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Three companies - Century Investment Group, Elyon Textile and Technology Ltd, and Delta Galil - talk about the challenges and opportunities of sourcing apparel and textiles from Jordan, Egypt and Israel.

Changes positive for Century Investment Group
Omar Salah, founder and chairman of Jordan-based Century Investment Group, is positive about the changes taking place in Jordan's economy and the country's growing exports. Much of the progress has resulted from the implementation of Qualifying Industrial Zones (QIZs), which allow companies producing in these US-designated regions to export product to the United States duty- and quota-free.

In fact, Century Investment Group, a public shareholding company, "spearheaded the whole QIZ initiative that later resulted in the free trade agreement that was signed between Jordan and the US," explains Salah.

Century Tailoring has established a suit manufacturing plant with Bagir Company

Century is listed on the Amman Exchange - the Jordanian stock market - and is the largest employer in Jordan, with more than 6,000 workers. The company partners with other firms that have competencies in a specific industry, and manages all of the infrastructure, human resources, logistics and so forth involved in setting up a business. Furthermore, it provides its partners with a "local" that knows the culture and politics of the country.

Currently, Century boasts 11 partners, most in the apparel industry, but some in other industries including footwear, electronics and jewellery.

Its partners, all of which have facilities in the QIZ and ship product to the United States, include US-based Standard Textile, which produces medical wear and workwear; Israel-based Delta Textile, which primarily produces underwear for all the big brands including Calvin Klein, Victoria's Secret, Structure, J Crew, JCPenney and Donna Karan; Hong Kong- and US-based Yee Tung, a huge venture that produces mostly sweaters, with customers including JCPenney and Abercrombie & Fitch; Israel-based Bagir, a major tailored product group that manufactures suits for retailers such as Brooks Brothers, Men's Wearhouse and JCPenney; and Israel-based Teva, which produces its own line of shoes.

" We call ourselves a 'parenting' company, in that we are one parent, and [the other] company is the other parent, and the child is the venture that ends up here. Both parents contribute in the best way possible"
"The list could go on. That's what we do. We call ourselves a 'parenting' company, in that we are one parent, and [the other] company is the other parent, and the child is the venture that ends up here. Both parents contribute in the best way possible."

In the beginning, the company looked for partners whose competencies would be a mutually beneficial complement to its own.

"We were looking for foreign partners to take care of the marketing, the product development and design development, as well as have know-how, or expertise, specific to the product line that they were specialising in. We basically dealt with everything from designing of the factory to building it, to recruiting the people, to dealing with all the bureaucracy and paperwork, administration and logistics," says Salah.

As time passed, Century developed its own competencies in design, sourcing and marketing, and it now has relationships with many retailers in the United States. Additionally, retailers and brands often approach the company to set up exclusive factories for them, says Salah.

Today, Century is also involved in building operations targeted toward one particular customer. In return for the long-term commitment from the customer, Century builds a "flagship" factory, with all systems in place for logistics, supply chain management, data transparency and so forth. "And of course, all of the labour regulations have to be world class. This is something that we believe is very important in Jordan because we don't want Jordan to suffer the way of places like in the Far East and Saipan," asserts Salah.

Delta Galil is one of the world's largest intimate apparel producers.

Overall, the company finds that the arrangements it works out with each partner are different, and based on the needs of each party. Says Salah: "I've learned one thing. One can't have one particular way. Everything really depends on whom you're working with and the flexibility that they like and how strong they are."

As for exporting to the US market, Jordan has a great deal of flexibility, says Salah. "First of all, we can piggyback on the Israeli-US Free Trade Agreement, which is probably one of the best free trade agreements there is. … And there are ways we utilise our closeness with the government in Jordan and the governments in Israel and the US to build those type of relationships so we know that products are exempt from Customs [hassles] even before we build the venture."

Moreover, Jordan offers other advantages, such as no income tax and very competitive rates for things such as rent and electricity. Also, he says, processing through Customs is quick and easy."We've streamlined every single aspect," Salah says. "I won't say things are perfect, but at least we have the confidence that if there are problems, we can speak about them and [there's a] willingness to solve them. And things do get solved."

