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An Asian perspective
Feature: 3/6/2004

John Walker threads his way through the labyrinth

Speaking again at the recent ASBCI conference, Unifi chairman John Walker, who lives and works in Hong Kong, presented an overview of the factors that influenced his company’s decision to commit to the Asian market – and China in particular (News, Thursday 03 June).

“When Unifi made the decision to move to Asia – to participate in the world of polyester – we knew we needed to be there but we were not exactly sure what businesses we needed to be in”, he said.

“Questions we kept asking ourselves were: Should we purchase assets? Should we joint venture or go it alone? Or should we license our technology? All this was with one country in mind – China”.

Acknowledging that these are fairly common questions for any Western company that may be contemplating a move into China today, he explained that what Unifi decided to do initially was to establish a commercial presence in Hong Kong and work from that base to identify the long term business opportunities.

“Our logic was that we needed to be on the ground in Hong Kong and China to get an accurate feel for what the opportunities really are”, he said.

Logical move
“For a synthetic fibre producer like Unifi, moving into Asia was a logical move. And as the demand globally for polyester filament has grown, the majority of world production has shifted to Asia – with China alone accounting for 44 percent of the world’s production of polyester filament.

“As our customer base in Europe and the US began to diminish, we realised we needed a plan to establish ourselves in the world’s new growth markets”, John Walker said.

“The graph illustrates the yearly production of polyester filament by region – what we have witnessed since the mid 90s is a migration of fabric and garment production to Asia. As our customer base in Europe and the US began to diminish – we realised we needed a plan to establish ourselves in the world’s new growth markets.

“Within Asia – China leads in terms of polyester production with an annual production growth rate of 9 percent – followed closely by India at 8 percent. The Far East, which we classify as Japan, Taiwan and Korea, have flat growth rates while the rest of the world has growth rates of between 2-3 percent.

“Polyester polymer and texturing technology has matured rapidly over the past few years – the polyester of today is very different from the Crimplene that ICI Fibres created and coined money with in the 60s, 70s and early 80s. Unlike natural fibres, the versatility of polyester is limited only by creativity and its boundaries have yet to be tapped. It is no wonder why polyester is now the fastest growing fibre in the world.

“Today, in our industry, China is the main topic of all conversations”, John Walker stressed.

Textile investment
“There is a very good reason why everyone is talking about China in terms of investment. In 2003 investments in the textile industry were up 88 percent on 2002 – over US$25 billion flowed into new textile investment in China, 4,584 new projects were approved and started. I would image that new investments in 2004 will exceed the 25 billion invested in 2003”, he said.

“Recently I was in Shaoxing, a city of four million people in Zhejiang Province. Shaoxing is a model city as far as textile production is concerned, with a major emphasis on polyester.

- 10 percent of all textiles and garments produced in China are produced in Shaoxing.

- 33 percent of all printed fabrics produced in China are produced in Shaoxing.

- 50 percent of all China’s fabric exports are shipped out of the Shaoxing area.

“When in Shaoxing we visited a number of vertical groups, from polycondensation through to finished garments. One mill, Tianlong, is a six year old manufacturing group, finishing 1.4 million metres of fabric a day in solid colours and prints; another, China South, is dyeing and printing one million metres a day – it just goes on and on and it’s mind boggling!

“During the past five years in China, on average each year 650,000 hectares of farm land has been converted to industrial manufacturing space.

“If we look at fibres in terms of tonnes produced, in 2003 total world wide production equalled 57.4 million tonnes, which represented a 3.9 percent growth rate over 2002.

“China produced 32 percent of the world’s total fibre production with a growth rate of 6.3 percent over year 2002.

“If we look into actual segments within the textile fibre chain, China is most dominant in polyester with a 41 percent market share, filament and staple. China also has a 28 percent market share in both the cotton and wool categories, and has 17 percent of all nylon production.

“I would anticipate that by year 2006 China’s share of the world’s fibre production will be well in excess of 60 percent”, John Walker said.

Capacity growth
“Although polyester consumption has grown impressively in China and Asia, capacity growth has out paced consumption leading to utilisation rates below 80 percent since 1997 and severe price deflation – especially for commodity polyester yarns.

“In terms of textured polyester we expect capacity utilisation rates to increase to close to 89 percent by the end of 2005. One would expect this to lead to margin improvement within this segment and new investment will once again commence.

“We are the only textured yarn producer in the world with the capability to produce product on four different continents. This gives us the ability to supply our customers with the same specifications wherever in the world they chose to source their fabrics and garments.

“Unifi’s global footprint and product innovation offers real opportunities to shorten the development cycle through our relationships with many of the major global sourcing companies – Li & Fung, Colby, William E Connor, Mast Industries and a new sourcing group Unimatrix”.

John Walker explained the importance of being well positioned in the world’s key consumer markets, while having sourcing and manufacturing locations in the world’s major production centres. And having decided to move into Asia, over the past two and a half years Unifi has learned a lot.

Competitive market
“Most important – we have learned that to emerge in this incredibly competitive market today, suppliers must find a way to create relevance beyond their products”, he said. “They must find a way to become connected with their customers to show them that they understand their customers markets, their customer’s customers, and their customer’s business.

“From a Unifi perspective we have done two things primarily. We have expanded our global footprint to include Asia, which now allows us to supply the ever growing portion of our customers’ business that is sourced from Asia.

“And we have helped to launch Unimatrix and in turn created a strategic alliance with this new and innovative sourcing company in an effort to drive innovation and to help shorten the total supply chain process”.

He explained that Unifi worked for twenty months on a joint venture with a State Owned Polyester Enterprise. “We had to terminate the very advanced negotiations when the Bank of China, at the last minute, decided that they would not write off substantial loans made to the State Owned Enterprise – which for twelve months they had said they would.

“Joint ventures are not easy unless you find the right partner, wherever they may be. They are not easy to find”, he added.

China post 2005 will be a formidable competitor for all major apparel producing countries, John Walker said.

“They will be extremely difficult to compete against on price, quality and delivery. They know that lead times will have to be reduced from 90 days to 60 days to 45 days and then to 30 days.

“They will do what needs to be done to completely dominate the global apparel business. China is unstoppable”, he concluded.

Based on a paper presented by John Walker of Unifi to the ASBCI Annual Conference, held at the Hanover Hotel in Hinckley in May 2004.
Author: John Gibbon
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