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S TEVE WOLOZ & ASSOCIATES INC. MANAGEMENT CONSULTANTS

www.swaassoc.com. S TEVE WOLOZ & ASSOCIATES INC. MANAGEMENT CONSULTANTS. Know Your Competitors For AECQ ( Quebec Contractors Association) Novembre 1 , 2003. www.swaassoc.com. S TEVE WOLOZ & ASSOCIATES INC. MANAGEMENT CONSULTANTS. ? Who Are Your Competitors. www.swaassoc.com.

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S TEVE WOLOZ & ASSOCIATES INC. MANAGEMENT CONSULTANTS

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  1. www.swaassoc.com STEVE WOLOZ & ASSOCIATES INC.MANAGEMENT CONSULTANTS Know Your Competitors For AECQ ( Quebec Contractors Association) Novembre 1 , 2003

  2. www.swaassoc.com STEVE WOLOZ & ASSOCIATES INC.MANAGEMENT CONSULTANTS ? Who Are Your Competitors

  3. www.swaassoc.com STEVE WOLOZ & ASSOCIATES INC.MANAGEMENT CONSULTANTS • SWA Experience • Brasil ; Colombia • Ecquador ; Guyana • Honduras;Mexico • Mongolia; Salvador • United States • SWA Research

  4. www.swaassoc.com STEVE WOLOZ & ASSOCIATES INC.MANAGEMENT CONSULTANTS • Seminar Format • Interactive Discussion • ( English; French) • Video • Lecture Notes Available on Request

  5. Overview • INTRODUCTION • MAJOR TRADE TREATIES AND THEIR IMPLICATIONS • GLOBAL COMPETITION • COMPETING REGIONS & COUNTRIES: STRENGTHS AND WEAKNESSES • VIDEO PRESENTATIONS • SUCCESS FACTORS AND PRESENT OPPORTUNITIES • MARKET INTELLIGENCE • BASIS OF PRESENTATION / ACTUAL EXPERIENCE / STATISTICAL RESEARCH AECQ: NOVEMBER 1, 2003: Rev 7

  6. Introduction AECQ: NOVEMBER 1, 2003: Rev 7

  7. Overview • INTRODUCTION • MAJOR TRADE TREATIES AND THEIR IMPLICATIONS • GLOBAL COMPETITION • COMPETING REGIONS & COUNTRIES: STRENGTHS AND WEAKNESSES • VIDEO PRESENTATIONS • SUCCESS FACTORS AND PRESENT OPPORTUNITIES • MARKET INTELLIGENCE AECQ: NOVEMBER 1, 2003: Rev 7

  8. Trade Treaties What are Trade Treaties ? Exclusive Agreements Between Trading Partners To promote Trade AECQ: NOVEMBER 1, 2003: Rev 7

  9. Major Trade Treaties GATT 1947; 1986-DEC 1990; 1994 WTO 1994 ; 2005 NAFTA 1994 US Preference Programs for Apparel: CBTPA Caribbean Basin Trade Partnership Act : Oct 2000 – Sep 2008 AGOA Africa Growth and Opportunity Act : Oct 2000 – Sep 2008 ATPDEA Andean Trade Promotion and Drug Eradication Act : Oct 2002 – Dec 2006 AECQ: NOVEMBER 1, 2003: Rev 7

  10. Major Trade Treaties • 807 Outward Processing ? AECQ: NOVEMBER 1, 2003: Rev 7

  11. History of the CBI-NAFTA NAFTA : 1994 = Progressive and Complete Elimination of Duty and Quota Between Trading Partners United States; Mexico; Canada Rules of Origin For Trading Partners AECQ: NOVEMBER 1, 2003: Rev 7

  12. History of the CBI-NAFTA Rules of Origin “ yarn forward” Means Textile and Apparel goods must be produced from yarn made in a Nafta Country AECQ: NOVEMBER 1, 2003: Rev 7