Future outlook
Not one to rest on his laurels, and recognising the looming threat from China and India when quotas are lifted in 2005, Salah is determined to stay competitive by focusing on partnerships - both equity partnerships with manufacturers as well as strategic partnerships with retailers. Such partnerships will focus on complex, value-added products so "that even with the … removal of quotas, Jordan will be able to be head and shoulders above [China and India] in terms of quality level, innovation, turnaround time and supply chain management."

As for obtaining the fabrics needed for Century's companies, Salah says that Jordan does not have much of a textile industry, but receives a good supply of piece goods from Egypt, Turkey and Pakistan, and has "found that from a competitive point of view it's better to import," he adds.

In the future, he hopes to set up a cotton operation in Jordan. "I do feel that the time is right now to have such an operation, so I'm ambitious that in the future we will have plants here, such that Jordan will be completely vertical as far as developing the cotton industry [and] the fabric industry [in general]."

"Retailers are encouraged to take an active role in getting their suppliers to be more proactive in moving their operations to offshore locations"

As for taking the initial step, Salah encourages retailers to take an active role in getting their suppliers to be more proactive in moving their operations to offshore locations. For example, he relates, approximately eight years ago Marks & Spencer decided it would be good business to source offshore, and encouraged its suppliers, which were based in England, to set up factories in other locations. "And lo and behold, all of those big suppliers set up things in Sri Lanka, Indonesia, etc," says Salah.

But that is the exception to the rule, he says. "I'd like to see companies … talk to their favourite vendors and say, 'you know, we think that this item would be much cheaper if you do it in Jordan, why don't you go to Jordan and set it up'."

Acknowledging that often suppliers have trouble overcoming initial bouts of inertia to go elsewhere, Salah states that Century's goal is "making that leap of faith much easier, much more comfortable.

"Regardless if it's with Century or not, I think that we're going into an era in which things are becoming much more customer-centric, and I think that the companies that will be the most successful are those that have the strongest relationships with the retailers. And where you produce becomes irrelevant as long as you can satisfy the needs of the customers."

From another angle, Salah also believes there are many opportunities today to acquire apparel companies, especially those that are US-based, and subsequently relocate their production to places like Jordan or Mexico.

"Unfortunately [many US apparel] companies are forced to shut down because they can't compete anymore. What's unfortunate … is that it's not only the sewing workers that have to go, it's everybody else, from management to product development. I think that there are situations where those companies could be bought and production could be moved, maintaining the high management, which of course is bringing in most of the value added," concludes Salah.

Elyon: Making Businesses Better
With the textile industry as its "backbone," Israel-based Elyon Textile and Technology Ltd, a division of Elyon Ltd, deals with many different sectors of the industry.

Its services run the gamut from turnkey projects, which involve setting up a factory from ground zero until it is running at about 80 per cent efficiency, to refurbishing factories, to solving production problems, to consulting and implementation of the General Sewing Data (GSD) software from Methods Workshop, explains Shalom Mandelbaum, director of Elyon Textile and Technology Ltd.

The company, which also owns production facilities for textiles and apparel in Israel, Russia, the Ukraine and Moldova, is focused on responding to customers' needs, says Mandelbaum. For example, in a turnkey project, Elyon will handle everything, including building the facility, hiring and training personnel in programming and production planning, recruiting management and even marketing.

On the consulting side, Elyon Textile and Technology holds the exclusive distribution rights in Israel, Egypt, Jordan, Germany, Austria, Switzerland and the Commonwealth of Independent States for GSD, as well as GAD, Sapphire, Shoe-DAT and Office-DAT, programs used for methods analysis, time and motion simulations and product costing. Moreover, the company is closely associated with a series of academic organisations, including the Shenkar School of Textiles in Israel, as well as a series of institutions and universities in Germany and England.

Privately held Elyon Textile and Technology was founded approximately 15 years ago, bringing Israeli know-how into what was then the Soviet Union. In the past 10 years, the company has started up around 15 to 20 plants, primarily in apparel, which range from relatively small operations in Israel to "Soviet-style giants" of 4,000 to 4,500 employees.

