HONG KONG — Asian apparel and textile manufacturing firms are beginning to see that they can effectively compete with China if they use the right strategies.
Companies and garment associations here advocate not putting all their eggs in one basket — namely China — until trade disputes are resolved between China and the U.S. and European Union. This has opened up more possibilities for alternatives such as the Philippines and Thailand.
At Interstoff Asia Autumn, which ended its three-day run Oct. 7 at the Hong Kong Convention & Exhibition Center, exhibitors discerned more interest, but still some reluctance to commit because of the uncertainties about quotas and higher prices compared with China. However, many brands and retailers unable to produce in China because of export restrictions must look elsewhere.
Litton Mills, a private fabric company that produces 1.6 million meters of denim a month, has seen its denim business grow by 10 to 20 percent this year as quotas for the U.S. and EU were dropped, then safeguard quotas subsequently slapped back on. The EU and China have negotiated a deal controlling exports through 2007, but talks with the U.S. have stalemated. Most of the increase has been from the European side, said Cathy Yap, junior sales executive for the Philippines company.
After trade disputes are settled with China, Yap anticipates one-half of new business will probably disappear. Chinese companies have approached Litton Mills about doing business, Yap said, but her answer was “no” partly because China is a competitor and also because Litton Mills’ prices are as much as double compared with China.
Litton Mills has 70 percent of its business going to the Gap and Old Navy. Most of its fabric is sent for manufacturing at factories in Hong Kong, Indonesia and Bangladesh, said Eric Alviar, senior merchandising manager. The firm is working on more fabric developments and began a garment business through partnerships with manufacturers and laundries in the Philippines last year. The manufacturing business also helps to shorten lead times.
“People are waiting longer before making orders,” Yap said, which means the lead time might be as little as a month.
Thailand’s Akko Group International also is trying to expand its business to offer more of a one-stop shop for clients, which includes sourcing, manufacturing, logistics support, design and development services.
“We know price-wise and quality-wise China is the best,” said director Derick Chung, who is based in Hong Kong. “We need to get ourselves prepared.”
Akko, which has an annual volume of $40 million, produces polyester fabric in Thailand, and cotton, linen and other fabrics in China through factory partnerships. Because of a quota, the company will manufacture garments in places such as Vietnam and is extending its reach to Bangladesh and Burma, Chung said.
“We try to be a regional player,” he added.
For fabric, 85 percent of its business goes to the EU, 10 percent to the U.S. and the remaining 5 percent to Asian countries. For garment manufacturing, 100 percent goes to Europe.
Business has been stable for Macau-based trading company Man Ka International. There is interest from perspective customers, but orders are tough to come by because the company’s products are more expensive than those of its counterparts in China, said Kam K.V. Kuok, director.
Man Ka has factories in Macau and China, as well as a branch office in South Korea. The firm produces 200,000 garments a month. Its specialty is fine knit women’s wear with a client list that includes Kookai and Hong Kong’s Izzue.
Kuok said costs at factories in northern China are about 30 to 40 percent less than Macau, which is a special administrative district of China. In southern China, the cost differential is about 15 percent less.
“Once (potential clients) compare the price, they think it’s not workable,” Kuok said.
About 60 percent of the company’s business is mostly with EU clients, with 20 percent from the U.S. and 20 percent from Hong Kong, Japan and the rest of Asia.
One advantage Man Ka has is its location. Macau and Hong Kong have long been used as outward processing arrangements to bypass quotas in China. Around 30 percent of Man Ka’s business is from outward processing arrangements, Kuok said.
Indonesia’s Argo Manunggal Textile also is tweaking its business to be more competitive. Most Indonesian companies import all fabric from China, said Juliana Hermanto, chief executive officer. In order to reduce lead times, the firm is starting to work with local mills.
Argo consists of 14 separate companies that handle spinning, weaving, dyeing, finishing and garment manufacturing. About 80 percent of the company’s output is for export, he said. each of the companies has annual sales of $30 million to $40 million, with overall group volume an estimated $500 million.
“In certain categories I’m still confident we can retain the business,” said Hermanto, referring to when China is able to manufacture without restriction in 2008. “Finishing is becoming more and more important.”
However, with “basic garments, it will be more difficult to compete” with China once quotas are removed, she added.
To keep up with the changing business environment, trade show organizer Messe Frankfurt revamped Interstoff this year to reflect a one-stop-shop model. The three focus areas were: creation, function and fashion.
The show drew 10,500 buyers, with 2,600 from outside of Asia. Countries represented included Austria, China, Hong Kong, Macau, France, Indonesia, Italy, Japan, South Korea, Pakistan, the Philippines, Switzerland, Taiwan, Thailand, Turkey and the U.K.