 days about four years ago, and now it's 60 days. ... Some manufacturers are even doing much shorter," said Stanley Kang, Tuntex's deputy general manager. "Automation and digitalization are changing everything, and when things change, we have to change. Whoever can respond faster will win."

The demand for flexibility is now such that orders for football shirts can hinge on the result of a single match. "If, say, a team you make shirts for is winning in a competition, then you continue to sell," Kang said. "We produce one country's football shirts. If they won, the order [is] continued, if not -- 'end.'"

Tuntex is expanding in Indonesia, where other Asian garment makers are beginning to converge. (Photo by Dimas Ardian)

Tuntex, like many others in the supply chain of the $1.4 trillion garments industry, is investing millions of dollars per year in new technology and new processes, as shifts in consumer demand reshape the sector. The days of stack-them-high, sell-them-cheap "fast fashion" are coming to an end, replaced by a new model which favors speed, precision, traceability and adaptability over bulk.

To adjust, suppliers are moving their centers of production across borders to be closer to infrastructure, raw materials and their eventual markets, allowing them to shave precious days off their turnaround times. They are also investing heavily in automation and digitization, as the technology becomes more advanced and competitive with the cheap labor that has sustained the industry.

The changing economics of the industry could profoundly impact those countries in South and Southeast Asia that have positioned themselves as hubs for the most basic elements of the garment supply chains. And it potentially ends a seven-decade-long global race to the bottom on wages, as full automation drastically changes how the industry turns a profit, and threatens to displace millions of low-skilled workers around the world.

"I think for countries like Bangladesh, and even Cambodia, just doing the basics has been enough until now," said Sanchita Banerjee Saxena, executive director of the Institute for South Asia Studies at the University of California, Berkeley. "Now that the scenario is changing, there is going to be pressure to rethink the industry, and how they can move up [the value chain], and how to possibly diversify. Those questions have not really been front-of-mind in the last few decades. Now, I think they really will have to be."

Spooling thread at Tuntex's weaving factory in the southern province of Rayong, Thailand. (Photo by Rie Ishii)

Retail woes

The reshuffling of supply chains is the consequence of seismic changes in the fashion industry. Retail chains specializing in the disposable, low-margin retail that prevailed in the early 2000s are struggling. The U.S. brand Forever 21 is the latest high-profile casualty, filing for Chapter 11 bankruptcy protection in September. It joins a list that includes the New York stalwart Barneys, high-end brands Diesel and Roberto Cavalli, and shoemaker Rockport -- just in the past two years.

Online aggregators, such as Asos, have been able to outcompete them by offering rapid access to fashion trends as they break out on Instagram, or other social media. Technology-led online retailers, such as Stitch Fix, are winning customers through mass-personalization -- using algorithms to understand individual customers' tastes and recommend clothing -- which is changing how customers shop and pay for clothing. The rise of the consumer sportswear industry, which demands higher-tech materials and construction, has added more complexity.

As for the surviving bricks-and-mortar players, they are adapting, some faster than others. Retail giants, such as Inditex, owner of the global Zara brand, Uniqlo's parent company Fast Retailing, along with H&M, have invested in technology to improve the in-store customer experience, while building data management and "smart logistics" systems to optimize their supply chains. These moves are meant to ensure that the right clothes are in front of the right customers at the right time -- something that one executive at a global apparel company characterized as an evolution from "fast fashion" to "accurate fashion," where every line of clothing sells out with nothing left over.

"Speed is going to be the name of the game ... speed and control," said Ricardo Perez Garrido, professor of digital innovation and information systems at IE Business School in Madrid. "That means designs to serve what customers like, operations to put [products] in the right place, and technology to make it super-fast, super-efficient and super-personalized. ... If you control those three areas, you become unbeatable."

Zara stores will often have different lines across outlets in the same city, with the stock carefully selected to meet hyperlocal requirements, Garrido said. At the same time, they work to turn over that stock rapidly and react quickly to changing trends. An individual Zara store can order small batches of product, assess the response, and then "airlift" in additional products to backfill the store's inventory within days.