"We've set up plants for everything and anything. We've set up plants for ladies' underwear, for suits that go to Marks & Spencer to [other apparel] that goes to JCPenney in the States," says Mandelbaum.

" With the basic minimum wage in Israel at about $800 per month, many Israeli companies producing lower-end merchandise have established facilities in either Jordan or Egypt"
In other scenarios, Elyon helps companies relocate and find partners. With the basic minimum wage today in Israel at about $800 per month, many Israeli companies producing lower-end merchandise have established facilities in either Jordan or Egypt, says Mandelbaum. Small companies, in particular, have sought Elyon's assistance in the move.

"Some of the bigger companies have asked us for assistance too, because one of our mode of operations is [to] find local people you can work with. They'll teach you the ropes."

Elyon has Egyptian and Jordanian partners that advise the company on what will and will not work in their local regions. Moreover, they know government officials and the local industry. "To come in as a total outsider in any country is asking to lose money. So the first thing we do in most operations is to find somebody we can trust in that country and work together with them," says Mandelbaum.

Jordan and Egypt: going in
As for doing business in Jordan and Egypt, Mandelbaum finds the two countries to be distinctly different. Egypt is ruled by a bureaucracy, which makes it very difficult to get things moving there.

Delta manufactures 90 per cent of its product in its own facilities

"It's not only a problem of language, it's a problem of concept," he says. For example, if you hail a cab in the United States, Israel or any western country, and you're 20 miles away from the airport in the middle of rush hour and have a flight in 20 minutes, the cab driver will tell you that it is impossible. In Egypt, the cab driver will say "inshalla," which means with God's help, or God willing. Basically, that means "if God will make a helicopter out of my [cab] and he can do it, then it will be done," explains Mandelbaum.

"[The cab driver] will not say no. It's against his culture. It's not that he's lying. And this is something very, very important that people have to realise when they're working in different countries. You have to learn the culture before you learn the language."

As a result, in Egypt it is important to learn to phrase your question in such a way as to get an accurate response. For example a closed question such as "Will you be able to deliver 20,000 dozen a week on time?" will get you the response: "Inshalla, no problem." A better way of asking this would be: "How many dozen of this product can you produce in a week?"

" In Egypt it is important to learn to phrase your question in such a way as to get an accurate response"

"In short, people are really nice, and if they can give you an answer that will please you, they will," explains Mandelbaum.

As for Jordan, Mandelbaum says he finds it to be "very pleasant" and remarks that a lot of Jordanian businessmen have a "go-and-get-it" culture. While Elyon has not yet set up a total plant in Jordan, it has done a lot of consulting work there. Because it's just a two-hour drive from the heart of the Israeli industry, most companies prefer working on their own or have found a local Jordanian to work with, he says, noting that most of the Israelis going into Jordan are setting up joint ventures.

Currently, the company is working with a Pakistani company in Jordan to set up a multilateral operation in one of the Qualifying Industrial Zones (QIZs). The fabric will come from Pakistan and be sewn in Jordan, with 8 per cent of the components coming from Israel. Finally, the product will be shipped out of Haifa, Israel, to the United States, receiving duty-free treatment.

As for the general direction in which the apparel industries in these countries will head, Mandelbaum says that there are a lot of "ifs" that will determine the path. For example: Is there going to be a final peace agreement? How much are the Jordanians and the Egyptians going to learn from the Israelis? How much can the Israelis teach companies without overstepping their bounds?

"As for the general direction in which the apparel industries in these countries will head, there are a lot of "ifs" that will determine the path"
As it stands right now, Mandelbaum believes that Jordan is heading in the right direction, and that the Jordan-Israel partnerships will continue to supply medium-range products to the US market. He does stress, however, that to avoid "surprises," it's important to have a person on the ground checking production.

