Surviving the Challenges of Asia by mifei

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									Surviving the Challenges of Asia

A Winning Strategy for Peruvian Textiles

Surviving the Challenges of Asia. A Winning Strategy for Peruvian Textiles.
Dr B. Glover; Mr D.T.Parkes
Abstract. This paper is concerned with the dyeing and finishing of textiles in a developed industry, and how that industry can compete with the threat on low price from developing Asia. Examples of wining strategies refer specifically to the exhaust dyeing of Cellulosic fibres with reactive dyes; but the principles involved apply throughout the dyeing and finishing industry. In one example, we hear of a company in California (USA) using speciality products and processes designed to optimise “Right First Time” production who is beating Chinese imports at lower prices hands down. How ? By operating at lower process costs by virtue of higher efficiency, and focussing on lead-time. The contrasting views of European and USA consumers on critical purchasing issues will be reviewed. Exporters from Europe have also focussed on improving productivity in order to reduce lead times; and have evolved a way of responding to the volatile demands of fashion which is not price driven. There is no reason why these winning strategies can not be applied within the Peruvian Textile Industry.

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A Winning Strategy for Peruvian Textiles

1.

Creating Wealth.

Improving Dyehouse Productivity lies at the very heart of improving profitability on existing business, creating new opportunities, creating better opportunities and boosting Profits.

Reduces Total Production Cost

Raises Profit Margins More Focus on new business development Less Time chasing mistakes

Reduced Lead Times Reduced Development Time - New Shades - New Fabrics

More Competitive Globally

New Business Opportunities

More Profitable New Business Opportunities

Creates Extra Machine Capacity Without Capital Outlay

Generates Internal Confidence Staff Motivation

Increases Customer Confidence

Raises Retailer Awareness

Attracts New / More Customers

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A Winning Strategy for Peruvian Textiles

2.

Background. 2.1 Relative Labour Costs.

Fig 1.

Labour Costs of Peru and International Competition .

USA UK Turkey USA 100 Peru China India 0 20 40 60 80 100 120

If anyone in Peru feels threatened by China by price alone, they should try to imagine the enormity of the task facing producers in California. Therefore, if anyone in California can beat the Chinese then their strategy must be worth listening to.

Fig 2.

Labour Costs of Peru and South America.

Brasil Mexico Venezuela Colombia Argentina Peru 0 5 10 15 20 USA = 100

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Surviving the Challenges of Asia

A Winning Strategy for Peruvian Textiles

Two very important points about labour costs bring some degree of perspective to their relative importance : costs are constantly increasing, and more so in rapidly developing economies labour cost is only one element of the “Total Cost” of producing one batch of coloured fabric.

-

Low labour cost (without reference to quality or productivity) is only a short term advantage. Low production cost (taking account of all costing elements) is a considerable and longer lasting advantage. Fig 3. Increasing Costs.

Costs do Increase
* Pressures will gradually force up Labour Costs * * training & development higher wages for more skilled staff higher staff expectation from increased GDP

Increased capital investment requiring pay back Imposed government or legal costs effluent minimum wage.

Labour costs do increase. Take the progressive increase in labour costs in Turkey for example (Table 1).

Table 1. Year 1995 1996 1997 1998 1999 2000

Index of Production Workers Hourly Wages (1997 = 100). Textile 28.6 53.9 100.0 176.1 333.6 485.5 Apparel 24.1 48.8 100.0 162.1 292.1 430.5

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A Winning Strategy for Peruvian Textiles

But this progressive increase in labour costs has not prevented the growth of exports of the Turkish textile industry. Fig 4. Turkish Textile and Apparel Exports 1985 - 2000

12000 10000 8000 6000 4000 2000 0 T and A Textiles Apparel

85

87

89

91

93

95

97

Export Values (US$ 1,000)

Basing a production strategy , or a marketing campaign, on the strength of low labour cost alone is short sighted. Tomorrow there will always be someone cheaper. If we take the particular case of China, for example, costs are rising rapidly. Table 2 displays how labour costs have risen steeply, and we shall see later how Chinese dyers who want to reach export quality are forced to use more expensive raw materials than available locally. Table 2. Labour Costs in China and India (China 1990 = 100) 1990 100 235 2000 213 210

China India

Will India be tomorrows China ?

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Surviving the Challenges of Asia

A Winning Strategy for Peruvian Textiles

1.2

Putting China‟s Low Costs into Perspective.

This paper is not concerned with the choice of reactive dyes open to the Dyeing & Finishing Industry of Peru. But it may be worthwhile, pausing for a moment, to review Reactive dye manufacture in Asia. Some interesting points emerge. Fig 5. Textile Dyes by Producer.