The voracious demand for speed has begun to overturn the supply chains that apparel companies spent the past few decades building. On a relentless drive to cut costs, suppliers restlessly shifted their manufacturing bases within and between Asian nations in a continual search for lower wages and cheaper land. That stretched their supply chains over huge geographic distances: Thousands of kilometers divide fabric mills from sewing factories, themselves weeks away from their final destination by ship. The journey of an Adidas or Nike garment produced by Tuntex in Indonesia, for instance, can begin almost 4,000 km away in the company's textile plant in Taiwan. The fabrics can take nearly a week to reach the sewing factories.

The model worked well enough when retail stores dictated trends and operated in clearly delineated seasons. But when clothing retailers need to react to a sudden trend driven by Instagram, it creates a daunting barrier. Some, such as Inditex, have solved the problem by moving production closer to their consumers -- a process known as "reshoring" or "nearshoring." Factories in Europe are now increasingly serving Europe.

"Instead of going through the cycle of designing, sending items to Asia for production, coming back ... most of the fashionable items are produced close; meaning [they are] more expensive, but it allows them to close the cycle in four to five weeks," Garrido said.

China's wane, Indonesia's gain

That tightening of production cycles creates new competitive challenges for companies like Tuntex, which have tracked the development of the global textiles and garments industry over the past seven decades.

Beginning with a single mill in Taiwan in 1954, Tuntex today employs about 16,000 people in 17 factories across Asia, with revenues this year heading for $400 million. Its factories produce around 40 million units of clothing per year, but even that scale makes it a tiny part of the supply chains of its clients. Adidas shipped 457 million units of apparel in 2018; Nike ships over 900 million units of garments and footwear per year from a supplier network of more than 700 manufacturers.

The manufacture of textiles and clothing has long been a forerunner of globalization. East Asian production hubs, including Taiwan, were among the first to benefit from the industry's offshoring of production, and they leveraged their low wages to build a manufacturing base that gradually developed into higher value sectors. As salaries rose, so did costs, and the industry migrated into countries where wages were lower -- notably, mainland China, which from the late 1990s was opening up to foreign trade, and Vietnam, which was emerging from U.S. sanctions.

Even in developing economies like Bangladesh, makers are becoming more technology-intensive and data-driven, said Sheng Lu, an academic in fashion and apparel studies at the University of Delaware. (Photo by Akira Kodaka)

Tuntex was an investor in Vietnam from the early 2000s, betting big on the country with four factories, three of which are in Soc Trang, four hours' drive from Ho Chi Minh City. The company also opened or bought into factories in mainland China, Thailand, Cambodia and Indonesia. Like many in the industry, it was searching for lower production costs -- including cheaper land and new pools of labor -- to meet the unrelenting demands of clothing companies, who wanted higher-quality products at lower prices.

Other countries have also ridden the wave. Bangladesh, in particular, has specialized in producing very basic garments for international businesses, and is now second only to China as an exporter.

The garment trade has helped countries to develop their industrial bases, sometimes from scratch -- apparel makes up more than 80% of Bangladesh's total exports. From there, some countries have been able to move up the value chains, from basic assembly of garments into more capital- and technology-intensive products, such as electronics or automobiles.

Vietnam is an example of this, building on a foundation of simple manufacturing to eventually attract factories producing automobiles and high-tech goods -- such that garment makers say that they are now struggling to find affordable labor.

Apparel makes up more than 80% of Bangladesh's total exports.   © Reuters

The search for cheap workforces, though, has had a human cost. Poor wages and working conditions have long been a blight on the garment supply chains, and have occasionally surfaced into the consciousness of consumers. High-profile campaigns against child labor and "sweatshops" in Nike's supply chains in the 1990s prompted a flurry of action among major brands. Later, many of those same concerns reemerged; notably, in April, 2013, when the Rana Plaza factory complex near Bangladesh's capital of Dhaka collapsed, killing more than 1,000 workers.

