As the textile trade war between China and the West continues to rage following the abolition of quotas at the end of 2004, one well-prepared company in the Gulf States is quietly making massive inroads into US and EU markets, according to a report in the latest issue of Textile Outlook International.

Manama Textile Mills, based in Bahrain, is already the largest textile group in the Middle East. Until this year it was primarily concerned with the production and export of greige – or unfinished – fabrics and yarns.

But over the past 12 months or so, the company has put in place a series of forward integration measures, aimed at the production of fully finished textiles and made-up garments. The company aims to systematically increase its profits to 2007.

Manama is now on target to achieve annual sales of US$250 mn by 2007, at the end of a three-year investment of US$70 mn in vertical integration and expansion. The company’s plan is to move into finishing and denim fabric production, followed by the manufacture of complete bedding sheet sets for the home furnishings sector, and finally the production of denim clothing.

Manama’s US$250 mn target represents a significant increase in export sales from a level of around US$100 mn in 2004, itself up from US$67 mn in 2003. Both figures were achieved from sales of spun yarn and greige fabric.

The company has always purchased the latest, state-of-the-art equipment from the USA, Europe and Japan. Its new finishing lines will be supplied by a number of European machinery builders, including Monforts of Germany and Switzerland’s Benninger. Its denim machinery will be supplied by two US companies, Morrison and McCoy Ellison.

Manama is on track to be the only vertically integrated textile operator in the Middle East, according to the company’s chief executive officer, Hamid Nishat. The company’s strategy is based on the simple concept of turning a one dollar kilo of imported cotton or other raw materials into ten dollars’ worth of final product for export – with a minimum of added cost along the way.

The company has been encouraged in its decision to invest in expansion by a recent free trade agreement between Bahrain and the USA. The US agreement enables garments made in Bahrain to enter the USA duty-free provided the yarns and fabrics from which those garments are made have themselves been produced in Bahrain or in the USA. This will put Manama at a distinct advantage over its competitors in countries such as India and Pakistan. However, Manama is going one step further. It is positioning itself to be the only company in Bahrain which is able to offer garments made from yarns and fabrics produced within a single company.

Another reason for Manama’s investment in the manufacture of finished products is to provide itself with opportunities for adding value and hence increasing profits. At present the value addition obtained from selling yarn and greige fabric to finishers and garment manufacturers around the world is small after the cost of importing raw materials such as cotton and polyester has been deducted. But the move to selling finished products and garments will require no further investment in raw materials. Only additional equipment and labour will have to be brought in – and Manama already imports its labour from Pakistan to avoid paying the higher cost of using local workers.

The wage bill will be further kept in control by the highly automated equipment which is currently being installed, rather than expanding the workforce. Automation of cut and sew operations, in particular, will bring down labour requirement in the final stage of production from around 1,100 to just 45.

Of the company’s exports in 2004, 70% went to Europe while 30% was shipped to the USA. By 2007, if all goes according to plan, these percentages will be reversed.

Manama supplied 1.63 mn bedsheets to the USA in January 2005 -- representing one-quarter of US imports of sheets during the month. Since Manama’s new fabrication units were not scheduled to begin operations until May 2005 the bed sheets in question will have been manually made-up -- most likely using outsourced making-up operations in Bahrain. These manual operations are likely to be closed once Manama’s planned investments come to fruition.

Manama sees the Chinese market as more of an opportunity than a threat. Just as China has progressed from being the biggest exporter of raw cotton to becoming its biggest buyer, the same is happening in yarns and fabrics. The company’s view is that China will end up buying more than it sells throughout the textile manufacturing chain.

Ends.