The hotel may soon have more guests than it can handle. With international trade restrictions on textiles set to expire Dec. 31, China's clothing factories, among the most modern and efficient in the world, are gearing up to take a dragon's share of the global business. "We are expanding in China quickly and I think the economic reality will prevail over all the political obstacles," says Luen Thai's CEO Henry Tan.
The largest apparel maker listed on the Hong Kong stock exchange, Luen Thai has factories in four countries but is shifting capacity to mainland China ahead of the lifting of the trade restrictions. Last year, the company's plant on the tiny Pacific island of Saipan—a U.S. territory exempt from quotas—accounted for nearly half of all its production, compared with about 25% from China. But Chinese output is expected to double this year, and for the next few years Luen Thai plans to increase head count at its Dongguan facility from 5,000 to 14,000. In May, Luen Thai sold off its garment-making business in Mexico. Meanwhile, the company is constructing a second facility outside the neighboring city of Guangzhou that will be triple the size of the Dongguan compound.
China's competitive advantage in textile manufacturing is seen primarily as its ability to produce clothes cheaply. But leading manufacturers like Luen Thai are also trying to add value in other areas, for example, by streamlining the supply chain and making their customers' jobs easier. At the Dongguan compound, Luen Thai provides major clients such as Polo Ralph Lauren and U.S. department-store chain Dillard's with dedicated teams of designers, merchandisers and sales staff—all housed in plush offices located on the factory site. Keeping designers close to production cuts development time and improves communication. Luen Thai teams are also able to learn about client expectations for materials, styles and costs. Eager to please, the company even bought a roomful of washing machines so it could carry out product testing previously farmed out to a laboratory in Hong Kong. There are top-loading Sanyo washing machines for clothes bound for Japan, Zanussis for Adidas-brand sportswear and outsize Kenmores for the U.S.
Such refinements can only help China lock up more of the global textile trade. However, companies are wary of putting all their eggs in one basket. Luen Thai plans to keep its Saipan plant open and is continuing to operate small factories in Cambodia and the Philippines. "So long as [buyers] hedge their risks, then we hedge our risks, too," says CEO Tan. But, ultimately, China is the place to be. "It's the most efficient place to manufacture," says Tan. "And every day the world is moving increasingly toward free trade."