Aarde (2016) by Jodi

LXFX 720 Supply Chain Management Professor Canepa | Fall 2016

Chelsea Brogdon Ashley Ecker Nagwa Elshahat Jodi McNeill

TABLE OF CONTENTS AARDE.......3 EXECUTIVE SUMMARRY.......4 INTRODUCTION.......5 COMPANY PROFILE.......6 VALUES.......7 MISSION & VISION STATEMATE.......8 PRODUCT LINE.......9 SOURCING GUIDELINES.......10 TARGET CONSUMER.......11 COUNTRY PROFILES.......12-31 PERU.......13-17 VIETNAM.......18-22 GUATEMALA.......23-30 CAMBODIA.......31 SOURCING STRATEGY.......32 STRATEGY DEVELOPMENT.......33-34 LINE PLAN JUSTIFICATION.......35 PLACEMENTS.......36-37

COUNTRY & SUPPLIER RANKING.......38 FINAL PLACEMENT STRATEGY.......39 LOGISTICS, WAREHOUSING, & DISTRIBUTION.......40 SUPPLY SOLUTUION PROVIDERS.......41-43 UNIGROUP.......41 APL LOGISTICS.......42 KENCO.......43 PHASE V.......43 DISTRIBUTION STRATEGY.......44 CONCLUSION.......45 APPENDIX.......46 TECH PACKS.......47BLAAR.......48-54 WOLK.......55-61 VIS.......62-68 MAZAO.......69-75 COST SHEETS.......76-92

INTRODUCTION Aarde is a clothing company founded by women to fill the void in responsible sustainable women’s fashion. Aarde’s four founders came up with the company’s concept from their shared passions for the environment and clothing. The company’s focus is on having a sustainable supply chain that leaves the earth better than when they started. Aarde aims to create a positive impact, starting with organic resources, through clean production, happy workers, and influencing consumers to make educated purchasing choices. Aarde promises to only use organically grown cotton in our product and packaging in order to not further pollute and the planet. After extensive research and evaluation, Aarde has decided on a supply chain strategy that aligns with our core values and satisfies environmentally conscious consumer desires for gorgeous luxury knits. Aarde hopes to build a global influence and change fashion consumers purchasing habits positively.

Executive Summary Aarde is a clothing company made by women for women. At Aarde, we are on a mission to provide high quality knit essentials for the modern, minimalistic woman who is looking to make a statement with her style choices. Aside from providing stylish knit tops, Aarde aspires to positively impact the world and our consumers through every facet of our business. We pride ourselves on embracing ethical, sustainable practices and being a progressive influence on the environments, communities, and people we touch. In order to provide the highest quality knits while adhering to our ethical business guidelines, we have researched and outlined the supply chain strategy that best optimizes opportunities and minimizes risks. In building this strategy, it was vital to keep the company’s key beliefs at the forefront of business planning. The first steps in determining the appropriate supply chain strategy was to define Aarde’s core values and the company’s mission and vision. A business strategy using these core values as a foundation was then developed. Aarde’s sourcing guidelines were consequently constructed based on how the founders wanted to affect the people, regions, and communities involved in the manufacturing of our products. Three countries for production were then chosen that embodied these sourcing guidelines. After determining the business climates of the countries, multiple suppliers were identified for each country and ranked numerically to determine the most suitable suppliers. Finally, using the top suppliers a strategy was outlined that would keep Aarde’s margins low while not compromising quality.

COMPANY PROFILE

Aarde clothing company was founded in Savannah, Georgia in 2016 by four SCAD students with a mission to provide high quality knit essentials for the modern, minimalistic woman looking to make a statement through her style choices. The name Aarde is the Afrikaans translation for Earth, which is where our product and passion stem from. Aarde aims to provide premium organic cotton garments that impact the world in a positive way by embracing and advocating for ethical practices. These essential garments are available in three different styles- a long sleeve v-neck, short sleeve tee, and a pocket tank. It is Aarde’s mission to embrace ethical practices that influence local environments and communities positively. Aarde’s company values include stability, creativity, integrity, and much more. In building Aarde’s strategy it is important to uphold the company's’ key beliefs through our sourcing guidelines and production process. Our sourcing guidelines request transparency from our suppliers and manufacturers, highlights anti-corruption and lawful business practices, advocates for human rights in the workplace, and fair labor practices.

VALUES ACTIONORIENTED

COMPETENCE

HOPE

ADVENTURE

DEDICATION

CREATIVITY

BOLDNESS

DISCOVERY

ECO-FRIENDLY

MISSION

To embody and promote delicate, effortless, and ethical luxury that empowers both the women who wear it and create it.

To grow our business with the same pure intentions as the organic, sustainable materials we source leaving only a positive impact on the lives and regions we touch.

V I S I O N

PRODUCT LINE Aarde provides womenâ&#x20AC;&#x2122;s essential cotton knit garments in 4 different styles- long sleeve, short sleeve, long-sleeve crop top, and a pocket tank top. The prices range from $75-$120 Styles will occasionally be added on per season basis, with new colors being released each season. We are an e-commerce retailer based out of Savannah Georgia. Aardeâ&#x20AC;&#x2122;s distribution strategy is based on efforts to remain sustainable, thus reducing our impact and resource consumption by avoiding brick and mortar stores.

Wolk

Blaar

Vis

Mazao

$90

$120

$75

$100

Sourcing Guidelines Labor Workers must not exceed 45 hours of work per week, with overtime not exceeding 50 hours per week. Overtime must always be voluntary and must be paid 1.5 times hourly wage per hour. Suppliers must not under any circumstances employ persons under the age of 16 years. Workers enrolled in school will receive special considerations pertaining limitations of working hours to accommodate schooling schedules. Suppliers must ensure that time worked by all persons is fully documented and that employees have the ability to review this documentation upon request. Workers are to be made aware of their benefits and understand their wage calculations. Workers must be provided with pay slips in his or her first language. Any cash payment of wages and benefits made directly to the worker must be properly documented. Accuracy and receipt of payment must be confirmed by the relevant workers in writing. Workers must have a minimum of 1 out of every 7 days off. All workers must be treated fairly and respectfully in accordance with federal laws governing employment discrimination such as Title VII and the Americans with Disabilities Act. Warehouses and areas where business is conducted must meet all safety and health standards established and monitored by the state wherein operation and be subjected to inspection.

Anti-Corruption All of Aardeâ&#x20AC;&#x2122;s business operations will be conducted lawfully in accordance will all applicable laws in the region of operation. Suppliers and partners must comply with all corruption, bribery, and money laundering laws and must keep record of all legal documents. Our suppliers are prohibited from subcontracting any portion of the manufacturing process to a third party to ensure these regulations may be monitored. Also, it is required that Aarde and itâ&#x20AC;&#x2122;s business entities respect intellectual property rights.

Transparency Aarde promises to conduct business with integrity and pure intentions. All of our suppliers, manufacturers, and partners are required to fully disclose any and all informations requested of them to ensure transparency. Environmental impact studies of all business partners associated with Aarde is a requirement. Our company website will be used as a platform to promote and provide information about business activities to keep the company accountable to consumers.

Human Rights Suppliers and partners of Aarde must not violate any internationally proclaimed human rights and must not export to or produce within any unsanctioned countries.

DEMOGRAPHICS -Females -Age 22-45 -College educated -Income at least $45,000 a year -Both single and married

GEOGRAPICS -Suburban and Urban America

Target Consumer

INTERESTS -Traveling -Art -Yoga -Fashion -Reading -Philanthropy

PSYCHOGRAPHICS An Aarde woman values high quality and comfort in her clothes but is unwilling to sacrifice style. She prefers organic and natural foods and is health centered. She is conscious of her environmental impact and makes an effort to ‘choose green’ in all aspects of her life (home, transportation, and recycling habits).

