Tue, Jul 16, 2019 - Page 11 News List

Nike supplier pivots away from Vietnam after exiting China

Bloomberg

Eclat Textile Co chairman and chief executive officer Hung Cheng-hai speaks during an interview in Taipei on Monday last week.

Photo: Bloomberg

The new normal of global trade is that there are few safe harbors.

That is the lesson that Eclat Textile Co (儒鴻) is learning. The sportswear supplier to Nike Inc and Lululemon Athletica Inc exited China in 2016 as conditions were not 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.

“Judging from the global situation, the most important thing now is diversification,” chairman Hung Cheng-hai (洪鎮海) said in an interview. “Clients also want us to diversify risks and don’t want production bases to be in one country. Now, 50 percent of our garments are made in Vietnam, so we are not diversified enough.”

Heightened trade tensions between the US 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.

However, with US President 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 looking to set up multiple, smaller regional hubs that can be nimble in servicing clients.

The textile maker would not consider adding plants or expanding in Vietnam over the next three years, Hung said.

The company would instead invest in new facilities in Southeast Asian nations such as Indonesia or Cambodia.

It expects to invest US$80 million in setting up 120 production lines in the region, with the board deciding specific locations later this year, Hung said.

Eclat is ahead of its peers in terms of diversification, giving it a “competitive advantage in the supply chain” and boding well for its long-term future, Daiwa-Cathay Capital Markets Co (大和國泰證券) analyst Helen Chien (簡君穎) said.

The company escaped the hit of higher US tariffs because it shut its Chinese facility in 2016 due to a shortage of local workers.

“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, Hung said.

“We will be cautious about investing in China and won’t invest in labor-intensive businesses,” he added.

A dispersed supply chain would lower any tariff risks for Eclat and might even help lower costs in the long term, said Cathay Securities Co (國泰證券) analyst Rae Hsing (邢雅蕾), who has a neutral rating on the textile firm.

Eclat’s strategy seems to be working, with the firm reporting a 44 percent rise in profit for last year compared with a year earlier. Eclat shares yesterday advanced 3.46 percent to NT$403.5 and have gained 15.95 percent 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 on delivering orders. That willingness to be flexible would 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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