Fabrics And Furnishings International Speech

Breakfast at Showtime

July 10, 2002

Good morning, everyone. I was delighted to have been invited to share my view on competing in the international upholstery fabric market at this meeting — because building a strong international presence is a key component of Quaker's business strategy.

Sometimes the best place to start a discussion like this one is with a reality check. So, let me begin with a couple of facts.

FACT ONE — 96% of the world's population lives outside the U.S., ninety-six percent. And while it is that not all of those people have both the means and the inclination to buy the home furnishings products our companies manufacture — even if only 5% of them do — we're talking about a market that is easily at least twice the size of the U.S. market — and that represents a huge opportunity for all of us — if we just dedicate the time and resources required to figure out how to take advantage of it.

FACT TWO — We live and work in a global marketplace — and we have lived and worked in a global marketplace for quite some time now. The advent of the electronic age has served to accelerate this trend — but, as a factual matter, it is the business environment we have been working in for years. And we must all learn how to survive and prosper in this global marketplace — that's our job — that's our future.

That means, among other things, that we can't waste a minute lamenting it — because a fact — is a fact — is a fact.

And, in my view, we shouldn't be dedicating any of our time or energy pursuing protectionist strategies — because building a wall around the U.S. market is not going to help us. Even if it was politically possible — and I very much doubt that it is — it's a false objective. More importantly, it's not good for our companies, our industry or our country.

In fact, I start with that as my basic premise — because everything I know about economics, everything I know about business, and everything I know about our industry tells me that globalization is good for the world community as a whole because it enhances economic interdependence – linking nations every closer together as each seeks to further its own individual economic interest. It's also how we build wealth and justice for all people. And for these reasons, I also believe the stabilizing effect of globalization to be good for the nation we live in, for each of us in this room and for the companies we represent. Because I am absolutely convinced that the best way to build bridges is to tear down walls — not build them.

So, for me, those two facts alone – the 96% of the world's population out there waiting to buy our products — and the global marketplace in which we live and work tell me that all of us need to be spending every waking moment understanding how to make the global marketplace work for us.

Quaker has been working on that for about twelve years now. And, with about 15% to 20% of our fabric sales made outside the U.S., we're making steady progress. Our analysis begins with the belief that all of us in this room are involved in businesses that are driven by fashion — and I believe that's whether our business is upholstery fabric, furniture, window treatments, bedding, or any other item for the home.

So — all of us have to start by thinking carefully about what it really means to be in a fashion business. Or, put somewhat differently, if we're playing a fashion game — what does it take to play to win?

First, I think it takes a company, and I mean the whole company, organized around product. Because, in a fashion business, product is a threshold issue. Without it, you can't play at all. So, you start with the absolute best design team you can field — you bring them in, you invest in them — then you appreciate them and you get out of their way — letting them go and letting them grow. And, if you do those things — my experience is that your design staff will consistently turn out new products that are far more creative and far more innovative than any you could ever have imagined.

After your design team is in place and their creative juices flowing, you need to be sure that the rest of your organization is positioned to provide your designers with all the support you can afford to throw at them. That includes:

• Technological support, to ensure that your design staff has the tools it needs to enhance the look and performance of your products.
• State of the art manufacturing equipment, to keep the cost of your products down and your quality, productivity and profit levels up.
• Delivery lead times that are second to none, to demonstrate your company's commitment to customer service, and
• Sales and marketing support, to make sure that you are able to tell the world about the great products you make and why they should buy them.

It's in these areas that we must excel — design, technology, quality, manufacturing, sales and service. And, when we do, we can compete anywhere.

Because ours is not a labor-intensive business — it is capital, technology, IT, and design intensive. And that means that this is not a business that should be organized around the cheapest labor — that is a distortion of the business we're in.

That's one of the colossal mistakes made by the broader U.S. textile and apparel industry — and it's killing them. Too many attempted to build models based on protectionism. Remember, the second largest exporter of textiles and apparel in the world is Italy — they understand their product, their business, and the global market. And that means that they understand the power of the electronic age when it comes to connecting people, cultures and businesses around the world. We should, too. Because wherever there are computers, satellite dishes and T-1 lines, there are people viewing American movies, watching American television shows, and reading American books and magazines. The electronic age has made that possible — and it has allowed literally billions of people outside of America to see the products our companies make being used in American homes. Those homes look warm, inviting, welcoming and, most of all in today's world, safe. And when people outside the U.S. buy home furnishing products that are designed and manufactured in the U.S., they bring a little bit of that into their own homes.

The electronic age also works both ways — in the sense that it is now much easier for Americans, including our design staff, to see and appreciate the design and color choices popular in other countries by merely selecting one of the 400 channels on their satellite TVs featuring foreign films or foreign programming. And we encourage them to do that. Because our objective is to ensure that all of the products we offer are responsive to the specific needs of our clients — whether those clients are here in the U.S. — or in New Zealand, Japan, or Peru. And we can't do that unless we are just as close to the New Zealand and Japanese markets, as we are to the domestic market. That means we have to do our homework — figure out how they use the products we make, how they live, what colors they like, what colors they like together. In short, we have to know who they are — and we have to be willing to focus on giving them what they want to buy — instead of focusing on selling them what we make — and that's a very different mindset — but one that is critical if you're serious about building a real presence in the global market.

