DAN RIVER PUTS END TO ZAGA JOINT VENTURE
Byline: Scott Malone
NEW YORK — Things aren’t always sunnier south of the border, Dan River Inc. has concluded.
The mill on Friday terminated its year-old joint venture with Grupo Industrial Zaga, scrapping plans to build a mill in Mexico.
The Danville, Va.-based textile company is going ahead with its recently commenced full-package shirt production operations in Jilotepec, Mexico. The company bought out Zaga’s interest in that business, which operates under the Zadar name, for $3.16 million in cash.
The decision not to build the mill, for which Dan River and Zaga had already purchased land, means the U.S. weaver will not be going forward with its previously announced intentions to move up to half of its manufacturing operations out of the U.S.
In a phone interview, the company’s president of apparel fabrics, Jim Martin, said after analyzing the cost of building and running a Mexican plant, Dan River management concluded that the move wouldn’t be financially worthwhile.
“Our anticipated cost basis was significantly more than what both our intended partners and ourselves thought it was going to be, and as a result, the return on investment was not there,” he said. “It took a long time to go through all this and analyze it, and we believe we’re doing the right thing.”
Kay Norwood, an analyst at Wachovia Securities Inc., said the decision seemed a wise one, given the difficult market conditions that U.S. mills are facing.
“Right now, they need to stay home and tend to their knitting,” she said. “They certainly have their hands full in getting their inventories under control and getting better at what they do here without getting distracted down in Mexico. I’m glad they decided not to do this, as interesting as it might have been at one time. I’d rather see them take those excess dollars and prune down debt.”
Zaga said it would go ahead with its plans to build a mill on the land.
Several domestic textile companies have moved some of their manufacturing operations to Mexico in recent years since the enactment of NAFTA, in an effort to take advantage of lower wages and be closer to that nation’s growing apparel production industry.
However, while the lower wages have made the move an appealing one for labor-intensive cut-and-sew operations, higher costs of energy and water, as well as Mexico’s underdeveloped infrastructure, has proven to be something of an impediment to moving modern mills into the area.