Supply Chain Strategy for BaseLayer by Angela Peng

SUPPLY CHAIN STRATEGY Angela Peng, Yinuo Pei, Fang Ben & Kate Dingwall

TABLE OF CONTENTS

I. INTRODUCTION 4 II. EXECUTIVE SUMMARY 5 III. COMPANY 6 IV. PRODUCT DEVELOPMENT 14 V. SOURCING STRATEGY 18 VI. LOGISTICS, WAREHOUSING & DISTRIBUTION 34 VII. SUMMARY AND CONCLUCION 41 VIII. APPENDIX 42

INTRODUCTION Creating a cohesive, all-encompassing supply-chain strategy is integral to the market success of products. Through design, development, fabric and raw material sourcing, to logistics and distribution, this book will outline strategies developed by Fang Ben, Angela Peng, Yinuo Pei, and Kate Dingwall for the mock sports underwear brand BaseLayer. For Luxury and Fashion Management 720 Supply-Chain Management at the Savannah College of Art and Design, we have profiled four different countries, analyzed the production and exportation capabilities of each, created tech packs for our products, research and identified key sourcing guidelines, created cost sheets, identified and determined shipping routes and logistics suppliers, and finalized the distribution route of the products in Base Layerâ&#x20AC;&#x2122;s range. As you turn the pages of this book, we will take you through the steps of creating a womenâ&#x20AC;&#x2122;s athletic lingerie brand, with products that range from sports bras to seamless thongs to athletic shorts, that adheres to environmental responsibility in all stages of the supply chain, while still creating a product that resonates with our identified consumer demographic.

EXECUTIVE SUMMARY BaseLayer is a luxury women’s athletic undergarments company that sells seamless, athletic-minded undergarments. BaseLayer retails through direct-to-consumer through our e-commerce platform www.BaseLayer.com, as well as through various luxury retail outlets like Nordstrom and boutique brick-and-mortars. All our products are created with a thumb on the environment – we believe that our athletic garments should be created with a respect to the world we work out in. We started the project by analyzing the women’s lingerie market and identifying a possible white space in the market that could be filled by a new brand. We then uncovered four products (sports bra, thong, boy short, and short) that will resonate the most with consumers and in the market based on secondary research. After investigating the luxury underwear industry, we developed technical packages for all of the products in our product mix, working step by step to identify the best raw materials for our project. We then moved on to analyze, through a situational analysis, the manufacturing capabilities of Guatemala, China, Honduras, and Turkey, and if their capabilities would match the needs of our project. Moving on to create a line plan and placement strategy, we identified the best three countries for our production through

THE COMPANY Meet BaseLayer Designed out of our studio in Manhattan, New York, BaseLayer is aimed at creating second-skin intimates for women. Because we understand where that a womanâ&#x20AC;&#x2122;s day can take her everywhere and anywhere, each of our pieces is focused on functionality â&#x20AC;&#x201C; meaning these pieces can go wherever she goes. Each piece is designed to withstand any athletic activity and to support all activities the Baselayer wants to support. Baselayer is designed to move with her body and help the wearer achieve optimal comfort, vitality, and health. We strive to create comfortable intimates for women, with a keen focus on luxurious, smart textiles that work with the body rather than against it. Because we understand that your life is in your environment, all our sourcing in our company is eco-conscious. We believe in utilizing responsible manufacturing processes to create pieces that are beautiful for both your body and the environment.

Values

With this in mind, we are focused on closely adhering to the values of our company. Firstly, we believe in quality. Considering that we place ourselves in the luxury market, we are in constant pursuit of ever-greater quality. Secondly, we believe in integrity. Integrity between our customers and between all our employees. We believe that relationships are built on integrity and respect, meaning we should focus on building a relationship with everyone in our supply chain, from those who sew our garments to the people who wear them. Next, we believe in challenging ourselves. Testing our physical limits, our strength, speed, and agility. Personal growth is always on our horizon, be it through continual learning, development of new skills, or self-awareness. Finally, we value the environment. Our products come from the earth, and they are worn by people who work out in the environment. With that in mind, we hope that all our products are created with respect to the future of the earth.

Mission/Vision Statement

As a company, BaseLayer strives to promote a healthy lifestyle and support female athletes, As an extension of that, we believe that functionality is important, which is why we make products crafted with comfort in mind, and why we look to sustainable sourcing so we can support the environment we live and exercise in. 7

Future Potentials of the Market

Women’s activewear is a rapidly growing market in the United States, as denim is declining in popularity ad more and more women are choosing yoga pants over jeans. Women’s Wear Daily reported that online orders of yoga pants have risen by 41% in 2016 alone. The Business of Fashion has further predicted that athleisure is the trend that will not die – identifying ‘athleisure’ as not a trend, but as a shift in the way that Americans dress. Experts have predicted that the athleisure ‘trend’ will not die for at least ten years. As consumer spending on health and fitness grows among middle to upper-class demographics, we believe that BaseLayer has a promising outlook in the United States luxury activewear market, specifically in the realm of athleticfocused undergarments.

Target Customers

With this in mind, we have identified the target consumer as a female-identifying person between the age of 2540. This consumer is highly educated, with an average of at least a bachelorâ&#x20AC;&#x2122;s degree. She has achieved a higher income of over $80,000 per year. When it comes to her pastimes, she loves sports or activities and looks to the outdoors for her activities. Because of this experience in athletics, she desires high quality and more specialized athleticwear with new technology. Our consumer wants products that will work with her body, not against it. While she is familiar with big-name sportswear brands, sheâ&#x20AC;&#x2122;s more comfortable shopping with niche brands that are rather focused on the environment. Because she lives a health and luxurious lifestyle, she is willing to spend her hard-earned dollars on activity, travel, and premium experiences.

SOURCING GUIDELINES

Traceability of our fabrics: Using technologies such as RFID, we work with the mills that produce our fabrics to ensure the traceability of every batch of fabric. Traceability enables us to monitor our supply chain down to the very raw materials we use in our products so that we can be sustainable and environmentally friendly from the beginning to the end of our production process.

Human rights and working conditions: we work with our production partners to uphold humane and ethical standards at the workplace that go above and beyond what is prescribed in the legal books, as we believe happy and satisfied workers are more efficient and capable of producing the best products. Wages: As many countries’ minimum wages are non-existent or not enough to maintain a reasonable living standard, we will pay Fair Trade wages to all of our workers in the production process. Child Labor: Child labor is strictly prohibited in all of our production partners’ facilities. We require our partners to keep a registry of all the workers in the facilities for verification purposes. If any form of child labor is discovered, production partners are subject to hefty penalties or termination of contracts. Overtime: Forced labor of any kind is not tolerated in BaseLayer’s factories. Overtime work should be completely voluntary and the total work time during a week cannot exceed 60 hours. Overtime will be paid a premium. Freedom of association: At all of BaseLayer’s factories, workers have to the right to form unions and use their collective bargaining rights. We believe the open communication resulted from these rights is essential for building an efficient and harmonious workplace. Compliance Audit: To show BaseLayer’s dedication to human rights, we only source from factories we have personally visited and carried out a compliance audit on. Audits will be performed at-random bi-annually to ensure that our factory partners are upholding ethical standards.

Raw Materials:

Because the sourcing of raw materials puts the most stress on the environment within our supply chain, we take every step to ensure our raw materials are sourced in a sustainable fashion. Organic Cotton Only: Traditional cotton farming is one of the most chemical-intensive farming practices on earth, and many farmers die from the exposure to these chemicals every year. By sourcing only organically grown cotton, we eliminate the use of toxic pesticides and synthetic fertilizers, preserve the fertility of the soil and protect the health of our farmers. Organic Wool: Because all of our products touch our customers skin directly, we only source the highest quality Organic Merino Wool for our products. Toxic synthetic pesticides are prohibited on the pasturelands, and sheep cannot be treated with toxic parasiticides that are harmful to both animals and humans. Recycled Materials: We collaborate with factories who recycle synthetic waste into materials such as Econyl, which is reclaimed, cleaned, regenerated and processed into yarn that can be incorporated in our products.

Waste and Emissions Management:

We are a member of the Apparel Coalition, and we require our suppliers at every stage to use the Higg Index to assess and benchmark their environmental impacts which include but not limited to chemical management, water use and treatment, energy use and greenhouse gas emissions. Chemical Management: Suppliers must have the legally required chemical treatment plants and abide by all local laws regarding this issue. Additional contingency plans must be put place in case of industrial accidents. Water Use and Treatment: We select only innovative suppliers who use modern technologies to cut down water usage in the production process, and we require the water coming out of our factories to meet or exceed the local water standards. Energy Use: Energy efficient air conditioning, lighting and machineries have to be installed in our suppliersâ&#x20AC;&#x2122; factories to minimize energy use. Greenhouse Gas Emissions: We evaluate and test our suppliersâ&#x20AC;&#x2122; air treatment process to ensure the air emission is compliant with local authoritiesâ&#x20AC;&#x2122; standards.

PRODUCT DEVELOPMENT Our products are eco-conscious, with a focus on organically-sourced, recycle-focused materials suited for daily indoor and outdoor activities. Our seamless knitting technology is designed to reduce chafing on long runs and to create seamless finish that won’t be seen under workout clothes and regular clothes. Each of the fabrics is created with use in mind – our smart fabrics fight odor-causing bacteria to avoid sweat problems and help our women achieve optimal comfort and health. In total, our garments are designed to feel like your second-skin – meaning they will enhance, not hinder your healthy, active lifestyle. The first incarnation of our range will include a sports bra with a seamless finish, a soft, seamless thong, a seamless boyshorts, and running shorts. These four products will be available in a base of three neutral colors, as well as a rotating selection of seasonal colors.

Size Range: XS - XXL Color: Varies for each style (Black, Grey, Nude, Dark Blue, and Plum)

Seamless Thong

Yoga Shorts

Athletic Boyshorts

Seamless Wirefree Bra

85% Recycled Polyester, 15% Cotton

100% Recycled Polyester and Spandex

90% Polyester, 10% Spandex

100% Recycled Polyester and Spandex

Price Points After analyzing the price points and business models of our competitors, we established the following price points for the four products in our line. Wholesale Price: Seamless Athletic Thong: $15 Yoga Shorts: $30 Athletic Boyshorts: $20 Seamless Wirefree Sports Bra: $45

Line Plan BaseLayer

LINE PLAN

SEASON

STYLE #

SP/SU JAN Quantities

#BL101 #BL102 #BL103 #BL201

NAME Seamless Athetic Thong Yoga Shorts Athletic Boyshorts Seamless Wire Free Sports Bra TOTAL

30000 15000 18000 20000 83000

SS2019 Fall/ Winter

FEB

SUMMER MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

HOLIDAY NOV

DEC

Quantities

30000 15000 18000 20000 83000

30000 10000 18000 20000 78000

40000 10000 15000 25000 90000

40000 15000 15000 22000 92000

40000 10000 15000 17000 82000

40000 10000 15000 18000 83000

20000 7000 10000 18000 55000

30000 13000 15000 20000 78000

40000 20000 25000 30000 115000

TOTAL 400000 150000 200000 250000 1000000

Wholesale

Cost

Per Unit

Total

Per Unit

Total

$ 15.00 $ 30.00 $ 20.00 $ 45.00 $ 27.50

$ 6,000,000.00 $ 4,500,000.00 $ 4,000,000.00 $ 11,250,000.00 $ 6,437,500.00

$ 3.19 $ 8.71 $ 6.07 $ 13.03 $ 7.75

$ 1,277,600.00 $ 1,305,900.00 $ 1,214,400.00 $ 3,256,500.00 $ 1,763,600.00

Average

Margin Margin % $ 11.81 $ 21.29 $ 13.93 $ 31.97 $ 19.75 Average

Four basic styles from BaseLayer S/S 2019 collection will be launched at the beginning of the year. Each style will be replenished on a seasonal demand. Demand remains relatively even throughout the year, with higher demand in holiday and summer seasons.

78.71% 70.98% 69.64% 71.05% 73% Average

Cost Per Country By Item Highest cost to lowest Item Image

Turkey Cost Margin $ 4.056

China Cost Margin $ 3.711

73.0%

$ 10.744

75.3%

$ 9.050 64.2%

$ 7.666

69.8%

61.7%

64.4%

71.0%

65.5%

71.0%

$ 6.073 67.9%

$ 13.027 66.4%

78.7%

$ 8.706

$ 6.428

$ 15.125

Hondurus Cost Margin $ 3.194

78.7%

$ 8.706

$ 6.907

$ 16.035

Guatemala Cost Margin $ 3.202

69.6%

$ 13.026 71.1%

71.1%

Seamless thong meets BaseLayer margin goal in all four countries, and is BaseLayerâ&#x20AC;&#x2122;s top-selling item. Yoga Shorts meets the margin goal in China, Guatemala, and Honduras. Both Athletic Boyshorts and Seamless Bra meet our margin goal in Guatemala and Honduras. Overall, the cost estimation suggests BaseLayer to focus placing products in Guatemala and Honduras to get the highest possible margins. (Detailed multi-country cost sheets see Appendix). 17

SOURCING STRATEGY Moving to the next steps of the process, we will analyze the four countries we could potentially partner with for sourcing and manufacturing. An in-depth analysis of this country prior to picking where we will establish our manufacturing is crucial to creating a cohesive supply chain. In the following country reports, we will investigate the various traits of the companies inside the country, the country traits, the economic, political, and social health of the country, the suppliers in-country, the state of the apparel industry in-country, the lead time potentials between the countries and the United States, how the country handles womenâ&#x20AC;&#x2122;s undergarments, the trade agreements with the United States, and distribution and logistics capabilities. The four countries we were given to analyze are Turkey, China, Guatemala, and Honduras. After analyzing these four countriesâ&#x20AC;&#x2122; potentials and running situational analyses, we will choose three countries to continue our partnership with.

COUNTRY RANKINGS COUNTRY RANKING Scale of 1 to 10 with 1 being the worst and 10 the best

Turkey Business Climate 8 Costs 7 Government

Explanation Fast economic growth. Composed of modern industry, commerce and agriculture

Labor cost is lower than most of the developed countries, but still higher than China, India, Pakistan

supporters of liberal trade and investment policies. Exports have been rising at a naverate rate of 10% annually. Government support expansion of the textile and apparel industry

11.3 hours by airplane, 6 major ports around the country coast. Average of 16 days ocean freight.

