Tavex Algodonera may not mean much to readers. Nevertheless, anyone who
owns a pair of jeans is intimately familiar with its products as the
Spanish company is the world's leading manufacturer of blue denim
fabric.
Tavex has been struggling for some time to find a way to compete with low-cost rivals in China. In a bid to gain scale, it merged with Brasil's Santista (Spanish) earlier this year, creating a new global giant with 12 factories spread around the world, 6,000 workers and sales running at around €420m.
But six months on, it is has had to throw in the towel on any hope it once had to keep manufacturing denim in its home country of Spain. This month it announced it would close two factories in the Valencia region with the loss of around 300 jobs.
The company says the Spanish plants are uncompetitive and production there has halved in five years despite the increase in global demand for denim. Taxex will still keep its headquarters and R&D centre in the region, as well as around 100 weaving jobs.
So, is this the beginning of the end for Tavex? Not at all. The company announced last week that it aims to grow bigger by entering new markets such as Central America and, ironically, China . Indeed, the company plans to start producing denim in China in 2009.
The demand for denim in Europe is stuck at around 950m metres a year, while China consumes more than 1,200m metres and demand is growing with its youthful population.
It may be bad news for the affected Spanish workers, but Tavex is doing the right thing. It doesn't take an MBA to realised that if your main market has moved someplace else, then you have to move with it.