COUNTRY PROFILES VIETNAM

PERU

CAMBODIA

GUATEMALA

P e r u

COUNTRY TRAITS The Republic of Peru is a country in Western South America bordered in the north by Ecuador and Colombia, in the east by Brazil, in the southeast by Bolivia, in the south by Chile, and in the west by the Pacific Ocean. As the cradle of South America’s most advanced civilizations, Peru has a rich and unique heritage, encompassing 10,000 years in one of the biodiverse habitats in the world. Spanning the arid plains of the Pacific coastal region in the west, to the peaks of the Andes Mountains vertically extending through the country, to the tropical Amazon Basin rainforest in the east with the Amazon River. Peru is a unitary presidential constitutional republic and a developing country with a high Human Development Index Score and a poverty level around 25.8 percent. The country’s high HDI indicated a high composite statistic of life expectancy, education, and per capita income indicators, which are used to rank countries into four tiers of human development. Peru’s main economic activities include mining, manufacturing, agriculture and fishing. Their main trading partners are: US, China, EU, Switzerland, Canada, and Japan. The Peruvian population, estimated at 31.2 million in 2015, is multiethnic including Amerindians, Europeans,

COUNTRY STABILITY In the last decade, Peru has seen consistent economic growth, poverty reduction, and broad support for democracy. Two decades of pro-growth macro-economic policy in Peru have yielded unprecedented economic expansion, low inflation, investment-grade status for the country’s debt, and a dramatic drop in poverty rates. Yet, the country is still facing many economic challenges. Approximately one quarter of the population continues to live in poverty. The United States established diplomatic relations with Peru in 1827 following Peru’s independence from Spain in 1821. Since then, the country has been a key U.S. partner in Latin America and the two have strong, positive, and cooperative relations.

POLITICAL

ECONOMICAL

SOCIAL

Being a constitutional republic, all citizens from ages 18-70 can vote in Peru. President Pedro Pablo Kuczynski has been in office since July 2016 with his term expiring in July 2021. Under President Kuczynski and his recently formed cabinet Peru’s economy has remained on a healthy growth trajectory with business confidence hitting a record high this past August. However, Corruption is a serious problem in the national government, security forces, judiciary, customs agencies, ports, and local governments, where the influence of drug traffickers has grown. The dysfunctional judiciary is widely distrusted and prone to corruption scandals. President Kucynski has declared he intends to ‘cut red tape’ and fight corruption, both of which should boost investment and activity in the private sector.

Peru has a mixed economic system and has historically been a less developed country dependent upon the export of raw material to the more-developed countries in the Northern Hemisphere. The Peruvian economy, which is the seventh largest in Latin America, has experienced a structural change in the past three decades. Currently, the services sector is the main contributor to the country’s GDP, with nearly 60% of GDP stemming from this sector (telecommunications and financial services are the main branches of the services sector). However, FocusEconomics’ analysts believe that the country still has a long way to go toward modernization and competitiveness of its service sectors. Industry, which represents around 35% of GDP, has undergone a process of modernization, which has translated into increased employment in the country’s primary industrial areas.

Lima, Peru’s capital city, remains the country’s most populated region with 8.75 million inhabitants, representing roughly 8.4% of the total population. Even though the official language is Spanish, which is spoken by more than 80% of the populations, studies suggest that there are anywhere from 43 to 60 different indigenous dialects spoken today. While the government does not endorse an official religion, the constitution recognizes the Catholic Church as an important element of the historical, cultural, and moral formation of Peru. According to w WIN/Gallup International study, 86% of Peru’s inhabitants follow one of the various religions, with Catholicism being the most significant at 80%. There are small communities belonging to other faiths, which include Protestant denominations, Judaism, Islam, and syncretic and Amerindian religions. The daily social norms differ depending on social class and whether Peruvians are living in rural or urban settings. Rural dwellers depend heavily on the agricultural cycle with most of the work behind done during the day. Religious festivals, baptisms, weddings, and special occasions are often the only disruptions to the rigors of rural life. These events are communal with everyone in the community sharing the family’s celebration. Urban areas are generally populated by poorer residents that work multiple jobs in order to maintain their lifestyle. These urban dwellers have less leisure time than other Peruvians. The families of higher economic and social status have servants who take care or daily tasks such as cooking, cleaning, and gardening. Some wealthy families residing in Lima have multiple homes; one in the city’s elite neighborhoods and a second by the coastline.

The Peruvian military is comprised of army, navy, air force and marines. This is a selective process and once men reach the age of 18 they are required to register with the government. The Peruvian troops have served as United Nations Peacekeeping forces on several occasion. The government is also involved with national health and social security.

Additionally, the Peruvian economy has been growing by an average of 6.4% per year since 2002 with a period of relatively stable inflation and a progressive appreciation of the national currency. The currency is in Neuvos Sols (PEN) with the current exchange rate being 1 USD to 3.4078 PEN as of October 9th, 2016 according to Bloomberg. Economic growth has been in the 6-9% range for the last three years, due partly to a leap in private investment, especially in the extractive sector, which accounts for more than 60% of Peru’s total exports. FocusEconomics panelists see the economy rising 3.7% this year and GDP growth is expected to accelerate to 4.2% next year. Peru has continued to attract foreign investment, even though political activism and protests are hampering development of some projects Although the external sector's contribution to economic growth has been diminishing, exports have remained strong. The combination of economic modernization, natural resource abundance and continued improvements in economic governance and political stability that have been taking place are helping Peru to emerge as one of the most stable economies in Latin America.

STATE OF THE APPAREL INDUSTRY The textile industry in Peru has its legacy in ancient pre-Columbian cultures. These cultures understood how to cultivate cotton and take advantage of Andean camelidae fibers, developing extraordinary textile dyeing and weaving techniques. High quality cotton is a key contributor to Peru’s modern economy. With exports of US $1.9 billion in 2013, the textile and apparel industry is the country’s largest non-traditional exporter. As a vertically integrated industry, ranging from agricultural production to manufacturing, the sector offers a wide range of employment opportunities, generating an estimated 350,00 direct jobs. Peruvians textile and apparel sector’s competitiveness is based on three key factors: (1) the availability of high quality cotton; (2) the fully vertically integrated supply chain, from agricultural production of cotton through to final apparel production, which allow firms to rapidly turn around high quality orders; and (3) high quality apparel production thanks to skilled human capital and long tradition in the textile industry. Since the 2008 global economic crisis, rising labor costs at home and lower domestic cotton production have hurt the sector and it has since struggles to regain momentum as buyers have shifted to lower cost locations. While this structural shift has already forced higher cost countries out of the industry, Peruvian firms have been forced to upgrade continuously in order to remain competitive. Peru participates in multiple stages of the Cotton Textile and Apparel Global Value Chain as a full package apparel supplier with backward linkages into the textile, yarn and cotton segments. Notably, Peru’s is not present in either the design or branding and sales stages of the chain, while its weak presence in R&D for the agricultural segment of the chain has significantly undermined the sectors’ competitiveness. Peru’s high quality cotton export textile sector can be broadly divided in two categories, knit and woven production using Peruvian or U.S. yarn destined primarily for the U.S. and European export markets mostly in final apparel. Textile exports grew between 2010 and 2014 to approximately USD $290 million, accounting for 16% of total exports by 2014. Of the textiles produced for the high quality markets, the majority of production is in knit fabric. The production of woven fabrics is more capital intensive and there are few firms operating in this segment.