Location

Risks

weak labor laws and low tertiary education, less efficient labor market and shortage of skilled workers 7

Social Stability 6 Sourcing Guidelines 10 Textile Industry 10 Trade Agreements Trained Work-force

China

Violent terrorist attacks with week millitary response Many have adooted to develop environmental friendly products. weak labor laws

very good, nest facilities, high technology, environment-friendly products None with the U.S. Product not eligible from GSP capable workfoce

8 Socio-eco-political 8

9 0 9

Socio-more government expenditure spent on social protection benefits. Diverse natural source. Eco: Well-capitalized banking sector and sound public finances. Political: stable foreign policy, improving international standing, boosted output of intermediate goods

Explanation largest exporter and second-largest importer of goods

low cost: labor, raw material, although an increasing trend

relatively stable, strong government support: releasing 13th 5-Year Plan in 2016, being the WTO member, and enhancing monitor of the apparel industry, such as material and manufacturing process, and develop innovation in this area to promote sustainable development. Very farďź&#x152; Long-time freight shipping: 2-3 weeks by boat, 22-hour by flight.

1. Labor unrest, political unstable and natural disasters ďź&#x2C6;Typhoon, heavy rain and flood) would influence the lead-time of production and delay the process. 2. Higher minimums in China than other countries relatively stable and in a good development, but still need to be monitered China has many current issues with child labour, overtime working and resource waste. well developed, many supiers and manufacturers choices None with the US a lot of experienced labors, but need to improve be more professional relatively stable, but there are some unstable factors: fluctuated currency exchange, increasing lobor cost, untransparent government and political conflict.

Hondura s Explanation 8

Customs reforms and government program "Honduras 2020" boost business, while corruption and bribery can be worrisome. Labor cost not as low as some south asian countries such as Vietnam, but one of the lowest in the region. Geographical proximity brings down freight costs. Relatively stable government, upcomning election in November will be polarizing. Corruption is a huge issue in the government.

Located in Central America with many big ports, transport time can be as low as 2 days via water to the United States. Disasters such as hurricanes and earthquakes and social uprisings all pose potential risks.

9 10

Guatemala Explanation 7

Despite political unrest, the future perspective of Guatemala's business sector is set to thrive, which is largely due to the growing production and manufacturing sector Guatemala has one of the lowest cost to living, and sewing labour sits at 0.11 cents

Political unrest in the country has been caused by accusations of corruption in the government 5

The country has many large ports, situated within a relatively short shipment time from the United States There are huge political and cultural risks - protests are frequently shutting down streets and factories

Unstable, income inequailty is one of the worst in the region. Many manufacturers are paying more attention to corporate social responsibilities.

Plenty of government backing; "Honduras 2020" will bring in additional investment and technology. CAFTA boosts bilateral trade with the U.S. Highly skilled labor force.

8 10 9

Although still unstable on many fronts, Honduras is moving in the right direction. 7

Total

Average

7.2

6.9

7.9

7.1

The people of Guatemala are very loyal - they consider business partnership a friendship and treat relationships as such While Guatemala has many current issues with child labour, the rich natural resources and low cost of living makes it a country that can be molded to suit our sourcing guidelines The textile industry is booming - more big name brands are looking to Guatemala for sourcing CAFTA-DR allows little to no tarriffs on all products There is a rich history of garment making in Guatemala, along with a sense of pride in their work Unstable political climate is a risk, but the pride and culture of the Guatemalan culture is a plus

COUNTRY SWOT ANALYSIS Turkey Strength: • Great geographic locations with many major ports around the country coast; next to Europe and Asia • Fast economic growth • Government supports liberal trade and investment policies • Turquality Programme(2003) supports textile and apparel business expansion • Government supports expansion of the textile and apparel industry • Mandates all textile manufacturers follow the internationally accepted environmental standard; great sourcing guidelines • Underwear industry has adopted high tech manufacturing methods and invested in best equipment • Underwear sector becomes a more sophisticated industry • Capable workforce and diverse natural resources

Opportunities: • Free Trade Agreement with Europe, allows our company to enter the European market • Possible free trade agreement with the U.S. in the future • Other product categories as we expand our product categories may be eligible from the GSP Agreement • Ever-changing government regulations • Huge income gap and other destabilizing social factors 20

Weaknesses: • Relatively higher labor cost in comparison with China, Honduras, and Guatemala • Natural disasters from earthquake, flood, landslides • Increase unemployment and terrorist attacks lead to social instability • Income inequality is the one of the worst in the region • No free trade agreement with the U.S. • BaseLayer product categories are not eligible from the GSP Agreement • Longer lead time to the U.S. compare with Honduras and Guatemala

Threats: • Earthquakes and other natural disaster in coastal areas may affect shipping lead time • Rapid growth in China and other Asian countries • Relatively high value expectations of sellers • High degree of exports and dependency on world economic climate

COUNTRY SWOT ANALYSIS China Strength: • cheap labor cost • Raw material offerings • Sophisticated in the undergarment sector • Well trained labor force in apparel • Relatively stable government

Weaknesses: • Political corruption • Heavy pollution • Manufacturers do not always adhere to sourcing guidelines • Political structure is untransparent • No free trade agreements • Long distance, long lead time

Opportunities: • Government support • Strong GDP growth • Continued growth of the apparel industry

Threats: • Increasing labor cost • Natural disasters (earthquake, flood, landslides) • Unstable relationship with the United Stated

Honduras Strength:

Weaknesses:

• Relatively cheap labor • Well trained labor force in apparel • Well established apparel manufacturing network • Relatively stable government • Part of CAFTA’s tariff free zone

• Heavy corruption on all levels of society • Heavy pollution • Manufacturers do not always adhere to sourcing guidelines • Political structure is unstable

Opportunities: • “Honduras 2020” initiative will bring additional capital to the industry • Honduras’s domestic market is growing stronger • Future customs reforms will expedite our lead times • Can serve as a production hub to the Central American market

Threats: • Rising cost of labor • Cost of raw materials is rising steadily • Elections on Nov 26 th , 2017 can destabilize the country • Ever-changing government regulations • Huge income gap and other destabilizing social factors

COUNTRY SWOT ANALYSIS Guatemala Strength: • Proximity to the United States • Focus on ‘green’ production • Experience in the undergarment sector • Free trade agreement with the NAFTA-DR • Relationship-driven nature of business in Guatemala • Thriving apparel manufacturing company • Largest economy in Central America • Big name apparel production: including Guess, Adidas, Tommy Hilfiger, Old Navy, Nike, Hollister • Raw material offerings (knits, synthetic fibers, dyed yarn)

Weaknesses: • Political corruption • Political unrest • Ignorance of basic human rights amongst citizens • Riots & protests are frequent due to political unrest • Unsteady relationship with United States due to political corruption • Huge poverty country-wide • Environmental natural disasters (earthquakes, hurricanes, volcano) 24

Opportunities: • Onslaught of large-scale manufacturers like H&M and Target • Growing ‘green’ agricultural industry • Strong GDP growth • Improve workers life through strict sourcing guidelines • Continued growth of the apparel industry • Continued support of CAFTA-DR

Threats: • Poor working relationships with the United States • Only country in Central America where the poor are getting poorer • Natural disasters

Suppliers SWOT Analysis Turkey (Narkonteks)

China (Xiamen Kingland Co.)

Strengths

• Continuous improvement and innovation in technical textiles • No restriction of quantity based on the model and color options for the long-term business partners • Shorter lead-time compare with China • Fast delivery • Certified Oeko-tex Standard 100; great sourcing guidelines • Extremely environmentally friendly • Offer services from design, to production to delivery • Value added services including technological development • Work with high end customer and produce high quality products • Concrete experience in product development and production • Value human rights, ethics and environmental issues

Weaknesses

• Not specialized in sports underwear sectors • Capacity is relatively lower for new partners • More family member focused, rather than young, athletic wearers • Relatively new company founded in 2001

Opportunities

• A Long-term relationship would ensure larger capacity • Relationship allows BaseLayer to expand its market to Europe • Development of smart textile allows BaseLayer gain competence over other underwear company who are less focused on high tech textiles

Threats

• Increased costs • Communication issues 26

• Experienced in underwear sector • High quality production • Impeccable manufacturing process and various Value added services • Corporation with famous brands • Excellent Capacity • Latest technologh following and high-tech development

Weaknesses

• Limited product category, focuses on the underwear • Relatively lonner lead time • No good sourcing guideline • Lacking of sustainable manufacturing

• Strong government's support the high-technology

manufacturersin garment industry • Good relationship with other partners: raw material, transportation, etc.

Threats

• Increasing labor costs • Communication issues • Worker strikes • Fast-fashion focus • Serious environment pollution

Honduras (Villanueva) Strengths

Guatemala (Ripsa) Strengths

• Over 20 types of products which include yoga shorts, panties and more • Capacity of 10 million kgs a year • Excellent lead time • High quality standards • High profile customers such as Under Armour and Fruit of the Loom • Proximity to major ports cuts down lead times

• Brand name customers including Walmart, Avon, JC Penney • 20 years of experience • Afocus on lingerie specifically • Experience in our product mix • Certification by Walmart Green • Offesr exportation and design • LECTRA system • Close proximity to port

Weaknesses

• Does not offer many value-added services such as inventory management • Limited product category not good for our expansion later on • Outdated communications system will not sync with our system

Opportunities

• “Honduras 2020” initiative will bring good policies to local manufacturers • The potential to offer value-added services such as inventory management • Efficient use of factory capacity could bring costs down even more

Threats

• As a subsidiary of Fruit of the Loom, there is a possibility of conflict of interest • Rising labor costs in the nation could force them to charge more • Corruption could prove to be an issue • Frequent worker strikes • Our limited volume at the start limits our bargaining power over them

• Current partnerships include brands with questionable sourcing guidelines • Low capacity • Long lead time • Non-vertically integrated • Not transparent about sourcing guidelines/environmental responsibility

Opportunities

• Share expertise brought in by other big-name clients • Bboasts capabilities in other lingerie products, including teddies, slips, and pajamas, which gives us opportunities to expand • History in the Guatemalan market gives us a strong working relationship

Threats

• Big name manufacturers could leave BaseLayer overshadowed • Fast-fashion focus • Guatemala has continued issues with human rights and child labour issues 27

Supplier Rankings Guatemala

Turkey

Ripsa

Kreprodesa

Abilities 10 Capacity

Focus on lingerie, 20 years in business

200,000/month

Quality 9 Customers

Sourcing Guidelines

Services Offered

Strategic Outlook

Vertical integration

Fully vertically integrated

4 weeks

4 weeks 9

Years of experience is a plus, though partnership with low-quality brands is concerning Walmart, Avon, JC Penney Certified by Walmart Green

9 150,000/month

4 week for production, additional 3 weeks for design

Narkonteks

350,000/month

Lead-time

Full Apparel

huge focus on quality 6

N/A

Offers design, production, and exportation

Focus on lingerie is a plus, as is partnership with big-name clients

7 full services offered

Partners with several trade organizations to maintain standards

full services offered 9

Hondurus

10 positive partnership with manu trade organiziatons

Finteks

undergarment/homewa re for men, ladies and kids, techcial textile productive system- no restriction of quantity based on the model and color options for the long term business partners fastest delivery based on model and color options, within 14 days to the US. Within a week to Europe certified Oeko-tex Standard 100

Liberty Textule & Seamlesswear ready-made garments, casual, sportwear for ladies, men and children cutting capacity 400,000 pcs/month

2-3 weeks

deisgn-productiondelivery-technologycreating value added reliability promote underwear for each memebr of a family

G 9

high quality control standards

10 urban outfitters, forever 21

maintain environmental concisouness among staff, supplier and public

sampling, designing, knitting, cutting, quality control, ironing, packing

one of leading knitwear manufacturers

10 Puma, Oakley

constant social and environmental responsibilities

H F G

concrete experience in product development and production

aim of becoming a global player and a leading manufacturer in the seamless part of textile world

D in

" 10

Total

Average

8.125

7.25

8.625

9.63

8.13

8.88

9.375

O Y

3 0

best quality and cost

environmetal friendly, certified Oeko-tex Standard 100

3 weeks

most advanced seamless knitting technology. Seamless sportwear(yoga), knitwear, casual Cutting Capacity 450,000 pcs/month

Hugo Boss, Smartwool

Manufactu

Guatemala Hondurus

Seamlesswear

vanced seamless knitting Abilities ogy. Seamless ar(yoga), knitwear, casual Capacity 450,000 Capacity nth

Over 20 types of products, Focus on lingerie, 20 8 10 Yoga Shorts, Panties years in business

Lead-time 9

Customers

t social and environmental Sourcing Guidelines ibilities

e experience in product Services Offered ment and production

VFI De Honduras Kreprodesa

Average

8.125 9.375

9 9

High quality

huge focus on quality High quality

8 10

High profile customers N/A 2

8 8

Great sourcing guidelines 6

7 7

No inventory management full services offered 10

9.3757.25

4 weeks Good lead time

ecoming a global player Strategic "Honduras 2020" Focus on lingerie is a "Honduras 2020" Outlook 10 8 7 ading manufacturer in the plus, as is partnership 10 s part of textile world with big-name clients Total 65 75 75 58

9 7

Good lead time 4 weeks

High quality standards Years of experience is a plus, though partnership 10 9 10 with low-quality brands is concerning High profile customers, UA, Walmart, Avon, JC 10 9 10 FL Penney Great sourcing guidelines Certified by Walmart Green 10 6 10

Fully vertically integrated Over 20 product types

150,000/month 9 million kgs since 07/01/2007

10 Lower profile customers

Partners with several Unclear sourcing guidelines trade organizations to 10 maintain standards full services offered No inventory management

9 8

positive partnership with "Honduras 2020" 9 10 manu trade 10 organiziatons 69 67 77 68 8.6258.375

Hondurus

Narkonteks Xiamen Kingland Co., Ltd

10 8

13 million kgs since 350,000/month 07/01/2007

Good lead time 4 week for production, additional 3 weeks for 8 9 design

Design, Fabric Testing, No Offers design, inventory management production, and 7 exportation