The relative positions by the year 2,000. % Share of World Textile Dyes Market
40%

25%

13% 9% 8% 5%

Dystar

Ciba

Clariant

Yorkshire

Japan

Other Asia

Fig 6.

Relative World Market Share by Dye Class.

Basic Direct Vat,Indigo, Sulphur % of Total Acid Reactive Disperse 0 5 10 15 20 25 30

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Surviving the Challenges of Asia

A Winning Strategy for Peruvian Textiles

China is widely regarded as an exporter of reactive dyes of some significance. However, the truth is that they import more than they export. This was revealed by Han Yu Li, of the China Textile Academy, at the recent conference in Mumbai (Ref 1). The conference was held to commemorate “50 Years of Reactive Dyes”, and both the present authors were involved as speakers.

Fig 7.

Reactive Dyes : China, Exports and Imports. Reactive Dyes and China - Production..

* * * *

China produced (approx) 45,000 tonnes of reactive dyes in 2002 China produced (approx) 68,000 tonnes of reactive dyes in 2003 China produced (approx) 90,000 tonnes of reactive dyes in 2004 World‟s biggest reactive dye supplier (46% world share)

Reactive Dyes China - Export. * * Exports 11,500 tonnes per annum Exports increasing at 9.2 % per annum Reactive Dyes China - Import. * * Imports 28,862 tonnes per annum Imports increasing at 21.6% per annum

China is not only the world‟s biggest exporter of reactive dyes; China is the world‟s largest buyer of reactive dyes. The facts are : China is importing far more reactive dyes than it is exporting Currently 46% of all cellulose dyed in China is dyed with imported dyes Locally produced reactive dyes are not good enough for China‟s own textile processing industry.

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Surviving the Challenges of Asia

A Winning Strategy for Peruvian Textiles

These are facts , not editorial comment. They come directly from the China Textile Academy. Fig 8. Reactive Dyes and China.

Han Yu Li – China Textile Academy. “Due to unstable quality, poor performance, lack of new products and lack of new product varieties - China has to import a great deal of reactive dyes; and will have to do so for some years to come”.

What has this got to do with the Peruvian Textile Processing Industry ? it should be wary of using reactive dyes from Asia sold on low price only those textiles dyed and finished from China are unlikely to meet international standards unless they have been dyed with imported reactive dyes (expensive to them).

-

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Surviving the Challenges of Asia

A Winning Strategy for Peruvian Textiles

1.3

Background on California. * The Textile Industry of California is different to that of most of the USA. It is more like a European model and services a rapid response to changes in fashion demand. Los Angeles has many small to medium sized dyehouses (1012 Jet machines) using speciality dyes and chemicals for “Right First Time” processing and high productivity. The state itself is a major Global economy ( third largest in the world?).

*

*

*

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Surviving the Challenges of Asia

A Winning Strategy for Peruvian Textiles

2.

Global Trading : Partnerships and Decisions.

Price is a very important issue, but by no means the only issue.

Fig 9.

Trading Potential.

Trading Potential
* * Cost is an important factor Any prospective trading partner will also consider quality service delivery reliability (quality and lead time) stock holding political issues relationships.

Table 3.

Changing Customer Needs.

Taken for Granted Cost Cost Cost Quality Cost Quality Delivery Time

Time Period 1970 „s 1980 „s 1990 „s 2000 „s

Differentiation Cost Quality Delivery Time

Variety Flexibility Unique Look / Handle

The Key Textile Customer Requirements will constantly change and evolve. Only those businesses that constantly strive to satisfy their customer needs will survive. And only those businesses that constantly strive to improve will be able to adapt to a dynamic market.

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Surviving the Challenges of Asia

A Winning Strategy for Peruvian Textiles

3.

Responding to Change.

The ever increasing fashion input into the casual wear and leisure wear sectors places speed of response as one of the most important retailer demands. Two aspects are important in speed of response (Fig 10). Fig 10 . Speed of Response.

Speed of Response

Delivery Lead Time Geography - Proximity to Market - Air Transport (cost / ability) - Shipping (suitability) Production Organisation - Fewer shade adds - Fewer re-dyes - Fewer bottlenecks - Better Bulk – Bulk Reproducibility - More confident supervision - Rapid problem solving

Responding to Change Laboratory - Faster turnaround on New shades - Better trust by retailer

Lab – Bulk Interface - Better shade reproducibility - Better understanding of key Processing parameters

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Surviving the Challenges of Asia

A Winning Strategy for Peruvian Textiles

Fig 11.

Negative Impact of Long Lead Time.

