The future of the apparel industry – Central America

The future of the apparel industry – Central America

In this, the third and final part of our series on the future of potential manufacturing regions, we’re looking at Central America, which has emerged as a compelling alternative to traditional manufacturing hubs like Asia.

The region’s proximity to the U.S., coupled with competitive labour costs, trade agreements like CAFTA-DR, and a growing focus on sustainability, make it a promising destination for apparel production.

Among the standout countries in this region are Guatemala, El Salvador and Honduras, each carving a unique niche in the global supply chain.

What Central America offers to apparel businesses

The region provides a strategic blend of cost efficiency, quality manufacturing and logistical advantages:

• Proximity to major markets: Close to the U.S. and Canada, offering reduced shipping times and costs.
• Favourable trade agreements: Duty-free access to the U.S. through CAFTA-DR boosts competitiveness.
• Skilled labour force: A growing pool of workers with expertise in textiles and garment production.
• Sustainability initiatives: Commitment to eco-friendly practices aligns with global brand values.
• Quick turnaround times: Ideal for fast fashion and responsive production cycles.

 

CAFTA-DR

The Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) is a trade pact between the United States and six Central American and Caribbean nations: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic.

Enacted to promote economic integration and development, the agreement eliminates tariffs on many goods and facilitates trade in services, investment and intellectual property protections.

For the apparel industry, CAFTA-DR is particularly advantageous because it allows qualifying garments produced in member countries to enter the U.S. market duty-free, provided they meet specific rules of origin, such as using U.S.-sourced yarns and fabrics.

This incentivises regional collaboration and strengthens the supply chain for textiles and apparel between the U.S. and participating nations.

Guatemala – a growing powerhouse in apparel manufacturing

Guatemala, a popular destination among travellers due to its unique heritage and natural beauty, has recently become synonymous with quality and innovation in apparel manufacturing.

Known for its skilled labour force, the country excels in producing high-value products, particularly knitwear. In fact, In 2022, Guatemala exported $553M in knitted sweaters, making it the 22nd largest exporter in the world. With an increasing focus on sustainability, Guatemala offers eco-conscious solutions that appeal to global brands.

• Specialisation: Knitwear, sportswear, and athleisure.
• Workforce: Highly skilled, with expertise in advanced manufacturing techniques.
• Sustainability: Growing adoption of green practices and renewable energy in factories.
• Trade Advantage: CAFTA-DR provides duty-free access to the U.S. market.

 

El Salvador – the textiles leader

Bordered on the northeast by Honduras, on the northwest by Guatemala, El Salvador is the only country in Central America that does not have a coastline on the Caribbean Sea. The silver lining to that is the country is well-connected to the Pacific Ocean through the Port of Acajutla, a critical trade route for connecting with Asia and the western United States.

El Salvador is celebrated for its vertically integrated supply chains, enabling efficient production from raw materials to finished garments. This integration allows for faster lead times, making it a preferred destination for brands prioritising speed and quality. The country has also invested in its internal infrastructure, such as highways and logistics hubs, to ensure seamless transit of goods, strengthening its role in the regional supply chain.

• Specialisation: Performance fabrics, activewear and denim.
• Vertical Integration: In-house fabric production ensures cost control and quick turnarounds.
• Eco-Friendly Practices: Focus on water recycling and energy-efficient technologies.
• Strategic Location: Ports and infrastructure geared towards efficient exports.

 

Honduras – the volume producer

Honduras’ textile industry is a major contributor to the country’s economy, employing thousands of people and exporting a variety of textiles to the United States and other countries.

Honduras stands out as a high-volume apparel producer, with significant investment in large-scale production facilities, known as Maquila. It is a leader in adopting sustainability practices, particularly in energy and water management, positioning itself as a reliable and forward-thinking partner for global brands.

• Specialisation: T-shirts, basics and intimate apparel.
• Infrastructure: Modern facilities designed for high-capacity output.
• Sustainability: A leader in eco-friendly initiatives, including solar power and low-water dyeing techniques.
• Workforce Development: Continuous training programmes ensure a competitive edge.

 

Comparing the three countries

While Guatemala, El Salvador and Honduras all benefit from their proximity to the U.S. and trade advantages provided by CAFTA-DR, each country brings unique strengths to the table.

Guatemala specialises in knitwear and sportswear, leveraging its skilled workforce and a strong focus on innovation and quality to produce high-value apparel.

El Salvador is recognised for its performance fabrics and denim production, excelling in vertical integration and prioritising speed and efficiency to meet market demands.

Honduras, on the other hand, dominates in the production of basics such as T-shirts, showcasing its capacity for high-volume manufacturing and a notable leadership role in sustainable production practices.

Together, these nations form a diverse and complementary foundation for the apparel industry in Central America.

Challenges and opportunities in the region

While the Central America region holds significant potential for apparel manufacturing, it also presents challenges that businesses must navigate to fully realise its promise.

Infrastructure gaps

The region faces critical needs in transportation and energy infrastructure. While strides have been made, particularly in export hubs, underdeveloped roads, ports and energy grids can impede supply chain efficiency.

For instance, Honduras and Guatemala still require substantial investment in logistics to match the demands of global brands. Addressing these gaps will be crucial for improving lead times and reducing operational costs, which are essential for the competitiveness of the region.

Political stability

The political landscape varies across Central America. Countries like Guatemala and Honduras have faced concerns regarding governance and security, which can create uncertainty for long-term investments. However, initiatives promoting transparency, economic reforms and regional trade stability are showing progress. Companies entering the market must conduct thorough risk assessments and establish robust strategies to mitigate potential disruptions.

Cost pressures

Maintaining competitive labour costs while ensuring fair wages and working conditions remains a balancing act. Labour costs in the region are generally lower than in North America but higher than some Asian countries, putting pressure on manufacturers to deliver cost efficiencies without compromising ethical standards.

Nonetheless, the region’s proximity to the U.S. offsets some of these pressures by reducing shipping costs and enabling quicker turnaround times, which are increasingly valued in fast fashion and on-demand production models.

Opportunities

For companies willing to address these challenges, the opportunities are substantial. The region’s focus on innovation in fabric technology, sustainable practices, and efficient production processes positions it as an attractive alternative to more distant manufacturing hubs.

CAFTA-DR’s favourable trade terms allow duty-free exports to the U.S., enhancing the cost-effectiveness of sourcing from this area. Additionally, the region’s commitment to sustainability, including renewable energy use and reduced environmental footprints, aligns with the growing demand for ethical production practices from consumers and brands alike.

Ultimately, success in Central America requires a proactive approach to overcoming its hurdles. By leveraging the region’s inherent advantages (strategic location, trade incentives and skilled labour) businesses can achieve both operational efficiency and ethical growth while contributing to the development of a region poised to play a pivotal role in global apparel manufacturing.

Central America’s place in the future of apparel

As with our previous posts on East and North Africa, the rise of Central America in the apparel industry reflects a larger shift towards sustainable, efficient and proximity-based manufacturing.

With strong trade agreements, skilled labour and a dedication to eco-friendly practices, the region is well-positioned to meet the demands of modern apparel brands. For businesses ready to embrace these opportunities, especially those in the USA, Central America might just be the future of apparel manufacturing.

At immago, we’re passionate about helping brands navigate promising regions like Central America. Whether you’re looking to diversify your supply chain, embrace eco-friendly production methods or unlock the potential of this dynamic market, our expertise ensures your business remains competitive and forward-thinking.

For those ready to seize the opportunities Central America presents, the region offers unparalleled potential for growth and innovation.

Contact us today to discuss how we can create resilient, ethical, and cost-effective solutions tailored to your brand’s unique needs.