Full Apparel Rla Mfg. S De Rl

Over 50 types of products Vertical 9 integration

38 million kgs since 200,000/month 07/01/2007 10 8

ality control standards Quality

Oakley

Ripsa Manufacturas Villanueva

Turkey CHINA

9.63 8.5

Finteks Shanghai Yonglee Textile Jiang Yin Qihong Textile Co., Ltd Liberty Textule & Seamlesswear Manufactu Co., Ltd undergarment/homewa about 30 types of products ready-made garments, about 40-55 most advanced seamless knitting about 45-50 types O 8re for men, ladies and 9 9 types 98 8 casual, sportwear for technology. Seamless Y kids, techcial textile ladies, men and children sportwear(yoga), knitwear, casual productive system- no about 26 million pieces cutting capacity 400,000 about 26 million Cutting Capacity 450,000 about 26 million pieces 3 restriction of quantity pcs/monthpieces pcs/month 0 based on the model and 9 99 7 9 10 color options for the long term business partners fastest delivery based 6 weeks in average 2-3 weeks6 weeks in 3 weeks less than 5 weeks G average on model and color 6options, within 14 days 9 6 9 58 to the US. Within a week to Europe certified Oeko-tex good best quality and cost average good high quality control standards excellent H Standard 100 8 8 7 10 9 10

urban outfitters, forever 21 Between the 9 Sheets environmetal friendly, employee care,working hour maintain environmental labor welfare standard, working training, concisouness among staff, certified Oeko-tex 8 9 9 social responsibility, Standard 100 supplier and public sustainability deisgn-productionfull package service from sampling, designing, standard sourcing to shipping manufacturing, delivery-technologyknitting, cutting, quality 8 9 8 simply package creating value added control, ironing, packing reliability promote underwear for innovation, lasest one of leading knitwear sustainable 10each memebr of a technologies, environment 8 9 materials manufacturers familyconcern, human resources 65 67 66 71 9

Hugo Boss, Smartwool Wacoal, Naja

8.13

8.38

Puma, Oakley Under Armour

constant social and environmental employee care,working hour standard, working training, responsibilities social responsibility, sustainabilitylabor welfare concrete experience in product full package service from sourcing to shipping development and production

aim of becoming a global player latest tech, environment concern, human resource and a leading manufacturer in the seamless part of textile world

9.375

D in

" 10 75

8.25 8.88

H F G

Placement Strategy There are three different scenarios to place our products in Turkey, China, Honduras, and Guatemala. We look to place total one million units in three of the countries to get better control over the products. BaseLayer works to balance the advantages and disadvantage of each country’s social, political, and economic stabilities, suppliers’ sourcing guidelines, lead times, and services, and manufacture costs in all four countries. Reasonable percentage of products is distributed into each country. To reduce risks, and to achieve the highest average margin of our ability at the same time, we make sure that no more than 50% products are placed in one country. In addition, to keep our suppliers interested, no less than 20% of the products will be placed in one country. Placement 1 (Exclude Turkey option1: 39.5% Honduras, 25.5% Guatemala, 35% China) Honduras Supplier- Villanueva Bra

Total Units

1,000,000

Wholesale Cost per Unit Margin %

Total Purchase

$ 25,750,000 $ 7,421,705

total Margins

Avg Wholesale Avg Purchase

$ 25.75 $ 7.42 $ 18.33

Avg Margins %

71.18%

Total Wholesale

Avg Margins

18,328,295

Yoga Shorts

Thong

Boyshorts

Wholesale Cost per Unit Margin % Total Wholesale

Total Purchase total Margins Avg Wholesale Avg Purchase

Avg Margins Avg Margins %

Yoga Shorts

China

Thong

Xiamen Kingland Co., ltd

Boyshorts Bra Yoga Shorts Thong Boyshorts 45,000 100,000 75,000 100,000 75,000

$ 45.000 $ 30.000 $ 15.000 $ 20.000 $ 45.000 $ 13.026 $ 8.706 $ 3.194 $ 6.072 $ 13.027 $ 31.974 $ 21.294 $ 11.806 $ 13.928 $ 31.973 71.05% 70.98% 78.71% 69.64% 71.05%

$ 15.000 $ 20.000 $ 45.000 $ 30.000 $ 15.000 $ 20.00 $ 3.202 $ 6.428 $ 15.125 $ 9.050 $ 3.711 $ 6.907 $ 11.798 $ 13.572 $ 29.875 $ 20.950 $ 11.289 $ 13.093 78.65% 67.86% 66.39% 69.83% 75.26% 65.47%

$ 4,050,000.00 $ 2,250,000.00 $ 2,250,000.00 $ 1,600,000.00 $ 2,700,000.00 $ $ 1,172,340.00 $ 652,950.00 $ 479,100.00 $ 485,760.00 $ 781,620.00 $ $ 2,877,660.00 $ 1,597,050.00 $ 1,770,900.00 $ 1,114,240.00 $ 1,918,380.00 $ -

$ 2,250,000.00 $ 900,000.00 $ 4,500,000.00 $ 2,250,000.00 $ 1,500,000.00 $ 1,500,000.00 $ 480,300.00 $ 289,260.00 $ 1,512,500.00 $ 678,750.00 $ 371,100.00 $ 518,025.00 $ 1,769,700.00 $ 610,740.00 $ 2,987,500.00 $ 1,571,250.00 $ 1,128,900.00 $ 981,975.00

Bra

1,000,000

Ripsa

Bra

150,000

Placement 2 (Exclude Turkey option2: 42% Honduras, 31%, 26% China) Honduras Supplier- Villanueva Total Units

Guatemala

90,000 75,000 150,000 80,000 60,000

Yoga Shorts

Thong

Boyshorts

Guatemala

Ripsa

Bra

Yoga Shorts

Thong

70,000 70,000 180,000 100,000 95,000 70,000 120,000

Boyshorts

China

Xiamen Kingland Co., ltd

Bra Yoga Shorts Thong Boyshorts 25000 85,000 10,000 100,000 75,000

$ 45.000 $ 30.000 $ 15.000 $ 20.000 $ 45.000 $ 30.000 $ 15.000 $ 20.000 $ 45.000 $ 30.000 $ 15.000 $ 20.00 $ 13.026 $ 8.706 $ 3.194 $ 6.072 $ 13.027 $ 8.706 $ 3.202 $ 6.428 $ 15.125 $ 9.050 $ 3.711 $ 6.907 $ 31.974 $ 21.294 $ 11.806 $ 13.928 $ 31.973 $ 21.294 $ 11.798 $ 13.572 $ 29.875 $ 20.950 $ 11.289 $ 13.093 71.05% 70.98% 78.71% 69.64% 71.05% 70.98% 78.65% 67.86% 66.39% 69.83% 75.26% 65.47% $ 25,750,000 $ 7,360,495 $ 18,389,505

$ 3,150,000.00 $ 2,100,000.00 $ 2,700,000.00 $ 2,000,000.00 $ 4,275,000.00 $ 2,100,000.00 $ 1,800,000.00 $ 500,000.00 $ 3,825,000.00 $ 300,000.00 $ 1,500,000.00 $ 1,500,000.00 $ 911,820.00 $ 609,420.00 $ 574,920.00 $ 607,200.00 $ 1,237,565.00 $ 609,420.00 $ 384,240.00 $ 160,700.00 $ 1,285,625.00 $ 90,500.00 $ 371,060.00 $ 518,025.00 $ 2,238,180.00 $ 1,490,580.00 $ 2,125,080.00 $ 1,392,800.00 $ 3,037,435.00 $ 1,490,580.00 $ 1,415,760.00 $ 339,300.00 $ 2,539,375.00 $ 209,500.00 $ 1,128,940.00 $ 981,975.00

$ 25.75 $ 7.36 $ 18.39 71.42%

Senario1: Exclude Turkey Considering high labor cost and heavy duty to manufacture BaseLayer Products in Turkey, the first scenario strives to get the highest average margin, therefore, Turkey is excluded for the first two placement options. Placement 2 can get us a higher margin of 71.42% comparing to Placement 1 (71.18%). Honduras has the highest country ranking, lowest cost, and relatively great supplier, so placing more products in Honduras guarantees lower risks and higher margin. Considering heavy duty and long lead time in China, we want to place less products there, but at the same time the amount must keep suppliers interested. Cost in Guatemala and Honduras are almost the same, but Guatemala’s government and society is less stable than it is in Honduras. Overall, 42% products to be placed in Honduras, 31% in Guatemala, and 26% in China, can get us a highest margin with low risks in this 30

Senario2: Exclude China Placement 3 and 4 exclude China, and placement 4 has a higher margin. BaseLayer always looks to expand its market to Europe in the future, placing 20% products in Turkey ensures a continued relationship with Turkey suppliers. Also, considering our products depend very much on seamless technologies, our supplier in Turkey offers lots of services from design to manufacturing in seamless undergarment production. It is an attracting feature for us to consider starting the partnership with suppliers in Turkey. A small amount of bra, yoga shorts, and thong can be place in Turkey since they do not affect as much of the average margin as boyshorts does. To get the highest margin out of all considerations, 44% products are to be placed in Honduras, 36% in Guatemala, and 20% in Turkey. Placement 3 (Exclude China option1, 25% turkey, 40% Honduras, 35% Guatemala) Turkey Supplier - Narkonteks Total Units

1,000,000

Wholesale Cost per Unit Margin % Total Wholesale

Total Purchase total Margins

$ 25,750,000 $ 7,569,426 $ 18,180,574

Avg Wholesale Avg Purchase

$ 25.75 $ 7.57 $ 18.18

Avg Margins %

70.60%

Avg Margins

Wholesale Cost per Unit Margin % Total Wholesale

Total Purchase total Margins

$ 26,250,000 $ 7,634,902 $ 18,615,098

Avg Wholesale Avg Purchase

$ 26.25 $ 7.63 $ 18.62

Avg Margins %

70.91%

Avg Margins

Yoga Shorts

Guatemala

Ripsa

$ 45.000 $ 30.000 $ 15.000 $ 16.035 $ 10.744 $ 4.056 $ 28.965 $ 19.256 $ 10.944 64.37% 64.19% 72.96%

$ 45.000 $ 30.000 $ 15.000 $ 20.000 $ 45.000 $ 30.000 $ 15.000 $ 20.000 $ 13.026 $ 8.706 $ 3.194 $ 6.072 $ 13.027 $ 8.706 $ 3.711 $ 6.428 $ 31.974 $ 21.294 $ 11.806 $ 13.928 $ 31.973 $ 21.294 $ 11.289 $ 6.428 71.05% 70.98% 78.71% 69.64% 71.05% 70.98% 75.26% 32.14%

$ 3,600,000.00 $ 900,000.00 $ 2,100,000.00 $ $ 1,282,800.00 $ 322,320.00 $ 567,840.00 $ $ 2,317,200.00 $ 577,680.00 $ 1,532,160.00 $ -

$ 4,050,000.00 $ 1,800,000.00 $ 2,250,000.00 $ 2,000,000.00 $ 3,600,000.00 $ 1,800,000.00 $ 1,650,000.00 $ 2,000,000.00 $ 1,172,340.00 $ 522,360.00 $ 479,100.00 $ 607,200.00 $ 1,042,160.00 $ 522,360.00 $ 408,166.00 $ 642,780.00 $ 2,877,660.00 $ 1,277,640.00 $ 1,770,900.00 $ 1,392,800.00 $ 2,557,840.00 $ 1,277,640.00 $ 1,241,834.00 $ 1,357,220.00

Bra

1,000,000

Supplier- Villanueva

Bra

Yoga Shorts Thong Boyshorts 90,000 60,000 150,000 100,000 80,000 60,000 110,000 100,000

Yoga Shorts

Thong

Boyshorts

Placement 4 (Exclude China option2, 44% honduras, 36% guatemalala, Turkey 20%) Turkey Supplier - Narkonteks Total Units

Honduras

80,000 30,000 140,000

Bra

Yoga Shorts

Thong

Boyshorts

Thong

Honduras

Supplier- Villanueva

Bra

Yoga Shorts

Thong

Boyshorts

Bra

Guatemala

Ripsa

Bra

Yoga Shorts

Thong

Boyshorts 60,000

70,000 30,000 100,000

100,000 40,000 180,000 120,000 100,000 80,000 120,000

$ 45.000 $ 30.000 $ 15.000 $ 16.035 $ 10.744 $ 4.056 $ 28.965 $ 19.256 $ 10.944 64.37% 64.19% 72.96%

$ 45.000 $ 30.000 $ 15.000 $ 20.000 $ 45.000 $ 30.000 $ 15.000 $ 20.000 $ 13.026 $ 8.706 $ 3.194 $ 6.072 $ 13.027 $ 8.706 $ 3.711 $ 6.428 $ 31.974 $ 21.294 $ 11.806 $ 13.928 $ 31.973 $ 21.294 $ 11.289 $ 13.572 71.05% 70.98% 78.71% 69.64% 71.05% 70.98% 75.26% 67.86%

$ 3,150,000.00 $ 900,000.00 $ 1,500,000.00 $ $ 1,122,450.00 $ 322,320.00 $ 405,600.00 $ $ 2,027,550.00 $ 577,680.00 $ 1,094,400.00 $ -

$ 4,500,000.00 $ 1,200,000.00 $ 2,700,000.00 $ 2,400,000.00 $ 4,500,000.00 $ 2,400,000.00 $ 1,800,000.00 $ 1,200,000.00 $ 1,302,600.00 $ 348,240.00 $ 574,920.00 $ 728,640.00 $ 1,302,700.00 $ 696,480.00 $ 445,272.00 $ 385,680.00 $ 3,197,400.00 $ 851,760.00 $ 2,125,080.00 $ 1,671,360.00 $ 3,197,300.00 $ 1,703,520.00 $ 1,354,728.00 $ 814,320.00

Senario3: Exclude Guatemala Placement 5 and 6 exclude Guatemala. It is unlikely for us to get a higher margin without placing any products in Guatemala. Having Turkey and China at the same time raises up cost, since either country has free trade agreement with the U.S. The highest average margin we can get for a reasonable placement is 70.06%, with 50% products in Honduras, 30% in China, and 20% in Turkey. This scenario works, but it has relatively higher risks than the other two scenarios, therefore, is not considered by BaseLayer. Placement 5 (Exclude Guatemala: 30% China, 45% Honduras, 25% Turkey ) Turkey Supplier - Narkonteks Total Units

