As apparel makers move work from China to Central America, jobs could dent migration crisis

Posted by Admin June 12, 2024 Jobs

This is part three of a five-part series.

CHOLOMA, Honduras – The clothing made in factories here in Honduras, and in Guatemala and El Salvador, is the epitome of the American Midwest.

It’s practical, affordable apparel sold in stores such as Target, Walmart and Kohl’s. It’s also work uniforms for technicians, mechanics and restaurant workers.

Moreover, the jobs created in the apparel factories and textile mills are a partial solution to the migration crisis at the U.S. southern border.

Some items produced in this region, known as the Northern Triangle of Central America, were previously made in China. Now, they’re examples of manufacturing that’s moved closer to the U.S. consumer in what’s called “nearshoring.” The strategy comes with political and economic benefits, the first of which is keeping in place workers who might otherwise attempt to migrate to the United States in an often perilous and unsuccessful journey from South and Central America through Mexico.

The U.S. Border Patrol said it encountered 541,000 foreign nationals from the region in one year alone, 2022.

Americans who are worried about the crisis at the U.S. southern border ought to care about creating opportunities in the Northern Triangle, said Peter Bragdon, chief administrative officer for Seattle based Columbia Sportswear. “It is part of the immigration debate,” he said.

Vice President Kamala Harris has called upon businesses to invest in the Northern Triangle in an effort to address the root causes of migration. More than 40 companies have responded to the Harris “Call to Action” plan.

In Honduras, 2,000 workers make 660,000 pieces of clothing per week

Genesis Apparel sewing company in Choloma, Honduras, employs 2,000 workers and produces 660,000 pieces of clothing per week with U.S. grown cotton.

Columbia Sportswear pledged to purchase up to $200 million in products from the Northern Triangle, creating nearly 7,000 jobs over five years. Minneapolis-based Target has committed to increase its spending in the region by $300 million. Clothing maker Gap Inc. pledged a $150 million increase by 2025, supporting 5,000 additional jobs.

Central America has a young population to support large-scale manufacturing, said Bindiya Vakil, founder and CEO of Resilinc, a supply-chain services firm based in Milpitas, California.

“The U.S. simply doesn’t have the workforce to support large growth in manufacturing. In Mexico and Central America, the median age is more than 10 years younger than in the United States. I see great opportunities there,” Vakil said.

On a cost-per-item basis, it’s very difficult to compete with China, which makes about 50% of the world’s fabric, has massive supply chains, and government-subsidized industries. But when all costs are considered, such as shipping, warehousing, and timely delivery to the coveted U.S. market, Central America becomes appealing.

The region also benefits from the Central America-Dominican Republic Free Trade Agreement between the United States, Honduras, Guatemala, El Salvador, Nicaragua, Costa Rica, and the Dominican Republic.

One of the agreement’s goals is to foster manufacturing partnerships between the U.S. and Central America, boosting employment and supporting industries through duty-free trade of raw materials and finished goods.

For example, around 50% of yarn from the United States is exported to Honduras, where it’s made into clothing and then shipped to the U.S. duty-free. Altogether, the trade agreement supports more than 1 million jobs, according to industry figures.

“It is not an abstract government program. It’s real, and it’s working,” said Kimberly Glas, president and CEO of the National Council of Textile Organizations, in Washington, D.C.

Honduras is a complicated, but alluring base

Honduras is a nation of many contrasts.

It has immense natural beauty and widespread poverty. It’s important to U.S. interests in the Western Hemisphere, and yet American companies are wary of investing because of political instability, corruption and violence.

Choloma is a city of around 220,000 people in a mountain valley of northwest Honduras, surrounded by tropical forests and only 35 minutes from Puerto Cortes, a major Central American shipping port.

Choloma was once known as a center of the sugarcane trade. Now it’s become a manufacturing hub in the apparel industry. One plant alone, employing 2,000 workers, produces hundreds of thousands of items per week.

Choloma’s garment factories have capitalized on retailers and fashion brands seeking to divest from China as a result of the Uyghur Forced Labor Prevention Act, a U.S. law aimed at blocking the importation of goods produced by slave labor in the Xinjiang Uyghur region of China.

