Hong Kong shirtmaker Esquel turns to robots to beat tariffs
Company bets on automation for its future
Unlike industries that are only now being affected by tariffs imposed by the Trump Administration on Chinese goods, as part of the US-China trade war, the clothing and footwear sector has been subject to hefty American import duties for decades. Apparel makers have, therefore, had to find creative ways around these levies.
Esquel Group, Hong Kong’s most prolific maker of cotton shirts, is putting a bold new plan into action – one that transitions from a low-cost business model predicated on favourable locations for production towards a robotic future. The company has invested in San Francisco robotics company Grabit with the aim of automating its production lines.
Men’s cotton shirts, a mainstay of Esquel’s overall production, currently face a thumping 19.7 per cent import tax in the US. With 41 per cent of the company’s revenue of US$1.3 billion being generated in the America (27 per cent comes from Europe), this is a mighty cost to deal with.
The company, founded by Hong Kong tycoon Yang Yuan-loong in 1978, took advantage of low-cost production, initially in China, and later in Vietnam, Sri Lanka, Malaysia and Mauritius. That was, and still is, how many Hong Kong apparel makers deal with competition and developed world import duties.
China textile maker embraces automation, the environment
Mauritius, where Esquel registered a subsidiary in the 1970s, is a relatively unknown case in point. The 2,000 sq km island in the Indian Ocean, population 1.2 million people, has long enjoyed preferential access to European and US markets, particularly in clothing, thanks to trade agreements such as the Multi Fibre Agreement of 1974 and the American Growth and Opportunity Act (AGOA), passed in 2000 and extended in 2015.
Under AGOA, apparel exports from Mauritius to the US are duty free. Domestic taxes in Mauritius were, and still are, very favourable. According to Stephen Scali, a consultant and lawyer specialising in doing business in Mauritius, it is possible for a company to reduce its tax rate there to just 3 per cent. And there is no withholding tax on dividend payments to non-Mauritius companies.