The First One To Set Up Factories In The United States, How Did This Cotton Leading Enterprise Fare Under The Trade Friction?

With the increasing trade friction between China and the United States, industry experts believe that the US will be more stringent in approving future investment in China, which also encourages entrepreneurs to be more prudent in considering investment in the US, and at the same time, driving some of the investment to Southeast Asian countries. This will also have a great impact on the shrinking American textile and garment industry.

As early as the end of 2013, the Cole group of Zhejiang's leading cotton textile enterprise (hereinafter referred to as "Cole") announced that it opened its first overseas factory in Lancaster County, South Carolina, with a total investment of US $218 million. Because of this, Cole group has become the first Chinese textile enterprise to set up factories in the United States.

In the past, the spinning mill was once the epitome of large-scale low labor cost manufacturing. There was a clear dividing line between high cost and low cost manufacturing countries. Now, this clear line has begun to blur. The establishment of textile factories in the United States is just a vague part of this line.

Unlike the high-tech companies such as HUAWEI and Lenovo, China's textile industry has been regarded as the leader of the low end capacity transfer for many years, and it is common to transfer to Vietnam, India and Indonesia.

So why did Cole Group invest in the United States that year? How are the benefits nowadays? Under the background of Sino US trade friction, is it feasible for textile enterprises to invest and build factories in the US?

Settled in South Carolina to promote its textile industry reborn

Lancaster County, South Carolina, used to be a famous textile industry in the United States. Spinning is the traditional industry in the locals. During the heyday, the "textile industry corridor" composed of two counties in Lancaster and surrounding counties gathered 20 textile enterprises, but the local textile enterprises shut down in 2008 after the financial crisis. As Cole Group invested 218 million US dollars to build factories in the region, the "textile industry corridor" was once again revitalized.

Keith Tenel, director of Lancaster merchants Bureau, said that the county took the "textile technology corridor" as a selling point for investment promotion, and the Cole group brought hope to the revival of the local textile industry.

Because of the benchmarking effect of Cole group, its investment behavior has also led some other textile enterprises in China and India to go. Shortly after Cole started work in South Carolina, a printing and dyeing factory and a cotton mill decided to settle near it. In the neighbouring County Chester County of Lancaster County, Cixi Jiangnan Chemical Fiber Co., Ltd. also invested in the construction of a $45 million factory, producing recycled polyester bottles with recycled plastic bottles. At present, many Chinese enterprises have invested in South Carolina, and China has become the second largest source of investment in the state.

In 2015, Cole group's local spinning factory started trial operation. In the 21 thousand and 400 square meter spinning mill, huge machines can remove cotton seeds and dust, send them to carding machines, carding machines, and then grow them into long coarse cotton, then workers put sliver into spinning machines and spin them into a roll of yarn. The factory makes use of the advantages of South Carolina located in the center of the cotton producing area of the United States to produce industrial cotton yarn. Part of the product is shipped back to China for sale, and the other part is supplied to the local and peripheral markets of the United States.

Referring to the reasons why Cole chose to set up factories in the United States, Huang Guogang, the group leader, once said, "the United States is the third largest cotton producing country in the world, and the largest exporter of cotton in the world, with rich cotton resources. The price difference between local cotton prices and domestic cotton prices is about 5000 yuan per ton. Although manpower in the United States is much higher than that in China, on average, the annual raw material of cotton can be saved by 750 million yuan. Obviously, the manpower cost advantage of our country can no longer offset other cost considerations.

Not only raw materials, local electricity costs, land costs are also one of the advantages. Wang Ke, director of the Cole plant, said that the electricity charge of South Carolina is more than half of that of China, and that of cotton is nearly half of that. The cost of land is low. We bought 880 acres of land in the United States, less than 10 thousand dollars per mu, and chose a better location. If the geographical requirement is not high, it can also be given free of charge, and the cost of financing in the United States is low.

Open the US market and make the product profitable.

Data from the International Federation of textile manufacturers show that the cost of spinning industry in China is 30% higher than that in the United States. At present, Cole enjoys preferential policies of tax relief and labor subsidies in the American spinning mill. It is understood that 100% of the spinning mills use local cotton and cotton has corresponding subsidies.

At present, Cole can achieve automatic production in the American spinning mill. 32 production lines can produce about 85 tons of yarn per day. After several years of development, now Cole's products are sold locally, and the 70%~80% products are more effective.

Looking back at the bold venture to invest in the US, Zhu Shanqing, chairman of Cole group, said: "when we went out, we wanted to find a bigger market and platform. We calculated an account. The US cotton yarn has no quota restrictions, and it costs less to intersect the domestic market. However, due to the lack of understanding of the market at the beginning, the measures taken were made in the United States and sold to the domestic market. Fortunately, through the accumulation and development of these years, we slowly opened the US market. The products currently produced have 70%~80% sold locally. The advantage is that the cost is lower while the price is higher and the profit space is bigger. Now that our two phase of the new workshop has not been formally put into production, it has already been in short supply, and the business has placed an order a few months ago. Now it is right for us to go out to invest.

