A room with a view
Int'l execs take on the world
Jennifer Marks -- Home Textiles Today, 11/18/2002 12:00:00 AM
What will the home textiles world look like on Jan. 1, 2005?
That's the magic date that trade quotas come off and free trade is supposed to officially begin.
Home Textiles Today assembled a group of executives in world trade during the October market to get their unique perspectives on how this brave new business world is taking shape. How will countries and companies compete? Will China dominate? The Global Roundtable offered a candid and rare glimpse into the issues they deem important — finding areas of agreement and areas where they could only agree to disagree.
Editor-in-chief Jennifer Marks moderated. The panel's edited conversations follow.
HTT: How does your country's manufacturing base relate to U.S. market demands, vis-à-vis packaging, EDI, delivery, supply chain management, product quality and the like? Is there anything that U.S. product importers and retailers need to be doing in order to do business more successfully with mills in your country? What do you need to do?
Obaid: Basically, we have to get into a strategic alliance. I feel that being a manufacturer and exporter from overseas, you need a lot of management to be a distributor here. My company is not ready for that yet, so that's why I'm "fishing" for partners.
The ideal situation for a company like ours is that we would manufacture for a company or a mill in the United States or a brand name in the United States, under private label.
Altop: From our perspective, Turkey is strategically between the Middle East and Europe. We are not a Western country, nor are we a Middle Eastern country. Before talking about the ABCs — the necessary certificates, or the packaging details, or technical specifications — if you want to build a long-term relationship in a market or with a particular company, you have to understand the other side's culture, consumption behavior and also mentality.
It does make a difference for the buyer, or even a designer, to come down to the mill because we've been making [significant] investments. It's not really easy to talk about creative projects on the 17th floor of skyscrapers in Manhattan.
So, my expectation from the American market is for it to be more knowledgeable about these countries' cultures and to have the flexibility and the vision to come and visit our country...And only under these circumstances will all of us be able to establish strategic partnerships or technical partnerships.
HTT: Several of you have spoken about partnerships, but when you hear many U.S. companies talking about the equation, they're not talking about partnership — they're talking about cherry-picking inexpensive production facilities. How do you and others trying to build a business get across the idea that it is about a partnership?
Duggal: What I see is that the big giants' manufacturing facilities are closing and all of them are looking at either the Far East or the Asian countries to find some partner for either producing with them or to provide finished products.
In terms of quality, we serve all world markets. Qualitatively, we feel that the U.S. is a little below the Europeans. I sell to Marks & Spencer in a very big way, and I know they can drive you crazy in terms of quality [issues]. But that never happens here. In fact, simple technical barometers like shrinkage are not so keenly adhered to by U.S. importers as they are by a European company.
HTT: U.S. importers are more concerned with hitting a price point?
Duggal: Exactly. What happens is that anyone can put up a loom and start producing and shipping out of their countries. Therefore, U.S.-based importers or mills, which have now started importing, get an opportunity to get a cheaper product. They don't realize that the quality of the product is degrading. Therefore, when they come to us to match the price point, I would probably refuse that business rather than dilute my quality.
But if we join hands with a large company [like one of the major mills], we can jointly work together and maintain the quality of the product.
I think the market is also very demanding on the product level. People are looking at thread counts. I started working with a 200-count; today I sell a 1,000-count sheet. And, there's no end to it. I heard someone is manufacturing a 1,200-count. This is a rat race.
HTT: Yet, retailers are putting together their own product development teams. They think they are in charge of product development. There are U.S.-based suppliers that have their own product development teams and they believe they are in charge of the process. Each of you have your own teams that are in charge of product development. Are all of these groups talking with each other? What is the ideal scenario when your supply chains are long and you're looking at a global market?
Lalpuria: The competitiveness in each sector will play an important role. When a company decides to become a global player there will be a push-and-pull factor, depending upon the moment, because the business is changing very quickly. The quality factor, the service factor and the performance level factor need to be in place if they want to be a global player.
Why are we discussing product development teams? If companies were servicing [their customers] properly, why then do the customers suddenly decide to have their own trend team or their own product development team?
Altop: They have their own design offices on this side of the ocean — everyone's doing something — but it's little more than time consuming. If the production is done in the factory, the buying agent or the retailers can come down and see the machinery, talk with the labor and managers and it will be much more efficient. The alternative is that they knock on door after door to make comparisons. But in the meantime the suppliers are working their samples and trying to get their prices [right] and trying to keep the production flow —
Lalpuria: But that is business.
Altop: That is business, but time is very important.
Obaid: I have a totally different perspective on product development. I think product development is done here. What we do is product copying, not product development. Let's first try to understand what different people mean by product development. A towel is a towel. A mill chap producing a 400-count sheet sees a competitor is doing a 600-count, and he's trying to copy that. You call this product development?
