Calvin Klein owner could source 25% of its production from Africa in five years

Ethiopia is distingusihing itself as a clothing manufacturing hub and companies like PVH Corp, H&M and Tesco are already sourcing garments from the country

Ethiopia is distinguishing itself as a clothing manufacturing hub, with companies like PVH Corp, H&M and Tesco sourcing garments from the country.

American clothing giant Phillips-Van Heusen Corporation (PVH Corp), which owns the Calvin Klein and Tommy Hilfiger brands, could potentially source over a quarter of its garment production from Africa within five years, according to the company’s CEO Emanuel Chirico.

“We have been involved in Africa for over 10 years; it represents today a little over 5-6% of our global production. We believe that production could grow… over the next five years to something that would approach over 25%,” he said during a panel discussion at last week’s US-Africa Business Forum in New York.

Chirico noted that eastern Africa especially has been identified as a clothing production destination. The company has already been manufacturing some garments in Kenya and has recently set up a factory in Ethiopia’s Hawassa Industrial Park, a mega facility located 275km southeast of Addis Ababa, the capital.

“East Africa for us really shows great promise – and it is for a number of reasons. One is the partnership that has been built between the industry, government and also the donor base to really invest behind the training of workers and to make sure the facilities are set up in the appropriate way, from a corporate social responsibility point of view.”

Looking beyond Asia

While Asian countries – mainly China and Bangladesh – remain top sourcing destinations for clothing production, they are facing a number of economic and social challenges that are making them less attractive to global brands. These include rising Chinese production costs, labour-rights violations and workplace accidents like the collapse of a Bangladesh factory three years ago that left 1,138 people dead.

“The challenges that exist in China today – rising costs, moving from light manufacturing to heavy manufacturing of electronics and technology – are putting a lot of pressure on wages and a lot of pressure on shortage of labour,” Chirico explained at the forum.

“In Bangladesh there has been a lack of investment by the government, and by the manufacturing base, to really bring that industry even further forward. So we see issues in factory safety, employee rights, and making sure the workers are taken care of in the appropriate way.”

On the other hand, Ethiopia and Kenya have the potential to become big competitors in global apparel manufacturing, according to research firm McKinsey & Company. These markets already benefit from duty-free access to the US market under the African Growth and Opportunity Act (AGOA).

Ethiopia, in particular, has been catching the interest of clothing retailers recently. Companies such as H&M and Tesco are already sourcing garments from the country and McKinsey notes that it has cost advantages in the form of lower labour wages, relatively cheaper work-permit visas for foreigners, and low electricity prices boosted by investment in renewable energy. Ethiopia is also the second-most populous African country.

“There is an abundance of labour that is very well educated,” said Chirico. “The government is willing to make investments in infrastructure as we move forward, and then of course the natural resources that exist are critical for us to have a vertical operation.”

Infrastructure investment key

According to Chirico, there is an potential to own all stages of production in Ethiopia and PVH Corp strives to build an integrated vertical operation in the country – from cotton and fabric production, to manufacturing finished garments. But key to this will be investment in infrastructure.

“One of the challenges that Ethiopia faces is that it is landlocked. In order to move goods through the supply chain, we have to go through other countries, so building that infrastructure is critical. And [so is] making sure that infrastructure is also scalable, because as important as this one facility is… it really is a question of how scalable it can be,” he added.

“So how can we take this to the next level and build that infrastructure… to reach that 25% production goal that we are setting for ourselves in PVH for sub-Saharan Africa?”