APPAREL

The following is a summary of the seminar presented by Fernando Troya and Susan Forsythe Simms at the Colombiatex Textile and Apparel Trade Show held in Medellin, Colombia on January 22, 2003.

HOW FOREIGN TEXTILE & APPAREL MANUFACTURERS CAN
BREAK INTO THE U.S. MARKET

According to the recently expanded ATPA agreement, ATPDEA, apparel made from either U.S. or Andean origin yarns receive duty-free treatment subject to an annual quota cap for the region of 2% of total worldwide apparel imports for the year 2002 – 2003. This cap will increase by 0.75% each year to reach 5% in the 5th year. In 2001 less than 0.6% of the $58 billion worth of apparel imported into the U.S. came from the Colombia.

Potential U.S. buyers for small to medium sized Colombian apparel manufacturers:
1. Smaller U.S. retail chains, regional specialty stores and independents who need to buy from suppliers that do not sell to the large department stores and national chains. Why? Because the large U.S. department and specialty store chains have the size to negotiate up to 40% off the standard wholesale price. As a result, they can sell their clothing to the consumer at 40% off and still achieve their profit objectives. The smaller retailers who pay regular wholesale will not stay in business long if they match the department store price of 40% off!
2. Specialty store chains who buy in small quantities and bring in new styles every week.
3. Private label for regional chains or catalog merchants.

Market Entry Strategy Options:
1. Use U.S. Agents or Distributors
Advantages
· Gives a smaller manufacturer with little export experience or insufficient finances to open their own office, a way to enter the U.S. market.
· As market “insiders”, overseas agents and distributors speak the language, understand how business is done, and know who the customers are and how to reach them.
· Exposes your company to less financial risk than setting up your own U.S. sales offices.
Disadvantages
· You are totally dependent upon the agent or distributor to promote the sale of your products.
· Could not only reduce your profit margins but also result in loss of control of your product distribution and/or price.
2. Establish a U.S. Sales Office
We at IAG Global recommend that the first option of using American agents or distributors to market your product abroad be regarded as a temporary short-term choice for doing business in the United States. Your ultimate goal should be to establish your own presence in the U.S. market and open a U.S. sales office.
Advantages
· You avoid intermediary costs.
· You have more control over the quality of your American operations including price, service and level of effort.
· Most U.S. buyers are more comfortable dealing with a U.S. office as opposed to talking to a factory located in South America.
· With a U.S. presence, you will be in a better position to react quickly to changing market conditions and customer demands.
Disadvantage
· Requires a financial investment in the U.S.
3. Form Partnerships and Alliances
This can be done at home or abroad. Consider working with other local Colombian companies who produce products similar to yours. Partners share the risk. They pool their knowledge, resources and expertise. Ask yourself – What is my company’s competitive advantage? How can I exploit it through a relationship with other companies that also have a competitive advantage and/or a complementary product?

Recommended Market Entry Strategy – Open up your own sales office. Steps:
1. Incorporate a U.S. company.
2. Rent office space.
3. Hire a National Sales Manager who is
· responsible for hiring a sales force.
· paid a salary plus an override on all business done by his sales reps.
Sales representatives:
· Work on commission.
· Often carry several apparel lines that are complementary to each other but do not directly compete. Thus, experienced reps will already have a list of potential buyers for your products.
· Usually are given an exclusive territory.
· Renewal of their contract can be based on the achievement of an agreed-upon sales target.

U.S. Trade Shows
In apparel, the larger trade shows are held in New York, Los Vegas, Chicago, Los Angeles, Dallas, Miami and Atlanta and may be held up to five times a year in each location. The major shows for textiles are in New York, Los Angeles, Atlanta and Miami, held either annually or semi-annually.

Benefits of exhibiting at trade shows:
· Meeting buyers.
· Staying up-dated on new designs, colors, fabric and trim that you can incorporate into your own styles.
· Gaining knowledge of your competition.
· Getting listed in the trade fair directory. Buyers use this directory both during and after the show to look for new suppliers.
· Building the credibility of your company. Consistency is important. Buyers will have more confidence in your company if you are a regular exhibitor. A trade show presence will prove to U.S. buyers that you are a professional company that is prepared to do business in the United States and has made a long term commitment to the market.

Conclusion: Exporting to the highly competitive U.S. market can be a challenging and complex experience. It requires sound market entry and pricing strategies. There is not one key to success. These days you need it all – price, quality, on-time delivery, quick turnaround times and knowledgeable representatives. As a result, we recommend that you seek professional assistance before embarking on this new venture. If done right, the rewards of exporting to the United States can be substantial.

Financing your Exports: Factoring

This is one of the commonly used methods in the U.S. textile and apparel industry. It involves converting accounts receivable and commercial invoices into cash before maturity, leaving the business free of the responsibility of collecting the payment.
Main reasons for factoring: limit the costs of credit and collection; increase sales by using a factoring company to guarantee credit and collection services, and increase profits by concentrating efforts on product development, production and sales.
Factoring costs will depend on the type of business, the client’s annual sales, the time required to process an order, the buyer’s annual sales, the credit history and reputation of the buyer, and the terms of the invoice.

Tax, Legal and other Issues to Consider When Doing Business in the United States

If you want to do real business in the U.S., you need to incorporate a company there. There are no restrictions on who may own U.S. companies, with the exception of hi-tech military products. Companies are incorporated under the jurisdiction of an individual state, but the corporation can do business in all states. In choosing a state, there are several factors to consider, but the most important are logistical issues and the individual state tax rates. Companies can generally be incorporated for approximately $500 and annual renewal fees are in the $300 range. U.S. labor laws are very flexible and facilitate the administration of personnel. It is important to keep proper accounting records and seek the assistance of tax professionals in order to minimize corporate and individual taxes.