The abolition of quotas is hurting South Korea's textile exports, particularly to its main US market. Companies are struggling to compete with manufacturers in China and India who are armed with lower labour costs writes Peter Chang.

Last year, the US market accounted for nearly 18 per cent or US$2.8 billion of South Korea's total textile exports to other countries such as the EU, Turkey and Canada, the government-backed Korea Trade Investment Promotion Agency (KOTRA) said.

South Korea's total textile exports last year totalled US$15.2 billion. Exports to the EU reached US$1.54 billion, followed by Turkey at US$303 million, and Canada at US$203 million, according to the KOTRA.

Textiles are South Korea's seventh-largest export item after autos and semiconductors. Last year the country's textile exports to the US were down from the US$2.96 billion reported in 2003, and accounted for 19 per cent of the country's total exports.

Competition without quotas
The first sign of the industry's suffering was witnessed immediately after quotas were lifted in January.

Chinese textile exports to the US alone soared 546 per cent in January 2005. In detail, Chinese exports of knit shirts and cotton trousers jumped a whopping 1,836 per cent and 1,332 per cent respectively, the KOTRA said.

China is the world's leading exporter of textile goods - and its soaring performance hasn't surprised market watchers in South Korea.

Since the late 1990s, South Korean textile producers have been losing their share of the US market (their major customer) to Chinese companies. Many South Korean firms have been relocating their plants to China to better compete in price-oriented markets.

Kim Young-Soo, president of Marjo Industry in Seoul, says he plans to move his women's wear plants from South Korea to China and Indonesia sometime this year to be more "price-competitive" to buyers.

"Some buyers still want to buy Korea's better-quality textile products even though they pay more money, but now they are increasingly inclined to buy cheap items produced in China, Indonesia and Vietnam," Kim said. "The textile industry itself is labour-intensive, so price means quite a lot to us."

With quota's now abolished, Kim said exports of his company's women blouses and knits would be tough-sailing. As Kim notes, one recent government report shows the "Korea-exodus."

Industry investment
South Korea's cumulative overseas direct investment exceeded US$40 billion for the first time last year since 1968, boosted by a drive by local companies to relocate and expand their operations outside South Korea, the Ministry of Finance and Economy said.

The ministry said continued investment in China and improving economic conditions in countries like the US have prompted local companies to invest more overseas. Meanwhile, the sluggish local economy is seeing rising unemployment levels and labour costs.

Investment in Asian countries including China accounted for 43 per cent of the total at US$17.2 billion, followed by North America and Europe with US$11.0 billion and US$6.7 billion respectively, according to the ministry.

By size, large companies accounted for two-thirds of the total overseas direct investment, or US$27.65 billion, with investment by small firms including textile companies reaching to US$10.99 billion.

Other textile firms remaining in South Korea, meanwhile, have no choice but to maintain their edge by selling products of better quality.

"More South Korean textile companies are expected to relocate their plants to cheap-labour countries, particularly to China," Yang Eun-Young, a KOTRA official said. "I would say that South Korean textile companies began to lose their competitiveness in late 1990s to the Chinese companies."

The "shock" of the increase in Chinese volume to the US is ringing alarm bells among US textile manufacturers, who are clamouring for protection, arguing that 600,000 jobs could be lost with the influx of cheap Chinese goods.

"What Korean companies can do at this point is to produce better quality textile products than those supplied by the Chinese companies, which are armed with cheap overall production costs," Kim Young-Moo, an official at the Korea Federation of Textile Industry said.

"And they also have to enhance their marketing efforts to deliver the message that Korean textile products are better quality items than the Chinese."

Emergency safeguards
Referring to reports that some US companies are asking Washington to impose emergency safeguards, Kim said the Korean government, for its part, has to expand its assistance to South Korean companies' demands for exhibition and fashion shows in and outside South Korea.

For instance, industry watchers say the annual international textile fair that kicked off in the south eastern city of Daegu in mid-March should have attracted more attention, although it drew more than 200 domestic and foreign companies.

During the three-day fair, which focused on the latest trends in the comfort and function of apparel, and fashion trends that will lead the global textile market in the future, 218 companies operated about 450 exhibition booths with more than 1,600 foreign buyers taking part, according to organisers.

The event, which was organised by the Daegu Metropolitan Government, the Korea Federation of Textile Industries and the Commerce Ministry, was held in South Korea's third-largest city of Daegu, about 300 kilometres southeast of Seoul.
The city, which is striving to re-invigorate the industry through the introduction of more value-added products, was the centre of South Korea's textile industry in the 1960s and 1970s.

Export performance
In 2004, the US market share of Chinese textile companies stood at 22 per cent, but is expected to rise to 44 per cent this year and up to 71 per cent in 2006, according to industry watchers.

They say textile exports from South Korea - the world's fifth largest textile exporter - are expected to decline by up to US$1.3 billion this year to US$139 billion.

At the end of 2003, the proportion of textile products under quota accounted for 19 per cent of South Korea's total textile exports, but the proportion is expected to fall this year according the federation.

Although South Korea's textile firms have been struggling in export markets, the country's domestic clothing scene is performing better. The market rose 0.5 per cent to US$10.93 billion last year, said the Korea Federation of Textile Industries.

Amid weakening private consumption hitting the domestic economy, sales of men's clothing fell 4.8 per cent while those of women's apparel rose 1.6 per cent, it said.

Department stores retained a market share of 39.1 per cent last year, up from 37 per cent a year earlier, while the big discounters raised their market share to 13.5 per cent from 12.5 per cent.

By Peter Chang.