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Dairy Farm Report

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Dairy Farm Report

    Dairy Farm Report

     - About Esquel Lecture

     Sandra Deng

     On June 11, 2011, Mr. John Chen gave us a speech about the pros and cons of vertical integration in Esquel. His topic was divided by three parts. The first part was perspective on Chinas

    Economy. The second part was the pros and cons of vertical integration. The last part was winning as the industry consolidation.

    The first part was started at Chinese momentous event from 2008 to present. He mentioned the passed Olympic Games, Shanghai Expo and Asian games were held very successfully and he believed that coming University Games in Shenzhen will also grant great success in following months. These big events represent China growing power and economic status in the world.

    Then he gave us some detailed perspective on Chinas economy. Right now, Chinas economy is

    moderating after a sharp rebound. He listed some real GDP growth data from 2008 Q1 to 2010 Q4. The data are as below:

     Q1 Q2 Q3 Q4

    2008 11.3% 10.7% 9.8% 6.6%

    2009 6.5% 8.1% 9.5% 12.1%

    2010 11.9% 11.1% 9.6% 9.8%

    What are the growth drivers for China GDP? He also listed some data and drivers factor. Private consumption, government expenditure, net export and investment are the driver factor. Investment are the key driver and contributed the main growth which we didnt expect it. Following he listed

    some data about 4 drivers factors contributed China GDP from 2000 to 2010. China GDP Growth

     2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

     8.4% 8.3% 9.1% 10% 10.1% 10.4% 11.1% 11.9% 9% 9.1% 10.3%

    Gov. Expenditure , Net Export , Investment and Net Export are key factors for China GDP growth. . And Investment contributed the biggest growth for China GDP growth among all the factors. Then private consumption came to the second contribution, government expenditure was the third contribution. Net export contributed the smallest growth..

    Why the Net Export are the smallest factor for contribution. Because 2008 and 2009 , due to the Economy Crisis , Net export was hurt and influenced by it and all the consumption was focused in Chinese domestic market. Although it contributed little growth, the import and export growth rebound after the economic crisis. Import growth was from 20% to 40% and export growth was from 25% to 45%.

    Since the investment has contributed the huge growth to China GDP growth, what are the main capital resource? Bank loan. Massive bank lending moderated in 2010, what will happen in the second half of 2011? Following chart gave us a clear understanding.

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    So the inflation risk became a major policy concern. As the RMB appreciation a lot, food price flow in China too. Then he listed some data for illustration.

     In the fast part, John listed the perspective of China and it let us think more about current opportunities and difficulties. It widened out vision in Chinas economy and more understanding the

    impact of these factors and influence.

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    The second part is the pros and cons of vertical integration that John introduced was originated from his company Esquel.

    Esquel was founded in 1978 and it has 33 years old history until now. In 2010, Esquel produced 96 million shirts to leading brand from concept to rack.

    Esquel Group is one of the world's leading producers of premium cotton shirts. The Group is also among the most dynamic and progressive global scale textile and apparel manufacturers, with production facilities in China, Malaysia, Vietnam, Mauritius, and Sri Lanka, and a network of branches servicing key markets worldwide. The company is based in Foshan and possesses of a lot of wonderful equipment.

    Esquel manufactures for the world's best known and highly respected brands, including Tommy Hilfiger, Hugo Boss, Brooks Brothers, Abercrombie & Fitch, Nike, Lands' End and Muji, and major retailers such as Marks & Spencer, Nordstrom and Jusco.

    Then he introduced the operation in China for our better standing their core value. The vertical integration enables Esquel to control quality from cotton to packaging. As all the operating processes from cover to cover are guaranteed by Esquel, the quality is becoming prominent and advanced in the same industry. How does Esquel control the quality is really important and that is the vertical integration plays huge role.

    Esquel's vertically integrated operations ensure the highest quality in every step of the apparel manufacturing process. Production begins in Xinjiang province in northwestern China, where the Group grows its own Extra Long Staple (ELS) Cotton and Organic Cotton, continues through spinning, weaving, dyeing, manufacturing, packaging and retailing. Esquel's textile and apparel production is complemented by strong product development capabilities. The Group's design and merchandising team work closely with its research and development center to create unique finishings such as wrinkle-free and nanotechnology performance qualities that consistently give Esquel the cutting edge in the apparel industry. Following process is the good example about vertical intergration.

    Cotton:

    The Extra Long Staple Cotton, grown at the Esquel's cotton farms, produces a high-count yarn that has a silken texture and is extremely fine and lightweight - making it the ideal fabric for garments of the highest quality.