High Number of Days
* * * Unable to satisfy quick fashion changes in demand Need to order well in advance based on reliability of market forecasts High Stock Levels * High Risk * * of supply chain breaking down if fashion demand suddenly changes contingency stock work in progress (goods in transit) unable to test the market (response time too slow) No Flexibility in Ordering (time and volume)

Higher Transport & Insurance Costs No Repeat Orders – losing business to competition

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Surviving the Challenges of Asia

A Winning Strategy for Peruvian Textiles

Fig 12.

Positive Impact of Short Lead Times.

Low Number of Days
* * Quick Response to Fashion Changes Low Stock -

contingency stock work in progress (goods in transit) buffer stock

* * *

Ability to Test the Market Flexibility in ordering Lower Risk breakdown in supply chain to fashion changes losing business to competition

Table 4.

Comparative Lead Times in European Market. (Source : Textile Asia ).

Source Turkey Eastern Europe Mahgreb, Greece Other EEC China Other Far East

First Order 3-6 weeks 3-6 weeks

Repeat Order 3-6 weeks 3-6 weeks

2-4 weeks 6-7 months 4-5 months

2-4 weeks 3 months 3-5 months

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Surviving the Challenges of Asia

A Winning Strategy for Peruvian Textiles

Table 5.

Delivery Times to European Union (Source : Harvard Business School).

Supplying Market

Manufacturing (Weeks) 6 5 8 4 6 5 5 1 1 2 5 7 7 6

Transportation (Weeks)

Turkey Within EU East Europe Japan China South East Asia India

Longer lead times are acceptable when demand patterns can be predicted with a high degree of certainty; and it is possible to take advantage of lowest possible costs and global technical capabilities. For fast moving consumer goods, newly designed products with a high degree of fashion input shorter lead times are essential. A compromise option is often reached which may be called “Outward Processing Trade”. This is where : Fabric is dyed in developed consuming countries Garment confection is let out to nearby lower labour cost countries.

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A Winning Strategy for Peruvian Textiles

Fig 13.

Examples of Outward Processing Trade.

USA

-

Mexico ; Central America

EU

-

North Africa ; former Eastern Europe

Japan

-

China ; Indonesia

This involves the principles of triangular trade.

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Surviving the Challenges of Asia Fig 14.

A Winning Strategy for Peruvian Textiles

Concept of Triangular Relationships.

Retailing Nation Quick Response Just in Time New Trends / Fashion Rapid Top Up of Stocks Low Volume / High Tech Speciality Niches

Less Predictable Garment Demands

High Volume Predictable Demand Textiles; Garments

Close Medium Cost Supplier

Distant Low Cost Supplier

Predictable Demand Textiles

4.

Lead Times and the Importance of “Right First Time” Production.

“Lead Times” are governed not only by distance from the target markets - but also by the organisation of production. . The impact of “Right First Time” production and increased productivity on lead time cannot be disputed. Reducing lead time without increasing Dyehouse production efficiency will mean higher production costs. Reducing lead time by increasing “Right First Time” production can actually reduce production costs. This will be dealt with in a sister article “Right First Time and Profit Margin” to be submitted alongside this paper.

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Surviving the Challenges of Asia

A Winning Strategy for Peruvian Textiles

Two examples from this authors‟ own experience may be of interest here. Case 1. Year : Location : Order : 2000 Developing Asia First Order for Italian Retail. Knitted Viscose / Lycra. Very Bright and heavy Scarlet Shade.

Problems of Order Completion :

The order had proved difficult to place across a number of Dyers and Finishers across Southern Europe. The main technical problems were : crease marking patchy dyeings poor fastness to 60 „C wash.

Author‟s Position :

One author found himself working in the Asian factory when the trial order arrived. Fortunately, from his own experience in Italy (final destination for retail) the author had experience of the technical problems. A recipe straight into bulk without lab matching, and washed off to a fastness specification at 80 „C. A nominated representative of the customer was invited to the Asian Factory to witness sampling of the dyed batch from different parts of each rope of fabric. No shade variation from the central sample was witnessed to be > Delta E 0.4. The finished order was freighted by special delivery within 7 days ; a costly exercise, but the Asian factory got a succession of repeat orders.

Case 2. Year : Substrate : Shade : 2002 Very fine knitted Viscose. Very Bright Green : pale – medium depth.

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Surviving the Challenges of Asia

A Winning Strategy for Peruvian Textiles

Destination :

Italy.

Background :

One author visited two factories trying to dye the shade. One Dyehouse in South East Asia using modern machinery. The other in Central America using old, and basic, equipment.

Fig. 15.