1,000,000

Wholesale Cost per Unit Margin % Total Wholesale

$ 25,750,000

Total Purchase total Margins

$ 7,803,010 $ 17,946,990

Avg Wholesale

$ 25.75 $ 7.80 $ 17.95

Avg Purchase

Avg Margins Avg Margins %

1,000,000

Xiamen Kingland Co., ltd

$ 2,700,000.00 $ 1,200,000.00 $ 2,250,000.00 $ $ 962,100.00 $ 429,760.00 $ 608,400.00 $ $ 1,737,900.00 $ 770,240.00 $ 1,641,600.00 $ -

$ 4,500,000.00 $ 1,800,000.00 $ 2,250,000.00 $ 2,800,000.00 $ 4,050,000.00 $ 1,500,000.00 $ 1,500,000.00 $ 1,200,000.00 $ 1,302,600.00 $ 522,360.00 $ 479,100.00 $ 850,080.00 $ 1,361,250.00 $ 452,500.00 $ 371,060.00 $ 463,800.00 $ 3,197,400.00 $ 1,277,640.00 $ 1,770,900.00 $ 1,949,920.00 $ 2,688,750.00 $ 1,047,500.00 $ 1,128,940.00 $ 736,200.00

Boyshorts

Yoga Shorts

Thong

Boyshorts

Thong

Boyshorts

Bra

$ 25,750,000 $ 7,709,940

total Margins

Avg Wholesale Avg Purchase

$ 25.75 $ 7.71 $ 18.04

Avg Margins %

70.06%

Honduras

Supplier- Villanueva

Bra

Yoga Shorts

Thong

Boyshorts

China

Xiamen Kingland Co., ltd

Bra

Yoga Shorts

Boyshorts 150,000 60,000

Thong

60,000 40,000 100,000

100,000 110,000 150,000 140,000 90,000

$ 45.000 $ 30.000 $ 15.000 $ 16.035 $ 10.744 $ 3.470 $ 28.965 $ 19.256 $ 11.530 64.37% 64.19% 76.87%

$ 45.000 $ 30.000 $ 15.000 $ 20.000 $ 45.000 $ 30.000 $ 15.000 $ 20.00 $ 13.026 $ 8.706 $ 3.194 $ 6.072 $ 15.125 $ 9.050 $ 3.711 $ 7.73 $ 31.974 $ 21.294 $ 11.806 $ 13.928 $ 29.875 $ 20.950 $ 11.289 $ 12.270 71.05% 70.98% 78.71% 69.64% 66.39% 69.83% 75.26% 61.35%

$ 2,700,000.00 $ 1,200,000.00 $ 1,500,000.00 $ $ 962,100.00 $ 429,760.00 $ 347,000.00 $ 18,040,060 $ 1,737,900.00 $ 770,240.00 $ 1,153,000.00 $ -

Total Purchase

China

Thong

69.70%

Wholesale Cost per Unit Margin %

Avg Margins

Yoga Shorts

$ 45.000 $ 30.000 $ 15.000 $ 16.035 $ 10.744 $ 4.056 $ 28.965 $ 19.256 $ 10.944 64.37% 64.19% 72.96%

Bra

Total Wholesale

Supplier- Villanueva

Bra

Yoga Shorts Thong Boyshorts 100,000 60,000 150,000 140,000 90,000 50,000 100,000 60,000

Yoga Shorts

Placement 6 (Exclude Guatemala: 30% China, 50% Honduras, 20% Turkey ) Turkey Supplier - Narkonteks Total Units

Honduras

60,000 40,000 150,000

Bra

$ 4,500,000.00 $ 3,300,000.00 $ 2,250,000.00 $ 2,800,000.00 $ 4,050,000.00 $ $ 1,302,600.00 $ 957,660.00 $ 479,100.00 $ 850,080.00 $ 1,361,250.00 $ $ 3,197,400.00 $ 2,342,340.00 $ 1,770,900.00 $ 1,949,920.00 $ 2,688,750.00 $ -

$ 2,250,000.00 $ 1,200,000.00 $ 556,590.00 $ 463,800.00 $ 1,693,410.00 $ 736,200.00

Final Placement

SWOT Analysis for Final Placement

Strengths • Align with sourcing guidelines, code of ethics • Meet margin goal • Capacity ability meets our needs • Best geographic locations • Shorter average lead times in Honduras, Guatemala, and Turkey than in China • 20% products in Turkey to keep a good relationship with the supplier there • 44% products in Honduras for best value and lowest cost per unit • Free trade agreement from Honduras and Guatemala with the U.S. Opportunities • Great textile industry and business opportunity in Turkey and Honduras • Expand into Europe market from the partnership with Turkey supplier • Possible Free Trade Agreement between Turkey and the U.S. in the future

Total 1 million units

Weaknesses • Sacrificing 0.51% margins, in comparison with placement 2 from scenario 1. • Missing capable workforce and good business opportunities from China • 16.9% duty for the type of products from Turkey Threats • Risks from social and political instability in Guatemala • Dependent on Honduras Suppliers as 44% of the products are placed there

Conclusion While striving for the highest possible average margin, we also need to reduce risks from factors including transportation, countries, and suppliers. BaseLayer will place most of our best-selling thong in Honduras and Guatemala for shorter lead time and better control over the products. 100,000 unit thongs, 70,000 Bras and 30,000 Yoga shorts will be place in Turkey, which makes up 20% of the products. Boyshorts will not be considered for manufacturing in Turkey since the margin is very low. 120,000 unit boyshorts are to be placed in Honduras, and 60,000 boyshorts in Guatemala. The margin for Yoga shorts in Honduras and Guatemala are the same, therefore we are placing more yoga-shorts in Guatemala to balance out the number of products we place in Honduras. The final placement is the best suitable choice to meet BaseLayer’s high sourcing standards and reasonable margin goal. More importantly, it allows the company to maintain a sustainable business model and expand to the European market in the future. 33

Logistics, Warehousing and Distribution Transportation will be a crucial part of our companyâ&#x20AC;&#x2122;s success, and our selected logistics providers all have their own fleet of vehicles ready for dispatch at our command. The services they offer include Day Definite, Overnight, Second Day Air, Next Flight Out, Hot Shot Trucks, Economy Deferred, Less Than Truckload and Full Truck Load. Since our products are essential staples instead of fashion items, their demand is easily predicted. Therefore, we have decided to use the more economical land transportation methods to fulfill our replenishment orders. Services such as Less Than Truckload are great for our business because we might ship limited volumes because of our companyâ&#x20AC;&#x2122;s size and the constant replenishment nature of our business. We have decided not to own any warehouses or distribution centers, because running them is an unbearable expense for companies of our size, and we will not be able to use them to their full capacities, which creates unnecessary friction in our supply chain. Warehousing and distribution function will be handed over to our 3PL providers entirely, and warehousing locations have been carefully selected to serve both the east coast and the west coast. Our primary warehouse locations will be in Los Angeles, Columbus, New Jersey and Atlanta. These strategic locations will enable us to reach most of the continental U.S. within one day, which will satisfy the needs of our partners and end customers.

Because of the luxury nature of our products and our high price points, we have selected four channels of distribution that will best serve our needs. The first one will be high end department stores such as Bergdorf Goodman, Nordstrom, Neiman Marcus, Barneys New York and Saks Fifth Avenue, which we predict will be 40% of our volume; although online shopping has increased dramatically over the years, luxury department stores still post stellar performance that we simply cannot overlook. We will also have boutique stores in high-income metropolitan areas such as New York City, Chicago, San Francisco and Atlanta to not only sell our products but to promote our brand and build relationships with our customers, and they will represent about 15% of our volume. Online presence, needless to say, is paramount in this day and age, and we will have our own online store, which sells about 20% of our volume. To satisfy customers who shop at 3rd party luxury e-commerce websites such as Net-A-Porter and Farfetch, we will set up distribution channels through those websites as well, representing the last 25% of our volume.

Vendor Rankings CATEGORY

Taylored Services Inc.

Inventory Management

Order Turn Around

Pick and Pack 9 Value added services

Costs

Explanation

EDI, Real Time Radio Frequency (RF), SKU attributes, Bar coding labeling and generation, FIFO/LIFO, Multiple picking options, Back order substitution, shipping document generation, Tas managing, Extensive business intelligence reporting; Electronic Communication

1-2 days Bagging, Blister Packaging, Carton Repack, Collating, Display Building, Gluing, Hand Assembly, Litho Labeling, Sealing, Shrink-Wrapping Product Auditing & Quality Control, Product Repacking, Assorting and Repakaging, Subassembly and Final Display Assembly, Ticketing & Tagging, Bagging & Sealing, Material Procurement

$0.3 to $0.5 per individual unite/outbound carton for pick and pack 7

Size

Customers

Location

Beginning in New Jersey in 1992, has grown to become a national leader in distribution, fullfillment and warehousing. Currently over 1.1 million square feet of warehouse and distribution space in Southern California Alone. Top 100 3PL service provider

Fossil, Fantasia Accessories, Gina Group, Totes Isotoner, Targus. Worked with all of the major mass market retailers: Saks fifth ave, CVS, Walmart, Target, etc

70% located at west cost, California. Rest in New Jersey. Great access to local ports

Multiple Locations

The Apparel Logistics Explanation Groups

Prvately held company in Edison, NJ

Enterprise Resource Planning (ERP), Warehouse mangement systems (WMS), EDI standards for retailers, including label and packaging compliance. Electronic records of all inbounf and outbound transactions; Custom programming to suit customers needs

2-3 days Customized Pick and Pack/replenishment Services

Garment inspection,; Price ticket changes; re-ticketing; Polybag application; Application of bar codes; Apparel security tags; Apparel returns processing, repairs, Apparel packaging, Embroidery and Heat Transfer

$0.5 to 0.8 per individual unit/outbound carton for pick and pack

Expeditors

Cargo and supplier management, proactive management and optimization of orders, agile transportation and routing options, document creation and management tools, insurance, customs bonds, TRACE

Within 24 hours multi-channel order fulfillment services, customized pick and pack

Reverse logistics (including recall management), Manufacturing support (including kitting, light assembly and point-of-use delivery), Direct-toconsumer, Lot code/date code tracking, Displays: point-of-purchase, retail and pallet, Business-to-business, Workforce management, Mixing centers

XPO Logistics (NYSE: XPO) is a top ten global logistics company. It run business as one highly integrated network of people, technology and physical assets in 32 countries, with over 91,000 employees and 1,444 locations.

comprehensive origin logistics and consolidation; full visibility including tracking,reporting, and milestone management; retail ready; rapid response; transportation management and optimization programs; RFP tender management; consulting and analytics and more

$1.8 to 2.5 per individual unit/outbound carton for pick and pack

1-2 days

Cherry Hill, N.J.

10 Blending, kitting, and grinding Metering, Sub-Assembly, Design, material sourcing and assembly, Floorready promotional displays, Module building, Product bundling and meal kitting, Shrink wrapping, Flexible vertical and horizontal cartoning, Sticker and RFID label application, Product coding and recall

supply chains overcome boundaries â&#x20AC;&#x201C; geographically and operationally, 31 millon square feet of warehouse space, 215 locations

Around $2 per order

National and regional distribution centers, Dedicated and shared-user operations, Automation and sortation, Temperature-controlled facilities, Specialized product storage and handling, Conventional and highdensity storage, Cross-docking and merge-in-transit, Warehouse management system integration, Onsite assembly and packaging services

OIA Global

Customized Pick and Pack Services

NFI is a leading international third party logistics provider with customers ranging from Fortune 100 companies to small businesses.

Greenwich, Conn.

Explanation

846 locations in the U.S.,1462 locations in the global

2 days

Headquartered in Seattle

Customized Pick and Pack Services

ASOS, Danone, Marks & Spencer, Perdue, Sears, Siemens Healthcare, Verizon

Global network of 329 locations in 107 countries on six continents

ticketing, labeling, packaging and a full menu of customized services

DHL Supply Chain

customs regulatory services, order management, product management, document management, distribution services, an in-house IT management and integration team and more.

Waiting on quote

For high fashion or fast fashion: DKNY, Amazon

East and West coasts

Head quartered in North Dallas

24 Hours

2016 revenue in USD: $6.1 billion. 500 Fortune service-based logistics company. +16,000 worldwide

Customers in the fashion apparel industry from manufaturer to retailer: EPIC Group, Bonobos

Explanation

Around $2 per order 6

NFI

the second largest warehouse network in the world; short- or long-term needs; regulatory compliance, date/lot code tracking and other critical handling processes; increased visibility

XPO Logistics Explanation Inc.

Kitting & Final assembly; product inspection & compliance; light manufacturing; product localization; labeling; Product rework & recycling

6.2 milion cubic feet of apparel distribution warehouse space. Supply fashion goods to more than 2,000 active retialers from coast to coast

Explanation

A 30-year tradition of logistics excellence. Its has about 340,000 employees in more than 220 countries and territories worldwide.DHL Supply Chain is the global market leader in contract logistics with a market share of 8.3% (2010).