  13. Chief Criterion of the CBI American Made Fabric Yarn Forward AECQ: NOVEMBER 1, 2003: Rev 7

  14. Main Difference CBI / NAFTA NAFTA FABRIC CAN BE MADE IN ANY MEMBER NATION CBI FABRIC & THREAD MUST BE MADE IN UNITED STATES AECQ: NOVEMBER 1, 2003: Rev 7

  15. Chief Objectives of the CBI • Repatriation of Apparel Production From Asia to Western Hemisphere • Revitalisation of US Textile Industry • Promotion of Trade with Neighbouring Nations AECQ: NOVEMBER 1, 2003: Rev 7

  16. Chief Advantages of the CBI Outward Processing Duty Free And Quota Free Access to US Providing Made With US Fabric AECQ: NOVEMBER 1, 2003: Rev 7

  17. CBTPA Trade Benefits US Market Office of Textiles and Apparel International Trade Administration U.S. Department of Commerce AECQ: NOVEMBER 1, 2003: Rev 7

  18. Treaties =Opportunity + Challenge Heated race for more investment $$$ and new strategic partnerships Help finance full package expansion Opportunity to accelerate trade Develop Manufacturing expertise in all areas Existing trade treaties (e.g. NAFTA) New trade treaties (e.g. FTAA and WTO 2005) AECQ: NOVEMBER 1, 2003: Rev 7

  19. CBTPA Summary Section 211(b)(2)(A): Eligible Countries: (i) US Fabric Cut in US, Assembled in CBI (ii) US Fabric Cut and Assembled in CBI (iii)Knit Apparel: Knit-to-Shape/Cut & Sew (iv)Brassieres: Cut & Assembled in US or CBI (v) Short Supply Yarns and Fabrics (vi)Handloomed, Handmade & Folklore Art. (vii)Special Rules: (Exceptions to the Rules) (viii)Luggage: Cut in US/CBI, Assembled in CBI Barbados Belize Costa Rica Dominican Republic El Salvador Guatemala Guyana Haiti Honduras Jamaica Nicaragua Panama Saint Lucia Trinidad and Tobago AECQ: NOVEMBER 1, 2003: Rev 7

  20. Total U.S. textile and apparel imports from CBI increased by 8% CBPTA-qualifying trade accounts for 68 % of total exports 88% of CBPTA Qualifying Apparel Use US Yarn and US Fabric 10% of CBPTA Qualifying Apparel Use Regionally Formed Fabric of US Yarn CBTPA Trade Treaty AECQ: NOVEMBER 1, 2003: Rev 7

  21. ATPDEA Trade Treaty • Total U.S. textile and apparel imports from ATPDEA increased by 22% • Andean-qualifying trade accounts for 16% of total ATPDEA apparel exports • 88% of ATPDEA Qualifying Apparel Use Regional Fabric of US or Regional Yarn • 11% of ATPDEA Qualifying Apparel Use US Fabric Relating to the implementation of procedures and requirements similar to those in chapter 5 of the NAFTA: Bolivia Colombia Ecuador Peru AECQ: NOVEMBER 1, 2003: Rev 7

  22. AGOA Trade Treaty • US Apparel imports from Africa increased 28% in 2003 • AGOA-qualifying trade accounts for 74% of total AGOA apparel exports • 80% of AGOA Qualifying Apparel Uses Third Country Fabric • 18% of AGOA Qualifying Apparel Uses Regional Fabric of US Regional Yarn AECQ: NOVEMBER 1, 2003: Rev 7

  23. Overview • INTRODUCTION • MAJOR TRADE TREATIES AND THEIR IMPLICATIONS • GLOBAL COMPETITION • COMPETING REGIONS & COUNTRIES: STRENGTHS AND WEAKNESSES • VIDEO PRESENTATIONS • SUCCESS FACTORS AND PRESENT OPPORTUNITIES • MARKET INTELLIGENCE AECQ: NOVEMBER 1, 2003: Rev 7