Fan: I'm not so sure that product development plays such a big role in the whole process. The big mills go to China cherry-picking or they go to India cherry-picking, or Pakistan or Turkey. I think they will eventually stop cherry-picking and will try to find partners in these countries. Just as we try to find partners in the U.S. or Europe.
HTT: We've also all heard stories of partners — buying agents and importers — being cut out of the process by retailers that approach exporters and say, "We don't need them." What is the proper scenario for that?
Fan: We found partners in this country that maintain their own offices here. We let them do the job.
Altop: I think for a manufacturer, trust is very important, along with confidence. We've always worked through buying agencies. We've been contacted by retailers directly, but we've always said "no" because we never know if it's going to be a one-shot business. It really depends on your company policy.
For us, we're not ready to skip the middle man. We prefer to work with buying agencies where they understand the technical aspects [and the marketplace].
Fan: The question I think we really need to ask is: Are we really seeing that many retailers going directly to the source? The pressure may be on the major mills, and it may be hard for them to tolerate; but I still fail to see a trend.
Lalpuria: The retailers do decide according to how they evaluate the situation and how they would like to pass on the value to their customer. They decided to [go direct]. Why? Again, it is competitiveness.
Duggal: This is a very tricky question that we have all debated over the last couple of years. As a company, we are very clear on our strategy: We don't go to retailers. If retailers came to us, we would direct them to one of our importers. They have come and asked for direct shipments, and we refused.
We were caught in a problem last year where some smart retailer came up with an auction that was open to manufacturers, to importers, to everyone. We said we would not go to retailers, we supported our importers and we slashed our prices by 20 percent, matched the price from Pakistan or China and got the business. But they compensated us for that loss with different and larger programs.
As you said, this is a market that is changing very fast. Home textiles has become a fashion industry here. We cannot track what's happening everyday here. The best people to do that are the importers who are based in the U.S.
HTT: Yet, the perception here in the U.S. is that retailers hold auctions every day and that overseas manufacturers get on those auctions and they bid at 25 percent below cost just to take the business away because they want a relationship with the retailer.
Fan: I really doubt that an auction is the right thing. I think it's [destructive] on the part of the retailers. They can do a lot of things to make a good presentation of the product in front of consumers, instead of doing this. In the consumer area, being the lowest price may not [always] be the answer. Eventually you'll buy a car with only two wheels. I think the retailers are being irresponsible. It's dangerous.
Saeed Sattar: Look, I think we should not be very negative. The ground realities today are that the driving force in business and retail are these big companies in the U.S. And they are going to hold auctions and they are going to go direct to producers. But they are also going to stick with the mills. They need the mills because they need the mills' brands. It's a fashion-driven business. It's a brand-driven business, also. But at the same time, they also want to promote their own private label, for which they don't need to go to an expensive source. The big volumes today are with the big mass merchants, and they're going direct. How do you run away from that? You don't. But it doesn't mean it's a doomsday scenario for the mills.
Lalpuria: There is a finite demand, and there is an infinite supply. We all need to survive. There have to be strategic alliances. But it varies from organization to organization, country to country, and the strategy for each company is different. But as you said, the U.S. manufacturing operations have become non-competitive when you compare them to other areas overseas.
Altop: In relation to branding and quality, I think retailers, themselves, are also committing suicide, in a sense. Every time I come here and visit the stores, I see many non-Egyptian towels with Egyptian labels. They're spoiling the dream. It's something that has been very successful; what's the point of spoiling it? Keep it original. If they need something economical, find something economical. Don't turn it into a nightmare.
They come to the mill and say they want Egyptian. But I'm not sure if we're comparing apples with apples. Are we talking about the real Egyptian or the knockoff Egyptian? Or is it Egyptian blend, or something else?
HTT: You all clearly see the U.S. mills as fulfilling a valuable role. You're also aware that many U.S. mills are struggling.
Let's say you were in charge of one of the U.S. mills. The model you had — a large infrastructure — is no longer necessary. How do you reform your business to survive the next 10 years?
Duggal: Join hands with the [foreign] manufacturers and send your looms and machinery there. And start importing from them.
Obaid: The reason we are talking about joining hands with the U.S. mills is because they have the brands. A common consumer knows Cannon all over the world. They know Springmaid all over the world. The mills have the brands and the distribution. Companies like Welspun don't need a mill because they are a mill themselves. It takes millions of dollars or years to have your brand known.
When 2005 comes it will be one big fiasco. It will be brands that will sell. Or it will be junk.
Saeed Sattar: Or private label.
Lalpuria: The American industry has to play a domestic role and that is defining marketing, product distribution and the trends. And they should cut down the production here. They should all concentrate on the marketing and distribution rather than producing.
Saeed Sattar: Today, to survive in this market in these conditions, you need to be like a sports car — you need to be really fast and agile. The [U.S. mills] have become more like locomotives. They cannot make quick decisions. When we go to a mill they like our product, they love the price, they can sell it — but they cannot buy it. It takes them two years to turn around, and then the item is out of fashion and I've already sold it to a dozen others. Then they say, "Oh, maybe we want to look at that again." But it's already passé. If they can't take care of that, they're going to have a much harder time.
