Hanesbrands Inc. said that China’s decision to allow fluctuation of the Renminbi/yuan currency value will not have a material effect on company performance and will not alter the company’s global supply chain advantages, including its East Asia manufacturing hub.
Currency fluctuation is just one of many variables the company continually manages around the world, including commodity costs, labor inflation, trade laws, and product sourcing. Last week, China announced that it would reform its Renminbi exchange rate regime and increase exchange rate fluctuation flexibility.
Hanesbrands has little exposure to Renminbi currency fluctuation. For example, a 5 percent exchange rate change for the Renminbi would have just a $1 million to $1.5 million pretax effect on company costs in 2011 and even smaller effect in 2010.
Hanesbrands produces the majority of its products in its own manufacturing plants located primarily in three balanced geographic clusters: the Caribbean Basin, Central America and East Asia. The company’s East Asia production fabric production in China and garment sewing in Thailand and Vietnam also gives Hanesbrands a low-cost supply to support its U.S. commercial business as well as its growing Asia commercial businesses, including in China.
Chinese currency fluctuation would have little impact on company products that are supported by its Nanjing, China, textile fabric plant, which uses U.S. yarn and sends fabric to be sewn in Vietnam and Thailand, limiting the labor and variable costs that could be affected by Chinese currency fluctuation.
“The competitiveness of our balanced global supply chain is a key pillar to our growth strategy,” said Gerald Evans, Hanesbrands president, international business and global supply chain. “Before deciding in which countries to locate our manufacturing operations in the Caribbean, Central America and Asia, we analyzed extensive long-term scenarios using multiple factors, including currency fluctuation, labor markets, political stability, and energy infrastructure, to name a few. We have one of strongest and most flexible supply chains in the apparel industry that supports our worldwide growth vision.”
While Chinese currency fluctuations are expected to have minimal effect on Hanesbrands’ supply chain, other cost pressures are affecting apparel industry supply chains on a worldwide basis, including systemically higher cotton and energy costs and labor inflation. Hanesbrands supplements its production in company-owned plants with sourced goods from strategic vendors located in multiple countries in both hemispheres to assure cost competitiveness. Sourced goods and self-manufactured products from all countries have exposure to systemic cost inflation.
Hanesbrands attempts to mitigate and contain cost spikes through geographic diversity and efficiency initiatives. In light of the systemic cost inflation that is now occurring, Hanesbrands is working in partnership with its customers to implement the optimal mix of price increases and brand investments to allow the company and its customers to successfully navigate this higher cost environment.