Taiwan Textile Makers Diversify Overseas to Counter Rising Competition

Mounting competition from mainland China and Southeast Asia has caused a sharp shrinkage in Taiwan's textile industry, especially following the cancellation this year of the Multi-Fiber Agreement of global textile quotas.

Some of the big manufacturers, including the Makalot Industrial Co., Tainan Enterprise Co., and Roo Hsing Garment Co., are planning a further contraction of their operations in Taiwan this year. Makalot has even decided to close down production at its plant in Chiayi, southern Taiwan, entirely, and convert the facility into an R&D center.

In the first half of this year Tainan Enterprise cut the workforce at its two southern Taiwan plants, one in Tainan and one in Pingtung, by more than 100 persons each. Roo Hsing recently slashed the monthly output of its northern Taiwan plant (in Chunan) from 20,000 dozen to just 5,000 dozen.

In the golden years of Taiwan's textile industry, Tainan Enterprise operated three domestic plans with a total of more than 3,000 workers. Today its Taiwan work force is just one-tenth that number. Roo Hsing's work force has shrunk from more than 500 to about 100.

Domestic textile manufacturers began moving offshore about a decade ago, when the exchange rate of the New Taiwan dollar against the U.S. dollar soared from the original NT$40:US$1 to NT$26:US$1. Manufacturers who stayed put at that time seem to have changed their minds now because Taiwan's production costs are so much higher than those in China and Southeast Asia.

Forced Cuts

Emely Yang, general manager of Tainan Enterprise, laments that the company had no choice but to close down its historical plant in Kaohsiung about three years ago, and that recently further reductions at its two remaining Taiwan plants have been necessary to reduce costs and cut losses.

Yang believes that to survive, the island's garment makers will have to streamline their operations and focus on making multifunctional high-end products while engaging in name-brand operations. Her own company has become increasingly involved with branded products, she says, and the trend is expected to continue.

Thanks to their efforts to attract more buyers, some of Taiwan's garment suppliers have received increased orders for the fourth quarter. The annual growth in orders for that three-month period is expected to reach 50% for Makalot, 20% for Tainan Enterprise, and 10-20% for Roo Hsing. But there is a downside to this happy development: price quotations have been forced downward. For the full year, industry insiders predict, prices will be down by 5% to 15%.

Gap Inc. the largest American specialty clothing retailer, used to take 30-40% of Tainan Enterprise's exports but switched its orders to Eastern Europe when the global textile quota system was scrapped. This will bring a 7-10% reduction in orders received by Tainan Enterprise for all of this year.

This has prompted the manufacturer to diversify its sales efforts to more brand manufacturers, including Liz Claiborne, New Man, and Old Navy. Thanks to such forays into the brand-name business, the company expects a growth of around 20% in the fourth quarter.

In June alone, Makalot's revenues skyrocketed by 63% from the same month of 2004 to reach NT$1.05 billion (US$30.88 million at NT$34:US$1). The company conservatively estimates that its revenues, profits, and orders will expand by 30%, 20%, and 10%, respectively, this year.

Makalot, which believes that price-not quality-is the key to profit, is expecting its prices for the fourth quarter drop by 10-15% from the level of the second and third quarters, while volume is expected to jump by 50%. This robust fourth-quarter growth may boost revenues for the whole year through the NT$10 billion (US$294.1 million) mark.

Orders Up, Prices Down

Roo Hsing expects a growth of 10-20% in orders received in the fourth quarter, while prices are predicted by drop by 5-15%. To cope with falling prices the company has boosted production overseas. Its plant in Cambodia is now its main production base for knit-woven garments, including trousers, pants, skirts, blouses, shirts, and pajamas. The volume of monthly production at the plant is likely to double in the fourth quarter, to 100,000 dozen garments.

Not everybody is giving in to the difficult manufacturing environment in Taiwan. One of the holdouts is the Li Peng Enterprise Co., a leading nylon filament maker, which has decided to spend NT$800 million (US$23.53 million) by the end of the year to expand its production on the island. Completion of the project in early 2007 will boost Li Peng's daily output of nylon filament to 300 tons, making the plant the largest of its kind in the world.

The company already invested NT$1.2 billion (US$35.29 million) in three new lines with a daily production of 100 tons each early this year. After all of the expansions are finished, Li Peng will account for 40% of Taiwan's nylon filament production.

This continues a rapid growth that saw Li Peng's capacity grow four times over the past five years. The firm's chairman, Kuo Shao-yi, says that this success is due to its first-class management team, good cost control, and skill in designing manufacturing processes.