Fan: I think it will take time for the mills to transit from a manufacturer mentality to a marketer-oriented mentality. Down the road it will be difficult to be both.
HTT: What will the world look like in 2005 when all the quotas go away and we are supposedly all in an open market? Or, do different countries start brokering different agreements and start slapping tariffs on one another?
Obaid: I don't know if in 2005 they will really remove all the barriers. I was involved on the Pakistani side during the WTO meetings. The proposal that the Pakistan government and others made to the Americans and other countries where there are quotas was that instead of having a situation in January 2005 — opening the floodgates — there should be some ballooning on the quotas now. No one agreed to that. If you do not agree to that it means that your intentions are not there to open the floodgates on Jan. 1, 2005. If you had the intentions you would start getting the market used to the imports.
I'm being skeptical; I don't think it's going to happen. In China you have prison labor problems, or in Pakistan you have human rights problem, or in Bangladesh you have child labor, or in Thailand you have XYZ problems and we are going to slap you with additional duties unless you are going to have A, B and C put in place.
Fan: We are investing in preparation for 2005. I hope things like that won't happen. These are all unpredictable considerations. If they use labor issues to raise the import duties then they are taking the whole trade agreement into their own hands and the whole thing becomes meaningless.
Lalpuria: We also see an optimistic situation, not a pessimistic one. Quotas are just a form of monitoring and regulating a business in a country as a sort of protectionism to that industry to make sure there is no dumping. But there will be a competitiveness from company to company and country to country in order to serve the interest of the buying country.
Fan: I think a question that needs to be asked is whether, after 2005, the U.S. will use punitive import duties to replace the quota? In the past I thought it was a very small chance, now I think it is increasing.
Saeed Sattar: I don't think that's very likely. The whole idea behind it is to have a level playing field. And were the U.S. to start meddling with it then it would give itself a very bad name.
HTT: Are we facing the potential, for example, of a political action — whatever that may be — a textiles group in Georgia lobbying for something or the U.S. administration getting in a tiff with another country. A tariff goes on in one place and off in another and then after a period of time balance is restored. Is that a likely scenario?
Duggal: In spite of whatever happens today there is an imbalance today also: There is an import duty on one country, there is an anti-dumping on another. But that doesn't stop those countries from doing business. If you are an efficient manufacturer and the U.S. closes the door on India, the whole world market is open. Why should I only look at the U.S.? In spite of the fact that I do 60 percent of my business with the U.S., I'm not leaving that 40 percent of the market. I can easily put 100 percent of my production into the U.S. today if I want to, but I do not wish to. It would be the most foolish thing to do. But I am optimistic; I don't think that will happen.
Lalpuria: Why anti-dumping [regulations]? That we really need to understand. It's because another country is not ready for that kind of import, so it can't absorb that kind of import production.
HTT: What do you think the U.S. market will look like in five years? Who will be supplying it? Is China supplying 80 percent of home textiles in the U.S. market? Are there three large retailers and no one else matters? These are some of the scenarios being discussed. How do you see the industry evolving?
Lalpuria: In 2005, there will be some radical changes and then I think you'll need to review the situation.
I think we are looking for a broader base of retailers. Obviously, we would never be confident if you had only three large retailers because if you have a problem with one, you lose a big part of the market straightaway.
Altop: I think the emphasis on branding will continue in the sense that you will have high-end brands, but also the middle range will not be overlooked. In terms of the customer profile, I think both buying companies and retailers might establish some coalitions. I think everything will be more concentrated.
HTT (to Fan): Do the companies in China see the same potential for China to become the dominant player that companies elsewhere in the U.S. and the world see for it? Is that how your colleagues see it?
Fan: Not dominant. We see an opportunity to become a player.
Obaid: He's very kind, but "dominant player" is the correct term. Let's be honest about it, and why not? If you can do it right at cheap prices and good quality …
Duggal: As a company there is no doubt that we are certainly afraid of what's going to happen in 2005 because we feel that China is going to be a very dominant player. The kind of investments we hear are taking place in China are phenomenal. We are looking at the opportunity that there will be possibilities that we join hands with companies in China — probably source fabric there and processing here, give our design inputs and ship out.
HTT: So it's some of the same things U.S. companies are looking at: forging alliances and building bridges.
Fan: Yes, I hope there could be some major news about forming alliances with countries like India and Pakistan to create a marketing network. Then we can hopefully develop a healthier marketplace.
Duggal: Even from the perspective of a U.S. buyer, even if China is extremely cheap in the year 2008, why should they buy all this merchandise out of China. If Sept. 11 happened in China, what would happen then?
Fan: Right, I do not see that it would be wise for them to lay all their eggs in one country. I think it's important to have a few good sources in this country that understand this market, and that could be the possible solution.
HTT: Thank you all very much. — Edited by Brent Felgner
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