LEAD TIME Peruvians celebrate a number of public holidays that coincide with public holidays in the United States. Because of their small number and similar timing, these holidays would not hinder production lead-time. However, Peru presents numerous potentially hazardous natural disasters. Because Lima lies on an axis of instability in the Earth’s crust, seismic activity is common. Light earthquakes called “temblores” often occur but seldom cause damage. Around 200 small earthquakes occur each year, with one major earthquake occurring every five to six years. Small landslides. Flooding, and avalanches occur frequently, especially in highlands and jungle regions during the rainy season. These natural hazards can block roadways, cover destroy train tracks, and ruin homes ultimately causing serious delays in overland transportation.

T R A D E

Free Trade Agreements have proved to open up foreign markets to U.S. exporters as well as reducing barriers to U.S. exports, and protecting U.S. interests and enhancing the rule of law. The U.S. has long been Peru’s most important trading partner since the Peruvian Free Trade Agreement with U.S., signed on April 12, 2006. The Peruvian government ratified this agreement in June 2006 and the PTPA entered into force on February 1, 2009. This eliminates tariffs and removes barrier to U.S. services, provides a secure and predictable legal framework for investors, and strengthens protection for intellectual property, workers, and the environment. The PTPA is the first agreement in force that incorporates groundbreaking provisions concerning the protection of the environment and labor rights. Peru is currently the 36th largest goods trading partner with the U.S. at $18.2 billion in total goods trading during 2013. Peru has also engaged in several bilateral and multilateral trade agreements that have opened new markets for its exports. Peru joined MERCOSUR in 2005, and between 2015 and 2016 it signed several bilateral treaties with other Latin American and Caribbean economies as well as with the United States. In 2016, the Pacific Alliance, a trade agreement including Chile, Colombia, Mexico and Peru came into force. The Trans Pacific Partnership Agreement, one of the biggest multinational trade deals in history, was signed in early 2016 but a prolonged period of negotiations over the terms is expected before it comes into force. These trade agreements mean that Aarde will be able to import our products from Peru duty-free, which will save money and increase profit margins. These agreements also enable us to move products more freely across borders.

SUPPLIERS Hialpesa

Hialpesa was chosen as a supplier because they are a large-scale manufacturer of knit products. They offer fibers, spinning, knitting, dyeing, finishing and manufacturing. Hialpesa is certified by the Organic Exchange, which certifies that their yarns and fabric are 100% organic. Also, they are a part of Worldwide Responsible Accredited Production, which states known factory certification for responsible business practices and ensures customers know they are working with a business partner that adheres to local and international labor standards. Address: Av. Las Lomas 801- Zarate- San Juan de Lurigancho- Lima 36Peru Phone: +511.319.2030 Capabilities and value added services: Quality control at every point, manufacturing flexibility, and short lead-time of production. Product Offering: Knit garments, t-shirts, polo shirts, hooded sweat shirts, pants for men, ladies, and children. Capacity: 550,000 pieces of cut and sew garments every month. Customers: Nautica Men’s Sportswear, Guess Inc., Van Inc., Vince LLC.

Textil Del Valle S.A.

This supplier was chosen as a manufacturer because they have an extensive customer base and have similar ethics to Aarde such as being environmentally friendly. Address: Main Office Pasaje Los Delfines No. 159- 3rd Floor- Urb. Las Gardenias Santiago de Surco- Lima 33- Peru Phone: +511.217.0900 Capabilities and value added services: Yarn dye, knitting, fabric dye, cutting, embroidery, sewing, laundry, and finishing. Product Offering: Polo, jackets, dresses and shirts. Capacity: A vertically integrated 1,000,000 square foot facility. Customers: Ralph Lauren, Lacoste, Burberry, Armani Exchange, Nautica.

Cotton Knit

Cotton Knit produces cotton knit products in Peru. They use a vertically integrated process and the latest equipment to offer customers a variety of knit fabrics and finished garments. They produce high quality garments with flexibility in order to meet customer’s specific needs. Address: Calle Santa Sofia 165-171- Urb. Industrial La Aurora- AteLima- Peru Phone: +511.326.0556 Capabilities and value added services: Their vertical integration process includes knitting, dyeing, cutting, sewing, laundry, embroidery and screen printing. Capacity: 600,000 outputs of garments per month. Customers: Ralph Lauren, Chico’s, Liz Claiborne Inc., Burberry American Apparel Knits Inc

PRODUCT CLASSIFICATION Aarde’s focus is on women’s knit tops. These tops will be made from 100% organic cotton. The HTS code for Aarde’s product type is 6109.10.00.40.

R I S K & B E N E F I T

There are always risks and benefits associated with any business decision to be made. Some of Peru’s main challenges would be achieving stronger and more sustainable economic growth, the constraint of rising labor costs, the high levels of bureaucracy and lack of coordination, and the country’s dependence on small-scale agriculture. Another major risk associated with Peru is its’ inadequate water supply, sewage, and road infrastructure outside main towns. The country is also prone to uncontrollable natural occurrences like earthquakes and floods. Benefits of using Peru as a supplier would be the country’s healthy banking system and low public debt, duty free market access, streamlined short supply process, experience in apparel, integrated supply chain, proximity and access to key markets, and high potential for increased cotton yields. These benefits all make Peru an inexpensive and convenient supplier for Aarde.

PERU CONCLUSION There are many advantages for choosing Peru as a supplier for Aarde’s organic cotton knitwear. Peru provides duty free exports to the U.S. and all major international markets. The country is also only a few hours away from the U.S. making it easy to travel to. The Peruvian textile and apparel sectors growth to date has been driven by the use of high quality cotton inputs- Peruvian “Pima Cotton”, its integrated supply chain, and a millennial tradition in textile and apparel which underlies its high quality production. Peru also has an excellent tradition in cotton production, starting with the ancient Incas, and the ability to produce textiles of high added value. Peruvian suppliers operate with a high level of know-how and have the ability to develop more design-based collections than competing country suppliers. The country’s textile exports have grown at a rate of 10% per year for the past 10 years and already caters to many successful brands around the world. The country and industry are both growing in a positive direction.

VIETNAM COUNTRY TRAITS

INTRODUCTION Vietnam is one of the leading countries in apparel and textile manufacturing. Vietnam provides many benefits to assembling the United States apparel productions. However, of course, there are risks and issues as well. The countries traits, political structure, economic status, stability, trade agreements, and transportation all influences these risks and benefits. This information will be provided below in order to give a complete look at the pros and cons of taking American apparel and textile corporations to Vietnam for production.

Vietnam is a small country with a huge history. Following the end of the Vietnam War in 1975, Vietnam became renamed as the Socialist Republic of Vietnam in 1976 when they began their era of unification. Vietnam is a small slither of a country positioned on the eastern coast of Southeast Asia. Vietnam covers an area of 127,244 square miles and is bordered by China, Laos, and Cambodia on its landlocked side, as well as the Gulf of Tonkin, the South China Sea, and the Gulf of Thailand. Vietnam’s population is around 95 million, leaving it in the top 15 in the largest populations of the 193 nations in the world. The countries officially language is Vietnamese, a language very similar to Chinese, but most of the minority groups also have their own spoken languages and several have their own alphabets. Other popular spoken languages in Vietnam included English, Chinese, and French. Vietnan’s government is ruled communist. Since it has been communist, they have ruled under four constitutions, the latest coming into power in 1992. Under Vietnam’s current constitution a president rules them. Vietnam’s current president, Tran Dai Quang, took office in April of 2016. He is Vietnam’s 9th president. As for religion, the majority of the country defines themselves as Buddhist. However, they do not follow the practices or rituals, but more so some of the spiritual aspects. There are six religions recognized by the Vietnam government: Buddhism, Catholicism, Protestantism, Islam, and two indigenous traditions. In Vietnam, education is free at all levels. The first five years of primary education is mandatory. Following this completion, secondary school is offered through two plans of four years and four years plus three. In order to progress forward, students must pass an entrance exam. There are around 90 colleges in Vietnam and they have a high adult literacy rate of over 90%.