7-Eleven, Bayer, Bristol Myers Squibb, Chrysler, Coty, Energizer, Ford Motor Co., General Electric, Hershey, International Paper, PepsiCo, The Home Depot, Novartis, Volkswagen, Zimmer DHL Supply Chain is organized into six regions: North America, South America, APAC ,Greater China, MLEMEA and UK&I. Westerville, Ohio

total

79.00

70.00

76.00

77.00

74.00

75.00

77.00

Averge

8.78

7.78

8.44

8.56

8.22

8.33

9.63

distribution nd shared-user on and sortation, ed facilities, torage and al and highs-docking and rehouse integration, Onckaging services

OIA Global

Pack Services

grinding bly, Design, d assembly, Floorsplays, Module dling and meal ng, Flexible al cartoning, application, ecall

logistics out 340,000 han 220 countries wide.DHL Supply arket leader in h a market share

ol Myers Squibb, zer, Ford Motor Hershey, PepsiCo, The s, Volkswagen,

rganized into six ca, South ter China,

Explanation

By utilizing a highly configurable, world class Warehouse Management System (WMS) and Radio Frequency (RF) directed and verified inventory movement, customers can be confident the right product is being shipped and their inventory is accurate

Within 24 hours

DSV Global

Offers pick and pack service 10

10 Documentation consulting; fulfillment; pick and pack; kitting; UCC 128 Labeling; e-fulfillment; QA/QC; Returns; Inventory management; Transportation management; crossdock; system integration; custom labeling; obsolete handling

1-2 Days Offers repackaging services that package products according to specific requirements

Oregon

21 office locations in U.S.; 2 warehouse locations in New Jersey and California

New Jersey

1,055 millions USD gross logistics revenue for the year 2016

pick and pack, 24-7 service, scanning, receiving, order tracking, status updates Scan & receiving Order Tracking Status Update Real-time movement tracking Labelling EDI Logistics Customer Data Entry Quality Control E-commerce fulfillment “Bergen Closet” Catalogue, photograph, and Warehouse setup fee: $2500 Flat item receival: $0.60 Pick: $0.50 Pack: $0.12 Outgoing per Order: $3.85

Singapore

receiving, distribution, sorting, repackaging, packaging

Ohio

distribution, receiving, sorting

Scan & receiving, tracking, labelling, EDI, logistics, rail optimizing system, desktop DMS software, 'top 75 green supply chain partner' 10

(none given) 0

31 million square foot total

Huge warehouses across the country as well as around the globe 10

Ebay, Coty Brands, Elizabeth Arden

2 days

(None given)

Explanation

Warehouse management, fufillment, price tagging, inventory maangement

e-commerce integration, inhouse quality control, B2B for e-commerce, EDI services

West Coast Areas

24 hours

XP Logistics

‘Luxury clients in the ready-towear industry’

Over 11 warehouse locations in U.S., in both west and east

Explanation

warehouse management, fufillment, omni-channel order fufillment, e-commerce support, inventory management

Large global footprint

Converse; Nike

24 hours

SP Express

Offers customized pick and pack services to minimize handeling

Explanation

GOH shipping, price tagging, invoicing, returns, quality control, inventory management

Waiting on quote

Under Armour; Cargill; Xerox; Flying Tiger; Raw Bite

Over 70 locations worldwide; 17 in the U.S., both east and west, such as Ohio

1-2 Days

Bergen Logistics

Customer Packaging; Kitting; Labeling; Sequencing; Returns processing; Salvage/disposal reporting

1,798 millions USD gross logistics revenue for the year 2016

Jordan Leavitt Apparel; Nike Apparel; Jordan; Danner Lacrosse

APL has a strong track record, collaborating with manufacturers and suppliers, integrating information technology services and managing the information flow between all parties. All inventory movements are monitored and transmitted to your suppliers via Electronic Data Interchange (EDI) transmissions.

Waiting on quote 0

Explanation

1,150 millions USD gross logistics revenue for the year 2016

From the moment an order has been shipped, the status of the shipment can be viewed. Order entry, stock status and stock level of an SKU can be viewed as well as various stock transactions. In addition to this, DSV's e-Visibility makes it possible to provide customized reporting on inventory

APL Logistics

Assembly and kitting; Quality testing; packaging and repackaging; configuration; labeling; repairs; quality inspection; cargo insurance

Waiting on quote 0

Explanation

Home Depot, Nissan,

Virginia, New Jersey, Netherlands, Texas, California, Arizona

Northern New Jersey

Locations around the globe - 1462 in total 10

77.00

75.00

65.00

9.63

9.38

7.22

8.33

7.89

7.44

Savanah, GA

OIA Global Headquartered in Oregon, U.S., OIA Global is a global 3PL company that began operations in 1988. Since then, it has expanded capabilities and global reach, adapted services to become a leading and truly original supply chain management company. OIA shares our values in that they have deep roots in innovation and customer-first mentality. And from reviewing their case studies, we are confident that they can make a positive impact on our operations. OIA offers highly configurable, world class Warehouse Management System (WMS) and Radio Frequency (RF) that direct and verify inventory movement, we can be confident the right product is being shipped and our inventory is accurate. OIA has a quick turnaround time of only 24 hours, which will ensure our orders are processed in a timely manner. Also, their value-added services include pick and pack, relabeling, quality inspection, e-fulfillment, returns, cross-docking and many other services that benefit our apparel business. OIA serves well known clients such as Jordan Shoes and Nike Apparel, and has 17 strategic locations within the U.S., serving both the east and west coast.

DSV Global DSV Global is a global supplier of transport and logistics services based in New Jersey, U.Sâ&#x20AC;Ś They have offices and facilities in more than 80 countries that span over 6 continents. DSV offers customized and efficient supply chain solutions for thousands of companies on a daily basis, proving their capacity is more than enough for our start-up. Although DSVâ&#x20AC;&#x2122;s reach is global, their presence is usually local and close to their customers, which is what we want in our 3PL providers. When working with DSV, from the moment an order has been shipped, the status of our shipment can be viewed. Order entry, stock status and stock level of an SKU can be viewed as well as various stock transactions. In addition to this, DSV's e-Visibility program makes it possible to provide customized reporting on inventory. Value added services include quality testing, repackaging, labeling, cargo insurance and many more. Big brands such as Under Armour, Cargill, Xerox and Raw Bite all trust DSV with their logistics needs. And their 21 office locations in the U.S. alone can definitely meet our needs as well. 38

Taylored Services Taylored Services is a fully integrated third party logistics provider based in Edison, New Jersey, U.Sâ&#x20AC;Ś Specializing in wholesale, retail and direct to consumer fulfillment, Taylored Services provides retail capabilities with expertise in apparel, footwear and accessory distribution. Because Taylored Services is a privately-owned company, we believe that they do not have to focus on short-term gains to satisfy their stock-holders. Which means that they can afford to make investments that are focused in long-term strategies and partnerships. Since their inception in 1992, Taylored Services has become a leading company in distribution, fulfillment and warehousing by providing their clients with efficient and reliable services. Their distribution centers are strategically located the nationâ&#x20AC;&#x2122;s busiest ports such as Los Angeles, Long Beach and New York. We especially like this 3PL provider because of its working relationships with some of the nationâ&#x20AC;&#x2122;s largest wholesalers and retailers such as Saks Fifth Avenue, Nordstrom and Neiman Stores, which are our future distribution channels.

Supply Chain Strategy Summary and Conclusion After carefully selecting countries, manufacturers, freight options, logistics providers and distribution channels, our supply chain strategy can be briefly summarized below. Through extensive research and discussion, our team has selected Turkey, Honduras and Guatemala as our production countries. Reasons include proximity to our intended markets (good lead times), cheap labor costs, possible expansion into the European market, good sourcing guidelines and low overall end costs. We have eliminated China because of the high transportation costs and long lead times of the nation. Also, Chinaâ&#x20AC;&#x2122;s rising labor costs prove to be a concern among our team members. Moreover, Chinaâ&#x20AC;&#x2122;s growing domestic market is eating up a lot of the nationâ&#x20AC;&#x2122;s production capacities, which will be troublesome in our future operations. We have explored many options for our potential manufacturers in Turkey, Honduras and Guatemala, and we have selected the best suppliers in each country based on our rankings. Ripsa of Guatemala, Narkonteks of Turkey and Manufacturas Villanueva of Honduras are selected as our final manufacturers because they satisfy our requirements in categories such as abilities, capacity, leadtime, quality, sourcing guidelines, additional services and strategic outlook. Logistics providers have been examined based on inventory management capabilities, order turnaround time, pick and pack services, value added services, costs, size and locations. Based on the responsiveness and rankings of the dozens of 3PLs we explored, we have selected OIA Global, DSV Global and Taylored Services as our final partners. Besides their high rankings on the categories above, these three logistics providers are responsive to our inquiries, have highly sophisticated IT systems and highly specialized in the apparel and retail industry. Which is why we believe they will be capable to satisfy our every need in the area of logistics. Handing over the logistics function of our company will also prove to be cost efficient in the future, because our initial low volume will not be able to justify the large expenses associated with owning warehouses and distribution centers. Distributions channels have been thoroughly explored and discussed among team members, and we all agree to make our products high-end and highly accessible at the same time. Therefore, we chose four categories of distribution channels to maximize our exposure to our customers and make shopping our brand easy for them. These four categories include own online store, third party online retailers such as Net-A-Porter and Farfetch, luxury department stores such as Neiman Marcus and own boutique stores in high-income metropolitan areas such as New York City. 41

APPENDIX

TECH PACKS

COSTING SHEETS

COUNTRY REPORTS

• Seamless Wirefree Sports Bra • Yoga Shorts • Boyshorts • Seamless Thong

• Bra Multi Country Cost • Yoga Shorts Multi Country Cost • Thong Country Cost • Boyshorts Multi Country Cost

• Turkey • Honduras • Guatemala

Item 1: Seamless Wirefree Bra

Item 2: 5'' Spandex Yoga Shorts

Item 3: Athletic Boyshorts

Item 4: Seamless Thong

Costings BaseLayer

COST SHEET Style # BL101 Style Name Description FABRICS Fabric 1

Seamless Athletic Thong Bra top

Mill Spandex Warehousr

Style # VlA-3101

TOTAL FABRIC COST *to include freight Components

Vendor Thread American & Efird Heat transfer Prime Label TOTAL COMPONENT COSTS

PACKAGING

Vendor Qingdao Yilucai Size Strips ULINE TOTAL PACKAGING COSTS Hangtags

PACKING

Vendor Cartons Uline Tape Uline Labels Uline TOTAL PACKING COSTS

SS2019

$/yard*

Yield**

60inch wide

0.15

Turkey Total

**must include waste

Style #

$/unit 0.6

Garment Heat transfer label

Style # No.1104 No.S-18052

$/unit

Style # S-18351 S-423 S-7387

$/unit

OTHER Freight ZIM International Shipping Insurance Priority Worldwide Total cost of product + insurance + freight Duty*@ Broker* TOTAL OTHER

Quantity** 0.0015

Perma Core Using Repreve

LABOR Patternmaking Grading Marking Cutting Sewing Finishing* laser cut Prepacks Admin TOTAL LABOR *Includes pressing & packing unless otherwise noted.

GRAND TOTAL

Description

Season

Quantity 0.11 0.02

Quantity 1.33 0.0145 0.04

COST

percentage per container

$Total

60 0.0186 1

$Total

2.0

0.110

per container

$Total

1 1

#of mins

Cost/min

per container

$Total

20 1

1520 2698 0.0% 600

# units

52200 52200

52200

$Total

1.0605

Honduras Total

Guatemala Total

China Total

1.0605

0.0303 0.6060 0.6363

0.6363

0.1111 0.0202 0.1313

0.1313

0.0222 0.0003 0.04 0.0624

0.0624

0.0100 0.0100 0.0044 0.0440 0.4400 0.4000 0.0900 0.5000 1.4984 3.3889

0.0100 0.0100 0.0044 0.0220 0.2200 0.4000 0.0600 0.5000 1.2264 3.1169

0.0100 0.0100 0.0121 0.0220 0.2200 0.4000 0.0600 0.5000 1.2341 3.1246

0.029 0.052 3.470 0.586 0.011

0.0582 3.194 0.0000 0.0230

0.0590 0.0187 3.202 0.0000 0.0230

0.0354 0.0187 3.179 0.5086 0.0230

4.056

3.194

3.202

3.711

0.0187

Baselayer

COST SHEET Style # Style Name Description FABRICS Fabric 1 TOTAL FABRIC COST *to include freight Components

Thread

BL102 Yoga Shorts Women's bottom

Mill Simplifi Fabric

Season SS 2019

Style # No.H-1021

60inch wide

Vendor American & Efird

Style #

$/unit

Perma Core Using REPREVE

PACKAGING

Vendor Style # Hangtags Qingdao Yilucai Packaging 1104 Co., Ltd. Box Nashville Wraps Packaging 11391 Co Size Strips ULINE S-18052 TOTAL PACKAGING COSTS

PACKING

Vendor Cartons ULINE Tape ULINE Labels ULINE TOTAL PACKING COSTS

Style # S-18351 S-423 S-7387

LABOR Patternmaking Grading Marking Cutting Sewing Finishing* Describe Prepacks Admin TOTAL LABOR *Includes pressing & packing unless otherwise noted. OTHER Freight Insurance Priority Worldwide Total cost of product + insurance + freight Duty*@ Broker*

GRAND TOTAL

14.5

Yield**

0.36

Honduras Total

**must include waste

Heat Transfer Prime Labels Garment Heat Transfer Labels Waistband Shantou Hengle Webbing B24069 Co., Ltd. TOTAL COMPONENT COSTS

$/yard*

Description

0.6

1 0.8

0.144

$/unit

Quantity 0.11 0.82 0.02

$/unit

Quantity 1.33 0.0145 0.04

COST

percentage per container

$Total

60 0.005566667 1

$Total

4.0000

0.1100

per container

$Total

1 1 1

#of mins

Cost/min

per container

$Total

Quantity** 0.0015

1520 2697.74 0.0% 600

# units

52200 52200

52200

$Total

Guatemala 5.272 5.2722

Turkey

China

5.2722

0.606 0.116 0.851

0.851

0.111 0.828 0.020 0.960

0.960

0.022 0.000 0.040 0.062

0.06225

0.0100 0.0100 0.0044 0.0440 0.4400 0.4000 0.0600 0.5000 1.4684 8.6135

0.0100 0.0100 0.0044 0.0440 0.44 0.4000 0.0600 0.5000 1.4684 8.6135

0.0100 0.0100 0.0088 0.0880 0.88 0.4000 0.0600 0.5000 1.9568 9.1019

0.0100 0.0100 0.0044 0.0440 0.44 0.4000 0.0600 0.5000 1.4684 8.6135

0.029 0.052 8.694 0.000 0.011

0.029501916 0.051680848 8.695 0.000 0.011

0.024521073 0.054611248 9.181 1.551590176 0.011

0.042145594 0.051680848 8.707 0.330877441 0.011

8.706

10.744

9.050

0.129

Costings BaseLayer

COST SHEET

Style # BL103 Style Nameï¼&#x161;Athletic Boyshorts Description: Women's Underwear FABRICS Fabric 1 TOTAL FABRIC COST *to include freight

