THE DENIM DILEMMA: OFFSHORE PRODUCTION
Byline: Michael McNamara
NEW YORK — When it comes to global expansion, denim makers said they’re proceeding with caution.
While low-cost labor, a proximity to where apparel manufacturers now cut and sew and being near potentially huge, untapped markets have mill executives eyeing production offshore, some are still wary of such endeavors.
The lack of efficient infrastructures in many emerging countries, the dearth of top-notch laundering facilities — a key component of denim manufacturing — and the difficulty of doing day-to-day business halfway around the world still have some executives skittish.
Throw in the December plunge of the Mexican peso — which has added some uncertainty to investing in that country — and the rising cost and uncertain supply of cotton on the world market, and “one must have all his ducks in a row before going anywhere,” said Keith Hull president of the Avondale Fabrics division of Avondale Mills.
Because of the prohibitive price tag attached to building a denim facility from the ground up — executives estimate that a plant to produce 25 million square yards of denim would cost $100 million — most companies looking overseas will explore joint ventures.
Among the countries currently home to U.S./foreign denim-producing joint ventures are Tunisia, Pakistan, Venezuela and, of course, the Far East — including China.
Those ventures will be serving the growing denim markets that include Europe, the Far East and South America.
“Establishing a joint venture out of the country is a very difficult and time-consuming adventure,” said Robert Kaplan, president of Greenwood Mills’ denim division. “The fit of the two companies as far as culture and style are concerned is obviously important. We tried to proceed with each joint venture on an individual basis, based on particular strengths of each local partner.”
Of all the denim producers, Greenwood, with three offshore joint ventures, has been the most aggressive when it comes to expanding.
“We hope to be able to better satisfy these world demands by producing locally,” Greenwood’s Kaplan said.
The company currently has joint ventures in Argentina with denim producer Alpargatas SAIC, which will supply the Mercosur region; in Pakistan with textile producer Crescent Textiles Inc., serving the local market as well as the Far East, and in Venezuela a firm called Jeantex with denim producer Grupo Telares Maracay Co., which primarily serves Andean Pact countries.
However, Kaplan warned, with the current rush to produce around the world, there could be an oversupply of denim products over the near term.
“It is important to carefully explore future estimated supply-and-demand balances as well as the forecasted growth of purchasing power in individual markets before production capacity is committed,” Kaplan said.
The executive emphasized that Greenwood is continuing with a multi-million-dollar capital expenditure program at its two South Carolina denim plants, in Liberty and in Lindale.
“We believe that innovative and efficient U.S. denim facilities will continue to have a strong place in the global denim market,” Kaplan said.
The U.S. jeans market, executives said, is a mature one, with 1 to 2 percent annual growth. It’s in shirts, shorts and other areas where denim is really booming.
In international markets, however, every denim category — including jeans — is expanding.
Swift Textiles, the $500 million denim maker, in addition to its plants in the U.S., produces denim in Canada and through a joint venture in Tunisia. John Heldrich, Swift’s president and chief executive officer, said its Soda Pop Denim, a product that incorporates cotton and recycled polyester, is now in eight markets, including the U.S., Canada, Mexico, Venezuela, Brazil, Chile, Japan and Korea.
“We service those markets, and we make it in Columbus, [Ga., Swift’s U.S. denim plant],” Heldrich said. “Sure, we are looking at all options around the world, but you have to make sure, wherever you produce denim, the market is right for it.
“China, for instance, has a huge population, but it is a big risk,” Heldrich added. “Many of those people can’t afford to buy what you produce.”
Cone Mills, which runs neck-and-neck with Swift as the two largest global producers of denim, has made the biggest splash to date in Mexico. In 1993, the company took a 20 percent interest in Compania Industrial de Parras, producing 55 million yards of denim a year in two Mexican facilities. The partnership plans to add another 26 million yards in a separate 50-50 joint venture factory that will open later this year. In addition to the Mexican production, Cone ships fabric to Mexico.
Miguel Rubiera, president of the international division of Cone, said that in spite of the peso situation, “the Mexican situation is working.”
“There may be some fallout, but we haven’t seen any yet,” Rubiera said.
“But we made the decision to go to Mexico with or without NAFTA.” Mexico gives us a tremendous springboard to the rest of Latin America.”
Now the company has set its sights on Europe and the Pacific Rim. Although no timetable has been set, “you have to be able to get there to service those markets,” Rubiera said.
Denim apparel producers “encourage us to be closer to their markets,” Rubiera said. “Several large companies — Levi Strauss, VF Corp., etc. — are international brands that produce and sell worldwide.”
Unlike Cone, Swift and Greenwood, Avondale produces all of its denim fabrics in the U.S.
Burlington is another denim maker manufacturing solely in the U.S. While the company has investments in Mexico and Europe, it is for other parts of its $3.1 billion business.
“Some parts of the world do produce better denim than others,” said Dutch Leonard, president of Burlington Denim. “If you look around, people are talking about India, Pakistan or China, but you have to make sure you can do it well in those parts. We think we can access NAFTA countries from right here in the U.S.”
Leonard also said that in many areas around the world, labor standards and quality standards are suspect.
“Because of wet processing of indigo denim, we use quite a bit of water,” Leonard said. “If you’re not around water, production could be difficult.”
“Denim has been and always will be the recipient of substantial amounts of money to expand and modernize,” Leonard said. “Technology is moving this business.”