COUNTRY STABILITY The Vietnam War has a big place in world history. American’s involvement in the war occurred as they were trying to stop the spread of communism. America’s involvement was a failure as Vietnam still remains communist and the war took a total of around 3 million lives. Following the war, Vietnam had a lot of work to do to build itself back together. The country finally united the north and the south and many members in the south were given positions at the national level. At this time, Vietnam also needed to focus on economic reconstruction. Unfortunately, this proved as more as a challenge as the south was not eager to close their private farming. Today, more than 50% of Vietnam’s economy still revolves around agriculture, as they are the second largest exporter of rice. However, there exports do not stop at food. Vietnam also has mineral resources such as coal, tin, gold, and iron. Their other exports also include garments, shoes, glass, and paper. The war caused a slow down for these exports, but other issues have also faced their economy. In 1979, a serious of floods ruined tons of rice, killed cattle, and affected their coastal areas leading to a shortage of food and consumer goods. In the early 1990s Vietnam faced economical problems again when their unemployment rate skyrocketed due to natural increase of population and hyperinflation. Today, Vietnam’s agriculture profit has shrunk, but their industries profit has increased. The unemployment rate is also a lot lower than in the 1990s. Vietnam is working to reform its economy, but it is a slow process. Vietnam’s inflation rate for 2016 consumer prices is low at only 2.05%, which it is down from 4.1% in 2014. For currency, Vietnam exchanges using the dong. The exchange rate is at its highest ever for the US dollar. $1.00 is equal to 22, 510 dong. Therefore, the US dollar goes much further in Vietnam than it does in the United States. Vietnam’s social development is behind when compared to the United States. While women have full legal rights under the law, they are socially discriminated against. There are very few women in senior or government positions. Women also receive lower wages then men. Domestic violence against women is also a common occurrence. The issue is considered a private affair between a husband and a wife rather than a place for authorities to intervene since there are no laws specific to domestic violence. According to the National Study on Domestic Violence Against Women in Vietnam, 58% of married women reported to have been sexually, physically, or emotionally abused by their husbands. The people of Vietnam are also at a very high risk of infections diseases such as hepatitis A, dengue fever, and malaria. Freedom of speech is not a liberty allowed in Vietnam. News is censored and writers and bloggers are monitored by police and can face prison time for what the right. Vietnam also bans all labor unions and human rights organizations from forming that are not apart of the government. For companies who value ethics, this makes Vietnam a harder country to choose for overseas production.

CULTURAL INSIGHTS Family life is very important in the Vietnamese cultural. Typically, three to four generations live in one house. The man is also the head of the household. For a woman, she is to listen to her father, than to her husband, and if she becomes a widower it is her son who then she follows. The four biggest virtues are diligence, good manners, proper speech, and morality. In terms of business, it could be problematic for a company with women in the negotiation positions to conduct business. Even once negotiations are handled and moving forward with business, it may be difficult for Vietnamese men to work with women in powerful, important positions as it is not something that is accepted or practiced in their culture. Also, in Vietnam, handshakes normally only take place between those of the same-sex. It is very important to dress conservatively and in reserved colors. Negotiations are also known so be slow as the have great importance and things are decided by group consultations or by a committee. It is important to not rely on one single person as they alone do not have power. When working with the Vietnamese, it is important to be patient. It is a big deal in the Vietnamese culture to exchange business cards upon first meeting. During the exchange of business cards, one must use two hands. As with any cultural with a different language, sometimes a language barrier can lead to misunderstandings. It is important to bring along an interrupter for negotiations to make sure that everything is clearly understood by both parties. Unfortunately, corruption is also a prevailing issue. Payoff, kickbacks, and under the table gifts are all widespread. These corruption issues cannot only increase costs, but they can also cause delays.

State of the Apparel & Textile Industry Over the past five years, the apparel and textile industry has become an important part of Vietnamâ&#x20AC;&#x2122;s economic development. After agriculture, it is the second highest form of revenue in export for the country. Vietnam leads as the top seventh country in apparel and textile export, falling just behind the United States who is ranked at six. The apparel sector employees around two million people in Vietnam, vastly helping the unemployment rate. These opportunities skyrocketed upon Vietnam joining the World Trade Organization in 2007. Outsiders are flocking to Vietnam for their production due to their young, expert workers who are willing to work for low wages. Recently, Vietnam has expanded their export market from the United States, Europe, and Japan to include Korea, Taiwan, the Middle East, and Singapore. This has increased their export revenue to almost 40%. The government is also allowing duty free imports of raw materials as long as the are exported within 90-120 days as apparel. By 2020, The Vietnam Textile and Garment Association (VITAS) plans to increase their employment by a million, raising it to three million employees, export growth by 15% a year, and have an export revenue of $25 billion dollars. Since laws allow no labor organizations, this is not a current threat. The minimum age for full-time employment is 18, unfortunately, many children work against this law. The minimum wage depends on the area of Vietnam. For rural areas, the minimum wage is as low as 2.15 million dong per month, roughly $96 US dollars. In the big city of Hanoi, the highest minimum wage is 3.1 million dong, about $138 US dollars. As for garment production, we see the suppliers picking locations for their factories in the more rural areas where the minimum wage is lower. A negative for Vietnamâ&#x20AC;&#x2122;s apparel industry is over 50% of their raw materials have to be imported, mostly from China. However, the government helps by lowering the duty as long as the materials are quickly used to produce garments or other textiles and then exported back out of the country.

Production Lead Time

Trade Agreements

The United States and Vietnam are working on deepening a trade relationship via the Trans-Pacific Partnership. This makes it easier, cheaper and more convenient for United States businesses to do trade with Vietnam. The TTP eliminates all foreign import taxes on industrial and consumer goods in the top Vietnam export sectors for the United States. For textiles and apparels, almost 99% of U.S. goods will be duty free immediately in Vietnam (trade.gov). It is the hope that this TPP will be in effect by 2018. For the meantime, there is a high duty rate with Vietnam at about 20%.

Transportation

Vietnam has a total of 45 airports, 37 with paved runways, as well as four major seaports, one river port, and two container ports. However, when using sea transportation, it is important to be cautious when traveling via the South China Sea. There is a high risk for piracy and many cargo ships have been robbed, hijacked, or had crew murdered (cia.gov). The majority of the ports start in Cai Mep, Vietnam and travel to the Port of Long Beach in Southern California. With this in mind, airfreight becomes the safer option, even though it is much more expensive. Airfreight also offers the pro of a speedier delivery. Other than cost, another con of airfreight transportation is capacity. An airplanes cargo space is much smaller than that of boats.

If moving forth with business production in Vietnam, the biggest factor that might delay on time production would be the avian flu. 75 percent of diseases that affect humans begin by affecting animals. Vietnam has experienced over 3,000 animal outbreaks of the avian flu. For humans, there have been about 120 with half of them resulting in death. Vietnam has to try to find the source as the disease as well as carefully monitor their meat markets to prevent further spread. An epidemic of the avian flu could leave thousands unable to work and even worse, dead. Vietnam has been protecting the spread of it by having armed guards at its boards, which has caused protests by its neighbors, Laos and Cambodia. Vietnam was ready and well prepared for the flu to hit as they saw the issues that the flu was creating in China. By shutting down certain trade routes and closing markets they were able to not get hit has hard as other countries. Still, the country was affected by the closed trade routes and market closings. Other than that, Vietnam does not have many international issues. The minor production and transport of illicit drugs, such as opium, heroin, and methamphetamine, have continued to be a problem despite the efforts made. To enforce crackdowns,

the death penalty has now been enforced for drug trafficking.

