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Soaring Asian expenses giving Gildan competitive advantage

Gildan Activewear Inc. says a paradigm cost shift in Asia is ensuring that its low-cost base in Central America has a competitive advantage over its Asian rivals.

Even though Gildan has hiked prices by 20 per cent over the past year, competitors in Asia have been forced to go even further to cover exploding input costs for labour, energy, raw materials and transportation.

"The reality is that even after increasing our prices in the marketplace we are more globally competitive today than we've ever been in the past," president and CEO Glenn Chamandy told shareholders at Gildan's annual meeting Wednesday.

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"What has happened is that the ... costs in Asia have gone through the roof and there's inflation everywhere."

Labour costs in China now equal those in Honduras, Gildan's highest cost production centre.

The cost of shipping goods by container from China to North America has soared and energy costs for coal and fuel far exceed the waste biomass Gildan uses at its facilities.

While all manufacturers face record cotton prices, Gildan has its own operations to convert the fibre to yarn, whereas Asian producers must buy it at elevated prices on the market.

The result is that a shirt made in Asia that sold for $15 (U.S.) a year ago now sells for $23 today, plus 16-per-cent import duty to the United States.

Consequently, the cost structure for Asian suppliers has effectively increased the cost of Asian imports by 50 per cent, Laurence Sellyn, Gildan's chief financial and administrative officer, said in an interview later.

"So it gives us more flexibility in terms of the price increases that we've been able to successfully implement."

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While its wholesale screen-print rivals also have manufacturing facilities in Central America, large retailers and sporting goods companies like Nike have traditionally relied on Asia.

That gives Gildan an opening as it seeks to expand its share of this massive North American market.

Investing millions of dollars to build state-of-the-art facilities in Honduras and the Dominican Republic were very good strategic decisions, Mr. Sellyn added.

"Obviously we could not have anticipated the way that the Asian supply chain would implode like it has but we still made the right strategic decision ... and now it's positioning Gildan for a unique advantage."

Gildan is also expanding its own Asian manufacturing by building up capacity in a low-cost operation in Bangladesh that was purchased last year. The plant, which is designed to service Europe, China, Japan and Australia duty-free, will see its capacity about double.

Additional capital investments could follow if the Asian market expands.

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