Several international retailers only discovered that their products were being made in Rana Plaza after the disaster, highlighting how larger factories were subcontracting parts of their orders out to other workshops whose standards were often lower. Corporate soul-searching followed, catalyzing a shift toward higher-technology manufacturing, even in Bangladesh. After the incident, some buyers demanded that their suppliers invest in technology to improve productivity and traceability -- although many lacked the capital to do so.

"Even in developing economies such as Bangladesh and Indonesia, apparel makers are becoming ever more globalized, supply chain-based, technology-intensive and data-driven," said Sheng Lu, associate professor of fashion and apparel studies at the University of Delaware.

In Dhaka, Abu Bakar Siddique, executive director of Hamid Sweater, which produces knitwear for European and American clients, said that he has had to invest in automated knitting machines. "Previously, one operator operated one machine," he said. "Now, one operates five machines."

At Tuntex, working alongside the automated cutting machines and self-driving carts are in-house innovations, such as high-speed fabric inspection machines that use facial recognition technology to monitor thousands of meters of fabric each day.

"We need automation and innovation," said Tuntex's Kang. "We have to be smarter, like a tech company. We need labs, intelligent systems. ... Every year, we have grown 15% to 20% in sales and profit; but the costs of labor, energy, technology, they just keep getting higher, and demand for speed increases. It's getting tougher all the time." Kang said that the company invests around $5 million every year on new technology.

But technology cannot easily solve all problems. Delays in sourcing and shipping are often due to weak infrastructure and trade barriers, but also to basic geography. As the garment industry moves toward speed and efficiency, the physical distance between the components of the supply chain takes on greater significance. To solve this, companies are starting to reverse the decades-old trend of fragmenting supply chains; they are clustering production centers to reduce time lost in transit.

This gives major advantages to companies and countries that can fix the logistics. China, which is by some distance the largest producer of garments and textiles, has a natural advantage, and many companies have been quick to invest in digitization and automation. Even so, factors like U.S. sanctions on Chinese producers and rising wages have forced some to move overseas.

Vietnam's proximity to China's textile producers means that it is likely to continue to grow, analysts and industry players said. "Since most materials such as yarns and textiles are produced in China, Vietnam has a geographical advantage in terms of shipping materials into factories," said Hiroshi Morita, general manager at the textile division of Japanese trading house Itochu. "And Vietnam itself has also been developing its own production in these products."

Other centers have also benefited. Indonesia, whose garment industry was in decline in the 2000s, is again attracting investment, in part due to business-friendly policies and comparatively low production costs. Although it is still dependent on imported yarn and fabric, the supply chain is beginning to coalesce there. Tuntex and Taiwan-based Lealea Enterprise, a textile supplier to brands like Uniqlo and Adidas, are among those expanding into the country; Makalot Industrial, one of Taiwan's largest garment makers, said that it is scaling back its investments in Vietnam in favor of Indonesia.

"We do gradually see more foreign investors are, together, building the local supply chain directly in Indonesia," Makalot Chairman Frank Chou told the Nikkei Asian Review.

While some countries may directly benefit in the short and medium term from these shifts, others, which lack the infrastructure and the linkages to raw materials, will inevitably suffer. But even those that can retain or improve their competitiveness may now need to prepare for the next massive change to the sector. Across garment-producing countries, there is a fear that full automation, while probably still more than a decade away, is coming to the garments industry. When it does, it will once again change the economics of the industry, and possibly lead to a more wholesale reshoring of production.

America First

In 2017, Suzhou Industrial Park Tianyuan Garments, a China-based garments manufacturer and one of Adidas' largest suppliers, set up shop in Little Rock, Arkansas. The company's factory employs around 150 people, who make high-end sportswear for the garment line. Between February and September of this year it produced 600,000 items. When Nikkei visited in October, the facility had recently completed an order for $200 tracksuits -- demand had recently spiked after several celebrities had been photographed wearing the outfits.

