Supply Chain Strategy for Apple Core Children's wear

EXECUTIVE SUMMARY

Apple Cores is a new children’s organic cotton t-shirt line based in Savannah, GA. Apple Cores was founded in 2016 by a group of five students from the Savannah College of Art and Design. Inspired by companies that give back with each product sold, Apple Cores will be donating 5% of its profits to support children’s education. Apple Cores will be offering five different t-shirt styles in a selection of stripes and solids. These five styles will be short sleeve tees, long sleeve tees, short sleeve pocket tees, long sleeve pocket tees and tank tops. They will be sold online, in premium retailers like Macy’s and Nordstrom as well as in specialty children’s boutiques across the United States.

The following report will provide information on Apple Cores, its mission, values, target customer, and sourcing guidelines. Next, the report will provide information on Apple Cores production and line plan by month as well as provide detailed costing and tech pack information. Finally, the bulk of the report will be focused on evaluating and identifying a comprehensive supply chain strategy for Apple Cores. In order to identify this strategy, information will be provided on the development of Apple Cores’ sourcing strategy as well as its distribution strategy, which are crucial components to the supply chain strategy.

COMPANY STRATEGY MISSION STATEMENT

CORE VALUES

To Provide organic, wearable products that instill love and admiration from the most important people: parents, children, employees and the community.

People: When looking at the core values of Apple Cores, one of the primary values is its dedication to people, both its employees as well as its customers. In order to be successful, Apple Cores understands that its employees are its most important asset. It therefore will provide training to its employees to improve retention and offer competitive salaries and benefit packages to keep employees happy and satisfied. In addition to its employees, Apple Cores also places a large importance on its customers. By listening to their wants and trying to meet their needs, Apple Cores hopes to become their customer’s preferred clothing brand.

Giving Back: Another core value of Apple Core’s is giving back to the community. In order to do this, Apple Cores will be donating 5% of its profits to support children’s education. The goal is to prove that a company can be profitable while also charitable in order to inspire other companies to also give back.

VISION To be the premier children’s apparel company that makes money while giving money back to support education

Ethics: A third core value for Apple Cores is being ethical in its business practices. In order to achieve this, Apple Cores has developed strict sourcing guidelines, which details its expectations for any companies that it does business with from its suppliers to its customers. In order to make sure these expectations are met, Apple Cores will be doing unannounced visits with all of its suppliers to ensure that they are upholding Apple Cores’ high standards.

Affordable: Another value for Apple Cores is to keep its products affordable. As a children’s clothing company, we know that children grow quickly and therefore often need to buy new clothes.

It is Apple Cores’ goal therefore to provide clothes that are good quality but also affordable so that it is not a burden to purchase additional products.

Sustainability: The final core value for Apple Cores is sustainability. As part of this value, Apple Cores will be using organic cotton for its products as a way to limit pesticide use and reduce its carbon footprint. Also, Apple Cores will be utilizing water treatment plants and environmentally friendly packaging as a way to be more sustainable and less wasteful.

TARGET MARKET

Apple Cores will be selling t-shirts for kids age 7-14. Due to it being children’s apparel, Apple Cores has two different target consumers: the parent who will be purchasing the product and the child who will be wearing the product. The target parents are middle to upper class with a household income of $100,000 to $150,000. These parents are very environmentally conscious and consider health to be the main priority for their children. They prefer organic apparel for their kids and like clothes to be affordable since their kids grow so quickly. When looking at the target child who will be wearing the product, they are motivated by comfort and by style. The children want their clothes to feel good as they play as well as look cool so they can impress their friends.

Target Market: Parents Age : 25-40 Location: Major US Cities Education: Master’s Degree Income: $100,000-$150,000 Hobbies: Healthy living, working out,

visits museums, yoga,

hanging out with friends Target Consumer: Boys and Girls Age: 7-14 Characteristics: Fast growing Tender skin Highly Active Involved in sports

SOURCING GUIDELINES Our suppliers will be chosen based on their fit with our core values and our sustainability beliefs.

Code of conduct: • Prohibition on child labor • Prohibition on forced labor • Prohibition on discrimination based on race, religion, or ethnic origin • Requirements to ensure the health and safety of the workplace environment • Provision on wages • Provisions regarding limits on working hours, including forced overtime, in accordance with local laws • Support for freedom association and the right to organize and bargain collectively • Housing condition: suppliers should provide employees with housing if needed without exception • Monitoring and enforcement: All facilities should be monitored at least once a month with unannounced visits at any time • Reasonable market process and supplier costs • Regular mutual feedback, open communication, and clear expectations between the corporation and suppliers

The environment: • Energy: Use 100% renewable energy to minimize carbon footprint.

• Waste: Both pre-production and post-production waste should be recycled or treated properly and utilized to the maximum • Water: No pollution. All waste water should be treated properly to eliminate toxins and pollutants Community involvement: • Employee benefits will include:

-Health insurance

-Life and accident insurance

-Disability insurance

-Transportation allowance/discount

-Education allowance Philanthropic interests: • Give back on each purchase • Recycle and donate old garments

LINE PLAN

COUNTRY REPORTS

PERU

COUNTRY TRAITS Location Western Side of South America Size (Area) 1,285,216 sq. km Government Constitutional Republic Current President Ollanta Humala Tasso Population 30,444,999 people (July 2015) Language Spanish, Quechua, Aymara Religion Roman Catholic Poverty Rate 25.80% Literacy Rate 4.50%

COUNTRY STABILITY Politics:

Peru’s government is a Constitutional Republic where the elected president is both Head of State and Head of Government. The current President Ollanta Humala was elected in 2011 and is finishing out his five-year term. While he boasted that he would greatly transform the economy and laborers’ rights in his presidential campaign, Humala has faced criticism for not doing enough in Peru to make significant change. His approval rating is at 30% and he and his staff have been accused of taking bribes and spying on citizens (“No Convictions” 1).

Political corruption is one of the main challenges to the political system in Peru. Recently a study was conducted to indicate just how rampant corruption is in Peru: “According to Transparency International’s 2013 Global Corruption Barometer, 80 percent of respondents in Peru believed that the political parties, the parliament, the police and the judiciary were corrupt or very corrupt, and 50 percent said that business practices were dishonest.” (“Impunity Allows” 1). Currently, Humala is being investigated for taking bribes from an engineering company in Brazil despite having boasted publicly about the need to halt corruption. In addition, other Peruvian politicians including ones running for President are being investigated for being linked to the drug trade in Peru (“Impunity Allows” 1).

Looking to the future, a new political election could indicate a time of change for Peru. Historically the stock market has fluctuated immediately after a presidential election based on the boasted policies of the elected president. It will be crucial to monitor results of the election to see its effect on economic and social policies.

Economics:

1 US DOLLAR = 3.33 Peruvian Nuevo Sol

In the past 20 years, Peru has seen a period of rapid economic growth thanks in part to its rich natural resources with low inflation. From 2009 to 2013, the Peruvian economy grew by an average of 5.6%. This growth was primarily driven by high demand and consequently high prices for Peru’s metal and mineral exports. Metals and Minerals combined account for about 60% of Peru’s exports. In 2014 and 2015, demand dropped causing a decrease in the economic growth for Peru. This reliance on an export category threatens the forward-looking stability of Peru’s economy.

(CIA Factbook 1)

In terms of inflation, Peru currently is facing a rising inflation rate, which means that the overall purchase power of the currency is falling (Investopedia 1). The inflation rate in 2014 was 3.2% and in 2015 it was 3.6% (CIA Factbook 1). When evaluating inflation, rising inflation rates can indicate that the economy is less stable.

In terms of the future outlook, the economy in Peru despite facing some challenges recently is expected to improve for a number of reasons.

First, the two leading presidential candidates are both pro business meaning that the overall climate in Peru should remain business friendly. Next, the trade deficit saw big improvement in March 2016 due to increased exports of metals and other Peruvian goods, which helped to boost the economy in Peru. Finally, April 2016 saw a change in business sentiment as people were optimistic about the future outlook of business for the first time since July 2015, which indicates hope for the future for the economy.

LEAD-TIME OF PRODUCTION Social: Human Rights Violations

While the government in Peru tries to maintain civility and respect rights of its citizens, there are still a number of issues that are detrimental to overall human rights. The first issue is that there is a very flawed judicial system in Peru. There is no witness protection so witnesses often are threatened or harassed before testifying. In addition, due to the amount of cases that are brought to court, there is often a long delay between trial and sentencing causing problems for the system at large (Country Review 68). Another issue that Peru faces is the brutality of the police force. In Peru, police and security often arrest suspects for no clear reason or just cause. They have been known to use excessive force with suspects by beating them, abusing them or even torturing them. (Country Review 68). Also, Peru is known for its violence towards children, minorities, women and indigenous people. This has become a major issue as of late with the increased number of child laborers in Peru. (Country Review 68) As a result of these types of abuses, human rights activists, trade unionists and journalists have tried to highlight these types of issues in the nation.

Unfortunately, they often are harassed, threatened or attacked for bringing these types of issues to the forefront (Country Review 69).

Despite the issues in Peru, the future outlook for the country remains hopeful particularly due to the advancement of the middle class. In 2003, the poverty rate was about 50% in Peru while now it is closer to 25%. This reduction in poverty has been a result of the economic boom that happened in Peru, which led to increased wages and more job opportunities. As the economy improved and poverty rate declined, a larger demand for homes, education, loans, cars and phones all helped to further stimulate the economy. The poverty rate is expected to decline further in the coming years with a new pro-business president, which will help to further increase the social stability of the country.

In terms of lead-time of production, there are a number of factors that may impact production in Peru. The first factor is weather and natural disasters. Peru’s climate varies from tropical in the western part of the country to very cold in cities near the Andes Mountains. This vast difference in temperatures makes the country at risk to face a wide variety of natural disasters such as earthquakes, landslides, and mild volcanic activity. The coastal areas are more likely to be affected by flooding where as the more frigid cities are at risk of extreme cold temperatures as well as volcanic activity (Ubinas Volcano is in the Andes). All of these environmental conditions not only impact the factories themselves and the ability to get product out of the country, but also the cotton crop itself, which can be damaged by weather disasters. (CIA factbook 1)

Another factor that may affect the lead-time of production is holidays. Since the majority of Peruvians are Roman Catholic, fac tories will close on major Christian holidays such as Good Friday, Easter and Christmas. In addition, Peruvians also celebrate Independence Day on July 28th so closures should be expected then.

CULTURAL INSIGHTS

Doing business in Peru has its own unique traditions that must be respected in order to be successful. First, the people of Peru are warm and sociable meaning that they value personal relationships when it comes to business.