Vietnam Suppliers:

One of the top Apparel Manufactures in Vietnam is Hirdaramani. Hirdaramani not only operates out of Vietnam but has 38 production facilities across Sri Lanka, Bangladesh, and Ethiopia as well. Five of these production facilities have been working out of Vietnam for a number of years. Around 3 million pieces of clothing is produced per month in these five production facilities alone. These facilities specialize in knit tops and bottoms including, but not limited to, jersey, piquet, French terry, rib and fleece, intimate wear, and woven shirts. Hirdaramani describes itself as a “one stop shop” as the also have additional services such as embroidery, washing, printing, and fabric. Hirdaramani has a large and impressive client list including Lilly Pulitzer, Victoria’s Secret, and Michael Kors (Hirdaramani.com).

Nhabe Corporation (NBC) is a huge production corporation that has been in Vietnam since 1975. They produce men and women’s suits, shirts, trousers, and coats, as well as dresses, denim, and knitwear. They have sixteen factories spread throughout the country and around 200,000 employees. NBC’s biggest production market is for the United States with Europe following in at a close second. They have a number of reputable clients including Ralph Lauren, BCBG Maxazria, and Calvin Klein. NBC also appears to have an impressively organized internal staff. NBC is also a public corporation with stock options.

The Esquel Group is a huge company founded in 1978 that does business all over the world. One of their primary apparel factories is homed in Vietnam. They also have factories in China, Malaysia, Mauritius, and Sri Lanka. The factory in Vietnam opened in 2014. The construction and overall cost of the factory was roughly $25 million US dollars. Esquel produces around 120 million shirts a year and employees around 60,000 employees. The Vietnam factory produces 7 million shirts a year and employees 3,000 people. As well as the factory, Esquel also houses a fabric mill in Vietnam producing their organic cotton fabrics. Ethics and the environment are two things that are very important to Esquel. They use organic cotton in their production. Esquel’s well known clients include: Lacoste, Patagonia, and Abercrombie & Fitch.

Product Classifcation The HTS code for shipping womenâ&#x20AC;&#x2122;s shirts of knitted cotton fabric to the United States from Vietnam is 6106.10.00. The MFN duty rate is 20%.

Risk & Benefit There are more benefits then risks when proceeding with manufacturing in Vietnam. The biggest risks are for women dominated companies who will be working in a patriarchal society. In this case, it is very important for the United States company to adapt to the Vietnamâ&#x20AC;&#x2122;s business etiquette to help lessen the awkwardness and unease. There are not many potential health or environment threats that are showing a major cause for the foreseeable future. There are many benefits with working in Vietnam. For instance, the US dollar goes a lot further in Vietnam. The workers are very skilled and working for much lower wages then they would ask for in the United States. Thanks to the Free Trade Agreement, the taxes on getting the products are not high either. The biggest issues with using production in Vietnam would be the cost of shipping and the lead-time when you are using a vendor overseas. However, this is going to be the case when working with any vendor outside of the United States and that is where the cheaper labor is available.

Conclusion Overall, Vietnam proves a positive choice for apparel manufacturing. The biggest overall challenge with Vietnam would be the issue of human rights as they are a lot further behind than the UnitedStates. On an economical standpoint, they are a great choice. On a social standpoint is where it becomes rocky. It is up to the company and what is most important to them.

G U AT E M A L A COUNTRY REPORT

uatemala’s political front has not always been stable, having faced by high officials’ corruption including pribary; and drugs and money trafficking.

Currently, despite the widespread corruption in the country, the Guatemalan criminal justice center has witnessed remarkable upheaval thanks to the International Commission Against Impunity in Guatemala (CICIG) that was established by the United Nations a decade ago. In a 2015 report, CICIG asserts that Guatemala’s political parties derive half of their financing from corruption or from criminal groups. Over the past few decades organized crime groups – especially the ones involved in Narcotic trafficking – have infiltrated politics through money and violence.

POLITICAL TRAITS Furthermore, Guatemala does not fully meet the minimum standards for elimination of trafficking,as the country is known to be a source,transit,and destination for sex trafficking and forced labor. Guatemalan men, women and children are subjected to forced labor within the country,often in agriculture or domestic service and in the garment industry. The dilemma is that there are high ranked officials who are accused in participating and facilitating the trafficking. After the resignation of Otton Perez Molina,elections took place last year for the hopes of a better leader who can get the country out of the corruption pool. Jimmy Morals,a comedian,was elected with promises to encourage and maintain foreign investments especially in the textile and apparel industry that is very important to the Guatemalan economy. In order to do that he decreased energy costs by 33% and exempted manufacturers from taxes for the coming ten years.

POLITICAL FACTS CURRENT PRESIDENT Jimmy Morales CURRENT SITUATION Not stable FUTURE SITUATION More stable

The political instability and cut-throat competition from other countries like Vietnam affected the industry in Guatemala. However,there are new hopes for the prospect of the industry. Trans Pacific trade agreement (TPP) will probably not see the light because of the results of the recent presidential elections in the United States - the elected president ,Donald Trump, oppose couple of trade agreements including TPP. If the trade agreement was ratified,it would have gave a competitive advantage to Vietnam. Also, there are serious actions are taken to fight corruption, as officials in the criminal justice system,such as the attorney general,Thelma Aldanan,in cooperation with the United Nation, are trying to fight the organized corrupt leaders.

SOCIAL TRAITS

uatemala is the most populous country in Central Ameri-

CULTURAL FACTS

ca and has the highest fertility rate in Latin America. It also

has the highest population growth rate in Latin America, which

LANGUAGE

is likely to continue because of its large reproductive-age population and high birth rate. Almost half of Guatemala’s population is under age 19. Despite the fact the Guatemala has the biggest economy in Central America, it has the highest inequality rates in Latin Amer-

Spanish (official) 60%, Amerindian languages 40% RELIGIONS

ica, with some of the worst poverty, malnutrition, and child

Roman Catholic, Protestant, indigenous Mayan beliefs

mortality rates in the region, especially in rural and indigenous

Recently,there has also been an incident in an apparel factory whereby employ-

area. Currently, the distribution of income remains highly un-

ees stole the factory’s machinery and goods, estimated at three million dollars,

equal with the richest 20 percent of the population accounting

leaving the owner bankrupted. The employees defended the looting by claim-

for more than 51 percent of Guatemala’s overall consumption.

ing they had not received their salaries for six months, and they had to keep working even without getting paid for this whole period of time.

The World Bank estimates that if growth rate increases at a rate of 5 percent in each year for the next few years - providing that it

One of the other social problems faced by the Guatemalan government is Child

does not come on the expense of the poor - the marginal impact

labor. 10.3 percent of children,ages 7-14,work in the industry sector that includes

on poverty and equity will be significant in the future.

production of garments (Figure 1). The Guatemalan government has made significant advancements to eliminate the worst forms of child labor. They have in-

Furthermore, there have been accusations from AFL-CIO (Fed-

creased legal penalties on human trafficking of minors, and increased training

eral of Labor Organization) regarding forced labor in the textile

of labor inspectors. However, the AFL-CIO (the Federal of Labor Organization)

and apparel industry, which has been denied later by the gov-

has accused Guatemala of minor labor practices prohibite by the CAFTA. On

ernment.

the other hand,women are an important part of the garment industry in Guatemala. According to Vestex,women take 46% of apparel jobs.

