HYTEX Integrated Bhd plans to boost its production capacity by almost 100% in anticipation of a strong demand in line with the liberalisation of the international garment market next year.
The main board-listed company is setting up a second factory in Cambodia to address the urgent needs of current customers such as Puma and Nike.
Managing director Saw Kim Hock said the factory, to be operational by year-end, would have the same capacity as its present factory in Cambodia of 350,000 pieces of apparel a month.
“We are currently renting this factory . Eventually, we plan to buy a piece of land and build our own factory because we feel Cambodia is a good place. It has cheap labour, and multinational clients have confidence in its product quality and delivery,” he told StarBiz.
Hytex’s first factory in Cambodia has been operating for five years. Part of its output is for the Malaysian market while the balance is exported mainly to Europe .
The second factory, according to Saw, will produce solely for exports to Europe and the United States.
In fact, one of the reasons Hytex had set up the first factory was because no quota was imposed on Cambodia for exports to Europe.
The Multi-Fibre Agreement (MFA), established in the 1970s, limits the textile products that Malaysia and some other low-cost producers can export to developed markets like the European Union, the US and Canada.
However, the World Trade Organisation will abolish the quota system on Jan 1 next year.
While Cambodia has the freedom to sell to Europe, there is currently a quota for exports to the US.
“With the lifting of the export restrictions next year, we can expand sales to the US,” Saw said, adding that Hytex exported a negligible amount to the US at present.
Exports make up about half of Hytex’s revenue, and the company’s biggest overseas market is Japan (see chart).
Part of the Cambodian factory’s production is sold in Malaysia under Hytex’s own brands, namely Tenderly, American Athletics and Issue. The rest is contract manufactured for third parties.
The Cambodian factory only does cutting, printing and sewing. The fabrics are sourced from the Malaysian plant.
In contrast, Hytex operations in Malaysia, which have a maximum capacity of 750,000 pieces monthly, are fully integrated. This means that its factory in Kepong, supported by four sewing branches in Selangor, covers everything from processing yarn into fabric to manufacturing finished goods such as T-shirts and pants.
By the end of next year, Hytex’s US$25mil factory in Jiangsu province, China, will be in operation. Like its Malaysian counterpart, it will also be fully integrated.
“Locating in China will give Hytex access to cheaper labour which could potentially halve its operating costs,” Saw said.
The China factory, located on 25 acres, will have a maiden production capacity of 500,000 pieces of apparels a month. All the production will initially be for export.
“But we are looking at replicating the Malaysian model. It means that we will also go downstream into the wholesale distribution and retailing of garments in China,” he said.
Hytex manufactures, designs and retails Disney and Warner Bros brands, including Winnie the Pooh, Mickey Mouse and Baby Looney Tunes, in Malaysia.
It sells these products at its own stores as well as some 250 consignment counters within major departmental stores.
“We are in the midst of negotiating with Disney and Warner for the licences to do retailing in China,” Saw said.
The China factory will be in Taicang, about 50km from Shanghai.
Hytex chose to locate near Shanghai because it planned to do retail business there, he explained.
Despite opening an integrated factory in China, Hytex will not cease its Malaysian manufacturing operations. “In fact, we will increase the capacity of our Kepong factory,” Saw said.
He said buyers liked Malaysia for its political stability. Furthermore, Hytex prefers to be geographically diversified in order to lessen risks.
According to him, Hytex will continue to export from Malaysia for years to come, but the focus will be on higher-quality products.
“We will move a lot of our present machinery to China and upgrade the Malaysian factory to become highly automated, therefore using fewer workers and at the same time increasing productivity,” he said.
Although a shakeout is imminent in the local textile and apparel industry under the upcoming liberalised environment, Saw foresees a bright future for his company.
He welcomed the abolishment of the quota system, saying this would benefit Hytex a lot.
“Most of Hytex’s exports are to non-quota markets so we are already very competitive. Manufacturers dependent on quotas will be affected because buyers will have more choice.
“Buyers currently have to purchase from certain manufacturers that have the ‘passport’ (quota), even though there are other manufacturers that charge less,” he said.
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