In order to establish a connection, meetings in Peru are done face to face (and in Spanish) as opposed to over the phone or via email. These face-to-face meetings are crucial in establishing a rapport and a connection with each other before deciding to do business together (“Culture Smart” 1). The initial meeting between two parties is likely to be formal with formal business attire required, but the meetings will get less formal as the parties become closer over time. Unlike in America where meetings often have a formal agenda, meetings in Peru do not follow a set agenda but instead the attendees decide on what should be discussed verbally at the start of the meeting. All attendees in meetings are allowed to speak regardless of their level in the company. (“Culture Smart” 1).

When it comes to negotiating in Peru, it is advisable to be very direct with Peruvian business owners. Since they have a very patriarchal society, business owners tend to prefer honest, and direct negotiation as opposed to a more indirect method favored in other countries. Uniquely however, it is important to understand that many Peruvian businesses are family owned and operated. This means that there is usually a head family member who makes decisions for the family business and its important to understand this relationship before beginning negotiations (“Culture Smart” 1).

As part of doing business in Peru, participating in breakfasts, lunches and dinners is often expected. As Peruvians like to be good hosts for their guests, they often schedule meals as part of the meeting agenda. Traditional business hours in Peru are 9 to 5:30 so meals happen around this schedule (Country Review 159). Breakfast meetings are used when there is not enough time in the day to cover all-important matters and often are fast paced. Lunch meetings often are seen as an extension of the business day so business talk is common and expected at these meetings. Dinners often occur later at night and are used for building relationships rather than discussing business. (“Culture Smart” 1).

In addition to specific business cultural practices, there are other cultural practices common in Peru that should be followed. In terms of the customary greeting, a firm handshake with eye contact is the most common way to greet a new person. Greetings are often lengthy with Peruvians discussing family, travels, health etc. and it is seen as a sign of disrespect to interrupt a greeting. In addition, formality in terms of titles is respected in Peru so visitors should address people by title and last name unless directed otherwise. Next, there are certain gestures that should be avoided in Peru such as pointing ones finger, standing with your hands on your hip, or yawning or coughing during conversation. These gestures can all be deemed as rude or even obscene in the case of pointing.

STATE OF THE APPAREL AND TEXTILE INDUSTRY

After years of great demand and an economic boom, the apparel and textile market has been declining in the past couple of years. The main reason for this decline has been a result of decreased demand from Peru’s second largest export market, Venezuela. Between 2013 and 2014, export earnings dropped 39.9% and the average price of textiles decreased from $42.07 to $25.74 per kilo as the pricing bubble burst in Venezuela (Sector Textile 1). Another reason for the declining industry has been increased competition and changes in consumer preferences.

Cotton farming is booming in India where they use genetically modified, pest resistant cotton, which allows for higher yields at lower costs. As India has begun exporting its cotton globally, they have brought the price of cotton down making it difficult for Peru to compete with its higher priced crop. This along with new demand for other fabrics like alpaca wool over cotton has caused Peru’s textile market to decline. (Textile Sector 1)

In order to try and support the declining textile market, the government has made changes to try and help companies compete against the lower priced Indian market. One of these changes was to create the Business Guarantee Fund, which helps provide loans to small businesses.

They also have worked to try and put safeguards in place to protect intellectual property rights as a way to support domestic businesses. In addition to the government, the major Peruvian trade organization, SNI, has been working with the government on behalf of the textile industry to try and protect the domestic market from global competitors (Gestion 1).

In terms of expense, labor costs have been rising in Peru since 2008. In 2012, Peru’s labor costs were almost four times as high as Vietnam and more than twice that of Nicaragua.

Today, labor costs in Peru remain high with an expensive minimum wage compared to other developing nations of $269 USD per month. (Country Risk 34) Due to the higher minimum wage, many of the lower priced, fast fashion brands have had to move production away from Peru. Currently, Peru has become a production center for high-end brands like Armani, Brooks Brothers and Lacoste (Fernandez-Stark, Bamber, Gereffi 24). These brands are able to pay more for labor since they can command more for their pieces.

Peru has become an expert in producing high quality cotton apparel as a way to differentiate from the competition. High quality cotton fiber like Pima cotton differs from regular cotton by its difference in staple length. The longer staple length that is found in high quality cotton allows for better color absorption as well as a nicer feel. Peru is one of five nations that produce this type of high quality cotton helping to give it a competitive advantage over other nations.

SUPPLIERS WITHIN THE COUNTRY

TRADE AGREEMENTS

Confecciones Textimax S.A. is a supplier based in Lima, Peru with reported revenue of $66,785,724. It is the second largest apparel exporter in Peru with a 5.5% share of the apparel export market. Confecciones Textimax has 2,166 employees and began in 1988. Abilities: Tanks, T-shirts, Tops, Polos, and Sweatshirts

Capacity: 700,000 a week

Services Offered: Design, Weaving, Prep, Dye, Cut, Embroidery, and Finishing

Customers: Nautica, Hugo Boss, Hanna Andersson, Under Armour and Ralph Lauren Childrenswear

Industrias Nettalco S.A. is another manufacturer located in Lima, Peru. It is the fourth largest apparel exporter in Peru with an FOB of $58.5 million and a market share of 5%. Nettalco was founded in 2005 and has 1,458 employee.

Abilities: Shirts, Jackets, Leggings, Dresses, Rompers, and Sleepwear

Capacity: 250,000 a week

Services Offered: Electronic Communication, Knitting, Dying, Finishing, Cutting, And Sewing

Customers: Lacoste, Hanna Andersson, Sears, Lands’ end, LL Bean, and Brooks Brothers

Peru has a number of free trade agreements but the most important and relevant agreement in regards to Apple Cores is the US-Peru Free Trade Agreement (PTPA), which came into effect in February 2009. This act had three main components, which were eliminating tariffs and barriers for certain products, creating a framework for foreign investment, and strengthening protection for workers, IP and the environment (US Trade 1). There were many areas that were impacted by this agreement but the most important for Apple Cores were the changes that were made in regards to textile and apparel. According to the PTPA, textiles and apparel would now be duty free as well as quota free as long as the product met the rules of origin stated in the agreement. The rule of origin is also commonly called the yarn-forward standard and states that in order to be duty free, everything from the yard production forward (i.e. assembly), must occur in Peru or the United States (OTEXA 1).

Despite the tax benefits of the free trade agreement, the act is not void of criticism. The main criticism of the act is that it has not done enough to curb child labor as well as has led to more deforestation as more farming and mining are done to meet demand.

In addition to the agreement with the US, Peru has trade agreements with many other countries including Canada, Singapore, China, Korea, Mexico, Japan, Thailand, Costa Rica, Panama, Venezuela, and the EU. These relationships are important for Apple Cores only as the agreements might help to improve the overall economic stability of Peru.

Textiles Camones S.A. is an apparel manufacturer located in Lima, Peru and has reported revenue of $64,370,155. It is the fifth largest apparel exporter in Peru with a 3.7% market share. Textiles Camones S.A was founded in 1996 and has 1,963 employees.

Abilities: Polos, T-shirts, underwear, Pajamas, Pants, Shorts, Sweaters

Capacity: 187,500 a week

Services Offered: Weaving, Dying, Cutting, Sewing, Laundry

Customers: Life is Good, Guess, Abercrombie and Fitch, Vineyard Vines and Nautica

PRODUCT CLASSIFICATION

Based on the Harmonized Tariff Schedule, the code for Apple Cores short sleeve t-shirt is 6109.10.0014. The 6109 means it is a t-shirt, singlet, tank top, and similar garments, knitted or crocheted. The 10.00 means that it is made of cotton and the 14 means that it’s a boy’s other t-shirt. It is defined as other since it’s not all white. The traditional tax rate for this would be 16.5% but due to the Free Trade Agreement in place, the tax rate is 0%.

TRANSPORTATION There are 29 seaports in Peru that run all along the Pacific Ocean; however, the largest and most popular is the Callao port, which is near Lima (Sea Rates 1). Port Callao is located 12 kilometers from downtown Lima (about a 14 minute drive), which makes it the desired port for most international companies whose products are manufactured in Lima.

In terms of shipping companies, there are a number of shipping companies that travel from Callao to Savannah. Two of the larger carriers are CMA CGM and APL. CMA CGM has a number of different vessels that travel between Peru and Savannah with varying port-to-port times based on route. Although they estimate that it takes only 9 days to get port to port without stops, the vessels they offer all have stops along the way making the port-to-port transit either 14 days or 20 days depending on the route (CMA CGM 1). APL in addition also has multiple vessels that could service the Peru to Savannah route however their routes have even more stops. The transit times they offer from Callao to Savannah are 21 days and 23 days (APL 1). Other companies such as MOL, MSC, and CSAV offer trips between 13-21 days. In terms of cost to transport a full container from Callao to Savannah, the price varies based on the route and the number of stops. According to an email quote, to travel from Callao, Peru to Savannah, GA the freight cost for a full container is $3,495.

RISKS AND BENEFITS

There are a number of different risks and benefits associated with manufacturing in Peru. First, the risks. One of the major risks for doing business in Peru is the human rights violations that occur in the country.

The area of particular concern for Apple Cores is the prevalence of child labor, which goes against the sourcing guidelines established by Apple Cores to avoid child labor. Another risk of doing business in Peru is the recently declining apparel market as that could have an impact on the overall economic viability of the country. A third risk for doing business in Peru is the high labor costs as that could cut into Apple Cores margins.

Finally, the level of corruption, bribery and drug trafficking that exists in Peru is a risk as that can make doing business difficult, costly and potentially very dangerous.

Despite the risks, there are a number of benefits that make Peru a great sourcing option. The first benefit is that Peru has extensive experience in cotton manufacturing as well as children’s apparel. They have reputable suppliers that do business with some of Apple Core’s main competitors assuring that they produce high quality goods. Another benefit is that the United States currently has a Free Trade Agreement in place, which allows apparel to enter the country duty free thus saving costs for the buyer. Another benefit is the availability of ports and the proximity to the USA. Peru is a closer option than many other sourcing countries which means that freight will be cheaper as well as the distance between ports is shorter leading to faster deliveries. Also since business is conducted in real time, it is a 5-hour flight to Peru, which makes it possible to address issues quickly if they arise. A final advantage in Peru is the existence of federal support as well as trade organizations, which can help to monitor and improve the state of the textile and apparel industry.

CONCLUSION

While Peru, like many other developing nations, has some political instability and social unrest, it meets many of the criteria that Apple Cores is looking for in terms of a manufacturing country. The three most important elements to Apple Cores in terms of sourcing are cost, quality, and on-time delivery. When looking at these metrics, due to the free trade agreement and the close proximity to the United States, Peru is able to offer more competitive costs than some of its Asian counterparts even with its higher labor costs. In terms of quality, Peru’s expertise in cotton manufacturing assures that Apple Cores will receive high quality products. Finally, in terms of on-time delivery, Peru’s location in comparison to the United States helps to make delivering on time easier with suppliers offering a 3-4 week lead time on replenishment items. Due to these three metrics, Peru is a viable sourcing option for Apple Cores and should be one that is considered strongly for being a final selection.