GEOGRAPHY

TRAITS

GEOGRAPHY FACTS TOTAL AREA 108.889 SQ. KM CLIMATE Tropical; hot, humid in lowlands; cooler in highlands FLYING TIME FROM MIAMI TO GUATEMALA Two hours SEA FREIGHT TIME FROM GUATEMALA (PUERTO TOMAS) TO MIAMI (MIAMI PORT) Around three days

Guatemala’s volcanoes

uatemala is a country known for its volcanoes, mountains and beaches on the Pacific Ocean and Caribbean Sea, from the Cuchamatan mountains in western highlands to the coastline s on the Caribbean Sea and Pacific Ocean. Three of Guatemala’s 30 volca-

noes are still active. Guatemala’s location make it frequented by hurricanes such as Hurricane Mitch in 1998 and Hurricane Stan in 2015, which killed more than 1,500 people.

ECONOMIC FACTS

ECONOMIC TRAITS

CURRENCY Quetzal (GTQ=100 centavos)

uatemala’s economic performance is the strongest in Latin America. Real GDP will continue to grow this year

EXCHANGE RATE (PER US$)(CURRENT VALUE) 7.51

by 4% after gains of 4.1% in 2015. GDP is expected to contin-

GDP IN 2015 $63.79 billion

ue to grow through 2020 (see figure 2). The growth of GDP is expected to average about 3.8% per year for the rest of the

INFLATION IN 2015 2.4%

decade because of the increase in exports since the country’s participation in couple of trade agreements. However, the performance is below potential due to low rates of productivity growth, a number of cautious fiscal policies, and delays in crucial economic reforms. According to the World Bank, crime and violence, which makes the country one of the world’s crime ridden countries, costs the country a staggering 7.7% of its GDP.

WORLD’S BANK REPORT (EASE OF DOING BUSINESS) 81 of 189

(Low numerical value indicates simpler regulations for businesses and stronger protections of property rights )

he most important export partner to the country is the US with a share of 381.3% of all imports in 2015. The agriculture sector accounts for two-thirds of all exports and manufacturing sector accounts for 19.2 percent of GDP. This increase in exports is secured by the US Central America Free, CAFTA, which was signed in 2006. Guatemala (with five other Central American countries) signed a similar trade agreement with the EU in 2012. The country has also concluded a free-trade agreement with Mexico. Inflation rate increased in 2015 by 2.4%, and in order to control it, the Central Bank has tightened monetary policy. This year’s inflation is supposed to be 4.6%. The Central Bank’ target rate is 3-5%. Most high-income earners oppose paying high taxes. Guatemala’s annual tax yield is just 11% of GDP, which is the second lowest country in Central America. The richest 10% of the population are just paying 2% of their income to the state. Tax money must be raised to accommodate public spending on infrastructure and social needs.

Figure 2

TRADE AGREEMENTS CAFTA-DR CAFTA is the most important trade agreement for Guatemala that granted duty-free access for many of its goods to the United States. The trade agreement also includes El Salvador, Honduras, Nicaragua, Costa Rica and the Dominican Republic. It was created with the purpose of spurring new and better economic opportunities by opening markets, eliminating tariffs, and reducing barriers to services. The US senate approved the agreement in 2005, and was ratified in Guatemala in 2006. One of the most important sections of the agreement is “The rules of origins ”. The act specifically states that garments are exempt from duty if they meet the following:

CAFTA’s countries

TPP - Trans-Pacific Partnership

he apparel and textile industry in Guatemala was facing a new challenge concerning a new trade agreement that was suppose to take

place at the end of 2017. It was a trade agreement between twelve of the

• Assembled from fabrics made and cut in the Unit-

Pacific Rim countries- excluding China. The treaty will benefit partic-

ed States, manufactured from US yarn entered under

ipants countries concerning textile and apparel by eliminating tariffs

HT9802.00.08 or in HT schedule chapter 62 and 62.

on exports. Vietnam was considered the highest beneficial of the trade

• Cut and assembled from US fabric, made with US yarn, sewn in CBTA countries with US formed thread.

agreement. Vietnam had already taken up much of Guatemala and Central America’s US market share. Apparel and Textile exports have grown 19 per-

• Knit to shape from US yarns and knit apparel cut and

cent since 2013 and have reached $24 billion in sales volume – the bulk

wholly assembled from fabric formed in one or more

goes to the US. However, chances that the agreement would be ratified

beneficiary countries or in the US from US yarn with cer-

have become bleak due to the latest US presidential elections, which has

tain caps attached.

seen Donald Trump winning. The new president and his party are known to be against the treaty that will probably not see the light.

T R A N S P O R TAT I O N

uatemala’s access on to water on either coast, facilities the transportation of goods through sea lines to the US. Gua-

temala is the closest CAFTA’s country to the US. Air travel time takes from 2 to 4 hours from the Southern US, and the bimodal transit time for LDP is 6 hours by truck factory-to-port, and about three days from Port (Puerto Tomas) to US port (Miami port). The close proximity to the US is a strong leading competitive advantage above Asian suppliers because of the cheaper cost, whether by air or sea freight. Also, the close proximity facilitates the au-

THE TEXTILE AND APPAREL INDUSTRY

alued at $1.5 billion and accounting for roughly 19 percent of all non-traditional product exports (surpassing traditional shipments such as coffee and bananas), Guatemala’s textile and apparel industry is known for its prowess in producing performance fabrics and sportswear and its clients span Walmart and Target to Old Navy and Gap to Puma and Reebok, among others. The country has 150 apparel manufacturers , 39 textile mills and 200-plus trims and services firms. 70 percent of the apparel sector’s foreign investment is Korean-affliated, having other subsidiaries in close by countries,which guarantees meeting deadlines in case of sudden short supplies.

diting of the production process if any auditing representative needs to fly there.

New generation of entrepreneurs in the textiles and apparel industry are taking on their parents’ or grandparents’ factories and mills,and introducing concepts such as recycling, product design and community development as core business principles. Several factories have their own codes of conduct. These suppliers are starting to actively explore new export destinations beyond the conventional US market. With competitive pricing and better productivity rates, Guatemala’s apparel industry is set to see a new phase in its maquila’ history by adding value to their products and having a competitive advantage to the Asian market.

S U P P L I E R S I N G U AT E M A L A

Modas Kotop

Hansae

Int Trading S.A.

(http://www.hansoll.com/_ENG/html/hansoll.html#world_network)

(https://www.hansae.com/en/index.asp)

(http://www.inttrading.com/)

Modas Kotop is one subsidiaries owned by the Korean

Hansae,a Korean company,has overseas branches in Viet-

It is the only Korean producer in Latin America

company, Hansoll Textile. It serves major customers

nam,Indonesia,Nicaragua,Guatemala,and Myanmar,and

and the Caribbean with its own complete pro-

such as JC Penny, Gap and Kohl’s department stores. JC

a R&D center in New York. Approximately 50,000 people

duction line (including a spinning mill): yarning,

Penny rewarded the company as the supplier of the year

work for them worldwide, including 650 people at their

knitting, dyeing, sewing and printing (embroidery)

in 2016. The award is given for the highest achievement

Seoul headquarters, 36,000 at overseas production

activities, which guarantee the control over qual-

in quality, performance, innovation and design and sup-

bases, and workers at each country’s subcontractors.

ity of products. Lead-time is usually 6-8 weeks

port chosen from over 100 suppliers. The main sourcing

The company has consistently grown over the last

depending on yarn availability and always allows

five years, with estimated sales of US$100 million in

customers to react to speed to market. They also

2013,guaranteeing quality and fast leading time of its

source fabrics from the US to take advantage of the

production. It exports over 260 million pieces of cloth-

CAFTA trade agreement. The company produces

ing every year, and provides full package production.