Mill Spandex Knit

Components

Vendor Thread American & Efird heatstransfer Prime Labels Elastic waistband Drit TOTAL COMPONENT COSTS

Season: S/S 2019

Style#

450614

Style# $/unit Perma Core Using REP REVE Garment Heat Transfer Labels 372051

Vendor Style# Hangtags Qingdao Yilucai Packaging1104 Co., Ltd. Side Strips ULINE S-18052 Box Nashville Wraps Packaging Co TOTAL PACKAGING COSTS

Vendor Cartons ULINE Labels ULINE Tape ULINE TOTAL PACKING COSTS

Style# S-18351 S-7387 S-423

LABOR Patternmaking Grading Marking Cutting Sewing Finishing* Describe Washing* Describe Prepacks Admin TOTAL LABOR *Includes pressing & packing unless otherwise noted. OTHER Freight Insurance Total cost of product+insurance+freight Duty Broker TOTAL OTHER

GRAND TOTAL

8.98

Yield**

0.29

China Total

**must include waste

PACKAGING

PACKING

$/yard*

Quantity** 0.0015 0.6 0.32yds

$/unit

Quantity 0.11 0.02

11391

0.82

$/unit

Quantity 1.33 0.04 0.0145

cost

percentage per container

$Total

60 1 0.005566667

$Total

3.75

0.11

per container

$Total

1 1 1

#of mins

Cost/min

per container

$Total

65 1 0.74

1847 1839.752 16.00% 600

# units

52200 52200 0.951 52200

$Total

Hoduras

Guatemala

Turkey

2.6042 2.6042

2.6042

0.0975 0.6 0.2368 0.9343

0.9343

0.11 0.02 0.82 0.95

0.95

0.022166667 0.04 0.000081 0.062

0.062

0.0041 0.0041 0.0041 0.041 0.41 0.3 0 0.06 0.5 1.323 5.874

0.0041 0.0041 0.0041 0.041 0.41 0.4 0 0.06 0.5 1.423 5.974

0.00825 0.00825 0.00825 0.0825 0.825 0.4

0.035 0.035 5.945 0.951 0.0115 1.0333

0.029118774 0.058 6.061 0 0.0115 0.0986

0.1232 0.32 6.4172 0 0.0115 0.4547

0.025 0.041 6.538 1.105 0.023 1.1933

6.9073

6.0727

6.4287

7.6663

0.09 0.5 1.922 6.473

BaseLayer

COST SHEET Style # BL201 Style Name Description FABRICS Fabric 1 Fabric 2

Seamless wire free sports bra Bra top

Mill Simplifi Fabric Simplifi Fabric

Style # No.H-1021 No.H-1021

TOTAL FABRIC COST *to include freight Components

Description

GK Biochemical Corp.

DMK premium

Vendor Qingdao Yilucai ULINE

Style # No.1104 No.S-18052 No.11391

$/unit

Style # S-18351 S-423 S-7387

$/unit

TOTAL COMPONENT COSTS

Box Nashville wraps packging co. TOTAL PACKAGING COSTS

PACKING

Vendor Cartons Uline Tape Uline Labels Uline TOTAL PACKING COSTS

LABOR Patternmaking Grading Marking Cutting Sewing Finishing* Prepacks Admin

Yield**

14.5 14.5

0.3 0.25

Turkey Total

**must include waste

Fabric Adhesive

Size Strips

$/yard*

internlining

Vendor Coast pad American & Efird Prime Label

Hangtags

SS2019

60inch wide

Pad insert Thread Heat transfer

PACKAGING

Season

Style # No.Z11

$/unit

Quantity** 0.65 0.0015

Perma Core Using Repreve

0.6

Garment Heat transfer label

0.85

Quantity 0.11 0.02 0.82

Quantity 1.33 0.0145 0.04

$Total

2 30 1 0.2

$Total

1 1 1

$Total

30 0.0186 1

$Total

#of mins

Cost/min

5.5

0.220

laser cut

TOTAL LABOR *Includes pressing & packing unless otherwise noted. OTHER Freight iCoutainer Insurance Priority Worldwide Total cost of product + insurance + freight Duty*@ Broker* TOTAL OTHER

GRAND TOTAL

COST per container per container percentage per container

1280 2128 16.9% 600

# units

26100 26100

26100

$Total

4.3935 3.6613

Honduras Total

Guatemala Total

China Total

8.0548

1.3130 0.0455 0.6060 0.1700 2.1345

2.1345

0.1111 0.0202 0.8282 0.9595

0.9595

0.0443 0.0003 0.04 0.0846

0.0846

0.0100 0.0100 0.0121 0.1210 1.2100 0.4000 0.0900 0.5000

0.0100 0.0100 0.0121 0.0605 0.6050 0.4000 0.0600 0.5000

2.3531 13.5864

1.6576 12.8909

0.049 0.082 13.717 2.318 0.023

0.0582 13.026 0.0000 0.0230

0.0590 0.0773 13.027 0.0000 0.0230

0.0708 0.0773 13.039 2.0862 0.0230

16.035

13.026

13.027

15.125

0.0773

Country Report: Turkey Country Traits Turkey, known officially as the Republic of Turkey, is a democratic, secular and constitutional republic established in 1923 by nationalist leader Kemal Ataturk. It has a land slightly larger than Texas and is a country of geographic, economic and social contrasts. The capital of Turkey is Ankara, and the official language is Turkish. Recep Tayyip Erdogan was the first directly-elected president in 2014 and has brought Turkey years of economic growth (Turkey Country Profile). Demographically, Turkey is a relatively young, middle-income country with a population of around 80 million and a GDP per capita of approximately $21,100. The country’s economy benefits from a capable workforce and diverse natural resources, and is composed of modern industry, commerce, and agriculture (Turkey: 2016 Country Review, 2).

Country Stability - Political Status: The government of Turkey is based on the principle of democratic. Turkey is supporters of liberal trade and investment policies. The country has been pursuing a stable foreign policy, which played a significant role in the implementation of its global initiatives. The current strength for Turkey is that it has an improving international standing since it holds memberships of numerous international organization. This allows open trade between different countries in the EU. The country now keeps on attracting more foreign direct investment into the country and has followed macroeconomic strategies combined with strong fiscal and monetary policies to manage its economic growth (Country Profile Series Turkey, 32). Exports have been rising at an average rate of 10% every year. To further improve the economy’s export competitiveness, Turkey government is boosting the output of intermediate goods including fabrics, which will allow foreign apparel business to grow faster (PESTLE Analysis for Turkey). Increased unemployment and high security risks are two current political challenges for the country. Turkey raised minimum wage by about 30% in the beginning of 2016, which resulted in higher unemployment since then (PESTLE Analysis for Turkey). Several violent terrorist attacks have happened last year, and the weak Government’s military response could eventually drag the country into a serious social and political crisis if not strengthened timely (Country Profile Series Turkey, 17).

Economic: The Turkish economy is characterized by a well-capitalized banking sector and profitable public finances. One of the economic strength is that Turkey has a high flow of foreign investment coming from foreign countries, which has been driving the country’s expansion and economic growth. Turkish government used the money generated from foreign investment to expand the infrastructure, which improved people’s life, increased transportation efficiencies and provided more business opportunities from aboard. (Country Profile Series Turkey, 15). The challenge of the country’s economy is that it currently has high account deficit due to strong domestic demand and economic growth, while exports remain limited. It is estimated that the deficit will gradually increase over the next few years and will reach 4.57% of GDP by 2021 (Country Profile Series Turkey, 36). This could cause problems that the country being too dependent on capital inflows to meet its large financing needs. Moreover, the external long-term public debt is mostly denominated in Dollar and Euro. The uncertainty regarding upcoming elections in major European countries and Trump’s protectionist stance in the U.S. economy intensified an uncertain climate in the future (Country Profile Series Turkey, 19). Turkish lira is the currency of Turkey, and current code for lira is TRY. Both political and economic uncertainties may cause a decline in Lira against the currencies like Dollar and Euro, which will increase the debt burden of Turkey further. (1 Turkish= 0.27 US dollars, Oct 9. 2017)

Social Status: One of the social system strength is that more government expenditure is spent on social protection benefits in the past few years. The Turkish government has implemented policies aimed at improving quality of people’s life within the country (Country Profile Series Turkey, 21). Another important social system strength is that Turkey has one of the youngest population in Europe with more than half of the population being aged below 30. This allows great opportunities for Turkey to increase its employment rate by capitalizing on its young labor force especially when other European countries are facing the problem of an aging population (PESTLE Analysis for Turkey). Turkey’s weak labor laws and low tertiary education rate are the biggest social system challenges. Two out of five of the workforce are not protected by the labor laws, and low tertiary education rate results in decreasing numbers of skilled workers (Country Profile Series Turkey, 22). With a high level of unemployment going on in recent years, it could be a disadvantage for apparel companies to do productions in Turkey because of less efficient labor market and shortage of skilled workers. 62

Lead-Time of Production The air travel distance from Turkey to the United States is 6,341 miles that take 11.3 hours to arrive. Ocean freight is the preferred mode of transportation for the type of product BaseLayer is producing, to maintain low cost through transportation. The U.S. is one of the leading Turkeyâ&#x20AC;&#x2122;s export partner with a share of 4.5%. Usually, it takes an average of 16 days to ship from Turkey to the U.S. (Tan. 46). However, lead-time production may be delayed under certain circumstances such as natural disasters and cultural nuances. Lies in one of the worldâ&#x20AC;&#x2122;s most active seismic zones, 70% of Turkish population is living in earthquake active areas. Other natural disasters such as flood and landslides may also affect lead-time of production (Walsh). Holidays such as the Turkish Republic Day, National Labor Day, and religious holidays including Ramazan Bayrai and Kurban Bayrami may also affect lead-time production.

Cultural Insights Turkish culture is rich in Ottoman and Folkloric elements and has been influenced by a mix of Western and Muslim traditions. One must find effective ways to communicate, negotiate, and conduct business in accordance with the traditional and modern Turkish culture (Turkey Overview, 399). More than half of Turkish people live in urban areas and have adopted a western way of life. Religion in Turkey is predominantly Muslin around 98%, therefore, a mix of Western and Muslim traditions comprises Turkish etiquette (Turkey Overview, 398). In Turkish society, men are the dominant gender over women. Elders are highly respected. Their social space is much closer than it is in North America. People speak to each other at a somewhat close distance. Moreover, one should not have any body contact with the opposite sex in public in the case of a meeting. Turkey is a country with prohibitions and customs involving eating influenced by Muslim religions. Pork and alcohol are disallowed in a Muslin Turkish daily life. Tobacco is widely used within the country and one should be prepared for the uncommon smoking zones. Turkish people prefer to do things with their left hands and they never eat with left hands because they are considered unclean in the Muslim world (Turkey Overview, 399-400). It is also important to know the business customs in Turkey (Turkey Overview, 401-402). Turkish people are formal because both men and women dress conservatively in the workplace. It is considered rude when one point at other people, and it is also not accepted when women cross their legs, or anyone crosses his arms while facing another person. The most important thing is that a personal relationship is a basis for a successful business relationship in the country, which is very much like the business culture in China. Business cards are always exchanged, and visitors are usually offered with tea or coffee (Turkey Overview, 401-402).

State of Apparel and Textile Industry Textile industry is one of the first established industries in Turkey and has improved significantly in the past decade (Turkey fabric industry, 1). Today, textile and apparel industry plays a significant role in Turkeyâ&#x20AC;&#x2122;s economic in terms of gross domestic product, employment and exports (The State of The Turkish Textile and Ready-Wear Industries). The Turkish fabric industry has competencies in terms of its technology, extensive product range and the quality, design, creativity of its products, and strong service ability of quick response (Turkey fabric industry, 4). In addition to these advantages, textile industries such as OekoTex Standard 100 and Organix Exchange, have also adopted to develop eco-conscious products because of the increasing trend in international markets for healthier materials (Turkey fabric industry, 2). Regarding the underwear sector, the country has succeeded in creating a blooming underwear industry as it adopted high tech manufacturing methods, invested in best facilities and set up active R&D units with a focus on working with international small and mediumsized companies. Turkey is the 3rd largest exporter of underwear in the world and exported $8.9 billion knitted garments in 2015, $5.9 billion in woven ready-wear (Istanbul). The underwear industry in Turkey also altered from purely manufacturing-oriented underwear sector into a more diverse, multifunctional industry by offering customer complete service from raw stage to design, and to final collections (Lingerie Private Labeling and Underwear Industry in Turkey). The good reputation in Turkish textile and underwear industry satisfies the essential needs from BaseLayer, which are high technology, environment-friendly synthetic products and complete service for long-term buyer and supplier relationships in the future. Labor costs of the apparel industry in Turkey are lower than most of the developed countries, but they are still higher compared to China, India, and Pakistan (The State of The Turkish Textile and Ready-Wear Industries). International businesses would also benefit from Turkish the Turquality Programme launched by the government, which is to assist in marketing, quality upgrade and strategic positioning to support international expansion of the textile and apparel industry (Istanbul).

Trade Agreements There are no free trade agreements between Turkey and the U.S. The country is qualified and listed in the U.S. General System of Preferences Program (GSP). The program promotes economic growth in the developing world by providing duty-free entry to the U.S. market. Approximately over 3,500 different products from Turkey are eligible to enter the United States duty-free. Products must meet the Product and Apparel Eligibility as products must be included on the list of GSP-eligible article and must be imported into the United States directly from Turkey (U.S. Generalized System of Preferences Guidebook). Textile and apparel are considered “import sensitive” products, thus restricted to very specific items. Knitted undergarments are considered ineligible products, therefore, the GSP agreement will not benefit BaseLayer.

Product Classification Women’s sports undergarment produced by BaseLayer does not have free trade tariffs from Turkey to the U.S. Women’s bottom is listed in the underwear of man-made fibers category with a 16% rate of duty. The HTS heading is 6108.92.00.15. Women’s tops fall under the Brassieres category with a 16.9% rate of duty, and the HTS heading is 6212.10.50.00 (Harmonized Tariff Schedule).