GUATEMALA

COUNTRY TRAITS Location Western Side of South America Size (Area) 108,889 sq. km Government Constitutional Republic Current President Jimmy Morales Population 16,639,486 people (May 2016) Language Spanish, Amerindian languages Religion Roman Catholic, Protestant, indigenous Mayan beliefs Poverty Rate 59.30% Literacy Rate 81.50% COUNTRY STABILITY Politics:

The current president of Guatemala, Jimmy Morales, won 67% of the votes in October 2015 and a new government was established on January 14, 2016. Former President Otto Pérez Molina and his vice president and other officials were associated with corruption scandals, which led to their resignation and imprisonment. As a political novice and former television comedian, Jimmy Morales earned the public’s confidence with his anticorruption pledge (Montes).

In Guatemala, political corruption is especially prominent in customs and tax agencies. Moreover, judicial officials abuse governmental authority through their intimidation of witnesses. Also, corruption and inefficiency still remains in the judiciary branch of the government (Guatemala).

While the public has a positive outlook of Morales’s government, foreign organizations and analysts are concerned about his inexperience in politics. For example, his party FCN obtained only 11 of 158 seats in Congress. This means that Morales will be limited in his ability to execute his reformative policy. Furthermore, his governing plan reveals a lack of experience with inadequate proposals, such as “tagging teachers with a GPS device to ensure they attend classes and giving every Guatemalan child a smartphone” (Morales). For these reasons, Guatemala’s political status is not necessarily positive or stable. Before deciding to do business in Guatemala, Apple Cores should consider the uncertainty of Morales’s government.

Economy:

1 USD =7.63 GTQ

According to the International Monetary Fund World Economic Outlook, the Nominal GDP in Guatemala is approximately 68.142 billion dollars as of April 2016 (World Economic Outlook Database). The GDP is expected to grow at a 4% rate in 2016, due primarily to reforms within the custom and tax agencies (Regional Economic Outlook 42). In Guatemala, Agriculture plays a crucial role in the overall GDP. This sector accounts for about 15 % of the GDP and 75 % of the country’s exports. Tourism and exports of textiles, apparel, and non-traditional agricultural products have grown in recent years (Guatemala Country Review 87). Total exports in 2015 was $10.15 billion while total imports was $16.56 billion. The main trading partner for both imports and exports was the United States.

Since implementing the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) in July 2006, Guatemala has seen some economic growth in the country (The World Factbook). However, despite all these efforts, income inequality is still a problem even though unemployement has gone down (wages for high-skilled labor=7,850 GTQ/month and low-skilled labor= 2,910 GTQ/month) (Guatemala Economic Indicators). In terms of inflation, while the inflation rate was 2.39 % in 2015, the current inflation rate is 4.2 % as of April 2016 (Guatemala Inflation Rate), which means that people in Guatemala will have to pay more money to purchase products than they did last year. This change directly impacts Apple Cores’s business through increased material costs, labor costs, and lost margin.

The Guatemalan government (GoG) endeavors to improve competitiveness by providing investment opportunities in order to boost the economy. This support has led to over 200 U.S. and other foreign firms investment in Guatemala. However, time-consuming administrative procedures and arbitrary impediments and delays hamper its business. For example, one investor spent over a year to obtain business approval because of additional registration procedures (2015 Investment). These long delays impact both investors economic status and Guatemala’s economic status as both lose opportunities to earn money.

SOCIAL: HUMAN RIGHTS VIOLATION

Guatemala still faces several challenges: gang-related violence, illicit drugs, inequality for women and indigenous people and children rights. Both MS13 and Barrio18, who are the most prominent street gangs in Guatemala, commit kidnappings and bank robberies as well as 30 % of the total nation’s extortion (Daugherty). Furthermore, carjacking, particularly of trucks, happens frequently (Guatemala 2015 Crime), which could be an issue for getting product to the port on time.

In addition to gang violence, Guatemala is also a dominant country for production and sales of cocaine and heroin.

Also, Guatemala farms marijuana for domestic consumption. Due to neighboring districts with Mexico, Guatemala has become a prominent region for drug trafficking.

The status of women in Guatemala is extremely marginalized. Women are exposed to high levels of violence and poverty as well as have limited access to health care, education and voting rights. Threats against women, such as violence, murder, rape, and sexual harassment, are serious problems because the violence has been steadily increasing (Guatemala Country Review 148) and is based on the prevalent culture of machismo (Gulnan).

Another human rights issue in Guatemala is the treatement of indigenous people. Due to a 36-year armed conflict in the country, the indigenous people now have less rights than the non-indigenous people. The mortality rate of the indigenous population is much higher, with infant mortality 30% higher than the non-indigenous population. Even more alarming, the maternal mortality rate of the indigenous population is ten times higher.

Children’s welfare is another huge issue in Guatemala. First, approximately half of the total population of children under five suffer from chronic malnutrition (Guatemala Social Justice). Second, children are exposed to sex trafficking, particularly foreign child sex tourists. Lastly, children are forced to labor in agriculture and the garment industry (Guatemala 2014 Trafficking). Child Labor is a hot button issue for Apple Cores so this will need to be monitored closely in Guatemala.

LEAD-TIME OF PRODUCTION

In terms of lead time, natural disasters such as volcanoes and earthquakes may affect lead time of production. Guatemala has 21 active volcanoes. Pacaya volcano near Guatemala City is one of most active volcanoes and has frequently erupted in recent years, including in 2010, 2012, 2013, and 2014. Even though Pacaya volcano is mildly explosive, its frequency of eruption has been rising since 1998. Many apparel manufacturers are located nearby in Guatemala City, so Pacaya volcano has an impact on delays of shipment from manufacturers to ports because of lava flow emission and fountaining (Pacaya volcano). In addition to volcaones, Gautemala also has earthqakes. During the past 30 days, Guatemala has experienced 48 earthquakes as of May 17, 2016. Despite the frequency of earthquakes, the severity of them is low, which means in general they are not significant barriers to lead-time of production (Latest earthquakes).

Another factor related to lead-time of production is holidays. Guatemala has 12 official public holidays each year. As most Guatemalans are Roman Catholic and Protestant, many holidays are based on Christian doctrines. Particularly in March, there are three consecutive holidays: Holy Thursday, Good Friday, and Easter Saturday while Christmas day is the biggest holiday in December. For this reason, both March and December have less working days than other months. Moreover, Independence Day and Revolution Day, which are specific to Guatemala’s territories or regions, are included in public holidays (Guatemala Public Holidays).

CULTURAL INSIGHTS

For better business with Guatemalans, there are some rules of etiquette to follow. First, having a local contact is fundamental in doing business. A business person should not directly approach a contact but instead should attend a trade show to meet people or instill the help of a government agency, which connects investors to companies in Guatemala.

The first correspondence and documents should be in Spanish, though Guatemalans understand and accept the use of English. Appointments for initial meetings should be made at least two weeks in advance between 10am to 11:30am or after 3pm (Doing business in Guatemala 7).

Relationships are very important to Guatemalans. It is therefore recommended to not hurry to discuss business, but instead invest time in establishing a close link and trust. Both closeness and credit leads to a successful business. For this reason, visiting Guatemala several times before starting a business is highly recommended to show that the investor is invested into the Guatemalan culture (Doing business in Guatemala 7-8).

To be a successful negotiator, business people should observe proper socializing behaviors. For example, if one hosts a dinner for a Guatemalan executive, one should ask his/her secretary for advice of a prestigious restaurant. Also, business visitors should enhance their status by dressing in business attire and staying in 5-stars hotels (Doing business in Guatemala 8).

Formality is common in Guatemala. When addressing people, one should always be sure to use their title and last name. For business, wearing a suit is more formal, so it is recommended for both men and women (Guatemala Country Review 163). Punctuality is a basic etiquette in business and foreigners particularly are expected be on time (The World Factbook).

Greetings include various inquiries about health, travel, family and friends and last for a very long time. Sensitive topics, such as political unrest and violence are not recommended for dialogue.

STATE OF THE APPAREL AND TEXTILE INDUSTRY

After entering into the Free Trade Agreement, the textile and apparel industry is regarded as the most important trade sector, which accounted for $1,325.7 million (12.3%) of total exports ($10,751.9 million) in 2015 (Guatemala: Exports 2015). The Guatemalan government supports the textile and apparel industry by maintaining tax incentives in order to boost exports. (Guatemala: Tax Incentives).

Guatemala has currently 159 apparel companies, 47 textile mills, and 250 accessories and services companies (VESTEX). Guatemala’s textile and apparel industry concentrates on the integration of the production process, value-added services, and quick response times (The Pros and Cons). 30 to 40 % of companies provide full-packaging services in order to compete with Asia, particularly Vietnam. The textile and apparel industry increased the market competitiveness of knit tops, synthetic and woven pants, and sportswear. Also, many companies in Guatemala are specialized not in basic t-shirts, like in Honduras, but in fashionable tops with screen printing and various stamping.

However, Guatemala still needs improvement due to “lack of innovation, poor performance of logistics and infrastructure in the country and high transportation costs” (Guatemala: How to boost). These weaknesses hamper high productivity and efficiency in manufacturing and shipping. Particularly, Guatemala has not invested in new technology and inventory management software while its biggest competitor, Vietnam, has invested in technology (Multinational monitor). When Vietnam concludes the Trans-Pacific Partnership (TPP) in the near future, this weak point will result in less orders from the U.S.

The textile industry association of apparel and textiles (VESTEX) in Guatemala is concerned that three Korean maquila companies in the country moved to Nicaragua, Haiti and Costa Rica in 2015 because the legislative branch imposed “incentives to maquila companies and free zones regimes”. The depature of these three companies had no immediate impact on Guatemala’s textile and apparel industry; however, this movement means its industry faces an uncertainty of further improvement of the textile and apparel industry (Guatemala: Textile Industry) since Koreans own approximately 60 % of the textile and apparel companies in Guatemala (Belgum).

SUPPLIERS WITHIN THE COUNTRY

TRADE AGREEMENTS

SAE-A Trading Co., Ltd. is a large apparel manufacturer which operates 41 production facilities in 10 countries including Guatemala. SAE-A is a Korean ompany which has 25 offices across the globe. Since SAE-A was founded in 1986, the company reached $1.8 billion total in annual exports with $270 million of these exports coming from Guatemala. SAE-A Trading Co., Ltd. in Guatemala has 5,210 employees and began in 1998.

Abilities: All kinds of knits as well as woven

Capacity: 1,425,000 a week and 625,000 a week (printing)

Services Offered: Vertically integrated services from yarn to final production, R&D and retial

Customers: Gap, Gymboree, OshKosh, Aeropostal, Uniqlo, Kohl’s, Wal Mart, Kmart

The Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) is regarded as an expansion of NAFTA and its parties include Guatemala, El Salvador, Honduras, Costa Rica, Nicaragua, and the Dominican Republic as well as the U.S. (Central America Free Trade Agreement (CAFTA)). The aims of CAFTA-DR are to enhance trade and investment relationships, prosperity, and stability. Furthermore, CAFTADR improves workers’ rights and conditions through enforcement of labor protections (CAFTA-DR (Dominican Republic-Central America FTA)).