1,000,000 pcs/month. The major customers are

The company’s major customers are Kohl’s’ department

TJ max, Kohl’s Department stores, and JC Penny.

stores, Target, and Old Navy. R&D centers in Seoul and

All INT designs are developed at the company’s

New York have designers focusing on design and fabric

design department in the United States, so that the

development and self Inspection Program (SIP) for high

firm can keep the pace with local fashion trends.

values for the company to focus on are ethics and transparency of human and workplace rights, environment, and community, which complies with Aarde guidelines. The parent company, Hansoll textiles, has 8 overseas subsidiaries with 20 whole owned factories producing 35 million garments every month through 599 production lines. Hansoll CSR department has developed its own database system to allow easy and effective reporting between overseas factories and headquarters to collect and analyze production and buyer information.

Hansoll’s world network

quality and rapid supply of fabric and finished products.

CAMBODIA Cambodia is a country in South East Asia, bordering Thailand, Vietnam, and Laos. They have a population of around 15million and are ruled under a constitutional monarchy. Although the country has a growing economy, it is still number 48 on the least developed country list. It is the 82nd largest export economy in the world and has about 559 known clothing factories in the country. Major brands such as H&M, Walmart, Nike, Levi, Puma, Old Navy and other major companies use this country to manufacture their clothing. Even though one of the main exports in this country is knit fabric to the U.S along with other textiles, there are major issues with the factories that create these goods. Workers in this country have been fighting for higher pay wages. There was an increase in 2014 but it is still nowhere what is needed in the country to meet living wages. There have also been reports of poor working conditions which have led to mass worker fainting in the clothing factories. In 2010 78% of uninsured Cambodian workers were in the garment industry. There were 900 reported incidents in first 8 months of 2012 and then it increased to 2000 by the end of the year.

Sourcing Strategy Country Selection Aarde selected three countries, Peru, Vietnam, and Guatemala, to research extensively in order to identify the best supply chain strategy for the brand. Cambodia was dropped from Aarde’s placement strategy due to the country’s lack of sourcing guidelines within their factories. At Aard we believe in a fair work environment and expect our manufactures to uphold the law when it comes to how their factories are being run. In Cambodia, 65% of the factories have violated heat level regulations and 95% of the factories have violated overtime regulations. Not only is this country a risk to Aards brand because of the lack of regulations, it also a risk because of rising costs of labor and exchange rates and natural disasters, such as floods, destroying factories. Aarde’s goal in developing a successful strategy is to minimize all risks and maximize all opportunities presented. Each of the countries pose their own risk, but have individual benefits the manufacturing of Aarde’s product line. Upon profiling each country we were able to outline each country’s strengths, weaknesses, threats and areas of opportunity. This research focused on each country’s textile and apparel industry, business etiquette, state of the economy, and any factors that could potentially hurt our strategy. Using this information we were able to compare the countries to one another in a numeric ranking system. This allowed us to be confident in the placement of our products. Aarde will be manufacturing one million pieces across the three selected countries over a one year period time that has been pre-planned.

S T R AT E G Y D E V E L O P M E N T

Vietnam STYLE #

NAME

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

TOTAL

Wholesale Wholesale

Cost

Per Unit Total

Per Unit

Quanti- Quanti- Quanti- Quanti- Quanti- Quanti- Quanti- Quanti- Quanti- Quanti- Quanti- Quantities ties ties ties ties ties ties ties ties ties ties ties FW17TP1

Blaar

5,000 15,000 25,000 50,000 100,000

FW17TP2

Wolk

2,500

FW17TP3

Vis

FW17TP4

Mazao

1,000

1000

2,500 10,000 47,000 20,000 10,000

50,000 100,000

5,000 20,000 80,000 50,000 TOTAL

5,000

2,000

12500

19500

1000

1,000

50,000

5,000

41000 118000 200000

1,000 10,000 5,000

10,000

10,000 22,000

1,000

45,000

5000

10,000 10,000

20,000

50,000 150,000

66000 106000 156000 25000

31000

61000 173000

P STYLE #

NAME

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

Blaar

5,000 15,000 25,000 50,000 100,000

FW17TP2

Wolk

2,500

FW17TP3

Vis

FW17TP4

Mazao

2,500 10,000 47,000 20,000 5,000 20,000 80,000

TOTAL

5,000

2,000

12500 19500

1000

1,000

50,000 50,000 5,000

41000 118000 200000

1000

1,000 10,000 10,000

10,000 50,000 100,000 5000

66000 106000

5,000

1,000

10,000 22,000 1,000

1,000

45,000

Margin %

Total

$60.00 $15,000,000.00

$5.26

$1,313,750.00

$54.75

91.24%

250000

$45.00 $11,250,000.00

$4.10

$1,025,500.00

$40.90

90.88%

250000

$38.00

$9,500,000.00

$3.16

$790,000.00

$34.84

91.68%

259000

$50.00 $12,950,000.00

$3.61

$935,249.00

$46.39

92.78%

1009000 $48.25 $12,175,000.00

$4.03

$1,016,124.75

$44.22

91.64%

TOTAL

Quanti- Quanti- Quanti- Quanti- Quanti- Quanti- Quanti- Quanti- Quanti- Quanti- Quanti- Quantities ties ties ties ties ties ties ties ties ties ties ties FW17TP1

Margin

250000

DEC

Cost

u Wholesale Wholesale

Cost

Per Unit Total

Per Unit

Total

Margin

Margin %

250000

$60.00 $15,000,000.00

$4.53

$1,131,750.00

$55.47

92.46%

250000

$45.00 $11,250,000.00

$3.51

$878,000.00

$41.49

92.20%

250000

$38.00

$2.67

$668,500.00

$35.33

92.96%

$9,500,000.00

10,000 10,000 20,000

50,000 150,000

259000

$50.00 $12,950,000.00

$4.10

$1,060,864.00

$45.90

91.81%

156000 25000

61000 173000

1009000

$48.25 $12,175,000.00

$3.70

$934,778.50

$44.55

92.33%

31000

Guatemala STYLE #

NAME

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

Quanti- Quanti- Quanti- Quanti- Quanti- Quanti- Quanti- Quanti- Quanti- Quanti- Quantities ties ties ties ties ties ties ties ties ties ties FW17TP1

Blaar

5,000 15,000 25,000 50,000 100,000

FW17TP2

Wolk

2,500

FW17TP3

Vis

FW17TP4

Mazao

5,000 TOTAL

1,000

1000

1,000

2,500 10,000 47,000

20,000

10,000 50,000 100,000

5,000 20,000

80,000

50,000 50,000 45,000

2,000

12500 19500

1000

1,000

41000 118000 200000

10,000 10,000 5,000

1,000

DEC Quantities

10,000 22,000 1,000

TOTAL

1,000

Wholesale Wholesale

Cost

Per Unit Total

Per Unit

Total

Margin

Margin %

250000

$60.00 $15,000,000.00

$4.70

$1,175,500.00

$55.30

92.16%

250000

$45.00 $11,250,000.00

$3.65

$912,250.00

$41.35

91.89%

250000

$38.00

$9,500,000.00

$2.76

$690,500.00

$35.24

92.73%

5000 10,000

10,000 20,000

50,000 150,000

259000

$50.00 $12,950,000.00

$4.07

$1,053,353.00

$45.93

91.87%

66000 106000 156000

25000 31000

61000 173000

1009000

$48.25 $12,175,000.00

$3.80

$957,900.75

$44.46

92.13%

5,000

L I N E P L A N J U S T I F I C AT I O N Aarde’s ladies cotton top are suitable to be worn around the year. The soft organic cotton will distinguish Aarde’s products. Women will love to own something special and practical that makes them feel comfortable and different. Most of our products are going to be produced around the year. The production of all products will be increased in the holiday season, November, December and May. The organic cotton tops are a basic item in any woman’s wardrobe that can be worn on a daily basis. The long sleeve tops production will be increased during fall/winter season, while the short sleeve top production will be increased during spring/summer season. The tank top will only be produced during spring and summer, as this will be the only suitable time to be sold.

