By  on November 16, 2005

Marjorie Yang has witnessed firsthand the progress China has made over the last 20 years. It was evident on her way to the Beijing airport for her flight to New York, when she stopped at an electronics factory that had been converted into an art gallery to have a latte with a friend.

"It just didn't feel like Beijing, it felt like I had already arrived in New York," said Yang, chairman and chief executive officer of Esquel Group, the world's largest producer of cotton shirts. "The most amazing thing was the ladies' room. It was incredibly beautiful. If I had time I would have changed these slides to show you those pictures. It's just been amazing."

Yang's awe at China's advances in caffeine and plumbing fade quickly, however, when she considers the challenges facing Esquel and the country's apparel and textiles industry as a whole. She is aware that China's momentum is in danger of slowing if the country fails to take the next step and transform itself into something other than the world's low-cost manufacturing hub.

"The perception that China is the world's factory in turning out low-value products is largely true," said Yang. "However, this certainly gives rise to trade friction as well as questions of sustainability."

According to Yang, China accounts for one-third of the world's fiber production and is the largest consumer of cotton in the world, a fact that has played to the advantage of the U.S. cotton industry. "In fact, China imports more than 1.5 million tons of cotton annually from the U.S.," said Yang. China's textile mills also have 70 million spindles, more than one-third of the world's total, according to Yang.

The end result is China is responsible for churning out 42 billion pieces of apparel annually and, as Yang noted, more than half of that production is for its domestic market. Large brands are in the process of hooking those consumers, said Yang, and are a major force fueling changing attitudes.

"Brands such as Nike are capturing the hearts of the Chinese consumer," said Yang.

She is now in the position of making sure Esquel doesn't get left behind, which involves adopting a different set of business philosophies and practices."High volume, low margin is not a sustainable value proposition as free-trade agreements and other forms of duty benefits may be given by the U.S. or the [European Union] to other countries," said Yang.

Esquel has sought to diversify its global sourcing operations in an effort to protect the business from changing trade regulations. "We have always been concerned about potential trade friction between China and the United States," said Yang. "In fact, we have established our presence in these other manufacturing locations because of the quota system. This is our insurance policy."

Establishing vertical operations has been another key to maintaining control, costs and speed to market. Buttons were a prime example of an item Esquel decided needed to be brought into its own operations. "At one point, we couldn't source really good buttons in Asia," said Yang. "And that was silly because it was slowing down the entire supply chain. So we ended up making buttons."

The company will face a much taller task in ridding itself of reliance on U.S. cotton. China's cotton farmers have foregone growing high-quality cotton because it produces lower crop yields. In order to maintain its leading position, the company saw the need to spur growth of a high-quality domestic cotton. "We are now starting growing extralong staple pima cotton," said Yang.

The company is now focused on sustainable farming methods and the production of organic cotton, which has been a growing trend. "This is tough to convince our farmers [of], because you have to take a 30 percent drop in yield," said Yang. "Farmers don't like to do that, but we perceived both a market need and a long-term benefit for the local environment to pursue sustainable farming and organic cotton."

Esquel also has invested its resources into research and development in an effort to engineer cotton seed that will produce high quality and higher yields. The goal, said Yang, is to grow a cotton that is as good as Egyptian cotton. "We believe that we can. It is not true that our industry is lacking in technology and science," said Yang.

The company also is making sure it presents a forward, or Western-style, appearance. Yang showed a picture of the marbled lobby at one of its newer facilities to drive home her point."We did this to send out a message that we are a crossover and that we are changing from being a traditional provider of labor to a provider of service and a partner for our good customers."

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