Those retailers also haven’t forgotten the disruption of China’s apparel supply lines caused by plant shutdowns and transportation bottlenecks during the height of the COVID-19 pandemic.

“Global pressures have forced companies to turn to the reliable, though underutilized, supply chains in their own backyard,” Glas said.

One of those suppliers is Northern Textiles, launched in 2023 by the Honduran firm GK Global which has manufacturing operations in Honduras, Nicaragua, Mexico and Pakistan. In Honduras it has around 27,000 employees and, of those, 7,000 were hired last year.

“For every new job we create, we prevent up to 11 people from emigrating to the United States and other countries,” GK Global claims.

The company’s Green Valley Advanced Manufacturing Hub, near San Pedro Sula, has more than 200 local and foreign-owned suppliers. It has the largest solar energy plant in Central America and aims to be self-sufficient in electricity, roads and water.

GK also created Altia Smart City, a San Pedro Sula technology hub for businesses and customer call centers.

The company’s GK Foundation has been praised for providing hundreds of thousands of meals for people who are homeless, free medical care, and generous support of local schools.

GK’s founder, Mohammad Yusuf Amdani Bai, recently published a book titled “World of Opportunity: Bringing Sustainable Business to Fragile Economies.”

“Where others saw poverty and few educational opportunities in Honduras, Yusuf Amdani saw a manufacturing hub. In this Central American country, he saw an opportunity to pay a steady salary to a capable labor pool and help grow the region’s economy,” Forbes Books wrote in a news release.

Others say the story is more complicated.

One of Amdani’s first companies, Pride Manufacturing, was the subject of a highly publicized labor complaint over occupational health injuries and the firing of a woman who was injured. Despite a court judgment, the company refused to pay her medical bills.

GK eventually reached a settlement that included paying the expenses, according to the company.

Last December, Amdani was named to the U.S. State Department’s Corrupt and Undemocratic Actors Report for 2023. Officials said he “engaged in significant corruption by bribing Honduran Supreme Court officials to rule in favor of his business in a private lawsuit.”

The State Department didn’t provide details of the alleged bribery, nor did it implicate GK Global in the brief statement it released. However, as a result of the government’s action, Amdani would generally be ineligible for a visa or admission to the United States, and any existing document granting him entry would be canceled.

Amdani, “in an abundance of caution associated with proper governance as a result of the allegations,” stepped down from the positions of CEO and board chairman, GK Global said in a statement to the Journal Sentinel.

He “is working to successfully resolve this personal matter,” the company said.

GK’s textiles division is run by Arshad Amdani. He speaks four languages, was educated in Canada and Hong Kong, and was an accomplished cricket player in college. He works closely with apparel brands and retailers in the United States.

Target, he says, “has been investing hand-over-fist in Central America.”

GK’s textiles mill, which uses recycled material, has its own wastewater treatment plant, a reforestation mandate, and other environmental goals.

“Those are all things that brands are looking for, because their consumers are aware,” Amdani said.

He’s passionate about education as well as business.

“It all starts with education,” Amdani says. “I personally think you can help a poor person by giving them money or whatever, but at the end of the day, if you don’t provide an environment for them to be able to attain a job, or educate their kids, you’ve never solved the problem.”

Working conditions and wages have improved

The garment industry has long been criticized for low wages and harsh working conditions. As recently as 2010, the University of Wisconsin-Madison ended a licensing agreement with Nike over a wage dispute in Honduras. Pressure from UW-Madison and other universities resulted in Nike making changes that included a $1.54 million contribution to a workers’ relief fund.

Wages and working conditions in Honduran garment factories have since improved, and among major apparel exporting countries, Honduras had the highest percentage of workers covered by collective bargaining agreements in independent unions, according to a 2022 report from the Center for Global Workers’ Rights at Pennsylvania State University.

Those unionized workers were 67% more likely to always have a choice on whether to work overtime, 82% more likely to always have a lunch subsidy, and 93% more likely to have access to a company savings and loan account, the report noted.