PLACEMENTS Aarde’s placement plan was created after thorough research conducted on the top three sourcing countries and suppliers that proved to provide the best manufacturing environment for knit tops. Peru, Cambodia, Vietnam, and Guatemala were each profiled through a PESTEL analysis which was supported by research on the country’s’ apparel industry and top knit manufacturers. Manufacturers were ranked based on their capabilities, value added services, existing customers and compliances with Aarde’s sourcing guidelines. Based on preliminary research, Aarde’s placement strategy was developed while taking into consideration each countrys’ stability, lead times, and accessibility to U.S. ports and Aarde’s headquarters. Four placement scenarios were developed and analyzed numerically to identify the best placement strategy. The strategy that yielded the best margins and provided a stable level of production in each country was the ideal option. Aarde will be manufacturing 1 million pieces across the three selected countries over a one year time period that has been pre-planned.

Peru - Hialpesa Placement (Scenario one) Total Units

Blaar

910,000

Wholesale Cost per Unit

Wolk

Guatemala - Modas Kotop Vis

Blaar

Wolk

Vietnam - Esquel Vis

Blaar

Wolk

Vis

125,000

200,000

75,000

200,000

100,000

50,000

$60.00

$45.00

$38.00

$60.00

$45.00

$38.00

$60.00

$45.00

$38.00

$4.53

$3.51

$2.67

$4.70

$3.65

$2.76

$5.26

$4.10

$3.16

Margin

$55.47

$41.49

$35.33

$55.30

$41.35

$35.24

$54.75

$40.90

$34.84

92.46%

92.20%

92.96%

92.16%

91.89%

92.73%

91.24%

90.88%

91.68%

Total Wholesale

$40,950,000

$7,500,000.00

$5,625,000.00

$7,600,000.00

$4,500,000.00

$3,375,000.00

$7,600,000.00

$6,000,000.00

$2,250,000.00

$1,900,000.00

Total Purchase

$3,134,050

$565,875.00

$439,000.00

$534,800.00

$352,650.00

$273,675.00

$552,400.00

$525,500.00

$205,100.00

$158,000.00

total Margins

$42,743,000

$6,934,125.00

$5,186,000.00

$7,065,200.00

$4,147,350.00

$3,101,325.00

$7,047,600.00

$5,474,500.00

$2,044,900.00

$1,742,000.00

Avg Wholesale Avg Purchase

$46.35 $3.61

Avg Margins

$42.74

Avg Margins %

92.22%

Avg Cost/Unit

$42.74

Aarde’s first placement option took in consideration cost and quality. For those reasons we placed 45% of production in Peru, 35% in Guatemala, and 20% in Vietnam. To maintain production levels in each country we decided not to go below 15% in any one country. This placement strategy yielded in a profit margin of 92.22%.

Placement (Scenario two) Total Units

1,000,000

Wholesale

Guatemala - Modas Kotop Blaar

Wolk

Peru - Esquel Vis

Blaar

Vietnam - Vinatex

Wolk

Vis

Blaar

Wolk

Vis

125,000

200,000

75,000

200,000

100,000

50,000

$60.00

$45.00

$38.00

$60.00

$45.00

$38.00

$60.00

$45.00

$38.00

$4.70

$3.65

$2.76

$4.53

$3.51

$2.67

$5.26

$4.10

$3.16

Cost per Unit Margin

$55.30

$41.35

$35.24

$55.47

$41.49

$35.33

$54.75

$40.90

$34.84

92.17%

91.89%

92.74%

92.45%

92.20%

92.97%

91.24%

90.88%

91.68%

$7,500,000.00

$5,625,000.00

$7,600,000.00

$4,500,000.00

$3,375,000.00

$7,600,000.00

$6,000,000.00

$2,250,000.00

$1,900,000.00

Total Wholesale

$46,350,000

Total Purchase

$3,621,350

$587,500.00

$456,250.00

$552,000.00

$339,750.00

$263,250.00

$534,000.00

$525,500.00

$205,100.00

$158,000.00

total Margins

$42,728,650

$6,912,500.00

$5,168,750.00

$7,048,000.00

$4,160,250.00

$3,111,750.00

$7,066,000.00

$5,474,500.00

$2,044,900.00

$1,742,000.00

Avg Wholesale Avg Purchase

$46.35 $3.62

Avg Margins

$42.73

Avg Margins %

92.19%

Avg Cost/Unit

Vietnam. To maintain production levels in each country we decided not to go below 15% in any one country. This placement strategy yielded in a profit margin of 92.19%. Guatemala and Peru are known for their high quality production of apparel. Guatemala is closer to the US, which is an opportunity that will maximize our gains.

$42.73

Placement (Scenario Three) Total Units

Aardeâ&#x20AC;&#x2122;s second placement option took in consideration proximity and quality. For those reasons we placed 45% of production in Guatemala, 35% in Peru, and 20% in

1,000,000

Wholesale Cost per Unit

Peru - Hialpesa Blaar

Wolk

Vietnam - Esquel Vis

Blaar

Wolk

Guatemala - Modas Kotop Vis

Blaar

Wolk

Vis

125,000

200,000

75,000

200,000

100,000

50,000

$60.00

$45.00

$38.00

$60.00

$45.00

$38.00

$60.00

$45.00

$38.00

$4.53

$3.51

$2.67

$5.26

$4.10

$3.16

$4.70

$3.65

$2.76

Margin

$55.47

$41.49

$35.33

$54.74

$40.90

$34.84

$55.30

$41.35

$35.24

92.46%

92.20%

92.96%

91.23%

90.89%

91.68%

92.16%

91.89%

92.73%

Total Wholesale

$46,350,000

$7,500,000.00

$5,625,000.00

$7,600,000.00

$4,500,000.00

$3,375,000.00

$7,600,000.00

$6,000,000.00

$2,250,000.00

$1,900,000.00

Total Purchase

$3,664,425

$565,875.00

$439,000.00

$534,800.00

$394,500.00

$307,500.00

$632,000.00

$470,200.00

$182,450.00

$138,100.00

total Margins

$42,685,575

$6,934,125.00

$5,186,000.00

$7,065,200.00

$4,105,500.00

$3,067,500.00

$6,968,000.00

$5,529,800.00

$2,067,550.00

$1,761,900.00

Avg Wholesale

$46.35

Avg Purchase

$3.66

Avg Margins

$42.69

Avg Margins %

92.09%

Avg Cost/Unit

$42.69

Aardeâ&#x20AC;&#x2122;s third placement option took in consideration risk and benefits. For those reasons we placed 45% of production in Peru, 35% in Vietnam, and 20% in Guatemala. To maintain production levels in each country we decided not to go below 15% in any one country. This placement strategy yielded in a profit margin of 92.09%. Peru and Vietnam are considered the most stable climate for the textile and apparel industry, minimizing our risks.

COUNTRY AND SUPPLIERS RANKING

Scale of 1 to 10 with 1 being the worst and 10 the best

Business Climate Costs Government Location Risks Social Stability Sourcing Guidelines Textile Industry Trade Agreements Trained Work-force Socio-eco-political

Peru 9 7 9 7 9 8 8 10 10 10 8

Guatemala 6 9 6 10 6 7 5 9 10 9 7

Vietnam 6 10 9 8 9 8 7 9 9 10 7

Cambodia 9 7 5 5 5 5 3 10 6 5 5

Total

Average

8.6

9.3

8.4

5.9

Suppliers

Peru (Hialpesa)

Guatemala (Modas Kotop)

Vietnam (Esquel)