The most prominent advantage is that nearly all textile and apparel products that are made in the CAFTA-DR countries are eligible for tarifffree negotiations under the Rules of Origin agreement(CAFTA-DR). Prior to this agreement, the textile and apparel trade within Central America and the Dominican Republic derived benefits from the Caribbean Basin Trade Partnership Act (CBTPA). This duty-free market promotes trade in both imports and exports among the participating countries, which directly affects each country’s economic status. For obtaining the advantages in the textile and apparel industry, products should follow the Yarn Forward Rule of Origin, which means using the U.S. or CAFTA-DR yarns and fabrics. Also this agreement includes other advantages; few exemptions are reduced to a duty rate according to the Tariff Elimination Schedules and duty drawback or duty deferral is also available.

KWANGLIM Trading Co., Ltd. is another global manufacturer which was established in Korea in 1989 and is located in Escuintla, Guatemala. Annual revenue of KWANGLIM is $300 million and the number of employees in Guatemala is 1,200. Guatemala offices and factories were established in 1998, 1999 and 2000.

Abilities: All kinds of knits as well as woven, Specialized in printed graphic t-shirts

Capacity: 297,000 a week

Services Offered: Sewing, Marketing Research, Fabric R&D, Garment and Graphic

Design Customers: Carter’s, Kohl’s, Forever21, Ralph Lauren, Tommy Hilfiger, Urban Outfitters, and BCBGMAXAZRIA

CSA Guatemala is an apparel manufacturer located in Calzada San Juan, Guatemala. The company specializes in premium t-shirt screen printing and all lead times are based on screen printed t-shirts.

Abilities: Screen Printed T-shirts (various kinds of fabrics)

Capacity: 200,000 a week

Services Offered: Screen Printing, Embroidery, and Sewing

Customers: Nike, Old Navy, Kohl’s, Converse, American Eagle, and DKNY

PRODUCT CLASSIFICATION

Apple Cores products are 100 % organic cotton children’s t-shirts, so fall under Chapter 61 of the Harmonized Tariff Schedule. 6109 includes t-shirts and subheading 6109.10.00 is cotton t-shirts The code for tank tops is 6109.10.0023 Men’s or boys’: Tank tops and other singlets: Boys’ (338). The tax rate would be 0% for this item due to the existing free trade act.

TRANSPORTATION

RISKS AND BENEFITS

Guatemala’s major seaports are Puerto Quetzal and Santo Tomas de Castilla (The World Factbook). However, some shipping companies also use Puerto Barrios which is near Santo Tomas de Castilla. Puerto Quetzal is primarily used for the Pacific and shipments to the west coast of the U.S., while the other two ports are used for trade on the Atlantic. For this reason, the imports from Guatemala to Savannah will ship from Santo Tomas de Castilla or Puerto Barrios.

A number of shipping companies offers services from Santo Tomas de Castilla to Savannah, but Maersk and APL are the largest. Maersk has 5 vessels that transport between Santo Tomas port and Savannah port. According to Maersk, port to port shipment time normally takes 5 days with 1 stop, but real transit time varies based on the vessel and shipment period from 4 days to 6 days to a maximum of 12 days (Maersk). APL has various vessels that sail from Guatemala to Savannah, but APL’s routes are more complex with more stops. Shipping service takes 26 days in total with 5 stops and 1 transfer (APL).

Freight cost varies depending on shipping companies and routes. According to a quotation, the shipment price from Santo Tomas to Savannah is about $2,872 with insurance and a 13 day transit time.

Sourcing from Guatemala has many risks and benefits. In terms of risks, Guatemala still has problems to resolve. First, child labor is one of the major risks in Guatemala. Many textile and apparel manufacturers abuse children’s rights in order to reduce labor costs.

Second, Guatemala’s apparel and textile industry is stagnant and some of its major companies left for other Central American countries.

Next, if Guatemala’s biggest competitor, Vietnam concludes in TPP, Guatemala will likely lose buyers due to its lackof technology which will eliminate its competitive advantage. Lastly, gang violence such as carjacking directly affects Apple Cores’ business as it could to lead to loss of product.

However, Guatemala still has a potential for Apple Cores as a sourcing option. The apparel industry in Guatemala is specialized in premium quality screen printing knitwear and is known to be better at this skill than any of its Central American counterparts. Next, CAFTADR benefits buyers in the U.S. as it allows for duty free trade, which results in cost savings and increasing margins for the buyers. Also, The geographical closeness to the U.S. helps suppliers to provide quick response and delivery, which enables reactive production and reduction of inventory. Finally, Guatemalan government supports its industry through extending tax incentives for textile and apparel manufacturers and textile and apparel organization. VESTEX consistently hosts international trade shows and links foreign buyers and domestic suppliers.

CONCLUSION

Even though Guatemala shows political and economic instability and low level of human rights along with other developing countries, the country is regarded as a highly competitive country for manufacturing apparel goods. According to Apple Cores’ criteria, Guatemala meets the lowest total cost including freight costs because of the free trade agreement and the geographical proximity to the U.S. In terms of quality, the textile and apparel industry in Guatemala has invested in knit wear manufacturing and screen printing technology, which makes it a viable option for both t-shirt manufacturing and screen printing. Finally, the low level of risk in terms of natural disasters and the few number of national holidays helps to increase likelihood of on-time delivery.For these reasons, Guatemala should be considered as a sourcing country for Apple Cores’ products.

VIETNAM

COUNTRY TRAITS Location Southeastern Asia bordering the gulf of Thailand Size (Area) 4,616 km, three times the size of Tennessee Government Communist state Current President Truong Tan Sang Population 94,348,835 (July 2015) Language Vietnamese, English Religion Buddhist, Catholic, Hoa Hao, Cao Dai Literacy Rate 94.5% Poverty Rate 11.3%

COUNTRY STABILITY Political Outlook

The communist party of Vietnam remains committed to the apparel textile market and is not expected to see major shifts in policy over the coming years. The one party system is a commitment to short term political stability.

Relations with the U.S. has improved over time and Vietnam is now seen as a potential ally in South East Asia.

Although the country is relatively stable, the communist government could be a political risk. There is increasing public dissatisfaction with the leadership’s tight control over politics and diassastifaction if left untreated could lead to overthrows of the government.

Economic Outlook

1 USD = 22385 Vietnamese Dong

Vietnam has been one of the fastest-growing economies in Asia in recent years, with GDP growth averaging 6.5% annually between 2000 and 2014. The economic boom has lifted many Vietnamese out of poverty. Vietnam has been strengthening its trade and is hoping to increase exports and diversify its export sector.

However, Vietnam still suffers from fiscal deficits, leaving the economy vulnerable to global economic uncertainties. The fiscal deficit is dominated by significant spending on social subsidies that could be difficult to withdraw from. The heavily-managed and weak currency reduces incentives to improve quality of exports, and also keeps import costs high.

WTO membership and the ASEAN economic integration in 2015 should give Vietnam greater access to both foreign markets and capital, while making Vietnamese enterprises stronger through increased foreign competition. The government has continued to move forward with market reforms, including transfer of state-owned enterprises, addressing the high level of bad loans in the banking sector as well as easing up the banking sector. Urbanization will continue to be a long-term growth driver.

Finally, Consumer prices in Vietnam rose 1.89 percent year over year. Vietnam Dong currency to USD is increasing in strength which could impact wages.

Social outlook

CULTURAL INSIGHTS

Overall, Vietnam has a high number of university graduates with skilled degrees and a high literacy rate for its income level.

In addition to a number of regional and international flight options, Vietnam has an extensive inland waterway system. Growing levels of foreign investment encourage further trade and spin-off industries.

Main Industries in Vietnam are food processing, garments, shoes, machine-building; mining, coal, steel, cement, chemical fertilizer, glass, tires, oil, andmobile phones.

LEAD-TIME OF PRODUCTION

Typhoons, storms, tornadoes, and earthquake are major natural diasters that can cause long lead times of production in Vietnam. Typhoons are the biggest risk of all the natural diasasters due to their frequency and severity. Typhoon cause extensive flooding, kill hundreds of people, and create millions of dollars worth of damage almost every year. The problems created by natural diasters have been exacerbated by logging, erosion and overdevelopment. The risk of typhoons could have a major impact on getting product on time from Vietnam.

For better business with Vietnamese, there are some rules of etiquette to follow.

It’s hard for foreigners not to stick out, having a local contact is fundamental in doing business. It is better to use contact that to indirectly show your advantage and integrate into the community. Vietnamese business contacts are mostly referrals. The best prices and deals often comes from a strong recommendation.

To be a successful introduction, business cards are a common opening to business meeting. It is impressive if you prepare the business card which has two sides, one has your own language and the other translated into Vietnamese. Instantly meet other foreign business owners. Meeting are considered very formal in Vietnam. Negotiations often require multiple meetings. Don’t get it wrong or things may go south for you because of the communication. Vietnamese business relationship becomes a social one. A lot of time spent discussing matters outside of business, but then a lot of time, the other party is also making up his mind about your deal based on how much he sees personal relationship with him. Why you’ll often hear “yes” even when it’s a “no.” This can be quite confusing for foreigners and our indirect communication, it might lead to unwanted direction. Be aware to choose lawyers and accountants who work well with foreigners.

Seniority is very important to the Vietnam especially if you are dealing with a state owned or government body. Giving face is a very important concept in Vietnam.

You must give the appropriate respect according to rank and seniority. Business entertainment will be expected to take some from each. For instance, a return dinner is necessary to show your thanks and appreciation. Business is not usually discussed at dinner. Gift and gift-giving customs in Vietnam culture. It is common in Vietnam for exchanging small gift on certain occasions. It is not bribery.

STATE OF APPAREL AND TEXTILE INDUSTRY:

Vietnam’s apparel and textile industry has been increasing for the last couple of years. This industry has been one of the most significant industries in Vietnam. It represents almost one fourth of the manufacturing value added and around 5% of GDP, making it the second largest contributor to GDP after electrical machinery.

Currently, apparel and textile is the main sector of the country’s economy, however due to limited production, Vietnam relies heavily on cotton imports to feed its growing textile and spinning industry. Vietnam is now ranked among the world’s top seven textile, garment, and apparel-exporting countries. Vietnam’s textile, garment, and apparel exports still meet the government’s target, reaching a value of $20 billion. The Trans-Pacific Partnership Agreement (TPP), if finalized, would help Vietnam achieve $25 billionin exports by 2020.

