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The Making of a Green Shirt – Sustainable Manufacturing through A Vertically-Integrated Supply Chain

Dr. John ChehVice Chairman & CEO, Esquel Group

Oct 19, 2011

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The Making of a Green Shirt

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Esquel’s Vertically-Integrated Set Up

Spinning Weaving/Knitting GarmentManufacturing

Trims& Packaging

Retail and Direct Distribution

Cotton Farming

The Making of a Green Shirt

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Sustainability is at the Heart of Our Corporate Culture

The Making of a Green Shirt

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The Making of a Green Shirt

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Common misconceptions about sustainable production:

• Add to the costs• For public relations reasons• Needs to be forced upon (by media, customer or government)

• For large companies only

The Making of a Green Shirt

Successful companies are successful because they practise sustainable production

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Embrace Technology & Modern management

The Making of a Green Shirt

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Sustainable farming methods and technologies result in increase in cottonyields and higher income and quality of life for farmers

Growing OrganicCotton in Xinjiang,Certified by Ecocert

Natural Pest Control, breedingcotton pests’ enemyto reduce pesticideconsumption

Handpicking Cotton, eliminatesuse of chemicaldefoliant

Drip Irrigation,reduces waterconsumption andusage of chemicalfertilizer

The Making of a Green ShirtSustainable Farming

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The Making of a Green ShirtSustainable Farming

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Water Consumption of Cotton Shirt Energy Consumption of Cotton Shirt

Fabric87%

Apparel13%

Fabric57%

Apparel18% Yarn

25%

The Making of a Green Shirt

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Annual energy consumption fell by 40% from 2005 to 2010, equivalent to 160 M kwh of electricity and 242,000 tons of greenhouse gas emission

Installation ofFrequency Inverters to all Machineryreduces energyconsumption by 40%

Installation of Water Curtains,better ventilationand cooling save up to 80% electricity

Energy EfficientLighting: replaced light bulbs with highefficiency fluorescent lighttubes and reflectors

Installation ofSkylights: makes use of natural light to reduce energy consumption

Steam PoweredAir-conditioningSystem:reduces heat and saveselectricity

The Making of a Green ShirtEnergy Saving

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The Making of a Green ShirtEnergy Saving

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Reduction of water consumption by 50% from 2005 to 2010, equivalent to 6.8 M tons of water

Waste Water Treatment Plantneutralizeswaste water from mills andfactories

Patented Pulse Dyeing Technologyconsumes less water, electricity and chemicals

Cold Pad Batch Pre- treatmentTechnologysaves water and energy

Recycling Condensedand Cooling Water saveswater & steam

Green Washinguses ecologicallybiodegradableproducts fortreatment andfinishing

WetProcessingCentrerecycles water in garment washingprocess

Reuses Soap Waterreuses up to 300 tons of water every day

Heat ExchangeSystemsaves 137 tons of steam

The Making of a Green ShirtWater Conservation

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The Making of a Green ShirtWater Conservation

Traditional Dyeing Pulse Dyeing

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Thermal Power Plantsupplies ownelectricity and steam to enhance energy efficiency and reduces carbon dioxide emissions

Desulfurization of Waste Lye reducessulfur dioxideemissions

Uses Only Clean Low Sulfur Coalwhich is cleaner source of power

The Making of a Green ShirtEmission Control

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The Making of a Green Shirt

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The Making of a Green Shirt

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Suppliers need to upgrade and

innovate

• Consolidation

• Cost containment (“It’s All About Productivity”)

• Creativity and innovation

• Conservation

• Corporate social responsibility

The Making of a Green Shirt

Competitiveness of Suppliers

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Winning As The Industry Consolidates

Drivers of industry consolidation

• Abolishment of quota

• Stretched material & labor supply with surging costs

• Buyers’ desire to simplify and optimize their sourcing operations

• Flight to quality and stability

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14%22% 26% 31% 32%

37% 39%34%4%

4%5%

6% 7%8% 8%

9%

4%

4%5%

5%6%

6% 6%7%

3%

4%4%

4%5%

5% 6%7%

10%

9%7%

6%6%

5% 5% 5%

3%

4%4%

4%4%

5% 4% 5%56%

48% 45% 41% 38%33% 32% 33%

2004 2005 2006 2007 2008 2009 2010 YTD Jun11

RoW

India

Mexico

Bangladesh

Indonesia

Vietnam

China

Source: US Office for Textile and Apparel

Consolidation of Major Exporting Countries to US (by Value of Total Apparel)

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Compete through State-of-the-Art Equipment toImprove Quality & Productivity

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Compete through State-of-the-Art Equipment to Improve Quality & Productivity

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Creativity and Innovations

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Creativity and Value Adding Services

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Caring for People and Local Communities

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Caring for People and Local Communities

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Caring for People and Local Communities

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Caring for People and Local Communities

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“We Must Become The Change We Want To See”

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THANK YOU