Q: Are all these projections about massive increases in China garment exports right, or way off base?
A: Just to throw out a few statistics, China was exporting US$2 billion in 1980, by 1990 it was up to US$20 billion, and last year it was up to $52 billion so it's been very dramatic. And not just exports about 1980, the domestic textile business was about US$10 billion. Then in 1983, when [China] took textiles off rationing, like a phoenix from the ashes, the fashion industry started to boom. Today it's about US$65 billion. The two together make China about 25% of worldwide garment production. So it's pretty stupendous. Quotas forced companies to set up in countries they wouldn't normally set up in and if you talk with some of the major apparel companies, retailers and brand names, they're talking about cutting the number of countries they source from to pretty much half. JC Penney sources in about 50 countries because of quotas and they will cut that back to 25. Liz Claiborne sources in over 30; they intend to drop that number by half. Almost everybody is going to cut the number of countries by half.
Q: So a lot of consolidation?
A: When you talk about countries, you're really talking about companies, of course. These companies will consolidate into countries they find most efficient and that's related to both infrastructure getting in and out of ports and it relates to countries that have good textile or cotton foundations, like China, India, Pakistan, Turkey, because you can turn textile into apparel and each one is added value. The more you can add value the better.
Q: How many countries are we talking about?
A: About 10 countries will be real winners out of 40 countries today. There are about 100 [apparel-making] countries altogether, but only about 40 that have any meaning, and by that, I mean they have exports approaching US$1 billion. World trade in apparel was just over US$200 billion of which China had US$52 billion.
Q: When do we go from 40 to 10?
A: In 2005. It's already beginning to happen. Turkey has already gone up to over US$11 billion from US$8 billion the year before. Their growth, of course, is driven by the land bridge to Europe. Two thirds of their exports go to Germany where there are about 2 million people of ethnic Turkish origin, so their links are very close.
India will be another winner. India's exports are now up to US$6 billion textiles and US$6 billion garments from US$4 billion. The government brought down duties on imported equipment from 50% to 10% [and revised rules restricting companies to 500 employees] and they allowed foreign investment. Well who invests? It's very interesting: it's the non-resident Indians, the NRIs in the Gulf with apparel factories, in the UK, believe it or not, with apparel factories, in Africa with apparel factories. They will be the guys who will stimulate growth which is exactly what happened with China when the Hong Kong companies started to invest in the early 80s. The government has projected, and this may be a bit wishful thinking, that India will get to US$50 billion in apparel and textiles by 2010. When some Indians laugh at this as [so much] government talk, I say, let me tell you what happened in China.
Q: So if other countries are growing at this pace, what is China doing?
A: China is taking what I would call a steady approach. During the Asian crisis of 1997- 98, they flattened out and for three years in a row, they did just about US$30 billion. Then [in 2001], exports jumped to US$36 billion, and then the year after that, US$40 billion and then this last year US$52. A lot of that was driven by Hong Kong and Japanese companies. But in the meantime, a lot of Chinese owned companies started to grow into this area, some focused on export, some partly export, partly domestic, and now there are some very big domestic companies.
About a third of the industry is still in government hands. A substantial part of the apparel industry has been privatized. A lot of the textile industry up in the north still needs to be privatized. The further south you go, you see more momentum to privatize or see new companies just springing up.
So the Chinese companies have been growing and investing. To encourage that, we've done a lot of work on the infrastructure side, working with the universities donating software to help set up design centers in the apparel sections so that people come out of college [familiar] with automation in the design area. And, of course, that has helped the industry embrace automation. For us, China is the second largest market after the US.
Q: When will it be your largest?
A: My guess is, within two to three years. China has about 40,000 companies and that number could consolidate to 30,000 but I would be happy with half that. Consolidation helps us because the bigger the operation, the more it needs to automate.