On the other hand, Mandelbaum thinks that Egypt may be missing out on some excellent opportunities. For example, Egyptian cotton is among the best in the world, with extremely long strands of fibre that are so thin that they look and feel like silk and can be made into 90/1 or 80/1 yarn, he explains. Unfortunately, says Mandelbaum, he is not aware of a single cotton mill in Egypt that can produce this high-end cotton. "They are taking the best cotton in the world and making 30/1, which is the basic cotton you use for standard T-shirts and sweatshirts."

Furthermore, offers from Elyon Textile and Technology and other companies to trade, for example, two bales of standard staple cotton for a

single bale of Egyptian cotton have been turned down. Mandelbaum believes the problem is more cultural than financial. With a textile tradition that goes back 5,000 years, the Egyptians are reluctant to accept advice from outsiders. The response is the same with respect to dyeing, he says, noting that product dyed in Egypt often comes out in five different shades in the same bundle.

Production costs in Egypt are approximately 5.5 cents per minute, compared with Jordan's at around 7 cents per minute. However, Egypt's higher seconds rate and overhead - which stems from the fact that most operations have not been streamlined - may make Jordan a better bet.

Nevertheless, things in Egypt are changing, and Elyon has had good results with some plants in the country, stresses Mandelbaum. "What you need is the supervisor, the engineer, and the owner pulling the same way." Things don't always work perfectly, but "this is where we come in - what would you need consultants for if there were no problems?" he concludes.

Delta Galil Industries: covering the globe
Founded 25 years ago, Israel-based Delta Galil today is one of the largest intimate apparel producers in the world, and possibly the largest in private label manufacturing, says Dov Lautman, founder and chairman. Employing 12,000 workers, the company manufactures socks, baby wear, leisurewear and underwear.

Delta manufactures 90 per cent of its product in its own facilities, says Lautman. With approximately 3,000 employees each in Israel, Egypt and Jordan, it boasts a large presence in the Middle East. The company also has joint ventures in Turkey, Bulgaria and Romania; and as a result of recent acquisitions of American companies, has a manufacturing system in Honduras and an outsourcing base in Hong Kong. Additionally, Delta has liaison offices in New York, Paris, London and Madrid and a distribution centre in Israel for its local market.

Recently, the company acquired Canada-based sock manufacturer Dominion, as well as two US-based companies, Wundies and Inner Secret, which manufacture intimate apparel and have enabled Delta to become the leading supplier of intimate apparel to the US mass market. Indeed, four of Delta's largest US-based customers include Wal-Mart, KMart, Target and Victoria's Secret, each contributing $50 million to Delta's sales. Its largest customer is England-based Marks & Spencer. The company's total sales last year were $430 million, and analyst predictions for this year are about $600 million.

The company is primarily focused on ladies' intimate apparel and men's underwear in the United States - Lautman estimates the breakdown at approximately 90 per cent underwear and 10 per cent socks with the acquisition of Dominion. Overall, the company manufactures for brands including Ralph Lauren, Calvin Klein, Donna Karan and Hugo Boss. Underwear for the latter two are 100 per cent manufactured by Delta. In specialty garments, the company does business with the Gap, Structure, Victoria's Secret and JCPenney.

"We know the American market well," says Lautman, noting that the business is driven by innovation, product development and competitive prices. While most of the company's manufacturing is licensed, it also produces its own private label under the Delta brand, which it sells exclusively in Israel. "We have about 50 per cent of the Israeli market in underwear and socks," he notes.

As for the overall state of the industry, Lautman says that it is moving in the direction of more global retailers, and he believes that this, in turn, will give global vendors an advantage. In the future, the world will be more open, with fewer duties and customs restrictions, which will build up competition and keep multinational firms in the forefront.

As for Delta, the company has a well-defined strategy of growth. Additionally, it boasts very strong logistics systems, running primarily on the Movex software system from Intentia International. "We know that we will keep growing, and I'm quite optimistic that we have an opportunity. The world is looking for manufacturer vendors to partner [with] big global companies," he says.

In a nutshell, Delta is driven by technology, innovation and people that have the know-how to take the company where it needs to go, whether in technology, marketing, fashion, management or logistics systems. "The name of the game is to be better than your competitors, which is what we try to do," Lautman concludes.

By Jordan K. Speer, senior editor of Bobbin.