Another thing to keep in mind is the need to be sensitive to not only what your customers want to buy — but also how they want to buy it. That means that business people in each country have their own ways of doing things. And today's most successful multi-national firms have figured out how important it is to staff their overseas operations with management and marketing talent with roots in that culture. That solves the language problem, guarantees that no one will show up at noon for lunch in a Latin American country, and generally just smoothes the way for a respectful and mutually rewarding business relationship. We've done that in all of our non-U.S. operations — and it works. It's also helped avoid the perception that plagues many American businesses abroad — you know, the one where the Americans are seen as sending out all kinds of signals — whether they mean to or not — that it sure is lucky for the people who have been living in a country for centuries that we Americans have arrived — just in time to sell you the only products in the world that are any good — so that your homes can look just like ours — and pointing out with reckless abandon that that really ugly chartreuse plaid thing you have over there in the corner of your office clearly confirms that the folks from the U.S. got here not a moment too soon.

In short, while there is clearly a right way and a wrong way to approach the international market, there is a demand for fashion and quality in home furnishings products in every country. People all over the world want our products — all we have to do is make that possible for them — and do it in a way that is respectful of who they are, what they want and how to do business.

And at Quaker, we are determined to do that. In fact, for quite some time now we have been consistently committed to the global market — putting in place the strategy and investments needed to succeed:

We have added the capacity required to service the additional sales, which have resulted from our international initiatives — and we have the products we need to meet the market-specific needs of our non-U.S. customers. To do that we have staffed every key area of the company —sales, design, customer service, with individuals with the special international expertise and experience required to support and build our export program.

To ensure that our designers understand precisely what our international customers are looking for in the way of colors and product design, our international design team travels extensively — attending key industry trade show around the world and gathering market data about the way people in Africa, Europe, Asia, Australia and Latin America decorate their homes. Our international marketing staff does the same.

In addition, one of the keys to success in the international market is setting your back office operations up in a way that makes it just as easy for your international customers to buy product from you as it is for them to buy product from one of their local suppliers. This means that you have to either handle the additional customs and other importation documentation for them — or you have to make it simple enough for them to handle it themselves. These documents can be confusing to the uninitiated — and they have to be letter perfect or bad things happen — so, special expertise is required. As our international customer service staff would be quick to point out, it does take awhile to get the hang of the tariff classification system — but with an appropriate investment in the process and a sustained effort to get it right — it can be done.

We also decided early on to build and develop a strong presence in certain key areas where we believed the market potential represented by a large and growing "middle class" was greatest. We started with Mexico and Canada, our two NAFTA trading partners, and last year our sales into those two countries alone topped $27.0 million, suggesting that as decisions go in the business world, this one was pretty good. We service our Canadian accounts through our Chicago and West Coast offices. We have showrooms in Mexico City and Guadalajara — as well as a warehouse distribution center just outside of Mexico City. We also have a showroom and distribution center in Brazil, showrooms in the UK and UAE and our own people and agents responsible for marketing our products in about forty other countries.

As an aside, and I realize that I was not invited to speak on America's trade policy this morning, however, I can't help but express my view that if America could cut NAFTA-like deals with every other country in the world I would be strongly in favor of that. Because I know that on a level playing field, Quaker's products and services would allow us to compete successfully virtually anywhere in the world. We just need some help. And I believe that, given all the resources those of us who are fortunate enough to live and work in America enjoy, that your products and services could, too.

Net, net, as a result of years of effort and investment, Quaker Fabric is now one of the key suppliers to the global market from China to Europe — from the Middle East to Latin America.

The expertise we have gained from our experiences in the international market has also made a big difference to our U.S. customers as well. We're a much savvier and more sophisticated player in the U.S. market now than we would have been if we had focused our design, marketing and distribution efforts on the U.S. market alone. And, it is clear to me that every trip outside the U.S. offers a host of learning opportunities for those who are open to them. Whether we're talking about cutting edge technology under development by textile equipment manufacturers located outside the U.S. — or fashion trends just barely beginning to evidence themselves in some of the fashion capitals of the world — or new raw materials — or different ways of doing the same thing — some of which turn out to be far superior to the way we've always done it. So, when I head out on these trips, I don't always know what 'm going to find, but I almost always come across some new development or concept that makes the whole experience worthwhile.

Taken together, everything we've learned from our active participation in the global market has resulted in a significant increase in Quaker's intellectual capital — providing us with the ability to supply all of our customers — here and abroad — with the best in product, quality, and reliability. And, because the best in product, quality and reliability is already sitting in their own back yard, our U.S. customers don't have to jeopardize their hard earned reputations by attempting to rely on risky import strategies that can only come back to haunt them.

Despite its up's and down's, I truly believe the business we are in is a super one — and I wouldn't want to be in any other. It's exciting, it's filled with potential — here and abroad — and it's fun. Our plan at Quaker Fabric is to continue to substantially growboth our U.S. and global business. Because we know it's out there — and because we know it can be done. You can, too. Ninety-six percent of the world's population is waiting — and thanks to the electronic age, ninety-six percent of the world's population is ready. That's our future and I'm glad.

Thank you very much for your attention. I would be happy to try to field any questions you might have.

TOP