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The new normality of world trade is that there are few safe ports.
This is the lesson that Eclat Textile Co. learns. Sportswear supplier Nike Inc. and Lululemon Athletica Inc. left China in 2016, the production conditions were not ideal, so it was decided to strengthen its activities in Vietnam. Now, as the global trade war heats up, Eclat is once again vulnerable and must go beyond Vietnam.
"Judging by the global situation, the most important is now diversification," said President Hung Cheng-hai in an interview. "Customers also want us to diversify risk and not want production bases in a country. Now, 50% of our clothes are made in Vietnam, so we are not diversified enough. "
Increased trade tensions between the United States and China have disrupted global supply lines, forcing companies to rotate their production outside the Asian nation and in other countries such as Taiwan, Vietnam and China. Bangladesh. However, as Donald Trump hardens his stance on Vietnam, calling him the biggest abuser of trade and imposing higher tariffs on steel imports, companies are finding that no country is sufficiently tariff-resistant to serve as a global sourcing center.
Eclat is now looking to set up several smaller regional manufacturing centers, which can be nimble to serve customers. The textile maker will not consider adding plants or expanding in Vietnam in the next three years, Hung said.
The company will instead invest in new facilities in countries in Southeast Asia such as Indonesia or Cambodia. It plans to invest $ 80 million to set up 120 production lines in the region. The board of directors will decide on specific locations later this year, Hung said.
Eclat shares rose 3.5% on Monday, their biggest gain in more than two months, exceeding the 0.5% rise in Taiwan's Taiex benchmark.
Eclat is ahead of its competitors in terms of diversification, which gives it a "competitive advantage in the supply chain" and a good prediction of its future, said Helen Chien, an badyst at Daiwa, based in Taipei.
Plan B
Although the United States and China have resumed negotiations on an agreement, more and more evidence is showing that the global supply chain – which has long depended on China as a "foreign exchange" – has been a major source of revenue. workshop of the world – is changing permanently. Intel Corp. said it was reviewing its global supply chain, while Apple Inc. and Amazon.com Inc. would be among those working on Plan B.
But the rush to neighboring Asian countries is also reaching a saturation point. "Vietnam, for example, is full, completely full," Bloomberg earlier this month told Spencer Fung, chief executive officer of Li & Fung Ltd., the world's largest consumer goods company.
Eclat escaped rising US tariffs because it closed its Chinese facilities in 2016 due to a shortage of local labor. "The era of Made in China goes back more than five years," because young Chinese workers, products of "child policy," no longer look like work in a factory, according to Hung. "We will exercise caution before investing in China and will not invest in labor-intensive activities."
Rae Hsing, an badyst at Cathay Securities in Taipei, says that a neutral supply chain rating for the textile company means that a dispersed supply chain will reduce potential tariff risks for Eclat and could even help reduce long-term costs. .
Eclat's strategy seems to be paying off: the company recorded a 44% increase in profits in 2018 compared to the previous year. His stock has gained 13% this year.
Hung sees flexibility as the key. For example, pricing uncertainty made it difficult for customers to plan their supply chain needs, which led them to be more cautious in their orders. Eclat is suitable by going faster to deliver orders. This desire for flexibility will help the company to overcome all its surprises.
"If this is worrying, we must also be concerned about investing in India or Mexico," he said. "Then there is no end of worry."
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