They were 25% less likely to want to migrate because they had more access to decent work, fair wages and safe working conditions. But in 2023, wages hadn’t kept up with inflation, and some plants had closed or slowed production due to weaker apparel sales, according to union leaders who spoke to the Journal Sentinel.

Earlier this year, Honduras announced a higher minimum wage for workers in apparel and other export industries, with pay increases of 6.5%, 7.5%, and 8% respectively over three years. The previous minimum was around $420 per month, according to industry groups.

While those wages are extremely low by U.S. standards, Honduras has an unemployment rate of around 8.5% and not much in social services for those out of work. The country has made progress in reducing poverty but still ranks as one of the poorest countries in the region.

“We believe that the steps we have taken are to create jobs, to protect existing jobs, and to promote our country internationally so that decent jobs can come for all Hondurans,” Daniel Facuesse, president of the Central American-Dominican Republic Apparel and Textile Council, was quoted as saying in Honduras news media about the recent wage hikes.

Companies suggest U.S. is at a historic moment

North Carolina-based Parkdale Mills, one of the world’s largest manufacturers of spun yarn, is heavily involved in Honduras. Parkdale produces 700 million pounds of yarn a year, enough material for 1.56 billion T-shirts. The company is the largest domestic consumer of U.S. cotton, using 550 million pounds per year.

Parkdale has 22 operations in the U.S. and Latin America. It exports 99% of its yarns to Western Hemisphere countries, with 78% to the Northern Triangle.

The exports support 4,000 jobs in the United States, according to the company, which recently built a $150 million spinning mill near Choloma.

Parkdale Chairman and CEO Anderson Warlick has been an advocate for U.S. trade policies that support nearshoring.

“For too long we have permitted China to set the global agenda, undermining U.S. values and harming our workers and trading partners in the Western Hemisphere,” Warlick said.

Jackie Ferrari, founder of the American Fashion Network, has also staked her claim in the Northern Triangle.

For years, her Syracuse, N.Y., company was a clothing supplier for Target, Kohl’s, and other retailers. Now it’s pivoted to producing military uniforms and work apparel for companies like Charter Spectrum and Uline.

On Aug. 5, 2022, Ferrari said, she walked away from manufacturing in Asia to focus on the United States, Mexico and Central America.

“I woke up that morning and said, ‘Today’s the day’,” she recalled. “I had let myself go offshore to places I never really wanted to be.”

Ferrari lost large retail customers when her company pulled out of Asia.

But the California native, who witnessed firsthand the loss of garment manufacturing in Los Angeles in the 1980s, wouldn’t back down. She had established her company in 2005 to be a network of factories in the Americas. It provided easier access to the plants compared with Asia, and if fashion trends changed, it was easier to adjust production.

Ferrari looks for corporate clients that will stick with her company while she establishes cost-effective manufacturing for them in the Western Hemisphere, a process that can take several years.

“If we have that commitment, we can be competitive with Asia,” she said.

SanMar, a U.S.-based apparel wholesaler, said it would increase its purchases in the Northern Triangle by $500 million, creating 4,000 additional jobs at Elcatex, an apparel manufacturer in Choloma.

Elcatex has built factories boasting green energy and advanced environmental controls. It’s also built schools, medical facilities and hundreds of affordable, single-family homes for employees. In 2023, the company received the Corporate Citizen of the Americas Award from the Organization of American States and Trust for the Americas.

But even with the apparel industry, every year around 90,000 young Hondurans enter the workforce without jobs available to them, according to Elcatex president and CEO Jesús Canahuati.

His vision for the Northern Triangle is to leverage nearshoring on an even greater scale to create more employment opportunities and strengthen the region’s economy.

“We’re at a historical moment to make this happen,” he said.

The Bringing It Home series was created with the support of the Pulitzer Center and the Richard C. Longworth Media Fellowship. The Center champions the power of stories to make complex issues relevant and inspire action. The Longworth Fellowship, which was awarded to reporter Rick Barrett and photojournalist Mark Hoffman, is devoted to bringing global issues to Midwestern readers. Neither the Pulitzer Center nor Longworth played a role in the reporting, editing or presentation of the series.