1. Forotex Strategy Meeting
San Salvador
Apparel/Textile Positioning &
Opportunities
November 16, 2011
Walter Wilhelm
Walter Wilhelm Associates 2011 1

2. Contents
• Revisiting 2004
• Today - How is 2011 Different
• 2012 – 2014 A Window of Opportunity
• El Salvador is Well Positioned
(but ONLY if it is seized)
• Summary/Recommendations
Walter Wilhelm Associates 2011 2

3. U.S. Garment Imports: El Salvador
U.S. Garment Imports: El Salvador
2,000 3.5%
3.0%
1,600
Market Share
2.5%
$ Millions
1,200 2.0% Imports
1.5% Market Share
800
1.0%
400
0.5%
0 0.0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
Source: TASP Report 2004
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4. Product Mix
El Salvador Garment Exports By Product
100%
90%
80%
PCT M arket Sahre
70% Other
60% Cotton Pants
50%
40% Underwear
30% T-Shirts
20%
10%
0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2,004
Year
Source: TASP Report 2004
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5. 2004 - Fundamental Industry Change
The reality –
• Quota elimination represents the most fundamental change in the
history of the global apparel/textile industry.
• “…. American and European companies that now buy from about 60
countries might source from only 20 by 2006 and fewer than 10 by
2010.” (Time Magazine, December 13, 2004, Pg. A12-A13).
The bottom line –
• Major brands and retailers will source in dramatically fewer countries
with significantly fewer factories.
• There will be big losers - countries and companies.
• There will be big winners - companies and countries.
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6. 2004 - Global Impact of Quota Elimination
• Every garment producing country has the potential for significant job
loss except China and perhaps India.
• For many countries, the risk of job loss is severe.
Anticipated Impact on El Salvador
• El Salvador exported $1.8 billion in apparel in 2003.
• Industry employed 90,000 direct workers at its peak.
• Employment has declined to 84,000 direct workers today.
• In 2005/2006, apparel exports will decline and at least 20,000
jobs will be lost.
• Without effective and immediate action, job losses could claim 60% of
the industry or 50,000 jobs.
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7. 2004 - Tactical and Strategic Plan (TASP)
WWA’s Mission
• Recommend and help launch tactical (near-term) plans to minimize
expected job losses after quota elimination.
• Recommend strategic (long-term) initiatives to transform
apparel/textile industry to allow El Salvador to eventually become
one of the “winner” countries in the new global order.
The challenge is daunting but not impossible if:
• All parties collaborate: private sector, banking community
government and external catalysts; and
• Focused action is taken immediately.
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8. 2004 TASP - Tactical (Near term) Initiatives
• Data Collection & Impact Study – Basic industry data has been gathered,
albeit with great difficulty. Further improvement of the data base is
required to properly support the industry.
• Banking and Finance – The domestic banking industry appears to have
frozen lending to the apparel/textile sector. Presentations have been
made aimed at regaining lender support for the sector. Their active
participation is crucial for survival of the industry.
• Textile Investment – WWA has worked closely with Proesa tohelpattract
textile investors andfinalize textile deals in the pipeline. Bringing
additional targeted textile investment to El Salvador is critical to to future
success.
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9. 2004 TASP - Tactical (Near term) Initiatives
• Academic Infrastructure – A plan has been developed to upgrade
curriculum and technology to provide full-package training and to
develop a world-class middle management educational program.
• Achieving Speed-to-Market –Significant efforts are underway through
TASP Task Force Committees in the areas of testing labs, compliance
certification, and freight forwarder/shipper collaboration. All of these
elements are critical to achieving speed-to-market.
• Logistics – WWA has supported efforts to lobby the US government for
in-country customs clearance in El Salvador. Such an arrangement is
unprecedented and exists nowhere else in the world outside agriculture.
However, this effort must be aggressively pursued as it could provide a
massive boost to employment and position El Salvador as the regional
service center for many industries.
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10. 2004 – TASP Tactical (Near term) Initiatives
• Virtual Vertical Company (VVC) – This concept has been developed
and is being piloted to take China’s apparel/textile “cluster” concept
to next level and aims to maximize geographic and trade preference
advantages. VVC includes fabric /trim suppliers, full package
manufacturers and the customer in a collaborative partnership. The
VVC pilot must be replicated.
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11. 2004 Task Force Committee Leaders
• SWAT Team – Yolanda de Gavidia, Oscar Hernandez
• Banking/Finance– Nicola Angelucci
• Logistics – Jose Roberto Bodewig
• Academic/Service Center – Joaquin Samayoa,
Jesus Hector Rosales
• Testing Standards & Certification – Carlos Roberto Ochoa
• Marketing/Textile/Apparel Strategy – Patricia Figueroa,
Juan Zepeda
• Improving the Business Environment – Blanca Imelda de Magana,
Mauricio Lopez
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12. And, as predicted, the industry did change
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13. There were Some Winners and Some Losers
Source: OTEXA
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14. In 2004, three countries in CAFTA ahead
of El Salvador; in 2010, only one
Apparel Exports to the US
$3,000,000,000
$2,500,000,000
$2,000,000,000
$1,500,000,000
$1,000,000,000 2004
$500,000,000 2007
$0 2010
Source: OTEXA
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15. The BIG Winner was China
CAFTA vs. ASEAN, CHINA, INDIA
Textile and Apparel Exports to US in US$
Source: OTEXA
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16. But, China is changing
China: the 800 pound panda for international sourcing, dominated the market
from 2004 – 2010 but is now a volatile region…
• Social – large emerging middle class
• Driving internal consumption
• Putting demands on production capacity available for export
•Political – government subsidies, raw material through end products
•Economic – China’s mercantilism and currency manipulation
•Business Climate - Union organizations for the first time
• Inflation and operating costs rising more than other regions
• Forcing Chinese companies to relocate production to the interior
• With the penalty of less skill, longer shipping times, higher freight costs
• China uncertainty makes buyers nervous; creating desire to balance risk
• And, concerns about social responsibility and environmental sustainability
remain
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17. India has its difficulties as well
India: population growing rapidly, will surpass China by 2030 ….
• Infrastructure struggling to support growth
• Very well educated and aggressive in the business world
• Lacking Chinese production processes, efficiency and discipline (so far)
• And, some limits on Full-Package (compared to China)
• Long lead-times, no Quick Response
• Very high minimums
• Concerns about environmental sustainability and human rights, even
greater than China
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18. Asean Region Gaining Steam
Asean:
(Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Sing
apore, Thailand, Vietnam)
• Vietnam is the “superstar”
• Complex high skill set production
• Very strong government support
• In some cases beating Central America with low costs including air
freight to US
• Cambodia seems to be coming back
• Indonesia continues to be strong in footwear and furniture
• All of the above, preclude small minimums and quick response
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19. CAFTA Trends, US Apparel Imports
Source: David Birnbaum Report, October 2011
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20. An Ignored Opportunity, Europe
CAFTA/DR Not a Serious Sourcing Destination for the EU (yet)
Source: UNCTAD
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21. The Technical Performance Apparel Cluster
In El Salvador Should Appeal to Europe
Technical Biking Short
Fleece jacket Padded Liner
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22. “The stakes have never been higher
and the need for technology never greater
as the sourcing landscape continues its evolution.”
(Cover of Apparel magazine, Fifth Annual Global Sourcing Report, August 2011)