Transportation Turkey has a long coastline of 8333km and over 87% of Turkey’s international trade is through maritime transport (Coastal Erosion Turkey). The most important ports of Turkey are located in major cities such as Bandirma, Iskenderun, Istanbul, Izmir, and Mersin. Many ports are for goods coming to and from Europe, Asia, and the Middle East. Istanbul is one of the busiest maritime routes in the world with an annual average of 12,000 transit passages. Izmir is the third largest city in Turkey and is now one of the fastest growing ports in Turkey (Country ReportsTurkey, 39-41). The U.S. is one of the leading Turkey’s export partners with a share of 4.5%. Large shipping companies such as iContainers and Zim are two leading container shipping carriers that offer service to the U.S. Transit time varies from 7 to 32 days depending on the origin and destination of the ports. The average cost of sending a 40-foot container can be anything between hundreds of U.S. dollars to over $1,500 thousand. BaseLayer looks for containers shipping from major ports of Turkey to New York or Newark, which has an approximate cost of $1,300 (iContainers, ZIM container Shipping).

Risk and Benefits Putting trust in entities that exist outside of the United States, BaseLayer must face risks of the uncontrollable situations from economic, social, political, natural and culture influences. Turkey’s political upheaval and terrorist activities may strongly affect most apparel businesses. The company also will deal with risks from natural disasters, delayed transportation, and cultural differences. There are many benefits for BaseLayer to do business with Turkey, especially the country’s economy is heavily dependent on the fashion industry. Even though labor rate is still higher than it is in China or India, is much cheaper compare to other developed counties in Europe. BaseLayer will also benefit from Turkey’s geographic location, which allows the company to choose the most efficient and cost-effective ways by exporting from different ports depending on suppliers’ locations and shipping costs. More importantly, unlike many Far East and Asian countries, Turkey is serious about protecting the environment. It is one of the selected few countries that mandates that all its textile manufacturers follow the internationally accepted environmental standard (Suzanne). With a company value strongly focused on producing eco-friendly products, this could be a talking point for BaseLayer in terms of sourcing and buying in Turkey.

Conclusion Turkey has succeeded in creating a blooming underwear industry in the past decades, thus is one of the countries that BaseLayer will consider doing business with in the future. Even though the product category from the company is not eligible for duty-free entry into the U.S., there are many other areas that could benefit BaseLayer in terms of production cost, textile and product innovation, and environmentally sustainable reputation. The company is capable to reduce cost on labor and transportation. Lower labor cost comparing to developed countries helps maintain profit margins. BaseLayer will also explore efficient and cost-effective way to ship its products overseas. Finally, many textile and apparel manufacture in Turkey have adopted high tech manufacturing methods, best facilities, active R & D units to produce ecofriendly products, which become the most attractive and important considerations for BaseLayer to do business with Turkey.

Country Report: Honduras Country Traits Region/Location: Central America, bordering the Caribbean Sea, between Guatemala and Nicaragua and bordering the Gulf of Fonceca, between El Salvador and Nicaragua. Government System: Democratic constitutional republic  Head of State: Juan Orlando Hernandez Languages: Spanish (official), Amerindian dialects  Geographical Size: 112,090 sq km (ranked 104th in the world)  Population: 9,112,867 (as of 2016) Currency: Lempira (HNL)  Ethnic Groups: 90% Mestizo (mixed Amerindian and European), 7% Amerindian, 2% black, 1% white  Religions: 97% Roman Catholic, 3% Protestant  Education: 11.2 years (average length of schooling), 88.5% (adult literacy rate)

Country Stability - Political Status: During the upcoming presidential election in November, protests are likely to happen because of the recent deaths of environmental activists and corruption investigations. Many sources, including IHS, are concerned that the current president Juan Orlando Hernandez will run for a second term despite previous constitutional restrictions that were voided in a 2015 Supreme Court ruling, which intensified the political polarization in Honduras, and the opposition’s effort to reverse this action was proved unsuccessful in 2016. Such actions might stir up nationwide demonstrations and political instability. During mid-2015, Hernandez was accused of using taxpayers’ money for his own electoral campaigns. Hernandez swiftly denied these allegations, and he did not resign presidency despite of public pressure. Indeed, corruption is a big destabilizing factor for the Honduras government; even the judiciary is influenced by the government and has high level of corruption, and as a result there has been public outcry for political changes to happen. Although many difficulties still exist, the political landscape in Honduras is much more stable than it was after the coup that took place in 2009, during which the then president Manuel Zelaya was ousted during the uprising. As of now, no party holds a majority in the congress, and legislative paralysis has become a problem for the government. Political stability is still fragile, the government’s inability to solve matters like corruption, high unemployment rate and growing inequality could lead to more social unrest. (Freedom House, Ambest, Honduras, Country Reports)

Economic Status: As one of the poorest countries in the Western Hemisphere, Honduras’s GDP per capita is estimated at around 2,600 USD in the year 2017. In the year 2016, 66% of Honduras’ population still lives under the poverty line, and the condition is even worse in rural areas, where one in five people lives under extreme poverty which is defined by World Bank as under 1.90 USD per day. The nation’s economics is especially vulnerable to natural disasters such as droughts and hurricanes, because agriculture accounts for 15% of the country’s GDP and employs half of the country’s labor force. In 2009, Honduras’ economy was devastated by the global economic crisis, mostly because of the decrease in global trade and remittances. The country’s economy rebounded after it received aid and loans from World Bank and IMF. Since then, president Hernandez announced the “Plan of the Alliance for Prosperity in the Northern Triangle,” which was designed to stimulate economic growth, increase economic transparency and fiscal responsibility. Overall, Honduras’s economy is highly dependent on the U.S. economy through trade, remittances and financial inflow, which will pose significant risk to the Honduras economy. As a result, the country needs to diversify its exports and become less dependent on the U.S. economy. The economic environment in Honduras is also hindered by high rates of crime and violent activities, which still need to be addressed. The Honduran lempira is estimated to depreciate through the short term to HNL 25.2 by year-end 2017, which will make our imports into the U.S. cheaper, thus beneficial. Inflation rate is fairly stable in Honduras, it is currently estimated at 3.84%, which provides us with reasonable assurance in the currency’s stability. (Trading Economics, World Bank, IMF, Honduras, Country Reports) 69

Social Status: Honduras is a socially unstable country with many pressing social issues such as constant riots and protests, police abuse and corruption, attacks on journalists, human rights defenders and environmental activists, violence against children and land disputes. In recent years, public sector job cuts have stirred up riots the size of 3,000 people. Social opposition to hydroelectric and mining projects has also led to mass demonstrations that resulted in violence and deaths. Fears of gang violence have also driven many children away from home, many of whom head north in attempts to leave the country. The abusive use of lethal power by the police is also one of Honduras’s social issues. Because of the political protection and corruption that exist in the police force, little information is shared. However, many reports of murders against human rights lawyers and environmental activists have been linked to the police. Land disputes, such as the one in a region called Bajo Aguan, have caused many much conflict between rural residents and large landowners, which has resulted in many people dying and tremendous damage of property. Anti-government protests such as the one that was triggered by a corruption scandal in 2015 could happen again during this year’s election, because it is the fist election since the presidential term limit was revoked in 2015. Social instability is also caused by the even distribution of wealth, because the poorest and the most excluded from society often turn to crimes; the World Bank ranks Honduras as the most unequal country in Latin America and the sixth most unequal country in the world. Future outlook for the country’s social stability remains uncertain, as no real reforms are being done and president Hernandez’s campaign promises have largely been unfulfilled. (HRW, Telesur TV, World Politics Review, Honduras, Country)

Lead-Time of Production Natural disasters in Honduras could have tremendous impact on the production lead time, among which are hurricanes, flooding, earthquakes and forest fires. Hurricane season in Honduras runs from June to November, roads can be destroyed by landslides or flooding. The recent hurricane Nate made landfall in Honduras and killed at least 22 people in Central America. Also, a recent earthquake happened in 2009, which killed 7 people and destroyed many buildings and roads. These natural disasters are largely unpredictable and are very harmful to our lead-time. Workers in Honduras, especially ones in the transport sector often go on strikes demanding higher wage, which could also prove problematic to the lead-time. Besides many religious and national holidays, lead-time in Honduras could be affected by important soccer games as many employees take time off work to watch them, which is unofficially supported by the government. (UK Gov, BBC, Telesur TV, Honduras)

Cultural Insights Greetings: Firm handshake with direct eye contact is required when greeting people in Honduras. However, men need to wait for ladies to extend their hands first before shaking hands, if the ladies want to shake hands at all. As a general rule, greetings among Hondurans can be very long affairs that include many inquiries about oneâ&#x20AC;&#x2122;s health, travels, relatives, friends or acquaintances. Quick greetings are seen as impatience and a sign of disrespect. One should always greet people with proper professional titles, if a person does not have professional titles, he or she should be addressed as Senor, Senora or Senorita. One should always hand over business cards with the Spanish side facing up, and one should also carefully review business cards received as a sign of respect.

Dress: For formal business meetings, men should wear a suit and tie. Darker colors and more conservative styles are the norm in Honduras. Women should wear nice skirts or slacks and a nice shirt, stylish yet conservative styles are generally accepted in Honduras. For less formal situations, men can wear khakis and a collared shirt. Shorts, sneakers and clothes that are too revealing are never ok in business settings in Honduras, thus should be avoided.

Meetings and Negotiations: One should show up for meetings early out of respect, but one should not expect his or her Honduran counterpart to do the same. One should expect Hondurans to be late, as meetings in Honduras are fairly informal affairs that usually have no set schedule or agenda. Because there is no order of events during a meeting and that Hondurans like to conduct negotiations in a relaxed manner, one should expect meetings to last longer than planned. When engaged in negotiations with Hondurans, hard sell and pressure tactics do not work, for Hondurans prefer to build business relationships through trust building and harmony. Also, do not always request definite answers at meetings, because decision-makings usually go through a chain of command in Honduras.

State of Apparel and Textile Industry Honduras’s already mature apparel and textile industry is making strides to attract more and more investment in the industry, its goal: become America’s largest exporter of synthetic yarn and active wear. Honduras ships around 4.1 billion USD worth of basic apparel to the U.S., Canada and Europe each year, and according to OTEXA, this number will increase to 4.5 billion USD in 2017. Apparel and textile industry’s success in Honduras is partially because of its proximity to North America and Europe, and the lead-time for port-to-port transport between U.S. and Honduras is averaged at only 2.4 days. Recent customs reforms in Honduras have also reduced clearance time from an average of 12 days in 2016 to only 2 days in 2017, which contributed greatly to the industry’s success. Honduras has quickly become an important apparel and textile partner for U.S., as an estimated 83% of its apparel and textile exports go to the U.S.; Honduras is also the largest exporter of cotton shirts to the U.S... Highly specialized labor force, low worker attrition, product quality and lower than average labor cost (1.76 dollars an hour) have all kept Honduras competitive in the apparel and textile industry. Future is bright for the apparel and textile industry in Honduras, as the government has recently launched the “Honduras 2020” economic initiative, which incentivizes investment in the industry with tax benefits, subsidies for workers training programs and access to capital with financial institutions in the sector. The apparel and textile industry in Honduras expects to increase total exports to 7.4 billion USD and add 200,000 jobs to the existing 150,000 by the year 2020. Asociacion Hondurena de Maquiladores and Honduran Apparel Manufacturers Associations are the two most important trade organizations that support the industry, who are also pushing constant reforms to make the industry even more competitive on the world stage. (Sourcing Journal, Just-Style, Knitting Industry, Wage Indicator, ITA)

Trade Agreements Honduras is part of Central America Free Trade Agreement (CAFTA), which includes Honduras, U.S., Costa Rica, Dominican Republic, El Salvador, Guatemala and Nicaragua. CAFTA was signed into law in 2005 and approved by all members by 2007. CAFTA liberalized international trade between member countries and provided zero or low tariff rates for eligible products. In terms of apparel, CAFTA operates based on the “Yarn Forward” standard, which means the weaving of fabric and the assembly of garments have to happen in Honduras for our products to be eligible. Exceptions include certain fabrics on the short supply list and De Minimis. (10% of weight of yarn can be sources outside CAFTA region) Our business benefits tremendously from CAFTA mainly because of the reduced or zero tariff rates on our products. We also benefit from the fact that we can use premium fabrics and yarns outside of the CAFTA region as long as we abide by the rules. What is more, CAFTA opens up a tariff free CAFTA market for our products, making our products more competitive in the member countries. (ITA, Britannica)

Product Classification My product “5 Inch Inseam Yoga Shorts” has a HTS of 6108.92.00.15. Within the number 61 is the chapter, which is articles of apparel and clothing accessories, knitted or crocheted. 08 is the heading, in this case, it is women’s or girls’ slips, petticoats, briefs, panties, night dresses, pajamas, negligees, bathrobes, dressing gowns and similar articles, knitted or crocheted. 92 is the subheading, which means “of man-made fibers.” 00 is another subheading, which offers no distinction in this case. 15 is the statistical suffix, which offers further definition and make-up, which is “women’s” in this case. (USITC)

Transportation Honduras has six ports that can service international freight companies, and they are Port of Coxen Hole, Port of La Ceiba, Port of Puerto Castilla, Port of Puerto Cortes, Port of San Lorenzo and Port of Tela. Of which, the Port of Puerto Cortes is the only deep water port in Central America, and one of the best technically equipped ports in the region. Port of Puerto Cortes’s sophisticated container processing system makes it highly efficient and cost effective for shipments to and from the U.S., making it our preferred port in Honduras. Among the many freight forwarders in Honduras, Apex Logistics, Translogic International and HL Worldwide Logistics are among the best in terms of shipping rates and lead-times. Because our port of choice in the U.S. is the port of New York, shipments from the Port of Puerto Cortes take approximately 10 days in transit. The rates quoted for shipping a full 40 foot container from the Port of Puerto Cortes to the Port of New York are averaged around 2,200 dollars. (World Port Source, Homestead, Freight Net, Searates) 73

Risk and Benefits Doing business is challenging and rewarding at the same time. Political instability still poses a potential threat to our business, as president Hernandez is constantly involved in corruption scandals and polarizing issues. Social instability such as the uneven distribution in wealth and worker strikes can both negatively affect our production in Honduras, as people tend to go on frequent protects that endanger human lives and property. Economic stability is questionable, for Honduras is highly dependent on the U.S. economy, any economic fluctuations in the U.S. can affect Honduras greatly, causing production to slow down or even stop. Benefits, however, are numerous as well. Being part of CAFTA, most Honduras’s apparel and textile products are duty free coming into the United States, making it a cost-efficient place to produce our garments. The garment industry in Honduras is also very mature, providing us with highly skilled labor force and high-tech equipment. Honduras’s location is also beneficial to our business; because its proximity to the United States, our production lead-time is so much shorter compared to producing in China for example.