  24. Global CompetitorsTop US SuppliersMarch 31, 2003 % Share Growth • MEXICO 11.88 -2.44 • CHINA 10.00 78.68 • HONDURAS 6.31 14.67 • BANGLADESH 5.17 -0.97 • HONG KONG 4.51 -9.20 • EL SALVADOR 4.42 8.49 • DOMINICAN REPUBLIC 4.09 -0.50 • KOREA 3.53 0.80 • INDONESIA 3.48 7.82 • TAIWAN 3.21 -5.40 AECQ: NOVEMBER 1, 2003: Rev 7

  25. Apparel ImportsPercent Share by Region AECQ: NOVEMBER 1, 2003: Rev 7

  26. The Apparel Commodity Supply Chain AECQ: NOVEMBER 1, 2003: Rev 7

  27. Apparel Imports From Asia Soar:1995-2002 (Billion SME) Trade-weighted Index of 21 Asian Currencies vs. Textile Imports from the Same 21 Asian Nations AECQ: NOVEMBER 1, 2003: Rev 7

  28. US Apparel Imports Central America & Dominican Republic2000 (U.S.$ Millones) AECQ: NOVEMBER 1, 2003: Rev 7 Source: OTEXA - 2001

  29. US Apparel ImportsShifts in Regional Imports1986 - 1996 AECQ: NOVEMBER 1, 2003: Rev 7

  30. Overview • INTRODUCTION • MAJOR TRADE TREATIES AND THEIR IMPLICATIONS • GLOBAL COMPETITION • COMPETING REGIONS & COUNTRIES: STRENGTHS AND WEAKNESSES • VIDEO PRESENTATIONS • SUCCESS FACTORS AND PRESENT OPPORTUNITIES • MARKET INTELLIGENCE AECQ: NOVEMBER 1, 2003: Rev 7

  31. Mexico:History Until the early 90s: almost exclusively an assembler, operating primarily as an 807 supplier to the US. In 1996, Mexico surpassed China to become the #1 apparel exporter to the U.S.A. In 1997, it made the top 10 list of apparel exporters to Canada for the 1st time Since NAFTA, Mexico's U.S. exports of apparel increased nearly eight-fold Qualitative leap to more value added production through cutting primarily NAFTA sourced fabrics. By the mid 90s the non-807 exports rose significantly AECQ: NOVEMBER 1, 2003: Rev 7

  32. Mexico:History Mexico-U.S. trade in this sector reached US $16.7 billion in 1999, an increase of more than 300 % since 1993. Mexico-Canada trade in textiles similarly increased from US$ 44.3 million in 1993 to US $340 million in 1999 AECQ: NOVEMBER 1, 2003: Rev 7

  33. Mexico:Strengths • Much larger overall production capacity and availability of fabric • Proximity to the U.S., skilled labor force, vertically integrated industry, and close supplier - customer ties • Under 807, duty is paid on the V.A. vs. practically no duty from Mexico to the US • As of 2004, most NAFTA cotton apparel made in Mexico will carry: • Duty and quota-free in the US • Approximately 12% duty (to be eliminated by 2004) and no quota in Canada Ability to capitalize on the 28 free trade agreements may be the key to reshaping and recharging its apparel industry: Agreements: • Chile • Costa Rica • Israel • Bolivia • Nicaragua • The EU • Others • Negotiating with: • Japan • Norway • Singapore The only industrialized nation with NO trade agreement with China. AECQ: NOVEMBER 1, 2003: Rev 7

  34. Mexico:Weaknesses • High rate of rejects: 1.43 %vs. 1.12 % in Costa Rica (Speer 2000) • High labor force turnover: 70% (Speer 2000) • High income taxes • Shortages of electricity • Piracy and smuggling • 97.5 % of 40,000 businesses operating in the textile sector are micro or small businesses • They just took advantage of FTA rather than investing in the engineering and the know-how • Passage of the TDA in 2000 with CBI countries makes them more threatening competitors • Farther away, but no less menacing, China is in a position to regain its U.S. apparel market share in 2005, when the World Trade Organization (WTO) implements the final phase-out of quotas AECQ: NOVEMBER 1, 2003: Rev 7

  35. Asia Asia's significant investment in recent years in Central America will accelerate: In Guatemala, Asian ownership of apparel facilities is up to 17 %, while in other countries, this level of ownership ranges from 28% to 45%. AECQ: NOVEMBER 1, 2003: Rev 7

