Meeting the increasing demands of apparel companies for speed and quality has forced suppliers to reexamine their business strategies, with a focus on providing additional services to their clients.
John Cheh, vice chairman and chief operating officer of Esquel China Holdings, was the only speaker at this year’s summit representing suppliers. His advice for sourcing executives centered on finding suppliers that could provide more than speed and reliability. Value, said Cheh, should be what sourcing executives seek out.
“You really want to have suppliers with whom you can build a relationship that allows you to sleep at night,” said Cheh.
Hong Kong-based Esquel, for example, produces 65 million cotton tops a year and employes 45,000 workers. Two-thirds of those workers are located in China, said Cheh. The remaining one-third are located throughout Asia — in Malaysia, Vietnam, Sri Lanka and Mauritius — providing Esquel with the ability to respond to changes in global sourcing.
“What this does is allow us to meet a changing trade environment,” said Cheh.
As a vertical operation, Esquel has the advantage of controlling everything from cotton farming to production. Cotton farming, in particular, has proven crucial to controlling costs.
“We gin 80 percent of the extra-long staple cotton that we use, which means we can set in very high quality standards, have assurance of supply and then we move that cotton into our own spinning mills,” said Cheh.
That said, Esquel uses more ELS cotton than it can produce, which means importing cotton from the U.S. Other Chinese suppliers also have high demands for cotton and consequently, the price has increased.
Organic cotton has become another key market segment Esquel is preparing to supply. Esquel has started stocking organic cotton and is already manufacturing organic blends for Nike, Marks & Spencer and Nordstrom.
“We think it’s for real, that’s why we are doing research and development on organic farming,” said Cheh. “We have 200 tons in stock.”
The cost of raw organic cotton is 50 percent more expensive than traditional cotton, said Cheh. Once it’s blended, the price increase is between 5 and 10 percent.
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China is also facing considerable political pressure to revalue its currency, which Cheh warned will have an impact on the Chinese sourcing market. A revaluation, said Cheh, is a certainty, “The question is, at what pace and how much.”
The Chinese government will likely implement smaller changes at a gradual pace, eventually driving costs up and squeezing out some players.
“Some will not cut it,” he said. “It’s a case of consolidation. It’s a case of moving up market because the commodity products will migrate out of China and you have to go to the higher end. From that point of view, certain players will win and certain players will no longer be there and you can’t hedge against that.”