As apparel makers rethink global supply chains to cope with rising costs, concerns over worker safety and more stringent green goals, Ethiopia and the East Africa region are well positioned to profit

By Paula Sailes

In January 2014, senior PVH Corp supply chain executives Mark Green and Bill McRaith were on a mission in Africa: Find a site for a vertically integrated production center that would set the global apparel maker up for decades to come.

Ethiopia, Kenya, Tanzania and Uganda had made their shortlist. Some of the locations were so remote they needed to charter a plane.

“Mark and I are flying around Africa in these tiny little planes and even the pilots don’t know where the runways are,” recalls McRaith, Chief Supply Chain Officer for the owner of Calvin Klein, Tommy Hilfiger, Van Heusen, Arrow and other well-known brands.

In 2014, one of those planes landed on a dirt track in Hawassa, a lakeside market town in southern Ethiopia. By 2016, the government had built a fully functioning commercial runway, serviced by two Ethiopian Airlines flights a day from the capital Addis Ababa.

The breakneck speed of construction reflects Ethiopia’s determination to secure foreign investment in its nascent manufacturing industry. In transforming its economy from agrarian to industrialized, Ethiopia’s goals are ambitious and aggressive: 27,000 square miles (70,000 sq. kilometers) of land have been set aside for industrial development with the aim of creating 750,000 new job opportunities by 2020.

For PVH, Ethiopia’s proactive approach tipped the balance: The company and some of its top suppliers began production at the Hawassa Industrial Park early last year. This marked a shift not only in PVH’s production base, but also in its business model. “Supply chain to us is having the vision of what is the next 20 years and not waiting for someone else to go and build it,” says McRaith.

PVH persuaded its top suppliers to build their own factories and a mill in Hawassa, giving the company greater control over sourcing. As early movers in Ethiopia’s manufacturing industry, PVH intends to set the standard for sustainability and industry best-practice.

Green, EVP of Global Supply Chain at PVH and an AmCham Governor, says the park tenants hope to hire 40,000 to 60,000 workers over the next three to five years, creating more local jobs than have been generated in the past 50.

“Ethiopia is becoming an important sourcing hub for PVH and we can only see the country growing in status,” he says. “Over the coming months, more operations will establish a presence in Ethiopia, which will only strengthen the country’s future role as an apparel manufacturing hub. Finally, the establishment of commercial cotton farming in Ethiopia over time will give the country a competitive advantage over many other sourcing locations.”

With a workforce of more than 50 million people in predominantly low-paid agricultural jobs, labor costs are highly competitive. But turning a nation of subsistence farmers into a nation of factory workers comes with its own challenges.

“Most people have never had to work to a timeclock before,” Green explains. “One of the ways that we are addressing this is through a soft skills training program. All workers participate in the two-week program, which covers topics ranging from how to open a bank account to timekeeping to working on a team.”

In a country where more than a quarter of the population lives below the poverty line, delivering on economic growth is clearly important. But so too is ensuring that the growth is inclusive, sustainable and clean.

PVH has devised its own uniquely African litmus test: On a site visit ahead of the grand opening, company executives noticed a family of hippos living in a nearby river. “If these hippos are still here in three to five years’ time,” McRaith said, “this will be a sign of whether we have done this right.”

Think of the major textile manufacturing hubs in the world and Ethiopia doesn’t spring immediately to mind. China remains the world’s largest exporter of apparel by a long way, shipping US$175 billion worth of clothes in 2015. Bangladesh, the world’s third-largest exporter of clothing by value, saw its overseas sales jump by 6 percent to US$26 billion that same year.

While Asia remains a key production base, several factors have big brands rethinking their strategies. Not least among their concerns is safety: In April 2013, more than 1,100 workers died when a five-story factory building, Rana Plaza, collapsed in Bangladesh.

It was the worst accident in the history of the garment industry: a tragedy that still haunts global retailers, and one that forced them to take a long, hard look at their supply chains.

In an industry exposed to high levels of reputational risk, the chance to establish workplace best-practice in new markets is an attractive prospect.

“Because there’s no industry established yet in countries like Ethiopia then we, as responsible companies, have the opportunity to come together and really help the government determine how best to establish such an industry,” says Gareth Brooks, the Managing Director of VF Asia, the company behind outdoor brands such as Timberland and The North Face, and Co-Chair of AmCham’s Apparel & Footwear Committee.

He says committee members draw on a wealth of experience when it comes to creating codes of conduct in frontier markets.

“Collectively, we have experience working in a lot of different countries, so we’re able to see good practices and bad practices from governments. We spend a lot of time through the AmCham committee talking about this: what we’re trying to do is see how can we help countries to adopt good, sustainable practices that are in the best interest of the workforce.”