  36. Asia:Strengths The key exporting nations of the Orient have developed unquestionable high levels of: • Raw Materials Availability • Quick Development Capability • Flexibility • Quality workmanship All are considered by import experts as the strongest strategic advantages influencing the sourcing decision. AECQ: NOVEMBER 1, 2003: Rev 7

  37. Asia:Weaknesses • The long lead-time required for production in the Orient • The complexities of doing business offshore (language, distance) AECQ: NOVEMBER 1, 2003: Rev 7

  38. Combating China2005 Massacre • A two-year window of opportunity before quotas expire under the WTO in 2005. • During this period, it will be important for countries to develop a well-rounded sourcing matrix that includes: • High quality/price ratio • Full package production • Rapid turnaround capabilities • Excellent customer service • Flexibility • Over the long term, these capabilities will be necessary for Latin America to compete with the Far East. AECQ: NOVEMBER 1, 2003: Rev 7

  39. China • Heavy investment in CBI countries (e.g., Nicaragua) • Impossibility to compete with China in terms of cost • Necessity to offset that with: • shorter cycle times • quicker response times • changing styles with the market. AECQ: NOVEMBER 1, 2003: Rev 7

  40. Caribbean Countries:Strengths • NAFTA made it almost impossible for other Latin American countries to compete with Mexico simply by offering cheap labor • To remain competitive, manufacturers in the CBI region responded by: • Building state-of-the-art facilities • Offering high-quality goods and quick turnaround AECQ: NOVEMBER 1, 2003: Rev 7

  41. Caribbean Countries: Strengths • Absence of quota and duty under 807A • Positive relationships with the U.S. • Outstanding productivity • Proximity to market • The infrastructure • The know-how • Cost • Perception in the importer community: • Shorter lead times on fashion orders • Higher levels of quality and productivity than Mexico AECQ: NOVEMBER 1, 2003: Rev 7

  42. Caribbean Countries: Weaknesses • Lack of cooperation between countries • Jamaica's apparel industry: • Contractions over the past few years • Loss of business to other CBI beneficiary countries (Speer 2000) • Lack of fabrics • Lack of non-cotton apparel production (30% of U.S. exports, vs. balanced Mexico's exports) • A small, inexperienced woven goods base • A shortage of skilled pattern makers • A lack of financial capital • Potential U.S. investors, such as textile mills, are not familiar with the CBI region. AECQ: NOVEMBER 1, 2003: Rev 7

  43. Overview • INTRODUCTION • MAJOR TRADE TREATIES AND THEIR IMPLICATIONS • GLOBAL COMPETITION • COMPETING REGIONS & COUNTRIES: STRENGTHS AND WEAKNESSES • VIDEO PRESENTATIONS • SUCCESS FACTORS AND PRESENT OPPORTUNITIES • MARKET INTELLIGENCE AECQ: NOVEMBER 1, 2003: Rev 7

  44. Honduras AECQ: NOVEMBER 1, 2003: Rev 7

  45. Mexico AECQ: NOVEMBER 1, 2003: Rev 7

  46. El Salvador AECQ: NOVEMBER 1, 2003: Rev 7

  47. Guyana AECQ: NOVEMBER 1, 2003: Rev 7

  48. Honduras: Pride Mfg. AECQ: NOVEMBER 1, 2003: Rev 7

  49. Overview • INTRODUCTION • MAJOR TRADE TREATIES AND THEIR IMPLICATIONS • GLOBAL COMPETITION • COMPETING REGIONS & COUNTRIES: STRENGTHS AND WEAKNESSES • VIDEO PRESENTATIONS • SUCCESS FACTORS AND PRESENT OPPORTUNITIES • MARKET INTELLIGENCE AECQ: NOVEMBER 1, 2003: Rev 7

  50. Factors For Success FULL PACKAGE SERVICE SPEED TO MARKET TOTAL COST SECURITY AECQ: NOVEMBER 1, 2003: Rev 7

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