"The fashion industry is getting faster in pace and trends do not stay for long, so all the brands are emphasizing [a] short selling period, small production amount and quick reaction to the market," said Simon Wang, the company's general manager. "If we are closer to the clients, our production and shipping cycles become shorter. I think this is the direction we are taking."

Being "Made in the USA" has advantages, not least because it helps the company to sidestep the punitive tariffs on Chinese imports put in place by the current U.S. administration -- which have driven their own reshuffle of the garment sector into countries not covered by the measures.

The highly automated Adidas Speedfactory was considered an early test for the viability of reshoring. (Photo courtesy of Adidas)

Most of the Little Rock factory's processes are at least partly automated. Printing, sewing and packaging all happen with minimal human intervention, and the entire production line can be monitored and managed from a manager's smartphone. Robot arms -- used in one of TY Garments' Chinese factories -- will soon be installed to help carry boxes.

Wang said that the technology helps to offset higher wages in the U.S., and means that the company is less reliant on skilled garment workers, who are in short supply in Little Rock. The company brought in workers from China to help train American staff, and created a special dexterity test, in which job applicants must arrange a series of small colored cylinders on a board within two-and-a-half minutes to be considered for a role.

"Automation is the direction for the future," Wang said, although he warned that full automation is some years away. "It is difficult to be [fully] automated when it comes to sewing, which requires more techniques and artistry. But packaging, cutting, sorting and even shipping can already be automated."

Even so, the company will soon be testing fully autonomous sewing machines as well. TY is working with SoftWear Automation, a U.S. robotics company. SoftWear Automation claims that its "Sewbots" can produce a T-shirt in 22 seconds or a shoe upper in 26 seconds.

In May 2018, Li & Fung, a Hong Kong-based supply chain manager and one of the world's largest suppliers of clothing, announced that it would enter a strategic partnership with SoftWear Automation as part of its "supply chain of the future" initiative.

Should automation take root in the sector, it could displace millions of jobs in Asia, and close off a vital route to economic development for frontier markets.

While estimates vary wildly, the International Labor Organization said in a 2019 report that as many as 80% of the more than 60 million jobs in the sector could be at risk as automated cutting and sewing robots take over factory floors -- although it noted that the speed of job losses will depend on the pace of adoption of new technologies.

The University of Delaware's Lu said that there is often a misconception that automation is solely about reducing production costs. "In most cases, it is about shortening lead time and improving speed to market," he said. "In the near future, I would say apparel production will stay in Asia and [be] largely done by human beings. However, these garment workers may need to work with more sophisticated machines and software to better meet customers' demand for faster delivery, more flexibilities and agility in production."

That means that the workforces will have to adapt to less manual, more technologically skilled labor. David Williams, manager of the ILO's Decent Work in the Garment Sector Supply Chains in Asia project, said that the first rounds of automation have already led to some workforces in the region being upskilled. Others are being displaced, although, so far, that displacement has often been offset by the continued growth of the sector. However, he warned, these economies are mostly ill-prepared to absorb a large number of workers left behind if the industry moves away.

There are also questions for those countries, including Myanmar and Ethiopia, which are trying to position themselves at the vanguard of the next wave of offshoring and to emulate the success of Taiwan and Vietnam. Their window of opportunity may be closing.

"Although the 'race-to-the-bottom' era is coming to an end, this doesn't mean that garments won't have a future role in industrialization," Williams said. "Although it's probably true that unless they remain nimble and deploy technology smartly, the overall life spans of these industries may be shorter in the coming decades."

Additional reporting by Mitsuru Obe and Akane Okutsu in Tokyo, Cheng Ting-Fang and Lauly Li in Taipei, A.Z.M. Anas in Dhaka, Tomoya Onishi in Ho Chi Minh City and Nikki Sun in Hong Kong

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