SUPPLIERS WITHIN THE COUNTRY

Panko Vina Corporation is located in Binh Duong, Vietnam, which is in the southern part of Vietnam. The company offers entirely vertical service to its customers, including manufacturing, development and design, management, total production system. They have their own manufacturing facilities (dyeing, sewing, knitting, fabric) and garment factories. Their customers included Uniqlo USA, Muji USA, Forever 21, The Gap and some others. (Panjiva.com) According to Panjiva and their official website, Panko specializes in providing high quality organic cotton. (Panjiva.com)

Mol Vietnam Co, Ltd. as a manufacturer is structured to ensure quality through its experience and integrated production capacity. The company has two major clients which are Marcraft Clothes Inc. and Ikea Wholesale Inc. Mol has become a competitive clothing manufacturing company by integrating human resources, software, and hardware into its production. The primary business of the company includes men’s wovens, men’s knits, and woven sportcoats.

Kollan (vietnam) Co, Ltd. Is located in Hochiminh City Vietnam, which is in the southern part of Vietnam. Kollan provides high quality organic cotton products with short lead times and transparency in the supply chain. Kollan Company has a versatile manufacturing facility which allows it to sew a variety of fabrics and styles. Kollan has big customers like Muji U.S.A., Uniqlo U.S.A., and others.

TRADE AGREEMENTS:

TRANSPORTATION

Vietnam is a member of the Asia-Pacific Economic Cooperation (APEC), the Association of Southeast Asian Nations (ASEAN), and the Trans-Pacific Partnership (TPP). Vietnamese authorities have endorsed their commitment to economic reconstruction and a more open economy. Vietnam joined the World Trade Organization in January 2007, which has promoted more competitive, export-driven industries. Vietnam was one of the 12-nations that concluded the Trans-Pacific Partnership free trade agreement negotiations in 2015. Certain textile and apparel exports face tariffs in new TPP markets as high as 34%. TPP will provide immediate benefits. Duty savings in year one of the agreement on U.S. imports of textile and apparel products from the new TPP markets may be as high as $932 million. Vietnam will eliminate import taxes on 98.4% of U.S. textiles and apparel exports immediately and 100% within 4 years. TPP will eliminate all foreign import taxes on industrial and consumer goods in the top export sectors in Vietnam for U.S. exporters.

In this chart, 92.6% of U.S. textiles and apparel exports to new TPP markets will enjoy duty-free access immediately.

Vietnam’s major seaports are Hochiminh City port (Saigon port) and Haiphong port. A number of shipping companies offers services from Ho Chi Minh City to Savannah. Shipping companies of Vietnam, there are liable local shipping companies of Vietnam.

Suppliers are all located in southern part of Vietnam. Ho Chi Minh City is the depart port for shipping. a number of different vessels that travel between Vietnam and Savannah with varying port-toport times based on route. Although they estimate that it takes 20 days to get port to port without stops, the vessels they offer all have stops the way making the port-to-port transit is around 30 days depending on the route. The average estimate time within three logistics companies is 25 to 30 days (each company’s quote). Savannah, GA, USA would be arrival destination. Cost of freight is from $4,306.00 ~ $4,759.27 USD with insurance. (World Freight Rates).

PRODUCT CLASSIFICATION

The product is children’s basic knitted tee shirt with two different stripes. The silhouette is regular fit with round neck. The material will be 100% organic cotton only. HTS (harmonized tariff schedule) codes is 6109.10.00.0045 with the product description as kid’s tee shirt of cotton, knit (U.S. textile and apparel category system 2016).

RISKS AND BENEFITS:

There are a number of different risks and benefits associated with manufacturing in Vietnam. The business environment is difficult for several reasons. Firstly, Political and economic uncertainties and occasionally difficult business environment can affect corporate payment behavior. Secondly, corporate default probability is appreciable. . Thirdly, corporate financial information is not transparent and often unavailable, even when available often unreliable. Forth, debt collection is unpredictable. Fifth, the institutional framework has many troublesome weakness. Intercompany transactions run major risks in the difficult environments. For instance, there are lack of infrastructures, incomplete public sector reforms, weak banking system, and widening inequalities.

For benefits, Vietnam’s mature apparel and textile industry, there were almost 20% of exporting in apparel and textile in 2015. There were 20% of total exporting goods go to U.S. in 2015. It showed that both apparel & textile and U.S. are significant factors to Vietnam. Vietnam has strong skilled and low cost labor, solid agricultural potential and natural resources, development strategy based on economic openness, a move up the value chain and diversification of the economy, and Vietnamese economy barely affected by the Chinese slowdown.

CONCLUSION

In conclusion, Vietnam is developing to a better country in order to meet higher expectation from buyers. The GDP is growing and the resources of labors and raw materials will definitely adding value of the country. More importantly, most suppliers within Vietnam can provide complete services to their customers with appropriate prices, and they have consciousness of upgrading themselves in order to be more competitive at the global level. The distance from Vietnam to U.S., Vietnam’s freight would be the most expensive one compare to other countries. Due to the corporate financial information is not transparent and often unavailable, even when available often unreliable. The business environment is still not mature enough. Overall, Vietnam is a decent choice but not the best choice for our company to conduct the business.

COUNTRY TRAITS Location Between Asia and Europe, borders eight countries Size (Area) 783,356 km2/302,535 sq m Government Unitary parliamentary constitutional republic Current President Recep Tayyip ErdoÄ&#x;an Population 79,463,663 (2016 census) Language Turkish, Kurdish Religion Muslim(Sunni), Christians and Jews Literacy Rate 98.3% Poverty Rate 1.6%

TURKEY

The population pyramid of Turkey

COUNTRY STABILITY

Turkey is a member of many international organizations such as NATO, the EU and OECD, which has substantially strengthened its international standing over the years. However, in recent times, the country’s global and regional influence has declined due to the unstable environment outside the country. The turmoil in the Middle East has led to strained ties with countries such as Syria, Egypt, Israel, Iraq and Iran. Moreover, the major corruption scandal in 2013 has led to political uncertainty in the country, which remains a major challenge for the government. The government faces another challenge from stalled peace talks with PKK rebels, which could result in return of the withdrawn forces and poses a risk to national peace. Although the government has been involved in peace talks with the PKK rebel groups since December 2012, progress on the issue has been slow with the rebels expressing dissatisfaction over government efforts. However, overall the society within the country is rather steady due to low levels of violence and overall political stability.

The ongoing civil war in neighboring Syria and Turkey’s support for opposition forces may trigger military confrontation between Syria and Turkey in the future. Tensions with the current Syrian regime also risk harming ties with two of the country’s main energy suppliers— Iran and Russia. Further, there is also a risk that the instability and violence on its borders may spill into Turkey. Relations with the US are also difficult as the Turkish government tried to boost relations with the autonomous Kurdistan Regional Government (KRG) in northern Iraq. This angered the United States as well as the central Iraqi government, given the fact the latter strongly sought to maintain Iraq’s territorial integrity. Also, relations with Israel have generally been strained since 2010, when Israeli commandos killed nine Turkish activists in a raid on an aid flotilla heading to the Gaza Strip. Further, relations with Egypt have deteriorated due to the Turkish government’s support for former Egyptian President Mohammed Morsi, who was ousted by the Egyptian military. Furthermore, relations with the EU, with whom Turkey has started accession talks since 2005 has made little progress until early 2015.

Economic

1 USD = 2.96 LIRA

Turkey is a middle-income economy with a per capita income of $8691.07 (on a real basis), as of 2014. The country has followed sound macroeconomic strategies in combination with strong fiscal and monetary policies to manage economic progress and attract more foreign direct investment into the country. The main industries in Turkey are textiles, food processing, automobiles, electronics, mining (coal, chromate, copper, boron), steel, petroleum, construction, lumber, and paper. These industries account for 26.2% of Turkey’s overall labor force. Turkey exported $153.6 billion in goods in 2015. The main exports were apparel, food, textiles, metal,and transportation equipment

The Turkish economy is characterized by a stable banking sector and sound public finances.

However, a perennially high current account deficit could be a major source of vulnerability for the economy in case of a shift in investors’ risk appetite, as the economy is dependent on volatile shortterm flows and short-term external debt for fulfilling its external financing requirements. The risks remain from gradual tightening of the ultra-loose monetary policies by the US central bank (the Federal Reserve) combined with domestic political uncertainty may constrain capital inflows, and thus put further downward pressure on the Turkish Lira, and may influence the textile and apparel industry within the country.

Social

LEAD-TIME OF PRODUCTION

Turkey has one of the youngest populations in Europe. With the rest of Europe has an aging population, Turkey has an opportunity to increase its employment rate by capitalizing on its young labor force. However, in order to enjoy the advantages associated with a young population, the government needs to improve its tertiary education outcomes and strengthen its labor laws, both of which can hinder labor market efficiency. The government is already making efforts to eliminate child labor and is taking up initiatives aimed at developing the rural economy.

The weather in Turkey is temperate. In summer, the weather is hot,dry and mild; while in winter, it is more wet and harsh especially in the interior. Due to its unique climate, the country is occasionally impacted by floods. In addition, Turkey is located in the seismic zone, so it has frequent earthquakes. All of these natural disasters may increase the need for reconstruction activity and affect the country’s economic activities as well as the overall apparel manufacturing industry.

For the cultural nuances aspect, due to the weather issues, the working hours in summer become shorter. Turkey’s Aegean and Mediterranean regions as well as the government departments are closed during the summer in the afternoon. Also, in the first day of Eid alFiter and ID al-Adha religious holidays, all the shops and markets are closed.

CULTURAL INSIGHTS

According to Country watch, there are several cultural insights that should be taken into consideration when doing business in Turkey or with Turkish suppliers. Turkish people feel close to their traditions and culture. However, having ties with western countries, Turkish people in major cities have adopted a western way of life. A foreigner visiting any one of the large cities in Turkey will find himself in an atmosphere similar to that of a contemporary western city. There are no local customs, beyond the bounds of normal courtesy, that a visiting businessman should feel compelled to observe. In general, a personal relationship is an important basis for a successful business relationship in Turkey. It is usually important to allow time for friendly conversation before commencing with a business agenda. Business cards are almost always exchanged, and visitors are usually offered a glass of tea or Turkish coffee.

Turkey is an Islamic country but most people choose to do business based on the Western way. When meeting each other in the business conference, people generally shake hands with each other and exchange their business cards. Instead of using phone calls or email, Turkish businessmen prefer to meet face-to-face. Due to the different religions in Turkey, businessman from foreign countries should pay attention to Turkey’s special holidays and Festivals. Foreign investors should avoid scheduling business meetings during July and August as well as before and after national holidays and religious festivals because many business will close during these days. In Turkey, English is widely accepted when doing business, especially among young people. However, not all Turkish people speak English, so it is best to have a translator in case when meeting with businessmen in Turkey.

STATE OF THE APPAREL AND TEXTILE INDUSTRY

According to the country watch report, the largest industrial sector in Turkey is textiles and clothing, which accounts for one-third of industrial employment. Low labor costs, a skilled workforce, cheap raw materials (including home grown cotton), central location, and high flexibility of mills has helped the Turkish textile and clothing industry become such a strong industry. According to Invest.gov, The manufacturing industry is one of the main drivers of the Turkish economy, accounting for 24.2% of total GDP.

