Chinese Manufacturer to Open $20 Million Garment Factory in the US

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We all know that China is the single largest supplier of textile and apparel to the U.S. market. But on Oct 20, 2016, Arkansas Gov. Asa Hutchinson announced Tianyuan Garments Company, a Chinese sport apparel manufacturer based in Suzhou, China will invest $20 million to build a new garment factory in the Little Rock area of Arkansas.

Tianyuan, founded in 1998, is a garment maker specializing in the production of casual and sport apparel, including garment for Adidas, Reebok and Armani. With five facilities in China, Tianyuan was named one of the top 100 garment companies in China in 2015. Tianyuan’s annual production rate is nearly 10 million articles and clothing. The company currently supplies 90% of the garments marketed by Adidas, which is the second-largest global sports and apparel maker behind Nike. Tianyuan was also one of several suppliers for the 2014 World Cup and for the Italian Olympic Team in 2016.  

According to the Memorandum of understanding (MOU) signed by Hutchinson and Tianyuan executives, the Chinese apparel giant will hire 400 full-time workers primarily from Arkansas within four years of starting operations in central Arkansas. It is said that these workers will be paid around $14/hour.

As part of the deal, Arkansas offers an incentive package that will include five-year, 3.9% annual tax rebate worth nearly $1.6 million annually. Other incentives include a $1 million infrastructure assistance grant for building improvements and equipment purchases, as well as a $500,000 stipend for worker training.

Arkansas will also help provide assistance in helping Tianyuan get 20 work visas for company executives who will live in Arkansas or travel between the U.S. and China on business related to the Little Rock manufacturing plant. Furthermore, the Chinese garment maker will receive abatement of up to 65% of property taxes from the city of Little Rock and Pulaski County.

Tianyuan is not the only Chinese textile and apparel company that invests in the US in recent years. Back in 2013, Keer Group, a Chinese textile company founded in 1995 and based in Zhejiang, China opened a new facility in Lancaster County, South Carolina as the base of operations for Keer Group’s expansion into the North American market. With $218 million total investment in 5 years, Keer America plans to open one plant with manufacturing capacity of 30,000 metric tons of yarn per year and another plant with 75,000 spindles to make 50 metric tons of yarns daily.

Please feel free to share your thoughts on the following discussion questions:

  1. Why do you think Tianyuan and Keer group decide to open factories in the US? Based on your research, do you think Tianyuan and Keer’s investments reflect a growing trend in the industry or are they just two individual cases?
  2. In your view, are investments made by Tianyuan and Keer group good or bad for the US economy? Why?
  3. What is the business outlook for Tianyuan’s garment factory in the US and Keer America? What are their opportunities and challenges?
  4. Any other thoughts or questions for the case?

[Discussion for this post is closed]

TPP: A Conversation with U.S. Trade Representative Michael Froman

The following summary of the event is written by Natalie Smith, a student in FASH455 Fall 2016.

  • Michael Forman continually talked about the benefits of passing the TPP during the end of Obama’s term and during the lame duck period. If the TPP is not passed during this time, the bill could sit in congress for years since the two presidential candidates are against free trade.
  • Michael Forman also mentions some outstanding issues that have surrounded the TPP. One main problem is the dairy industry, which is export and import sensitive and the need for a balance to set their needs. Additionally, the pork industry has problems with implementation, especially with Japan. There are also concerns with the financial services and data flows.
  • However, Michael Forman stated the urgency of implementing the TPP as quick as possible. If it is not implemented rapidly China has the ability to set the rules of trade. China, similar to the U.S. wants to move into the Asian Pacific market, however the TPP has different objectives then other Chinese trade agreements. The TPP has a focus on labor and environmental standards and IP standards. Although, it seems the goal is to eventually get China to join the TPP. Forman mentioned if China does not end up joining the TPP, we want them to be forced to live in a TPP world, which includes high standards.
  • Michael Forman further discusses the Trans-Atlantic Trade and Investment Partnership (T-TIP), which they hope to soon reach an agreement on with the European Union. They recently finished their thirteenth round of negotiations, the main outstanding problems with the TTIP are the uneven growth, Greek crisis, and euro skepticism. Nevertheless, the TTIP is a positive agenda item to help promote job growth in Europe.

A few things that stuck out to me from this dialogue included Forman’s belief of California being the state to benefit the most from the TPP. Currently, California exports $170 billions of goods and are strong in manufacturing, agricultural, entertainment, IP industries, etc. I also found it interesting that he continually reiterated that we have not lost jobs in the U.S. solely because of globalization but mainly because of automation.

Debate on the Trans-Pacific Partnership and the Textile and Apparel Industry: Questions from FASH455

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#1 Overall, do you think the Trans-Pacific Partnership (TPP) reflect the commercial interests of the U.S. textile industry and/or U.S. apparel industry? Why?

#2 We know that the U.S. textile industry (such as NCTO) strongly supports a strict yarn-forward RoO in TPP whereas apparel retailers and fashion brands (such as USFIA and AAFA) say the yarn-forward style RoO is outdated and unworkable for apparel companies’ global apparel supply chain.  If you were U.S. policymakers, what would you do to “balance” these two conflicting arguments?

#3 Research shows that many free trade agreements enacted in the United States are with a very low utilization rate. Will TPP face the same fate? Why or why not?

