Growing political risk for 80% of top apparel sourcing countries outside China
18-1-2024
GROWING POLITICAL RISK FOR 80% OF TOP APPAREL SOURCING COUNTRIES OUTSIDE CHINA
Rising political tension is overshadowing the trend for friendshoring within the apparel sector with civil unrest unlikely to subside in key garment hubs in 2024.
The trend for friendshoring – or manufacturing and sourcing apparel from countries which are geopolitical allies – is under threat from rising political tension, according to a new report by risk intelligence company Verisk Maplecroft.
Verisk Maplecroft analysed five-year trends across 40 emerging markets, including key manufacturing hubs Indonesia, Mexico, Poland, Thailand and Türkiye, for risk across a combination of issues.
Civil unrest is said to be the biggest threat to manufacturing, although government instability and exposure to conflict and terrorism were also flagged as posing potential challenges to supply chains.
Report flags apparel sourcing major Bangladesh as seventh highest politically at risk country
More than three-quarters of the emerging markets assessed have seen an increase in civil unrest in the last five years, according to the report.
This includes Bangladesh, which is ranked as the seventh highest-risk country for civil unrest on Verisk Maplecroft’s index.
A spokesperson from Verisk Maplecroft explained the impacts of civil unrest on the apparel sector were felt most starkly in Bangladesh.
Bangladesh, which is the world’s second largest exporter of ready-made garments saw apparel workers go on strike for higher wages in 2023 with the protests leading to at least four deaths.
The spokesperson added it “was paralysed when tens of thousands of the country’s four million textile workers withdrew their labour. As well as disruption to the flow of goods, the government crackdown on protesters once again dragged major western brands who source goods from Bangladesh into ethical debates about workers’ rights”.
Mexico was ranked fifth on the index and other key apparel manufacturing hubs featured on the list included Türkiye, ranked 27th, Thailand, ranked 34th and Indonesia, which ranked 70th.
Verisk Maplecroft’s principal risk consultant Olivia Dobson commented: “With the world in a state of extended instability, political risk and disruption triggered by geopolitics, conflict and economic instability will be hard to escape across many key sourcing locations. Companies need to understand and get ahead of these localised but expanding political threats to protect flows of vital commodities and manufactured goods.”
Civil unrest driving instability
Economic inequality was the top driver of civil unrest, although global, regional and national issues were also in play.
The Verisk Maplecroft spokesperson told Just Style exclusively: “Eight of the top ten garment exporting countries outside of China have seen a rise in political risk over the last five years.”
The spokesperson highlighted that in many cases, this was driven by a sharp increase in the threat of civil unrest and added this “is unlikely to subside in garment hubs in 2024, according to our predictive model”.
Bangladesh is seeing unrest continue into 2024. Despite a new minimum wage being agreed last year. the consequences of the unrest in the country has continued in January with local news reports claiming some garment factories have terminated the employment of hundreds of workers for engaging in the higher wage protests.
Earlier this week (17 January) one Bangladesh garment factory allegedly had to close due to workers protesting “unfair termination”.
The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) had not responded to Just Style’s request for comment at the time of going to press.
Red Sea and Suez Canal disruption
The risk intelligence company warned the conflict between Israel and Hamas and recent escalation in attacks on cargo ships in the Red Sea, is also highlighting vulnerabilities in a crucial logistics route.
In January, Danish freight company A.P. Moller-Maersk announced a suspension of all transits through the Red Sea and Gulf of Aden until further notice.
British retailer Next also warned the Houthi attacks in the Red Sea could cause some stock delivery delays in the early part of 2024.
Verisk Maplecroft said the disruption is unlikely to decrease soon, despite the response from the US and the UK. The company also warned that alternative routes between Asia and Europe that avoid the Suez Canal are significantly longer, with increased costs ultimately passed on to consumers.
Growing risks in Europe
In the last five years, Verisk Maplecroft highlighted that Hungary, Poland and Slovenia have all seen an increase in political risk. While the ongoing conflict in Ukraine is an obvious source of increased risk, these regions have also seen increases in the risk of civil unrest.
Despite the ongoing Ukraine war Swedish fashion retailer H&M announced plans last summer to gradually reopen its stores in Ukraine from November 2023. In September, Russia’s clothing market was also reported to be withstanding the impact of the Ukraine invasion.
Tensions between the US and China
The deepening divide between western nations, particularly the US, and China are another concern flagged by Verisk Maplecroft’s report. Sanctions and counter-sanctions are increasingly common, leaving supply chains exposed.
In December, the US apparel sector warned bipartisan recommendations for the US to reset its economic relationship with China could signal a new “economic Cold War” and could lead to higher costs for both fashion companies and consumers.
Minimising future supply chain risk for apparel sourcing countries
With many apparel companies looking to diversify their supply chains after the pandemic, friendshoring has become an increasing trend. But this report makes it clear that sourcing from geopolitical allies is not without its own risks.
“In an increasingly dynamic world, supply chain professionals looking to operate more strategically and build resilience need to create as much certainty as they can,” Verisk Maplecroft’s Dobson said.
“Tracking political risks in manufacturing hubs and logistics pinch-points, alongside using scenario analysis to map potential geopolitical shifts, can help organisations understand where the next shocks could come from,” she added.
By Just Style
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