Global sourcing of retailers, importers and brands: trends, challenges and developments in sourcing countries
by Oliver Schlömann
FTA Panel Discussions, June, 25th, Brussels
Moderator: Stuart Newman, FTA Legal Advisor
Signe Ratso, Director, DG Trade
Oliver Schlömann, Partner, Retail Excellence
Matthias Händle, Managing Director, HR Group
This panel debate centred around developments and trends in the global sourcing market and possible reasons behind them. Speakers and participants in the audience discussed the current main sourcing countries, and possible “sourcing hot spots” of the future. In this context, the possibility of sourcing from African countries such as Ethiopia was discussed strongly. The speakers agreed that sourcing from Africa could be an alternative, but one for the long run rather than the near future.
The floor was given first to Signe Ratso who gave an overview of (and numbers to support) the advantages of Free Trade Agreements. She stated that trade grew much stronger than production since 1990 and that the opening of the EU to trade with the rest of the world has significant possibilities for the European people – according to her, 36 million jobs could be lost if the EU would be “closed down”. She also noted that the EU benefits from better access to raw materials and that exports are increasing.
After this introduction to the overall topic of trade, Oliver Schlömann noted the changes in sourcing patterns: the emerging of Asian markets (other than China) and the fact that about 90% of production that has been lost in China is moving to Bangladesh and Cambodia – although the situation in India has remained relatively stable. He further emphasized the possibility of Ethiopia becoming an important sourcing country in the next ten to fifteen years. He continued to state that also other parts of Africa, particularly in the north, might become important partners in the course of time; it is closer to the EU, hence advantages lie in price, speed of delivery and environmental measures. However, at this time, the risk to enter these new territories is too great for the majority of companies.
Another question discussed was the criteria that companies consider when deciding from which country to source. Matthias Händle explained that companies used to source within Europe; a situation that has clearly changed over the course of many years. Countries have started to develop specialties and companies react to this (e.g. India for men’s shoes, but not women’s shoes).
The speakers further discussed the topic of Myanmar; Oliver Schlömann stated that working with Myanmar could be viable under the umbrella of Chinese investments; Matthias Händle added that it might be easier to source from Myanmar as compared to Bangladesh (and also that factory standards should be relatively high as they were “starting from scratch”) but that it suffered from the lack of a proper harbour at Rangoon. Signe Ratso added that there are currently discussions for an investment agreement between Myanmar and the EU but that the government has a lot to do to make things progress.
Rana Plaza was also discussed by the speakers and the participants; Oliver Schlömann underlined that one of the reasons for the tragic collapse of Rana Plaza in 2013 was the fact that a large number of companies are moving out of China to Bangladesh. This leads to an “overbooking” of Bangladeshi factories and, in effect, to problems when producers are not prepared accordingly. Matthias Händle added that companies should have a number of sourcing countries, and not move out of countries completely.
The session ended with an outlook and the question whether consumers approach companies with the wish for sustainable sourcing. Oliver Schlömann answered this question by distinguishing between theory and practice: In theory, customers find it important to buy products that were sourced responsibly; in practice, however, he sees that this wish is forgotten the moment that the customer shops and starts to compare merchandise and their prices (the “retailing moment”). Matthias Händle noted that in general, customers believe everything is in order; they are not willing to pay extra for a product that was produced under “good” conditions because this is expected in the first place. He added that many retailers always try to find factories that produce under proper conditions but regretted that sub-contracting could occur and was difficult to control. All the speakers agreed that this factor poses a great challenge.
The Foreign Trade Association is Europe’s premier association for trade policy and global supply chains. It brings together over 1,300 retailers, importers, brand companies, and national associations to improve the political and legal framework for trade. By working together and taking a common approach, our members can have a greater impact than acting alone.