Eclat Textile may instead invest in Indonesia or Cambodia
Clients don’t want production bases in one country: Chairman
The new normal of global trade is that there are few safe harbors.
That’s the lesson Eclat Textile Co. is learning. The sportswear supplier to Nike Inc. and Lululemon Athletica Inc. exited China in 2016 as conditions weren’t ideal for manufacturing, deciding instead to bulk up in Vietnam. Now, as the global trade war heats up, Eclat finds itself vulnerable again and needs to move beyond Vietnam. Cindy Wang reports on Bloomberg.
“Judging from the global situation, the most important thing now is diversification,” Chairman Hung Cheng-hai said in an interview. “Clients also want us to diversify risks and don’t want production bases to be in one country. Now 50% of our garments are made in Vietnam, so we are not diversified enough.”
Hung Cheng-hai @ Bloomberg
According to Bloomberg, heightened trade tensions between the U.S. and China have disrupted global supply lines, forcing companies to pivot production out of the Asian nation and into other countries such as Taiwan, Vietnam and Bangladesh. But with Donald Trump hardening his stance on Vietnam, calling it the biggest trade abuser and slapping higher import duties on steel, firms are realizing that no nation is tariff-proof enough to serve as a global supply hub.
Eclat is now looking to set up multiple, smaller regional manufacturing hubs that can be nimble in servicing clients. The textile maker won’t consider adding plants or expanding in Vietnam in the next three years, Hung says.
The company instead will invest in new facilities in Southeast Asian nations such as Indonesia or Cambodia. It expects to invest $80 million in setting up 120 production lines in the region, with the board deciding specific locations later this year, Hung says.
Plan B
Although the U.S. and China have resumed talks on a deal, there are growing signs that the global supply chain — long reliant on China as the workshop to the world — is being permanently transformed. Intel Corp. has said it’s reviewing its global supply chain, while Apple Inc. and Amazon.com Inc. are among those reportedly working on a Plan B.
But the rush to nearby Asian nations is also reaching a saturation point. “Vietnam, for example, is full, completely full,” Spencer Fung, chief executive officer of Li & Fung Ltd., the world’s largest supplier of consumer goods, told Bloomberg earlier this month.
Read more: Footwear giants shift outsourcing from China to Vietnam
Eclat escaped the hit of higher U.S. tariffs because it shut its Chinese facility in 2016 due to a shortage of local manpower. “The era of ‘Made in China’ was over five years back,” because the young Chinese workers — products of the ‘One Child Policy’ — no longer like working in a factory, according to Hung. “We will be cautious about investing in China and won’t invest in labor-intensive businesses.”
A dispersed supply chain will lower any potential tariff risks for Eclat and may even help lower costs in the long term, according to Rae Hsing, an analyst at Cathay Securities in Taipei who has a neutral rating on the textile firm.
Eclat’s strategy seems to be working, with the company reporting a 44% rise in profit for 2018 compared with a year earlier. Its stock has gained 13% this year.
Hung sees flexibility as key. For example, tariff-related uncertainty has made it difficult for clients to plan their supply-chain requirements, causing them to be more conservative in placing orders. Eclat has adapted by moving faster to deliver orders. That willingness to be flexible will help the company take any further surprises in stride.
“If this is worrisome, then we need to worry about investing in India or Mexico as well,” he said. “Then, there is no end of worrying.”
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