    Yarn:

    To provide customers with the finest possible yarn, Esquel has introduced ComforSpin technology at its spinning plants. This state-of-the-art technology has a number of advantages over conventional ring-spinning, improving yarn characteristics, process costs, and the properties of the end product. In essence, fabric woven from this yarn is much cleaner than fabric made with regular yarn.

    Fabric:

    Esquel produces high quality cotton woven and knit fabrics.

    -Woven

    With a capacity of 110 million yards a year, Esquel is China’s largest manufacturer of cotton

    yarn dyed woven fabric. Our newly expanded, state-of-the-art factory is located in Gaoming, China. It boasts best-of-class machinery from around the world and focuses on high end products.

    We specialize in high yarn-counts with a focus on 80s and above in a wide range of fabrications such as Dobby, Pinpoint Oxford, Twill, Poplin. The variety of fabric finishes we offer includes standards, such as mercerization, brushing and peaching to highly popular proprietary finishes such as Silky Finish and UltemaTM.

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    -Knit

    Esquel produces 20,000 tons of cotton knit fabric annually, including piece dyed, yarn dyed and heather. With a focus on higher yarn-counts, we offer several fabrications including Jersey, Interlock, Pique, Lacoste, Rib, French Rib, Jacquard and Auto-stripe. Our fabric finishes include standard and innovative proprietary qualities, such as UltemaTM and Salon Finish.

    As part of its continuous effort to enhance product quality, Esquel has extended its cotton operations to include ginning and cotton seed breeding.

    Apparel:

    Esquel manufactures for the world's best known and highly respected brands, including Tommy Hilfiger, Hugo Boss, Brooks Brothers, Abercrombie & Fitch, Nike, Lands' End and Muji, and major retailers such as Marks & Spencer, Nordstrom and Jusco.

    Esquel has garment-manufacturing facilities in mainland China, Hong Kong, Malaysia, Mauritius, Sri Lanka and Vietnam, and is renowned for the quality of its products and customer service.

    Accessories:

    Esquel's integration means that in addition to producing garments the Group owns plants that make accessories such as buttons, labels, and handtags, and packaging materials including plastic and paper bags, stickers and carton boxes.

    After we understood their manufacturing operation, John continued to introduced the retail market in China. Esquel has its own luxury brand PYE in China and right now there are 10 shops in Peking, Shenyang, Chengdu. Soon it will open a new store in Guangzhou.

    Retail and Direct Distribution:

    In 2000, Esquel Group launched its retail brand, PYE, a premium cotton apparel line in China. The exclusive collection, compiled of men's and ladies' dress shirts, sport shirts, woven and knitted tops, is available at the following locations:

    China World Trade Center, Beijing

    Oriental Plaza, Beijing

    Sanlitun Village, Beijing

    Gaoming, Foshan

    Maison Mode, Xinjiang

    Galleria, Chengdu

    Wanda Plaza, Shenyang

    Wanda Plaza, Tianjin

    In addition to serving Esquel's internal needs, these plants produce accessories for our clients, meeting their exacting quality demands.

    Esquel's uncompromising emphasis on ethical business practices, creativity and continual improvement has earned it a reputation as "A Company of Fun People Serving Happy Customers". Applying state-of-the-art technology and manufacturing processes, Esquel continues to be the standard bearer of reform for the textile and apparel industry.

    The textile industry employs more people around the world than any other. The companies that make up the industry therefore have much to contribute to social and environmental responsibility.

    At Esquel, they place these responsibilities at the center of our management philosophy and their business.

    Esquel has made comprehensive efforts to identify, monitor, minimize and continually reduce the environmental footprint of its operations throughout the world and offer good workplace

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    conditions. They continuously explore ways to foster environmental consciousness and awareness at all levels of the organization, in the communities where we carry on business, and among the farmers, suppliers and other stakeholders with whom we deal.

    Corporate Social Responsibility (CSR) is ingrained in Esquel’s culture. Their code of business

    conduct helps ensure that they do business in a responsible way that is consistent with their values.

    Esquel formally established a dedicated Corporate Social Responsibility department in 2004, headed by a Director of Corporate Social Responsibility who reports directly to the Vice Chairman and CEO. The CSR department works closely with Esquel’s Internal Audit department, which also reports to the Vice Chairman and one of Esquel’s external independent directors overseeing all company audit issues to ensure Esquel’s commitment and compliance with responsible business

    practices.

