From The Editor: Sell Stability And Certainty

By Jim Borneman, Editor In Chief
If you’ve drafted a budget or tried your hand at business forecasting, the comforting Latin phrase ceteris parabus — “all other things being equal or held constant” — has made it easy to confidently rationalize your conclusions. It’s difficult to remember a time when so little could be held constant or remain the same. Slow-moving, relatively predictable business factors now change at a blistering pace. Today, volatility is normal and expected in a growing number of categories.

U.S. companies are coming to grips with the uncertainty of healthcare and benefit costs.Increasing commodity prices of cotton and petroleum-based inputs have taken hold, while volatile energy costs affect plant operations and transportation costs. Finding opportunity amid the volatility is what creative companies have embraced.

In recent days, it has been fair to argue that the world might not be as flat as Thomas Friedman pronounced it was. In fact, one could argue that international textile supply chains have rarely presented such risk. Although geopolitical risks are in the headlines, the trickle-down risks are rampant and occur in the context of a fragile economic recovery.

What opportunity could possibly exist in a time of high volatility? Become a purveyor of stability and certainty. How does doing business with your company reduce risk for your customer? How does your risk profile compare with that of your competition? Can you really reduce your customer’s risk exposure?

It sounds rather basic, but for a long time, it has been hard to sell U.S. manufacturing with a risk premium. Some have argued that companies whose products were decimated by imports also had capacity decimated by imports; hence, there is no alternative domestic production to return to. That may be so in some cases, but if demand is present and unstainable, U.S. textiles will come on-stream to fill the void. A bigger question is whether there is the possibility of a long-term
cyclical change occurring that will reinvigorate U.S. manufacturing.

A bright spot for U.S. manufacturers is apparent in the leading indicator from the Institute for Supply Management Report On Business. The March 1 release reports expansion of manufacturing sector economic activity for the last 19 consecutive months. Of the 18 manufacturing sectors tracked, 14 expanded — including apparel and textile mills.China’s trend of rising wages and inflation will be hard not to export along with their products. Combined with a renewed focus on increasing domestic consumption, there are strong signals that the Chinese are ready to embrace a new phase in their economic development. This may signal new competition in higher-value textiles — technical textiles — in which some U.S. producers have found refuge and profits. It may also point to the development of new low-wage locations to fill the China-price void — this time with a better understanding of the total cost of global sourcing.

In any event, beyond the headlines, it isn’t all gloom and doom. Challenges are ahead with higher gasoline prices — but U.S. consumers are less shocked this time. Let’s see how shocked their pocketbooks are.

March/April 2011