#4 It is said that TPP has the strongest protections for workers of any trade agreement in history, requiring all TPP Parties to adopt and maintain in their laws and practices the fundamental labor rights as recognized by the International Labor Organization (ILO). But why do most U.S. labor unions still oppose the agreement?

#5 Will TPP exert a negative impact on the Western Hemisphere supply chain? Why or why not? How should apparel manufacturers in the NAFTA and CAFTA-DR region respond to the potential impact of TPP, especially the intensified competition from Vietnam?

Please feel free to share your thoughts and recommend any additional articles/readings/resources relevant to the discussion. Please mention the question # in your reply.

Towards a More Inclusive Trading System

A timely, informative and intellectual discussion with Roberto Azevêdo, Director General of the World Trade Organization on the state of global trade and its governance. Some important key points during Roberto’s presentation/discussion:

  • Trade has proved to be one of the most powerful pro-growth, anti-poverty tools in history: In recent decades it has helped to lift one billion people out of poverty in developing countries. The World Bank found that income grew more than three times faster for developing countries that lowered trade barriers than for those that did not. in the US, estimates show that the gains from globalization have raised real household incomes by up to $10,000 annually.
  • Trade means more choice, lower prices and real dollar in the pocket for consumers: A joint study by UCLA and Columbia found that people with high incomes could lose up to 28% of their purchasing power if borders were closed to trade. But the poorest consumers, they could lose up to 63% of their spending power
  • Trade is imperfect: Despite the obvious overall gains, trade can have negative effects in some parts of the economy. And those effects can have a big impact on some people’s lives. But we would be betraying those very same people, and many, many more, if we turned against trade and allowed the negative arguments to go unanswered.
  • Trade protectionism is an ineffective and very expensive way of protecting jobs: In the latter part of the 20th century, the EU protected various industries — including steel, agriculture and textiles. The French economist Patrick Messerlin analyzed this approach. He found that the average cost per job saved was several hundred thousand euros, or about 10 times the corresponding wage in each of those industries. The US applied tariffs on Chinese truck tires in 2009. Around 1,200 jobs were saved, but this came at a cost of $1.1 billion in higher prices for consumers. That works out as a cost of about $900,000 per job. The Petersen Institute estimates that these higher prices also resulted in around 2,500 job losses in the tire retail sector due to slumping sales.
  • Trade protectionist solutions do not reflect the nature of the modern economy and the international nature of production: Most goods aren’t made in one country. Most exports have components which have been imported. So by restricting imports, a country can restrict its own ability to export. Trade protectionism is also a two-way street. It leads to retaliation and the domino-effect.
  • Unemployment is not strictly or mainly a trade issue, trade measures will NOT address this disorder: trade is a relatively minor cause of job losses. The evidence shows that well over 80% of job losses in advanced economies are not due to trade, but to increased productivity through technology and innovation.
  • The real economic revolution that is happening today: Studies suggest that almost 50% of existing jobs in the US are at high risk of automation. An International Labor Organization (ILO) study on Cambodia, Indonesia, Vietnam, Philippines and Thailand found that 56% of jobs are at high risk of automation. And that’s just on average. In some sectors over 80% of jobs are at risk. In Japan, there are 315 robots per 10,000 workers. In China that number is only 36 — but it is rising fast. In the US, the number is 164, which is still relatively low. But it is set to go up!

Questions for thinking:

  • How do we ensure that trade can continue to promote growth and lift people out of poverty?
  • How to RESPOND to the rising anti-trade sentiment in public discourse? Is trade protectionism the right approach?
  • How to ensure that the benefits of trade reach further and wider– in other words, how to create a more inclusive global trading system? How to harness the power of e-commerce to support inclusiveness?
  • How do we help small and medium sized enterprises (SMEs) to leverage technology so that this marketplace doesn’t just become the preserve of the big players?
  • How can the trading system adjust to the shift from a world of few, large, known exporters to a world in which exporters are many, small and unknown? How can we ensure that this transition works for consumers?

Rana Plaza Case Study: Discussion Questions from FASH455

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#1 How shall we describe the relationship between the Alliance and the Accord? Are they collaborators or competitors? Do you think the Alliance and the Accord can join forces?

#2 How many inspectors are “enough” for Bangladesh? The case study mentions that the Alliance and the Accord are observing around 2,000 factories, but how about the other 3,000 in Bangladesh? And how about those unknown and “undocumented” factories, where the working conditions could be even worse?

#3 Do Western fashion brands genuinely care about what is happening in the Bangladeshi garment factories? Or do they actually care about their own interests—profit, public image and reputation among consumers?

#4 What has made Western fashion brands stay in Bangladesh after the Rana Plaza tragedy instead of moving their sourcing orders to other Asian countries in the area such as Cambodia and Vietnam?

#5 How transparent should be companies’ supply chain? Should fashion brands be required to disclose more supply chain information—such as where their products were made and who made them? What could be the difficulty of enforcing a more transparent apparel supply chain?

#6 In addition to more frequent inspections, what other measures can be taken to improve social responsibility practices in the garment industry?  

#7 Three years after the Rana Plaza, are you satisfied with the changes that have happened in Bangladesh? What major social responsibility problems in the Bangladeshi garment industry remain unsolved?

[Please feel free to join our online discussion. For the purpose of convenience, please mention the question # in your reply/comment.]