    The CSR department is also responsible for advising the CEO and other senior managers on risks inside our business related to the lack of adherence to international labor standards. In addition to this, the department supports our communication with customers concerned about labor, and environment, health and safety related workplace issues as well. This department works together with customers to continuously improve the workplace through trainings on labor standards for management, staff, and our most important asset, workers. Working closely with customers also helps provide further transparency and insight into the issues faced in a labor-intensive industry.

    At Esquel, they also expect their suppliers to share their commitment to operate in a legal and ethical manner and include this conversation in their business discussions. Their code of conduct covers the behavior of our suppliers, as well as all Esquel owned facilities.

    Also under the CSR department’s purview are community development and outreach and

    external engagement with government, suppliers and non-governmental organizations.

    At Esquel, they do not see CSR as a defensive strategy, in reaction to international criticism of working conditions in regions with low cost labor. Rather, they would like to set a positive example and prove that a company can be both profitable and committed to sustainability and worker welfare. On top of internal reviews and hosting numerous customer audits, ongoing training is conducted for Esquel employees on labor, environment, health and safety standards.

    Esquel values the knowledge provided by both local and international Non-Government Organizations, and trade unions, and continuously engages in civil society discussions with organizations focused on international labor standards. In addition, Esquel management engages in trade union discussions and negotiations through the formal independent trade unions existing in it’s Sri Lanka factories, the in house union at it’s Malaysia factory, the VCGL in Vietnam, and the ACFTU in China.

    Esquel commits to certify its factories under the Worldwide Responsible Apparel Production (WRAP) standards, ISO 140001 environmental certifications, and Oeko-tex 100 certifications. It is also one of the first 10 factories in the textile and garment industry to publicly commit and support the China Social Compliance standard (CSC9000T). In addition to this, Esquel is involved in discussions, audits, and other projects through its customers who are members of various Multi-Stakeholder Initiatives, such as the Ethical Trading Initiative, the Fair Labor Association, and Social Accountability International. In October of 2008, the Board of Directors of the Fair Labor Association, (FLA) http://www.fairlabor.org/ a non-profit MSI dedicated to ending sweatshop conditions in factories worldwide, approved the Esquel Group’s application to become a Participating Supplier Affiliate. Esquel is also a founding Member of the United Nations’ Global

    Compact. Esquel wants to make a positive impact on the work place and the communities in which

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it conducts business.

    Civil Society Engagement:

    United Nations Global Compact

    Asia Business Council

    China Exploration and Research Society

    Civic Exchange

    Earth Pledge

    Hong Kong School of Creativity

    Institute of Public and Environmental Affairs

    JUCCE

    Racing the Planet

    Shanshui Center for Nature and Society

    The Conference Board

    Zuni Icosahedron

    The Organic Exchange

    Esquel's logo reflects the simplicity, elegance and economy of design that lie at the heart of Nature, a beauty also expressed in the mathematical relationship of the golden mean. Derived from the lower case "e", the first letter in the Group's name, the pleasing curves bring to mind both a garland of flowers and the spiral galaxies of outer space.

    The design is also reminiscent of both the stylized clouds found in Asian art, which symbolize good fortune, happiness and a sense of calm, and the cotton bolls that are the foundation of Esquel's business. Rich in natural associations, the design is the perfect symbol for a company whose work is literally rooted in the Earth itself.

    Then John was illustrated his companys mission, vision and commitment.

    Mission: To be the best cotton shirt partner.

    Vision: Fun people serving happy customers.

    Commitment: To provide total shirt solution to help our customers business growth.

    This success in fostering a corporate culture that encourages learning and taking risks is rooted in the recognition that the creativity and innovation of Esquel's 54,000 staff are invaluable assets crucial to continued success.

    Clients soon discover that this entrepreneurial culture is to their benefit: Esquel is a highly adaptable, customer-focused company with the global reach to help clients capitalize on business opportunities.

    Ethical business practices and clear, uncompromising values are the foundations of the Esquel way of doing business. "A Company of Fun People Serving Happy Customers" is the motto we live by.

    With its successful expansion in China retail market, John mentioned that is the 5E contributed the success. The 5E means Ethics, Environment, Exploration, Excellence and Education.

    By product business overview, woven garment has accommodated 46% business scope in Esquel, while Knit Garment accommodated 34%, the rest of others are 20%. By region overview, USA is the biggest market which is 46%, Europe is 25%, China is 12%, Japan is 6% and the others is 11%. In 2010, Esquel became No.1 of Mens Woven Shirt Exporter in China and No.4 of Cotton

    Knit Shirt Exporter in China. The outstanding performance proved that Esquel vertical integration really did great job in the operation.