According to the Ministry of Economy, Turkey has Free Trade Agreements with 19 countries and has started negotiations with another 13 countries. There are also 19 free trade zones in Turkey which enable corporate, income and customs tax, VAT and RUSF exemptions, along with many other opportunities.

The manufacturing industry has a significant share in Turkey’s economy with a 24.4% share and a total of more than TL 29 billion, in constant prices, in 2012. The industry has been one of the main drivers of the Turkish economy. Strengthened production within the manufacturing industry is manifested by an increasing number of exports. Exports grew by a CAGR of 7% from 2007 to 2012 and 13% from the previous year to more than USD 143 billion. An analysis of Turkey’s manufacturing export data in 2012 reveals that the manufacturing of basic metals had the highest share in total manufacturing exports with 20%, followed by textiles and apparel with 18%.

The industrialization intensity index measures the share of the manufacturing industry’s value added to the GDP. According to UNIDO, Turkey scored 0.5 in industrial intensity. Moreover, Turkey’s share in total exports for the manufacturing sector was 0.9% in 2010 and manufacturing export per capita was more than USD 1,200.

SUPPLIERS WITHIN THE COUNTRY

Yesim Tekstil is based in Bursa in northwest Turkey, one of the most industrialized and culturally charged metropolitan centers in the country. Yesim Tekstil has a daily production capacity of 55 tons of knitted products, 70 tons dyed, 100,000 meters of printed fabric, 150,000 pieces of garments and 60,000 pieces of home textiles. As well as being one of the four largest fully integrated yarn-to-finished-product facilities under one roof in the garment sector anywhere in the world, the company is also one of Turkey’s largest firms in terms of creating employment.

The major exports of the company are Cotton, T-shirt, Tank tops etc. All the top 5 customers are trustworthy international Corporations. These customers are Nike Usa, Hugo Boss Fashions, Inc., Eddie Bauer LLC, Esprit US Distribution Ltd. and Burberry Ltd. Yesim aims to provide products with high quality and the company has a good relationship with its suppliers and buyers.

Finteks is one of the leading knitwear manufacturers in Turkey and exports to both the USA and European countries (Denmark, France, Italy, Sweden). The company offers ready-made garments, such as t-shirts, trousers, shirts, sweatshirts as well as casual wear, sportswear, and party wear. The top five customers of Finteks are Nas apparel, Topay Trading Co. Inc., Propourri Group Inc, Urban Outfitters Inc. and Avon Products, Inc. In addition, Finteks ensures the highest level of custome satisfaction by offering the best quality and cost.

Taha Group is a vertically integrated full-service apparel manufacturing group in Turkey providing a wide range of services from innovative product development to logistic arrangements.

Headquartered in Istanbul, Taha Group has in recent years expanded its production base with new factories in various locations throughout Turkey but also overseas. Taha Group is proud of its international reputation as a manufacturer of top quality fabrics and garments. Their top customers are Levi Strauss & Co., Timberland LLC and Pvh Corp.

TRADE AGREEMENTS

Turkey does not have free trade agreements with the USA, but is a member of the Customs Union Agreement. The Customs Union Agreement, CUA between Turkey and the European Union came in effect on 31 Dec,1995. The main points of the CUA are to eliminate trade barriers, implement free trade, and establish a common external tariff. In addition, goods can travel between the two entities without any customs restrictions.

NAFTA & FTA

Turkey has Free trade agreements with Canada and Mexico (Both countries of NAFTA). The trade agreement simplifies matters between the three countries in regards to the import and export in trade and investment. In addition, it promotes regional trade and economic development.

PRODUCT CLASSIFICATION

HTS code: 6109,10,0004(Men’s or boys) 6109,10,0045(Women’s or girl’s) Children’s T-shirts. Long sleeves with pocket, without pocket; short sleeves with and without pocket; tank tops. 100% organic cotton. Solid, stripe and solid with printed cartoon. The duty rates are 16.5% in general, except QIZ certificated product.

TRANSPORTATION:

RISKS AND BENEFITS

Major seaport(s): Istanbul, Canakkala, Aliaga, Ambarli, Diliskelesi, Eregli, Izmir, Kocaeli (Izmit), Mersin (Icel), Limani, Yarimca container port(s) (TEUs): Ambarli (2,121,549), Mersin (Icel) (1,126,866) LNG terminal (import): Izmir Aliaga, Marmara Ereglisit

There are sseveral compamies in Turkey provides international freight transportation services. Mediterranean shipping company as one of the biggest shipping company provides the route from Istanbul sea port to Savannah port which can be one of the company Apple core may use if shipping from Turkey. The transit time for the shipping would be around 23 days due to the far away location than other countries. The freight cost would be highier than other countries as well due to the duty fee and up to 4720 including insurance. Also, this company has the shipment from Instanbul to Savannah once per week. Another company would be Turkon Line, as one of the largest shipping companies in Turkey that provides international shipping services including the route to Savannah sea port. the overall shipping days for Turkon up to 21 days and the freight cost including insurance is up to 4938. The company has the shipment from Instanbul to Savannah once per week as well.

Risks:

Turkish foreign policy as well as political instability both inside and outside the country may affect the overall business climate in Turkey. Also, natural disasters such as earthquakes and floods may harm the manufacturing process and affect business. The Turkish economy has significant weaknesses. Specifically, Turkey’s relatively high account deficit, uncertain commitment to structural reform, and turmoil within Turkey’s neighborhood leave the economy vulnerable to destabilizing shifts in investor confidence. Turkey also remains overly dependent on often volatile, short-term investment to finance its large economy.

Major sea ports in Turkey

Benefits:

Turkey is one of the few countries in the world with a young population, which is an advantage over some of its aging counterparts. The high education level allows the employees to be professional and reduces the cost of training for employers. Also, Turkey has good weather for growig cotton, which means lower raw material costs. Finally, the Turkish apparel and textile industry continues to grow and provides high quality products.

CONCLUSION

Turkey, one of the fastest growing countries in the world, has many advantages to support the apparel manufacturing and textile industry such as plenty of labor and good weather conditions for growing cotton. Also, the government of Turkey has put a lot of effort into providing investors good policies in order to attract investments into the country to accelerate economic growth. However, issues with women’s rights, child labor, and instability of neighboring countries could impact Apple Cores’ decision to manufacture product in Turkey. While the country has limitations, the strength of its suppliers is something that should be considered for placement.

EGYPT

COUNTRY TRAITS Location Northern Africa, bordering the Mediterranean sea, between Libya and the Gaza Strip Size (Area) 1,001,450 sq. km Government Repulic Republic Current President Abdel Fattah al Sisi Population 93,142,207 (Apr., 2016) Language Arabic, English and French Religion Islam, Christian Poverty Rate 51.4% Literacy Rate 73.8%

COUNTRY STABILITY Political:

Since the remarkable Egypt Uprising took place in the beginning of 2011, people have generally been unsatisfied with the president Mubarak and the social system. The turbulent situation lasted for three and a half years and then the political power was taken over by the military after Mubarak resigned and Mohammed Moris became the first president produced by election in Egypt in 2012 (Egypt Country Profile). In 2013, Egypt again was plagued by unrest as protests and demonstrations were common throughout the country. In 2014, Abdel Fattah al Sisi was elected as the president and expressed that he would guarantee civil security and stability as well as develop the national economy. As to the future of Egypt, Egyptians and the rest of the world still maintain a wait-and-see attitude (The PRS Group). It is this attitude which makes investing and doing business in Egypt risky as there is uncertainty about the future.

Egypt concentrates on strengthening cooperation with Arab countries, participates in African affairs actively and devotes itself in the construction of African union. It pays much attention to diplomacy with big countries, consolidates relationship with America, expresses to cooperate closely with American government so as to promote the development of Egypt economy and stability of politics. In 2014, Egypt accepted $ 16.6billion from America as the support of gulf allies. Relationship between Egypt and Iraq is close and Egypt has nearly millions of employees in Iraq. Egypt and Iraq, Jordan and Yemen constituted Arab Cooperation Council in 1989 so as to cooperate commonly and develop together in politics and economy. At the same time Egypt strengthened relationships with big countries such as EU and Russia.

Relationship between China and Egypt has always developed smoothly and built comprehensive strategic cooperation relationship and China mainly exports mechanical and electrical products and textile garments products to Egypt (HKTDC). In the perspective of history, the relationship between Egypt and Jordan and Iran is more relax. In the perspective of international influences, Egypt has completed system of cooperation with big countries, which decreases risks for us to cooperate with it.

SOCIAL

The dramatic population increase in Egypt has caused a very high poverty rate. The poverty rate in rural area is up to 51.4% (Marketline 22). The Egyptian government has long implemented food and energy subsidiary policies in order to improve people’s lives.

These subsidies however have a huge impact on the economic health of the country. In 2012, 28% of the financial expenditures of the Egyptian government were on energy and food subsidies. The major struggle the government faces is how to reduce poverty with a growing population. The Egyptian government passed the new social security pension law in 2010 and regulated that the amount of pension is 80% of the final salary. Also, the government declared to increase salaries by 15% for 6 million civil servants after the political situation changed in the beginning of 2011 and the pension of veterans was also increased proportionately (Egypt Country Profile). At the same time, Egypt cooperated with America actively and promoted the development of the medical industry in order to improve the domestic medical level. Finally, in regards to education, the teaching quality in Egypt is not good which will impact the readiness of students to enter the work force.

ECONOMIC 1.00 USD = 8.87528 EGP Egypt does business in many economic sectors such as Agriculture, manufacturing, textiles and tourism. Agriculture is the largest sector by where cotton is widely produced as the primary industrial crop. The dramatic increase of population caused the economy to decline as there were not enough resources and jobs for the Egyptian people. In addition, many investors withdrew their investments from Egypt after the civil unrest in 2011. This help to add to the unemployment rate as well as furthered the inflation of its currency. Another by product of this withdraw is that many factories were forced to close which impacted the apparel market. Although Egypt is rich in high quality cotton, its garment industry has been dependent on importing goods especially from China. This is an economic risk as its not a self sufficient economy.

In terms of other markets, Egypt is also involved in the export of oil as well as other commodities including textiles in cotton. However, Egypt has primarily relied on financial assistance from other countries such as the United Arab Emirates, Saudi Arabia, etc., to maintain GDP growth.

As of March 2015, year-over-year growth of Egypt GDP was 4.6% (Egypt Country Profile) which was funded by growth in various sectors.

LEAD-TIME OF PRODUCTION

CULTURAL INSIGHT

In terms of the climate in Egypt, the desert makes this area very dry and prone to drought. The climate of the Nile delta and Northern region is relatively mild while the southern region has a tropical desert climate where the temperature can be up to 40 degrees celsius. In addition, sand storms and landslides occur every April and May which is very hard on the crops. Other natural disasters such as earthquakes and periods of drought also are frequent in Egypt. These natural disasters can have a detrimental effect on the lead-time of production in Egypt.

