Scottish cashmere fights off challenge from China

HAWICK, Scotland - Textile firms across Europe and the United States say they are fighting to survive against the rising tide of imports from China but Scotland's cashmere industry is putting a new spin on the challenge.

The company that once introduced the world to unshrinkable woollen underwear and now clothes top golfers, Peter Scott, is tapping into a growing luxury market in China.

By setting up a licence agreement for a Shanghai firm to produce and sell knitwear under its name, the 127-year-old Scottish knitwear brand hopes to thrive despite the lifting of textile export quotas at the start of the year.

"It's one way of combating the Chinese threat, it's a totally different side to it but it brings in income," said Managing Director Nick Bannerman, estimating the deal could yield 500,000 pounds ($1.3 million) in royalties by 2010.

The former accountant set up the deal last year allowing the Shanghai Spring Bamboo Enterprise Development Company Limited to produce and sell Peter Scott labelled knitwear in hundreds of Chinese stores.

"If they do it right through Japan and China hopefully we will become a relatively important upper-end brand in Asia without having to spend any money, that's the beauty of it," he said, citing estimates of 100 million affluent Chinese by Western standards in 10 years time.

Scottish cashmere mills have been around since the 19th century and their scarves and jumpers are worn on golf courses and catwalks the world over. But the industry says it can't afford to coast on history.

China already has 20 per cent of a US$400 billion ($562 billion) world textile market and US imports of textiles and clothing from China shot up an annual 40 per cent in January after the decades-old trade limits were lifted.

In the cashmere world, Scottish mills can hardly expect to compete with China on costs. It has cheaper labour and price control over cashmere fibre, which comes from the underhair of goats living on the plateaus of China and Mongolia.

Graeme Sands, who runs the umbrella group Scottish Cashmere Club, says that for now European producers can still set themselves apart on quality.

"Chanel make their cashmere in Scotland, Hermes make their cashmere in Scotland, Louis Vuitton make cashmere in Scotland, all of the major designer names around the world either weave or knit here," he said. "They come to us for quality. "

But all that could change if Chinese firms improve their service and quality and take a bigger market share with bigger profit margins.

"The whole mentality seems to be pile it high and sell it cheap and as long as it stays like that we are happy because we don't pile it high and sell it cheap," he said. "But we are constantly watching over our shoulder. All it would take is the Chinese to get wise. "

So far European clients have remained loyal to Scottish cashmere but some US firms have been wooed by China's lower prices, said Sands, whose group represents some 2,700 workers.

The club is running fashion shows around the world and marketing the club's stringent rules on production processes and fibre quality under a "made in Scotland" label, thanks to funds from members, local government and the European Union.

Even the smallest cashmere companies are devoting more and more of their budgets on marketing now export gates have opened.

Alex Begg, a small weaver making scarves and throws on Scotland's west coast, has trebled its marketing budget in the last two years and hired a public relations firm in New York.

Managing Director David Breckenridge said that rather than campaign for safeguards as some textile lobby groups have done, his firm had to keep clients like top designers by giving them a flexible service thanks to its small 65-strong workforce.

"No amount of complaining or moaning about it is going to make the slightest bit of difference," he said. "We are not going to change the macro-economic policies of major trading blocs, the EU, the US or China. "

- REUTERS