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    The third part that John wanted to share with us is winning as the Industry consolidates. He firstly mentioned the consolidation among apparel supplying countries. It was related to U.S importing quota issue. Following chart indicated the quota proportion.

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    From the above chart, we may see that U.S importing quota to China is becoming bigger and

    bigger as the quota conflict is terminated in 2005. It is beneficial to Chinese fabric manufacture.

    Another consolidation is about the labor change. Right now, labor cost is very high and it

    increase the difficulty in recruiting workers after Chinese Spring Festival. But Esquel is still

    successful in Garment industry because some key drivers as below:

    ; Abolishment of Quota

    ; Stretched material and labor

    ; Buyers desire to simplify and optimize their sourcing operation

    ; Flight to quality and stability.

    Esquel has formed its competitiveness of suppliers, for example, quality & productivity, creativity and innovation, corporate social responsibilities, those competitiveness needs suppliers to upgrade and innovate. So just through its efforts, Esquel groups revenue grew

    from 530 million US dollars in 2006 to 970 million US dollars in 2010. Compared to Zhejiang province, Esquels workers wage almost doubled as well since 2005.

    Apart from that, Esquel invested state-of-art equipment to upgrade quality and productivity. Also the innovation and value adding service are also became important competitiveness by following factors:

    ; Their design and merchandising capabilities

    ; Customized supply chain solutions such as VMI

    ; Dedicated R&D efforts

    ; Patented three-in-one dyeing machine.

    ; New ecological washing machine.

    The new technology about washing machine is conservation of water and energy along apparel supply chain. It reduced water consumption by 40% from 2005 to 2008, equivalent to 377002730.doc Sandra Deng Page 8 of 9

    3.5 million tons of water. And its energy saving around 29% from 2005 to 2008, with equivalent annual saving of 100 million kWh, reduction of 164,000 tons in greenhouse gas.

     Esquel also strengthen its consolidation through acquisition CJE and EAV. Through the acquisition, Esquel can increase its productivity and strengthen its quality control. Esquel established sustainable development initiatives like collaboration with sustainability partners such as Philips, NRDC, Fair labor Association, Toray, novozymes and Shanshui conservation center. Esquel developed its people for caring them and local communities such as team building and work-life balance, communities efforts, invest in the Future children school.

     Esquel is an equal opportunity employer and we offer

     Health and Safety working environment -We respect rules and procedures designed to protect the health and security of everyone in the workplace.

     Fair employment practice -The level of working hours and wages must be in compliance with the laws and regulation

     Equal opportunity for every employee -We maintain a policy of equal employment opportunity for all employees and applicants for employment

     Protect the right of children and youth -We believe in no child abuse and adherent to the local labor laws standard

    No Forced or Compulsory -We do not engage in forced or compulsory labor practice in our workplace

     Freedom of association -We respect our employees’ right to freedom of association in

    accordance with the laws of the country

    Comprehensive training is also provided.

    They are also involved in the life of the communities where they have a presence: they have brought clean drinking water and electricity to villages, donated garments to areas devastated by natural disasters and supported homes for senior citizens and orphanages.

    Esquel also believes that education is the greatest gift to the young, and they support this belief in many ways. Schools supported by Esquel give thousands of children the opportunity to achieve a better future for themselves, their families, and their communities. Esquel builds and renovates schools, sponsors needy students, and has established over 700 mini-libraries in Xinjiang province, northwestern China. By helping them learn, we have also learned from these children's creativity, inspiration and undeterred spirit of learning!

     So Esquels winning value to buyers beyond the products includes service to buyers and confidence & trust in suppliers. For service to buyers, there are three parts, one is product development capabilities, second is supply chain solution and the last on is international trade consultation. For the confidence and trust in suppliers, there are also three parts. No. 1 is quality and delivery, No.2 is flexibility and fast response. No 3 is commitment to CSR and sustainable development.

     Finally John show us some medal that Esquel acquired these years. He mentioned that this certificates enable their customrs sleep better at night. That also the recognition for its excellent and wonderful quality products.

     John use one sentences to concluded his mission: Sustainable manufacturing meets fashion.

     After the speech, some classmates questioned John very interesting question, John answered them one by one and mentioned although they are traditional industry but doing non-traditional business. One day they will also explore B2C market as well. Let us expect that day will come soon.

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