In additon to weather conditions, Egypt also has many festivals as well as religious holidays that may impact production. Egypt has festivals in June, July, September and the beginning of October. During these festivals Egyptians often visit loved ones graves as a part of their Islamic religion. Since many Egyptians are Muslim, working hours are restrained due to their religious beliefs and they are not allowed to work more than 6 hours a day during Ramadan.

This forces factories to adopt new hours during this time which can limit the amount of production that can be done in factories.

The main religions in Egypt are Islam and Christianity. The Islamic religion requires Muslims to pray five times a day: dawn, noon, afternoon, dusk and night. In additon to prayer, the sacred day for Muslims is Friday so Thursday and Friday is the typical weekend in Egypt. In addition to limited hours during Ramadan, many stores and factories shut down during this time to accomodate the late night celebrations that occur each night at midnight. This holiday should be taken into account when scheduling meetings in Egypt.

Egyptians are not known for being on time and often are 30 minutes to an hour late to meetings. Despite this, they are still extremely diligent and hard workers. In terms of etiquette, the Upper Class Egyptians follow etiquette that is similar to Europeans and Americans. However, it is important to know that they shake hands and accept gifts only with their right hand. The left hand is deemed dirty and should not be used for shaking hands.

In addition to religious practices, there are certain cultural practices that should be observed. The colors green and white have special meaning for Egyptians as green is an auspicious color while white is throught to bring happiness. Blue and yellow should be avoided as they are colors that are thought to bring misfortune. In terms of numbers, 5 and 7 are considered lucky numbers while 13 is associated with negativity. In terms of animals, the crane is associated with longevity, the cat is the national animal, but pigs, dogs and bears are considered taboo and should be avoided. Also, in terms of patterns, patterns with pyramids and lotus flowers are common while patterns with stars should be avoided at all costs.

Finally, business people should be aware that Egyptians do not use needles or thread needles after 3 pm as its linked to old myths and legends. The thought is that if you do this practice at night, it will bring disaster to their mother. This should be considered in terms of production times and hours.

STATE OF THE APPAREL AND TEXTILE INDUSTRY

Egypt’s unique geographical location, high-quality natural resources, and established industrial supply chain has provided a solid foundation for the development of Egypt’s textile industry. Cotton is one of Egypt’s most important economic crops and is also a crucial raw material for the textile industry (Alexbank 4). From 2010 to 2011, the planting area of long staple cotton in Egypt was 36.9 million feddans (1 feddan=6.3 Shimu) and annual output was about 40 million tons. This production accounted for 40% of the world’s total cotton output. Egypt exports cotton to more than 80 countries.

Since 2004, when a partnership was established between Egypt and the European Union, the trade between the European Union and Egypt had increased year by year, from 1.5 billion euros in 2004 to 2.3 billion euros in 2011. Egypt launched a customs union with Russia, Belarus and Kazakhstan in 2011, and began negotiations with India in terms of free trade agreement in order to provide policy support for the export of textile products in Egypt (HKTDC).

Egypt’s trade market is relatively stable and robust. The Egyptian Textile Export Management Association (TEC) has stated that there are more than 32 spinning factory in Egypt, providing acrylic yarn for different kinds of clothing such as sweaters, blankets, socks, sportswear, crafts, curtains and other production applications (Ghoneim 4). Acrylic products are used for domestic consumption as well as are exported to the Middle East, Europe, Africa and the Americas. In the past 3 years, the acrylic fiber business has shown rapid growth as Egypt is one of the only nations that produces acrlic fibers in the area.

The total export value of textiles from Egypt to US had fallen by 2.8% in 2011 (CBI).

The Egyptian government set up a special group to encourage the Egyptian companies to comply with the QIZ agreement in order to help improve exports. In the future, the textile and garment industry in Egypt aims to maintain exports (HKTDC) with the help of duty free initiatives.

Supported industry organizations: Egypt’s Textile Export Council (TEC), ReadyMade Garment Export Council (RMGEC) and Egyptian Textile Development Association

SUPPLIERS WITHIN THE COUNTRY Cairo Cotton Center Cairo Cotton Center is a privately held manufacturing company established in 1990.

In order to meet the needs of the market, as well as to meet the needs of customers, Cairo Cotton Center began to expand the scale of its enterprises to carry out diversified business activities. Its top clients are Macy’s, PVH, Calvin Klein and Levi’s.

Bishara for Fashion: Louis Bishara, the owner of Bishara for Fashion, is not only a famous entrepreneur, but also a member of the Egyptian State Senate. The Bishara for Fashion company started as a printing and dyeing company but then gradually expanded into manufacturing. Today, they are known for producing high quality textiles and garments. Their top clients are Calvin Klein, Marks and Spencer, and Vanheusen.

Dyetex Group: Dyetex is a third manufacturer known for its production of high quality apparel. It serves major retailers in both the United States and Europe. Dyetex specializes in prodution of fabrics, printing and dyeing. They specialize in knits and wovens and their primary customers are Dolce and Gabanna and J.C. Penny.

TRADE AGREEMENTS:

Egypt has gradually relaxed trade restrictions over time in order to do more business with the outside world. Egypt joined the World Trade Organization in 1995 and has since signed a preferential trade agreement (QIZ) with the United States and Israel. The QIZ protocol makes clear that if at least 10.5% value of the exported goods from Egypt to the United States is from Israel, then its export to the United States can enjoy duty-free treatment. Under the influence of QIZ, Egypt’s textile industry has been growing and attracting more U.S business (“QIZ”).

Egypt and the European Union established a cooperative relationship in 2013 and signed free trade agreement swith a number of countries, in order to benefit from 0% taxation. These free trade agreements include Arabia Free Trade Agreement, Common Market for Eastern and Southern Africa and Egypt-Turkey Free Trade Agreement (“Qualifying Industrial Zone”). Our corporation can take advantage of the relationship between Egypt and other countries to get high-quality resources at a low cost.

PRODUCT CLASSIFICATION

The code for Apple Cores Long Sleeve T-shirt with pocket is 6109,10,0045.

Style 1001 is a T-shirt constructed from 100% cotton knit fabric. The duty rates are 16.5%, except QIZ certificated products.

TRANSPORTATION

Thanks to Egypt’s location on the water, the main type of transport is via ships.

The main ports are Port Said, Alexandria, Damietta , Sokhna Port Suez Port and Dekheila. Among them, Damietta is the largest container terminal in the Middle East while Alexandria is famous for its natural beauty(HKTDC). Sokhna is an important port for exporting cotton, rice and other products and is the world’s largest transit port connected with the Suez Canal. The interest rate of delivery of goods from Alexandria in Egypt to the United States is about $2944 per container.

RISKS AND BENEFITS Risks:

The major risk for doing business in Egypt is the unsteady political situation. Political crises in the past have had a major impact on the economy and has forced some suppliers to shut down. Without the support of the government and its subsidies, cotton planters in the past have switched to growing other crops.

This could be detrimental to the apparel industry as the price of cotton may go up as supply goes down. Another risk for doing business in Egypt is the unique cultural practices that need to be followed. Due to strict regulations during Ramadan as well as during other high festivals, can severly impact the lead time of production. This along with the risk of natural disasters makes doing business in Egypt difficult despite the high quality cotton.

Benefits:

The primary benefit of doing business in Egypt is that it has an established textile and garment manufacturing industry.

Egypt is known for producing high quality cotton and is supported by a sound infrastructure to help with exports. Egypt’s location on the water is beneficial in terms of getting goods into and out of the country. Also, its participation in the QIZ as well as its membership in free trade agreement helps to make Egyptian imports more affordable.

CONCLUSION

The Textile industry is one of the main industries in Egypt and it provides a large amount of financial revenue as well as employment opportunities for the nation The textile industry is known for producing high quality cotton products. The textile industry has a long history in Egypt which has allowed it to develop a sound infrastructure for getting products to and from the country. Egypt’s location on the water makes it an easy country for transportation, but its political instability poses a risk for doing business. This along with competition from other countries like Pakistan has made the apparel market see some declines. If Apple Cores decides to do business in Egypt, it will need to determine if the quality of the product outweighs the risk of doing business there.

SOURCING STRATEGY

COUNTRY RANKING

After analyzing the five potential countries for manufacturing, the next step was to determine where Apple Cores should manufacture its product line. In order to do this, the team evaluated the top 5 countries using 11 different metrics. Among these metrics were business climate, costs, government, location, risks, social stability, sourcing guidelines, textile industry, trade agreement, trained work force and socio-eco-political environment. These metrics were chosen, as they are all crucial elements to consider when determining where to source product. Each of these metrics was evaluated on a scale of 1 to 10 with 1 being the lowest and 10 the highest. After each team member evaluated their respective country on these metrics, the team then met to debate and discuss the rankings to determine final country placement.

After evaluating the countries on these rankings, the final countries that were chosen for placement were Peru, Guatemala and Vietnam. Peru was the highest-ranking country with a score of 8.1 as it has a stable government, established textile market, close location and strong business climate. Guatemala was the next highest ranked country with a 6.5 as it has low costs, a good location, a free trade agreement, and an established textile market. The third highest ranked country was Vietnam, which had an average score of 6.4. Vietnam ranked highly because of its business climate, strong textile industry, and trained work force. Turkey and Egypt scored the lowest with average scores of 5.9 and 5.6 respectively. Turkey was penalized for its high costs and lack of trade agreements while Egypt was penalized due to its unstable government and socio-eco-political risks.

SUPPLIER RANKING

After identifying the top countries, the next step was to identify the top suppliers. Since each of these countries has an established textile market, there are some superb suppliers in each country. It was therefore essential to do a similar ranking exercise as our team did with the country ranking to identify the top suppliers. The metrics that were evaluated for suppliers were as follows: Abilities, Capacity, Lead-time, Quality, Customers, Sourcing Guidelines, Services Offered and Strategic Outlook. After ranking the top supplier from each country, it was then necessary to see how the suppliers ranked in comparison to each other. Similar to the country metrics, the supplier metrics were chosen based on the metrics that are necessary to analyzing when choosing a supplier. However, upon initial rankings, the top suppliers were all within 1 point of each other with total scores between 67 and 69 which made it essential to do another layer of research.

Since each supplier ranked similarly, the next step of analysis was to see which supplier lined up the best with the values that mattered most to Apple Cores. The top metrics and values that mattered most for Apple Cores according to its mission, vision, and values were quality/ customers, lead time, sourcing guidelines and overall capabilities. The team therefore did a second ranking just analyzing the suppliers on these four metrics. Once these were evaluated, the suppliers started to separate out and Peru, Guatemala, and Turkey were determined to be the best suppliers.