Is it competitive for Chinese textile companies to invest and build factories in the US? In this regard, Cole practices real knowledge. "After we went to invest, we found that airspinning is not very competitive in the US market, but on the contrary, the energy consumption of the ring spinning is large and the technology is complex. The most important thing is that there are lots of jobs. There are few factories in the United States, mainly imported from China, Vietnam and South America. So our second workshop is targeted and replaced by ring spinning according to the needs of the US market. In order to avoid the high cost of using personnel, we adopt the most advanced and newest whole process automation production equipment in the world to increase production efficiency and improve product quality, so we still have confidence in the ring spinning. Zhu Shanqing said.

With regard to the domestic textile enterprises' "going out", the industry experts believe that there are mainly two modes for Chinese textile and garment enterprises to invest abroad, one is the layout mode of manufacturing bases, that is, to invest and build factories and produce locally. This mode is mainly located in Southeast Asia and South Asia. For example, Chinese enterprises invested 2 million 500 thousand spindles in Vietnam, and 70% of garment factories in Kampuchea were invested by China. The other is the value chain integration mode, which extends and controls the raw material resources, R & D resources, brand resources and market channel resources at the two ends of the industrial chain through mergers and acquisitions.

The main driving force for Chinese enterprises to invest in the United States lies in the legal policies, tax and trade policies of the destination countries. "China's textile and apparel industry does not invest a lot in the United States, but it is also representative." Experts say, for example, Cole group set up a spinning factory in South Carolina by using the preferential investment policy of South Carolina, and Suzhou Tianyuan Garments Co., Ltd., the largest supplier of China Adidas, invested 20 million US dollars in Arkansas, mainly to build a fully automated and intelligent clothing factory.

Trade friction makes textile enterprises more prudent in investment

Unlike a few years ago, today's complex international trading environment has made it more prudent for textile companies to invest abroad. But for Cole group, investment in America a few years ago is also a challenge and opportunity coexist.

For example, the problem of poor labor cost has always existed, and the annual price difference of each employee is less than 160 thousand yuan. In the United States, the construction cost of the factory building is even higher, the domestic market is 1500 yuan / square, the United States is nearly 4000 yuan / square, and the visa is difficult to run. We want to send some technology installation and management personnel in the past, but the United States requires that the workers in the United States can not complete the work visa, only if the language is not clear, only 0.9% of the American people can speak Chinese, and gather in developed areas such as California, where there are problems in communication, and the cost of recruiting people is very high. Zhu Shanqing said.

In this regard, experts believe that the main problems to be noted in the investment process of Chinese enterprises are cultural issues and localization of the workforce. If you invest in the United States or Europe, you need to pay attention to cultural differences, because this will lead to different thinking modes. Communication will be time-consuming and difficult. Problems and misunderstandings may be encountered in the process of investment mergers and acquisitions. And in the production process after investment, we also need to consider the local situation to operate, otherwise it may lead to investment failure.

So what are the advantages of investing in the us today? Lin Xinwei, who has introduced a number of textile companies to South Carolina to build factories and now works as a Chinese investment promoter for Georgia, said that according to his observation, the cost of manufacturing production in the US in 2009 was about 12 times that of China, and it was narrowed to 5~6 times in 2012 and about 3 times in 2015. 2017 is almost the same. "Generally speaking, although the United States has low energy and land prices, China's traditional manufacturing industry chain is very complete, and its comprehensive advantages are still obvious." Lin Xinwei said.

With the increasing trade friction between China and the United States, experts believe that the effect of tariffs added to each other on textile industry is also gradually emerging. Those factories with factories in the United States and those with layout in the US are less affected. The construction of factories across the country can reduce the impact of disputes and reduce risks by adjusting the layout of production capacity. Factories that only have factories in China are expected to slowly withdraw from the US market or transfer factories to foreign countries. But in the current environment, the US will be more rigorous in approving future investment in China. This also encourages entrepreneurs to be more prudent when considering investment in the United States, and at the same time, driving part of their investment to Southeast Asian countries. This will also have a great impact on the shrinking American textile and garment industry.

For the impact of Sino US trade friction, Zhu Shanqing believes that the overall risk is controllable for Cole. In addition to strengthening the "internal strength" construction and better coping with the risks and challenges brought by Sino US trade, there are two plans in the future: first, continue to increase investment, expand the scale of production and enrich the product categories, increase the influence of the ring spinning of cotton or blended products in the three phase, increase the influence in the United States; two, combine high-quality enterprises to build industrial parks in the United States, solve a large number of jobs and increase the status of Chinese enterprises. At present, Cole has reached an intention with the South Carolina county government, and the project is actively planning and preparing for construction.