Conclusion As a growing democracy in Honduras, the country is still going though growing pains that cause political, economic and social instability. Therefore, proper precautions when doing business in Honduras are required, such as having contingency plans when workers strike or political situation becomes uncontrollable. Nevertheless, Honduras still has great potential in the future, and the pros of doing business in Honduras far outweigh the cons. The country’s “Honduras 2020” economic plan for example, is extremely beneficial for the apparel and textiles sector in Honduras, encouraging large capital investments. The continuing reforms in the country’s customs system is also great for international trade because processing times are drastically reduced, which translates to shipments arriving at our ports earlier than ever before.

Country Report: Guatemala Country Traits Location: Central America, with Mexico to the North, El Salvador to the Southeast. Type of Government: Representative Democracy Head of State: Jimmy Morales, Head of State Language Spoken: Spanish Country Size, Geographic: 108,889 km^2 Country Size, Population: 15. 8 million Level of Education: Lowest literacy rate in Central America, with 74. 6% of the population is literate. Literacy Rate: 74. 6% Religion: Roman Catholicism Currency Exchange: 1 quetzal to 0. 14 USD Life Expectancy: 71. 96 years School Life Expectancy: 11 years Time Difference: Time Zone 1: +2 Hours behind Washington, DC Major Natural Resource: Petroleum, nickel, lead, zinc, iron, gold, silver, jade Economy: Industry 23. 8%, service 62. 7%, agriculture 13. 4%

Country Stability: Guatemala has a ripe history of political unrest, one that is still present to this day. The country’s 30-year civil war, that ended in 1996 with the Peace Accords, that resulted in the deaths and disappearances of over 200,000 citizens. This alone is a huge reflection of the country’s abhorrent ignorance of basic human rights – making it an uneasy choice for manufacturing. President Molina, who sat in office from 2012-2015, was arrested after it was unveiled that he was receiving under-the-table bribes from importers. These bribes went towards funding Guatemala’s civil war, and was exchanged for lower tariffs on imports. After threats of impeachment and widespread protests, Molina promptly stepped down, was stripped of prosecutorial immunity, and prosecuted. In current day Guatemala, hundreds of thousands of Guatemalans are protesting against the President and his congress. Protestors are demanding resignation of the president and his key congress members, pointing fingers of corruption and association with political groups, particularly hundreds of thousands of undeclares campaign expenses and questionable campaign donations. The Guatemalan government is currently very much divided, with key ministers stepping down left, right, and center in protest. This shift in leadership is slowing down procedures in the government, leading to inefficient business practices for all parties trading with the Guatemalan economy.

This political unrest poses a huge problem in the manufacturing field. Most recently, eight municipalities bonded together to block the Pan-American highway for eight hours in protest to President Morales. If manufacturing was taking place in Guatemala, the shuttering of highways could pose huge delays. IN addition, there’s no telling if the current state of the political climate and the potential for future protests could pose to shipping and sourcing. Of note, the country sits at a score of 6 on the 10-point Political Risk Index scale (Country Watch, 2017). Guatemala has always been on unsteady grounds with the United States. The United States center for corruption was responsible for the impeachment of President Molina, and pointed the finger at the current President Morales for claims of corruption. In 2011, the United States also engaged in an argument with then-President De la Torre over claims that Guatemala was utilizing child labor and wasn’t meeting the minimum wage standards that Guatemala promised to adhere to in the DR-CAFTA Free Trade agreement. To speak to the country’s economics, Guatemala is one of the largest countries in Central America, which leads to the country as being the prime ground for agriculture, which accounts for 75% of Guatemala’s agriculture. While coffee, sugar, and bananas are the country’s largest exports, textile and apparel has been a burgeoning export for the country. Guatemala suffered greatly with the economic instability of 2008 and 2009, but work by the then-President Colom has helped the country get back on the upswing. By 2012, the Guatemala GDP growth has reached a normal rate. The Finance Minister Julio Estrada has aimed that the GDP will see a growth of 6% by 2020. Despite the growth in the Guatemalan economy, Deutsche Welle reported in 2014 that Guatemala is the only country in Latin America where the poor are actually getting poorer. This is part because the government is very laissez-faire about collecting taxes, with a large number of citizens and businesses remaining unregistered with the government and therefor, aren’t paying taxes. To speak to the social status of the country, Guatemala has one of the largest economies in the Central America region. Despite this, the country is suffering. The distribution of wealth skews very unequally – with 47% of the country’s wealth being distributed among 10% of the citizens. Furthermore, half the population lives well below the national poverty line. To make matters worse, the country has one of the most appalling infant mortality rate, and as of 2011, one fifth of all children in country are chronically malnourished. This is in part due to the 77

Lead-time of Production The biggest influences on possible lead time disruptors are political unrest, as outlined earlier, as well as a slew of natural disasters. Over the past several decades, many natural disasters have affected Guatemala, ranging from hurricanes to landslides to earthquakes and volcanos. The worst of these in recent history being in 1976, when an earthquake killed almost 23,000 people and caused 17. 9% damages of the GDP. Hurricane Mitch in 1998 saw a 4. 7% loss of GDP and Hurricane Stan in 2005 resulted in a 3. 7% loss of GDP. The Pacaya volcano, a still-active volcano, has erupted 23 times in the past two centuries, with the last time occurring in 2010, and caused the evacuation of the neighboring areas, including several farming areas. However, to combat this, the Guatemalan government has established a National Program for Disaster Prevention and Mitigation, designed to adapt a proactive approach to disaster risk reduction. Through this program, the government has adopted seismo-logical monitoring networks and repaired and reinforced buildings for strength. Despite the best preventative efforts by the government, Guatemala still sits at an intersection for many natural disasters, making it one of the most vulnerable countries in the world (World Bank, 2013). To speak to the holidays of the country, there are ten major holidays Guatemalans celebrate. All holidays are recognized by the Guatemalan Labour Code as a public holiday, with all workers requiring paid leave. These holidays are New Years, Holy Week (Easter), International Workersâ&#x20AC;&#x2122; Day on May 1, Army Day on June 30, Independence Day on September 15, Revolution Day on October 20, All Saints Day, Christmas Eve, Christmas Day, and New Yearâ&#x20AC;&#x2122;s Eve. Guatemalans celebrate many local holidays, usually surrounding the celebration day of a patron saint.

State of Apparel and Textile Industry Despite the state of political unrest in the country, Guatemala is thriving as a force of apparel production. Over 2014, exports have increased 8% over the course of 2014, with apparel making up 11% of those export numbers. Guatemala does offer an expansive approach to apparel and textiles. Within the country, the market includes everything from logistic services to the manufacturing of yarn, labels, textiles, and buttons, as well as garment construction. Brands like Guess, Adidas, Tommy Hilfiger, Old Navy, Gap, Nike, Hollister, and Ralph Lauren all look to Guatemala for manufacturing. 2014 has proved a big year for Guatemala – Forever 21 and H&M have both moved manufacturing practices in the country. Over the past few years, the textile and apparel industry has contributed 4% of country’s GDP. The industry is showing steady growth – thanks to an influx if suburbanites and rural consumers moving to the city, the growth of the textile and apparel industries have seen rapid growth. Thusly, the retail industry across Guatemala has grown, with more consumers looking to shopping centers. Since expanding its apparel manufacturing capabilities, Guatemalan manufacturers have become known for its raw materials, specifically synthetic fiber, dyed yarn, and knits. While the United States remains a huge trade partner for Guatemala, Asia makes up 11% of the export fiber volume of Guatemala. In turn, Guatemala imports 28% of trimmings from Asia (Fiber to Fashion, 2015). This constant growth has made Guatemala the largest textile industry in Central America.

Cultural Insights Family is the focus in Guatemalan culture. Considering the majority of the country is lower-middle class, most families share a home with their extended family, that in turn creates a very tight-knit bond. It’s not out of the norm for a Guatemalan to cancel or reschedule a meeting if a sudden family issue comes up. Relationships are key in the Guatemalan business world. They believe that businesses working together is a partnership, and should be treated with respect on both parts. It’s not uncommon for suppliers to be greeted with coolers full of local produce or handcrafted goods as a gift of gratitude for their business. Business relationships are considered the same as personal relationships (Government of Canada, 2017), meaning to build a strong working relationship, a strong personal relationship must be achieved. If a Guatemalan invites you to their home, it’s a huge sign of respect. You will be expected to attend, have a drink, eat what given and finish your plate, and bring your family along. Interpersonal relationships are crucial to a successful working relationship. But while these interpersonal relationships are important, the relationship should never be ‘buddy buddy’. Guatemalans value dignity and respect from all friends. Manners are priority for Guatemalans. Handshakes are required at the beginning of conversation, and pleasantries – speaking about the weather and the like – must be covered. One must be conscious of using the correct formal tones and actions when speaking with Guatemalans in the work place or they will be offended. Of note, casual tones should be used cautiously. If a conversation is too casual, a Guatemalan may consider that they aren’t being respected and you do not respect their status. Finally, while it may be a necessity to look someone in the eyes while speaking to them in America, eye contact is considered disrespectful in the Guatemalan culture. Dress code should also be closely observed. Guatemalans take pride in their appearance, and they usually adhere to a formal dress code in the work place. Furthering this, promptness is just as essential, as it is seen as sloppy to be late. Of note, while Guatemalans do speak Spanish, the Mayan heritage is still present in the culture. Many Guatemalans speak Mayan as their mother tongue, so even speaking Spanish one can hear Mayan slang integrated into the conversation. If the conversation is fumbling, consider speaking Spanish slowly, as Spanish may not be their first language. 80

Trade Agreements The country currently has free trade agreements with the United States of America, Mexico, the European Union, Panama, Chile, Taiwan, and a host of other central and Southern American countries. Specifically, Guatemala is part of CAFTA-DR, a bilateral trade agreement allowing liberalized, duty-free market access between the United States, Costa Rica, Dominican Republic, El Salvador, Guatemala, and Honduras. The agreement wasn’t set in motion until 2005, when all congress approved the agreement, passing by two votes. This agreement is beneficial to both Guatemala and the United States. While the United States and businesses within the country have benefited from lower manufacturing and production prices, the agreement has positively affected Guatemala’s economy. Since the trade agreement came into effect, over 134,000 have been created to meet the Untied State’s exportation demands. To speak to the manufacturing intentions of this project, the CAFTA-DR agreement allows Baselayer to export to the United States free of tariffs, as long as the provisions are met. The provisions required for a product to meet the CAFTA-DR’s duty-free regulations are as follows. There is a yarn-forward standard, meaning that all activities from yarn spinning forward must happen in a CAFTA-DR country. The second major rule is the ‘cut and assemble’ rule. This requires all fabrics must be cut and assembled within the CAFTA-DR region, though certain fabrics on a short supply list can come from outside the CAFTA-DR region, though they must be approved. Finally, the De Minimis rule allows 10% of the weight of yarn to be sourced from a country outside the CAFTA-DR region.

Product Classification The women’s underwear Baselayer is proposing would meet the following HTS requirements. 6212. 10. 50. 20 – Brassieres, girdles, corsets, braces, suspenders, garters, and similar articles and parts thereof, whether or not knitted or crocheted. , of man-made fibers. For this category, CAFTA-DR is exempt from tariffs, as are Australia (AU), Bahrain (BH), Canada (CA), Chile (CL), Israel (IL), Jordan (JO), Mexico (MX), Panama (P), Peru (PE), and Singapore (SG). 81

Transportation There are five ports of significance within Guatemala. In order from largest to smallest: Puerto Quetzal, Port of San Jose, Port of Santo Tomas de Castillo, Puerto Barrios, and Port CHamperico. Previously, the Port of Guatemala City was the largest out of all ports, but it is currently under renovation with no expected reopen date. Looking to the most established shipping companies that import and export out of Guatemala: the top three are ZIM Integrated Shipping Centers, Mediterranean Shipping, and ShipNex. ZIM Liners ships out of Port of San Jose, as does the majority of shipping companies considering this port is the most Northern in the country, and in closest proximity to the United States. When asked for an estimation on as shipment between Guatemala and Savannah, ZIM estimated a 16-day delivery time, charging $1540 per shipment. In comparison to ZIMâ&#x20AC;&#x2122;s competitors, MSC predicted a 17-day delivery time, and ShipNex predicted a 17-day delivery time. MSCâ&#x20AC;&#x2122;s charge sat at $1620, and Shipnex was prepared to charge $1560.

Risk and Benefits Based on my analysis of the country, I’ve identified a few key risks and benefits. In the risk category, the main issue is uncertainty. The frequent political unrest and the consistent environmental hazards leave the state of manufacturing in Guatemala at a flux. The overall beaurocractic frailments of the country give enough of a cautious approach for investors and partners. The country is already provoking the United States to reconsider its CAFTA-DR agreements It’s difficult to analyze the future potentials with such unpredictable values such as these. With that in mind, when it comes to the benefits of Guatemalan apparel production, there are a few to keep in mind. Firstly, because of the poor living conditions across the company, it’s very affordable to set up a manufacturing shop in Guatemala and pay your employees a minimum wage, let alone pay them a living wage. Additionally, thanks to CAFTA-DR, trading with Guatemala has been more fluid than ever.

Conclusion In conclusion, Guatemala is home to a ripe breeding ground for growing a manufacturing business. Despite the political unrest, Guatemala’s low cost of living, small minimum wage, and partnership with CAFTA-DR leaves Guatemala a considerable place to grow a manufacturing business. Overall, due to the fluctuation with political unrest and environmental instability, it’s tough to predict the future of Guatemala’s apparel manufacturing industry. However, because of Guatemala’s strong ties to family, it’s safe to say that Guatemalans are willing to work to improve the health of their country.

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