23. In Case you Haven’t Noticed,
Today’s Environment is Challenging
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24. In Today’s Market
If you are standing still
(and this includes “business as usual”)
You are losing ground
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25. Reaching your Destination
May Mean Many Curves
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26. Or, if you are lucky, a straight path
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27. But, try to avoid going in circles
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28. And, sometimes you need to be daring!!
Courtesy of Juan Zighelboim, TexOps
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29. The Sourcing Evolution= Opportunity
• Both North American and European buyers are trying to
balance their sourcing risk.
• There is definitely more “prospecting” in Central America
(but, so far, not a large increase in orders).
• If Central America takes advantage of lessons learned the past
ten years and provides the products and services required to
compete globally, the future is optimistic even when faced
with global economic uncertainty
• But, there is only a window of opportunity, maybe two or
three years to secure new and lasting relationships
• El Salvador is better prepared than most CAFTA countries to
seize the opportunity but not without a coordinated effort
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30. Perceived Sourcing Risk Factors
Most Significant Risks to Sourcing Strategy
60% 2010 2011
50%
40%
30%
20%
10%
0%
Source: KSA Global Sourcing, Apparel Magazine, August 2011
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31. The Balancing Act of Industrial Success
Industrial success in a country requires
a delicately balanced collaboration
between Management, Labor and
Government, analogous to a three
legged stool
• Relatively stable with three legs
• Precarious with two legs
• Almost certain to collapse
with only one leg
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32. Management, Labor, Government
Each play a delicate role
• Management – Responsible for providing strategy, guidance, finance
•Labor – Responsible for production, delivery and support of the product,
ideally as a team with Management
• Government – Responsible for social infrastructure, health, education,
roads, public safety and for promoting industry sectors
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33. And one more Essential “Player”
Industrial success in a country requires a delicately balanced
collaboration between Management, Labor and Government and
collaboration with other countries/companies in the region
CAFTA must be sold as a region
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34. Near-Term Initiative Execution
Communication and Collaboration
• Must be a more conscious effort to improve communication and
collaboration between all interested parties (government, private
sector, other impacted organizations such as banking community)
• Task Forces and Sub-committees established. Need to be
maintained, energized
Momentum, Tell the “story”
• Industry is either declining (disappearing) or re-building. Momentum is
powerful force in stemming decline of companies and jobs but it must be
real and the story must be told.
• Industry initiatives (and progress) must be marketed internally and in
customer countries (US, Canada, Western Europe, South America)
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35. Near-Term Challenges
Challenges
• Funding – More information on what is available and how
to get it needed (sector needs an education).
• Vision/Commitment – Needed from all involved parties but
primarily from private sector. Must see and act beyond “day-to-
day”.
• Outside “catalyst” probably required to bring all the “players”
together but involvement of key leaders is critical.
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36. Thank you …..
Walter T. Wilhelm
Chairman/CEO
Walter Wilhelm Associates LLC
Tele: 801.582-1967
Email: wwilhelm@walterwilhelmassoc.com
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