California Apparel News

For more than 20 years, Song Ho Kim has managed to survive the ups and downs of the tough textile industry in Southern California.

The owner of Popular Textile Corp., a knitting, dyeing and finishing company in Vernon, Calif., has seen many of his competitors tumble by the wayside in the past two years because of rising natural-gas prices, soaring electricity rates and competition from Asia.

But Kim, a man who tracks his competitors’ moves like a seasoned chess player, is a survivor with a new plan to beat the odds.

In late October, he quickly changed his schedule to take a flight to Nicaragua, where he signed papers to buy 6.6 million square feet of land—enough space for a small golf course—to set up one of the country’s first knitting factories. Production should begin next July with 15 knitting machines. Soon after, the factory will ramp up to more than 100 machines to produce 80,000 yards of fabric a day.

And that’s just the beginning. Kim envisions an entire complex— including dyeing, printing and fabric finishing—in his own free-trade zone that would supply the growing number of apparel companies setting up shop in a country often called the last apparel frontier in the Americas.

“Since there will be no more quotas in 2005 for World Trade Organization members, I started getting scared about China, about Indonesia, about India and Pakistan,” said Kim, sitting in an office that looks very ordinary except for the large overstuffed chairs and couch carved in intricate Korean designs. “I’m afraid they will bring lots of merchandise into the United States at really low prices. I cannot compete with that.”

Selling Nicaragua

But Nicaragua can compete with Asia. With the country’s minimum wage set at 40 cents an hour, Nicaraguan officials are touting the fact that the poorest country in Central America is open for business to textile and apparel companies, which are in a state of flux because of the impending disappearance of apparel and textile quotas for all WTO members in 2005.

In Nicaragua, apparel workers on average make about 67 cents an hour, more than the country’s minimum wage but still less than what workers make in most Western Hemisphere countries. In Honduras, apparel workers earn 80 cents an hour. In Guatemala, workers earn 84 cents an hour. And in Mexico, they earn $2.17 an hour.

Because of the rock-bottom wages, more than 60 apparel companies have set up shop in Nicaragua— up from one apparel company in 1992. New arrivals include E & J Textile Group Inc., a knitting factory in Hawthorne, Calif., and Twin Dragon Marketing Inc., a manufacturer of denim, twills, corduroys and woven stretch fabrics headquartered in Gardena, Calif.

E & J, run by James Kim, opened a sewing factory in a Nicaraguan free-trade zone in 2001 and then added another building this year. Currently, Kim’s plants have 21 sewing lines and eight cutting lines, as well as silk-screen printing capability. With the added production, Kim expects his revenues to increase from $60 million this year to $75 million next year.

“Here, labor is only costing me $70 a month, and in Los Angeles it costs me $1,500 a month,” he said. “That’s why I increased my factory capacity in Nicaragua.”

Twin Dragon, founded by brothers Dominic and Edward Poon more than 20 years ago, recently opened a jeans factory in Managua, Nicaragua’s capital, and partnered in a cotton-finishing factory for twills.

Affordable advantage

Nicaragua’s free-trade zones offer 100 percent exemption from income taxes, no property or municipal taxes, and no duties or sales tax on imported machinery, raw materials, supplies and equipment.

Because Nicaragua’s gross domestic product is so low–– currently at about $500 a year—its free-trade zones will be able to keep their tax-exempt status after 2010, when other Latin American countries will have to lift theirs.

As part of the Caribbean Basin Trade Partnership Act, apparel made in Nicaragua can enter the United States duty- and quota-free if it is made with U.S. fabric and U.S. yarns. Goods made from Central American knit fabric can also enter dutyand quota-free. Woven fabrics made in Central America are still subject to duties and quotas.

And trading terms will undoubtedly become more favorable for the region when the Central American Free Trade Agreement is wrapped up in December and voted on by the U.S. Congress next year.

So far, most of the interest in apparel and textile production in Nicaragua is from Korea and Taiwan, said Bernardo Callejas, an investment advisor with ProNicaragua, a government group established last year to promote the country of 5 million people. “I would venture to say that over half of the textile and apparel industry here is Korean and Taiwanese,” he said.

The downside

One drawback to manufacturing in Nicaragua, which survived a 10-year civil war in the 1980s, is transportation. Even though the country has a recently dredged port on the Pacific Ocean, not many ocean carriers stop there.

Popular Textile’s Kim said he will truck his goods to El Salvador, about a 10-hour trip, and then put them on ships sailing to the Port of Long Beach in Long Beach, Calif. The process will add about $100 to $150 to the cost of transporting one container.

Getting goods to Miami is another matter. “One of the biggest obstacles right now is access to the Atlantic,”Callejas said.

To circumvent that problem, companies such as E & J Textile truck their goods to Honduras and put them on boats to Miami.

The Nicaraguan government is working on an Atlantic-side solution by paving a highway through the country’s large tropical jungle to a river port called El Rama. From there, goods will be put on barges and floated down the Escondido River to a port on the Atlantic Ocean.

The President’s sales pitch

Initially, Popular Textile’s Kim, a textile engineer who left South Korea in 1980 to start his Los Angeles textile company in 1981, wasn’t attracted to Nicaragua when he began country shopping last summer.

He first eyed Asia, considering Indonesia, where wages average $60 a month, and Vietnam, another low-wage country. He also thought of China. But all that seemed too far away for a company that needs quick-turn items to supply the juniors apparel market. “If I make the fabric in Asia, I lose all my business in the U.S.,” said the textile manufacturer, whose 300,000-square-foot factory in industrial Vernon will continue to make knit fabrics.

So Kim cast his attention to Latin America. At first, he was intent on opening a knitting factory in Puebla, Mexico. But that idea fizzled when the Mexican government did not seem too interested in opening yet another textile company in the area, already home to apparel factories operated by Los Angeles– based Tarrant Apparel Group and Beaverton, Ore.–based Nike Inc.

And Mexico wasn’t cheap. “Just to buy a water permit was going to cost $1 million to $2 million,” Kim recalled, noting that that fee did not include the cost of water in a factory that could use up to 1 million gallons a day.

Next he visited Guatemala, home to more than 270 apparel and textile factories, many of them owned by fellow Koreans trying to produce apparel at competitive prices. Guatemala looked good, but Kim decided in June to check out Honduras, El Salvador and Nicaragua.

He found Nicaragua had several advantages. “We decided that Nicaragua would be good because nobody is making knitted fabric there and dyeing it. We would be the first,” he noted.

The deal sounded even better when Nicaraguan President Enrique Bolanos Geyer, an avuncular man who is part salesman and part politician, came to Los Angeles in August and invited Kim to his hotel for a tecirc;te agrave; tecirc;te. Geyer assured the textile executive that if he wanted to set up an independent free-trade zone 39 miles from Managua, it could be done. Plus, he said Kim wouldn’t have to pay a dime for water.

“After that, I decided that Nicaragua would be the right country,” Kim said.