Economic Outlook - November 2005

N.C. textiles need to knit new niches

For more than two decades, North Carolinaís textile industry has struggled with increased competition from overseas. But Tar Heel mills can survive if they change their business models, says a report from Anderson Bauman Tourtellot Vos & Co., a Greensboro-based turnaround company. Managing Director Peter Tourtellot says they need to find solid niches. Two promising ones: nonwoven fabric, which has an estimated annual economic impact of $3 billion in North Carolina, and nanotechnology used in stain-proof cloth.

BNC: Why are our textile companies suffering so much?

Tourtellot: They were more focused on what they do and how to protect what they do ó as opposed to being focused on what was happening around them and what was happening to their business in terms of global effect. When it dawned on them that something was wrong, it was too late.

What companies made the right moves?

Of the big ones, no one. If you look at Burlington, Cone, Dan River, J.P. Stevens, they all tried to change. Some of them tried to change by merger. I donít see any that failed or went into bankruptcy that took the steps that were necessary early on. But there are private companies, like Milliken in South Carolina, that must be doing something right because you donít read much about any trouble. They have always been proud of their research and development and patents. They have thousands of patents over the years. That is one of the keys to survival ó innovation and research and development.

Textile companies here have resisted outsourcing manufacturing. Why do it now?

To compete in todayís environment, youíre going to have to buy your product from a different manufacturer or outsource it. A good example: Cone is manufacturing denim in the U.S., but that is a difficult product for most companies to try to make. Itís the dye. Thereís a lot of art and science to it. Thatís a niche that Cone does really well. But there are other products that Cone doesnít do well, so itís going to outsource those products. Itís kind of like Nike: What it does well here is marketing, research and design. But it outsources all of the manufacturing. Thatís the way textiles will have to grow. The companies should always control the design and the added value of the product. If they can control the research and development, they should be able to grow.

If other countries control production, what stops them from controlling the rest?

Nothing is going to stop the Chinese, except that theyíre not close to market. And weíre close to the eventual market. If you package research, development, merchandising, selling and marketing, including everything from advertising to selling the product, then you have an advantage. And that is the only advantage that you have. If you can be innovative, like nanotechnology, then you should be able to find a niche and stay ahead of that competition. Can you stay ahead of it forever? No.

What can local textile companies make?

Everything from apparel to road-construction materials. I know a hosiery maker, for instance, that is sourcing basic socks from China for 75% of its customerís needs. The company is making the other 25% locally. It also has a line of technical hosiery products, with certain yarns and certain characteristics that help an athlete when heís running or biking. Of the basic product, where the company is manufacturing only 25%, itís focusing local manufacturing on colors.

Why?

It is very hard for a retailer to forecast its needs by color. If youíre manufacturing in China, itís hard to get them made and delivered from so far away to meet the retailerís needs. So the company manufactures those colors locally and does it quickly. Youíve got to be able to find your niche and see how you can complement a thing like China. When Gore-Tex was invented, that was a perfect example of something innovative. Thatís the kind of thing that has to happen in textiles for the companies to reinvent themselves.

What's a good niche for companies here?

Nonwoven textiles are used in linings for road construction and all sorts of things. They can be used in automobile manufacturing. You can dye them. You can print them. Itís an area where we have expertise, and weíre not getting any competition from overseas.

But it's possible we might.

Sure.

Then what?

Then you go on to the next thing. We live in a global environment. You stay ahead of competition by innovation and by what we do best, which is adding value to something. It is no different than what weíve been doing for the last 50 years. Why do we have, for instance, computer-chip manufacturing? Itís because we can produce a chip that the Chinese canít produce today.

So we're on a hamster wheel of innovation, and we've got to keep running.

Exactly.

Why isn't government regulation of imports the answer?

Itís a thumb in the dike. Imports are bigger than all of us, and government regulation isnít going to stop it. It may curtail imports for a while, but then there would be retaliation. Weíre not going to stop the world economy and the globalization. Thatís what the textile companies need to understand.