Short sheeted: Peru depends on U.S. buyers of its clothes and textiles. So what happens when China weighs in?

Author:Wing, Lisa K.

No one can compete against China," says Juan Bautista Isola matter-of-factly. "When it comes to price, Chinese products are the cheapest because they can make every imaginable thing."

This statement--and its acceptance as the general perception across most retail sectors in the global economy--is echoed among the leaders of Peru's largest textile companies. Like Isola, they are deeply concerned about the elimination of import tariffs of Asian, namely Chinese, textiles to the United States starting in 2005.

With reason. The elimination of tariffs on textiles and apparel products, agreed to by both nations in a bilateral 1997 agreement, is clearly a threat to Peruvian exporters, which rely heavily on the U.S. market for profits. Close to 80% of Peru's total apparel and textile exports, which reached US$824 million in 2003, are sent to the United States. Some companies depend 100% on their U.S. clients to survive.

"The next few years will be a story of survival more than a story of growth," says Isola, managing direct or of Confecciones Textimax, one of the country's largest exporting companies and one that has enjoyed 40% annual growth since Isola founded the company in 1991. According a World Bank report, China will capture 60% of the United States' textile and apparel market by 2010, up from the current, level of 12%.

China's exports of certain textile products to the United States have already surged dramatically since quotas were lifted on an array of products at the end of 2001. China's market share in brassiere exports, for example, jumped to 50% from 5%. Robes increased to 57% from 5% in two years.

Despite the dismal outlook of many of the country's top textile executives, many companies have been making adjustments in anticipation of China's coming impact. At the forefront of these changes is establishing niche markets as well as tapping new markets and areas of production.

"Companies need to remain aggressive and versatile in their operations because a niche is only a niche if you are one step ahead," says Jack Cohen, managing director of Texagency, which serves as a broker for U.S. companies looking to do business in Peru.

This is particularly important in the fast-paced fashion industry, where quick turnaround times--as well as...

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