Case Study 2

Factory 1. South East Asia. Did not need this Author‟s help.

Factory 2. South America. Specifically requested this Author‟s help.

Dyed 7 batches – all unlevel.

First 3x batches completely level

Batches dyed on 2 year old Thies Jet dyeing machine. Missed deadline.

Batches dyed on third hand 30 year old winch. In 4 hours less than it took the SE Asians to get the shade unlevel Repeat Orders followed.

No repeats submitted.

Shortening the lead time does not always mean using expensive equipment. Technical knowledge can be more important.

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A Winning Strategy for Peruvian Textiles

5.

Targets for Peruvian Textile & Apparel.

Table 6 .

A Comparison of EU and USA (1996).

Area (100 sq miles) Population (millions) Population Density (per sq mile) Rate of Unemployment (%) GDP (billion US$)

European Union 1,249 373.3 299 10.7 8093

USA 3,732 267.6 72 4.9 7819

Both Europe and USA : * * * are major textile consumers have large textile economies have geographically close lower cost producers with land transport.

Turkey

Mexico

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Surviving the Challenges of Asia

A Winning Strategy for Peruvian Textiles

Fig16 .

EU Textile Trade.

Internal Trade

Imports 32%

49 %

Exports 19%

Fig 17 .

EU Textile Costs.(All Costs).

Mexico France Spain Poland Romania 0 50 100 150 200 USA = 100

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Surviving the Challenges of Asia

A Winning Strategy for Peruvian Textiles

Fig 18.

The European Market : Share of EU Textiles and Clothing. June 2001.

Italy UK Germany France Spain Portugal Belgium Others 0 10 20 30 % Share

Table 7.

EU Imports. Top 10 Exporters into EU (% of Total)

Export Country 1. China 2. Turkey 3. India 4. Hong Kong 5. Tunisia 6. Poland 7. Romania 8. Morocco 9. Indonesia 10. Bangladesh

Textiles and Clothing 14% 11% 6% 5% 4% 4% 4% 4% 4% 3%

Textiles 9% 11% 10% 0% 1% 3% 1% 0% 3% 1%

Clothing 15% 11% 4% 7% 6% 6% 5% 5% 3% 4%

The Internal EU Market is dominated by the 4 most expensive producers. Wh y ? * Fashion * Response Time * Focus on niche and speciality sectors * Culture * Partnerships / Relationships * Uniqueness * Quality * Value for money.

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Surviving the Challenges of Asia 6. Fig 19.
USA Japan West Europe Former USSR East Europe China Latin America Asia Others 0 10 20 30

A Winning Strategy for Peruvian Textiles

Who buys the Textiles ? Consumption of Textiles (Kg per capita)

Kg per person

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Surviving the Challenges of Asia 7.

A Winning Strategy for Peruvian Textiles

Who Buys the Textiles and Clothing – and WHY ? Consumer Issues – USA (Source : Woolmark 2002 data)

Fig 20 .

Price Fabric Washing Needs % of Total Sample Origin Brand Name Enviro Friendly 0 20 40 60 80 100

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Surviving the Challenges of Asia Fig 21. Consumer Issues – Europe

A Winning Strategy for Peruvian Textiles (Source : Woolmark 2002 data)

Quality

Price

OK on Skin

Fashion

Functional % of Total Natural

No Harmful Chemicals Enviro Friendly

Brand Name

Origin

0

20

40

60

80

100

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Surviving the Challenges of Asia Note: * * * * *

A Winning Strategy for Peruvian Textiles

The surveys were carried out by the same agency Consumers in USA and Europe were asked the same questions Fashion and Quality did not feature as issues for USA consumers Fashion and Quality featured highly for European consumers European consumers had more, and more detailed, environmental issues. EU Model.

Fig 22.

* * * * *

Large Domestic Industry Based on Fashion Dynamic Response Quality Environmental Factors Environmental friendly production No harmful chemicals left on fabric

*

But Not Price

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Surviving the Challenges of Asia 8. Concluding Remarks.

A Winning Strategy for Peruvian Textiles

Possible Messages for Peru
* Find where the EU textile exports to USA go

* These supply from higher cost base from greater distance * Attempt to replace by matching : Quality Service Fashion Response Design. Attempt to take a lead on : * Higher Value for Money Shorter Response Time

*

Long distance exports from China to USA are : Volume focussed Based on container shipments Fashion insensitive sectors

*

China will not be able to sustain current low price levels China will come under increasing pressure to revalue its currency Even without revaluation, China may lose its position to cheaper nations China may come under severe competition from countries such as India after quotas disappear.

*

*

*

Volume is Vanity….. ………………………..Value is Sanity.

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