SUPPLIERS WITHIN FIVE COUNTRIES

FINAL SELECTION: SUPPLIERS Peru: Nettalco

Vietnam: Panko

Guatemala: SAE-A

As the most preferred nation, we have chosen three suppliers in Peru. They are Confecciones Textimax SA, Industrias Nettalco SA and Textiles Camones SA. Nettalco has the best capacity with 250,000 units/ week. For this reason, we think the grade of Capacity is 9 points. Nettalcoh has a high abilities and it almost can produce any clothing. For this reason, we give it 10 points in the part of Abilities. Nettalco maintains high-quality products while providing all-dimensional services, such as Electronic Communication, Knitting, Dying, Finishing, Cutting, and Sewing. In the part of Quality and Service, we give it 9 points. Nettalco has a large number of high quality customer, such as Lacoste, Land, etc. For this reason, we still give it 9 points in the part of Customers. For Sourcing Guidelines, Nettalco has been Certificated

by WPAP and BASC. But this Certification is normal in the choices of our suppliers. For this reason, we give it 8 points in this part. In general, Nettalco has high grade and competitiveness in all parts. For this reason, it is the most competitive supplier in Peru because of its totally grade is 69 and average grade is 8.625.

The three suppliers we have chosen in Turkey are Yesim, Taha and Fintecks. Yesm and SAE-A has lower abilities than Nettalco and SAE-A, so we give it 9 points.

Yesim can provide us with high-quality organic cotton as well as reasonable price. So we give it 9 points in the part of quality. And It also offers all-round vertical services to customers including production, design, supervision, etc. So in the part of Services Offered, we think it can get 10 points. But compared with Peru and Guatemala, unsatisfactory geographic location, relatively long production and delivery cycle may lead to unknown risks in the future. So Yesim only get 7 points in the part of Lead time. The relatively high market occupancy makes Burberry, Hugo boss, Banana republic its customers. Those customers are more high-end compare with SAE-A and Nettalco, so we give Yesim 10 points in the part of customers. In general, Yesim is a reliable supplier with the ability to provide the upto-date lining and designs, strong production capacity, best quality and completive cost. For this reason, it is the most competitive supplier in Turkey because of its totally grade is 68 and average grade is 8.5.

The third suppliers we have chosen in Guatemala. The three suppliers we have chosen in Guatemala are SAE-A, KWANGLIM and CSA, of which SAE-A is the largest and most competitive one. SAE-A and Nettalco has similar abilities, for this reason SAE-A grade is 10 points. SAE-A has relatively high production capacity and low prices, It has the best capacity with 5.7 million / month. So, we think it should get 9 points which just lower than Nettalco. For lead time, they only need 4 to 5 weeks. Its rapid delivery cycle increases the competitiveness of our company in the market. We give it 8 points which is higher than other companies. SAE-A has good quality with low to medium priced clients, like Gap, Gymboree, OshKosh, Aeropostal, Uniqlo, Kohl’s, Wal Mart and Kmart. For this reason, we give it 8 points in the part of quality and 7 points in the part of customers.

Because compare with Nettalco, SAE-A’s quality and customers is weaker. SAE-A has outstanding achievements of all aspects make it our most preferred supplier in Guatemala. So its totally grade is 67 and average grade is 8.375.

PLACEMENT STRATEGY

The next part of the process was to determine placement. Apple Cores was in a unique situation as the country ranking and supplier ranking ended up identifying different countries for the top three countries. Based on country rankings, the top countries were Peru, Guatemala, and Vietnam while based on supplier rankings; the top countries were Peru, Guatemala and Turkey. It was therefore necessary to run different scenarios to determine fine placement. The first two scenarios were done to determine the top three countries for placement. In these scenarios, Vietnam and Turkey were swapped for one another with all other elements remaining the same. The goal here was to see from a margin perspective how big a deal it would be to go with the more expensive country, Turkey, for production. Based on this test, Turkey was eliminated as an option as it was deemed to be too expensive. After conducting this experiment, another experiment was done to see if was better to use four suppliers or three suppliers for placement. Due to the production quantities, it was determined that using three suppliers was the better option, as quantities were getting too small at four suppliers. This is an issue as factories want to remain busy and the quality can diminish if you are only doing one off orders as continuity of the process goes down.

In addition to looking at which supplier and country should get product, the next step was to determine how much of each product each supplier would get. In order to this, a number of different factors were evaluated. One factor was abilities. Certain suppliers were known for being strong at producing certain items and so those were taken into account when doing placement. Another factor was location. Since certain countries were farther away, it was valuable to use those for seasonal items since there is a longer lead-time of production for these items. The next factor was cost. Since having a high margin is essential for Apple Cores especially given its giving back platform, cost was another thing that was taken into account for placement. Finally, production quantity as a total was considered, as the goal was to have each country produce at least 5,000 units a week to keep the process continuous. In the end, all of these factors were balanced to create a placement that was beneficial for Apple Cores as well as for each of its suppliers.

SCENARIO 1 Peru – Guatemala - Vietnam

For the first scenario, Apple Cores wanted to place product based on the country rankings so product went to Peru, Guatemala and Vietnam.

40% of production went to Peru, 38% of production went to Guatemala, and 22% of production went to Vietnam. This placement strategy yielded a profit margin of 80.88%.

SCENARIO 2

Peru – Guatemala – Turkey

For this scenario, Apple Cores placed product based on supplier rankings. 53% of production went to Peru, 20.5% of production went to Guatemala, and 11.5% of production went to Turkey. In order to determine whether to go with the supplier rankings or the country rankings, we look at margins of these two scenarios and decided that with just these two, scenario 1 was better. This placement strategy yielded a profit margin of 80.26%

SCENARIO 3 Peru – Guatemala - Vietnam

Apple cores’ last placement option took into consideration quality, margin and proximity. In this scenario, 56% of production went to Peru since it was the top ranked supplier and specializes in stripes and solids, 32.5% went to Guatemala as it was the cheapest option and specializes in prints, and 11.5 % went to Vietnam since it is the most expensive option and has the longest lead time. To maintain stable production levels in each country we decided to not go below 10% in any country. This placement strategy yielded a profit margin of 80.81%.

FINAL PLACEMENT: COUNTRY AND MARGINS

After careful consideration of all the three presented scenarios, Apple Cores decided to go with scenario 3 Peru- Guatemala- Vietnam for the final placement which balances costs with margins. This scenario was the best option as it allowed for each country to receive enough product that it could maintain a continuous process. Also, in this scenario, seasonal items were given to select countries in order to make sure that the quality of these products remained high. Although other scenarios produced higher margins, Scenario 3 was the best option as it still produced a high margin but also took into account the other factors that were important like balancing quality with costs with process. Due to our production quantity, three suppliers were chosen as opposed to four, as quantities got too small with four suppliers.

WAREHOUSE, LOGISTICS AND DISTRIBUTION STRATEGY

After having identified a sourcing and placement strategy, the next step was to determine how to distribute the product. Since Apple Cores is a new business, the ownership team determined that they did not have the know-how and economic investment to manage an entire distribution strategy and platform. The team therefore looked at supply chain solution providers to help with distribution. When it came to identifying a supply chain solution provider, the team ranked these providers like they ranked countries and suppliers. The metrics that were evaluated were inventory management, order turn around, pick and pack, value added services, cost, size, customers, and location. The goal was to pick a company that could handle the warehousing and distribution needs for Apple Cores as well as offer other valued added services that could benefit the company.

After looking at over 25 supply chain solution providers, the top three companies were The Apparel Logistics Group, UPS, and NFI. Based on UPS’ longstanding history as well as vast capabilities, it was determined to be the best solution for warehousing, distribution as well as transportation for Apple Cores.

WAREHOUSE, LOGISTICS AND DISTRIBUTION STRATEGY

The Apparel Logistics Group (TALG) headquartered in North Dallas have offered third-party logistics and supply chain outsourcing for over 30 years. Compared to both UPS and NFI, TLAG is relatively small, but TALG provides logistics and supply chain solutions in particularly in the only apparel industry. TALG has over 2,000 customers such as Maker & Company, EPIC Group, BONOBOS, paperwhite, CHOOZE, FOXCROFT, ENRO, DAMON, GRUPO M in North America. Through TALG’s specialty in the apparel industry and rather a small size of business than both UPS and NFI, Apple Cores can benefit close service and quick response from TALG. Another further benefit is that company continuously invests in research and development of technological services to enhance the apparel supply chain (Complete Third Party). This constant improvement shows a long-term and sustainable business contract between TALG and Apple Cores.

United Parcel Service, Inc. (UPS) is the world’s largest package delivery company and a provider of supply chain management solutions, including inventory control, reproting, pick and pack, pre-distribution services, design and planning of supply chain management and labeling. The lead time for order turn around is two to three days depends on the services and costs, and the size of UPS is huge that can meet Apple Core’s requirement(1,000,000 units). Although FedEx is also one of the world’s largest package delivery company, the services they provide are only face to health and high-tech industries which may not apply to Apple Core.

NFI is a leading international third party logistics provider with customers ranging from Fortune 100 companies to small businesses. They pride ourselves on delivering completely customized supply chain solutions no matter the industry. NFI provides full visibility, technological product provider, reverse logistics, inventory control, and return process for their inventory management. NFI does customized pick and pack. The value added services to customer is very attractive with their great locations and size of warehouse. NFI is one of the best option for supply chain solution.

SUPPLY CHAIN STRATEGY AND CONCLUSION

In order to develop Apple Cores’ supply chain strategy, the team had to develop a comprehensive sourcing strategy and supply chain strategy.

The first step was to identify where to manufacture product. In order to do this, the team evaluated top ranking cotton countries (Peru, Guatemala, Vietnam, Turkey, Egypt) and evaluated them based on their capabilities as well as overall stability. After doing this exercise, Peru, Vietnam and Guatemala were the top ranking countries as viable options for manufaturing. Next however was to look at suppliers within these countries. While Vietnam ranked higher than Egypt and Turkey in terms of country ranking, Turkey has a fantastic supplier that Apple Cores wanted to consider.

Therefore in order to figure out final placement, the team evaluated a number of different scenarios in order to figure out where to place product. It was after doing this exercise that placement with Peru, Guatemala and Vietnam was decided on for the sourcing strategy.

After developing the sourcing strategy, the next step was to determine distribution. Since Apple Cores is a new product line, the team decided to look for a supply chain solution provider to help with distribution and logistics. After evaluating a number of companies that specialize in apparel distribution, UPS was determined to be the best option for Apple Cores as it offered warehousing, distribution and transportation which were the three services that Apple Cores needed.

In the end Apple Cores has created a supply chain strategy that has a comprehensive sourcing strategy as well as distribution strategy. The company has identified countries that strategically fit in with the company’s vision as well as identified suppliers that will meet the product standards as well as sourcing guidelines. It is with this strategy intact that Apple Cores is ready to fulfill its vision which is “to be the premier children’s apparel company that makes money while giving money back to support education”.

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