TEXHONG TEXTILE Group Ltd (HK: 2678) is reaping what it sews -- in a good way – thanks to a decision early on to invest 80 mln usd in Vietnam-based production.
CFO Mr. Charles Hui told NextInsight, Aries Consulting and several Greater China fund managers last week that the company still has its core manufacturing operations in the Yangtze River Delta, but that is has now grown to become a major yarn producer in Vietnam.
The Shanghai-based firm, which listed in Hong Kong in 2004, now operates a dozen production bases across China and one in Dong Nai, Vietnam.
Established in 1997, Texhong (www.texhong.com) is one of the world’s largest suppliers of cotton/spandex yarn in the world, specializing in the production and trade of high value-added cotton fashion yarn and fabrics and included in the prestigious China Top 10 cotton textiles industry enterprises list.
The Chinese firm has sales last year of over four bln yuan, a scale which is necessary to respond to changes in the market place and coordinate production capacity accordingly.
In fact, scale and having the financial capability to move quickly to meet both short and long term orders with different specifications and changing styles and fashions is one of the core strengths of Texhong.
To this end, it has a massive 1.3 mln square meters of combined facility space, with yarn production accounting for 78% of sales last year.
The company devotes 60% of its production to cotton/spandex products by a team of 14,800 workers and technicians, all serving over 1,000 clients at home and abroad.
Expanding with Spandex
"Spandex is a big breadwinner for us and our Vietnam production is a big part of that success,” said CFO Mr. Charles Hui.
Having gotten into Vietnam early in the game, Texhong had built up strong relationships with local officials and had grown to become a major cotton/spandex producer in the Southeast Asian country.
This accomplishment was critical in justifying Texhong’s substantial investment to date in Vietnam – 80 mln usd.
“We are valued in Vietnam because we export all of our output to China and face no tariffs, thanks to ASEAN agreements. And the Vietnamese authorities prefer us to have high-end, value-added production, rather than lower-skilled mass production, even though the latter type would employ more workers.
“Like all countries, Vietnam wants to move up the production gradient and the government there will actually reject low-end production investment even if it promises to employ lots of workers. We export everything we produce in Vietnam to garment factories back in China. And being heavily reliant on outside production, we have developed good relations with government officials in Vietnam,” Mr. Hui said.
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However, there were some differences between producing at home versus abroad that had to be ironed out for fabric firms.
“Generally speaking, we have seen that Chinese workers are more willing to put in overtime, whereas our workers offshore are more keen on sticking to 8-hour days. It took about two years to inculcate Chinese management and work ethics into our Vietnamese managers and workers. Things are going very well now and Vietnam will continue to be the focus of our offshore production expansion plans.”
Homespun
Texhong, as a Chinese firm, still had the bulk of its capacity in the PRC.
And the economic crisis of 2008 and stretching into 2009, while hitting a lot of export-reliant fabric makers hard across China, presented Texhong with a wealth of opportunity due to its relative efficiency and maneuverability.
“The textile industry is very competitive in China, and we vie with our competitors for the select big fish/big ticket orders. However, most of our orders are smaller, short-term varieties, so the key is to have many clients and many orders to keep cash flow vibrant all year round."
Mr. Hui said he saw no end in sight to healthy economic growth in its most important market – China, and that this would carry Texhong for years to come.
“China is getting richer and richer. Even for me, a Hong Konger, when I was a boy, getting a new pair of pants and a new shirt at New Year was a huge deal. Now in China this is sometimes a monthly ritual for many people.”
He also said that Beijing’s chronic worry about overcapacity in some sectors, including textiles, was proving a benefit for Texhong.
“China is taking measures to control capacity expansion in textiles, but they are mainly closing down inefficient producers so we are mainly unaffected and our Vietnam production is unaffected.
“Of course we have competition, but we believe we are the most efficient, full-service manufacturer and supplier."
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