Gildan Activewear Inc (“Gildan”, GIL.TO) is a Montreal based manufacturer of printwear (think promotional materials) and branded apparel. Chances are you have at least one Gildan T-Shirt in your closet – the company has a 53% share of the US printwear basics market. At least one of your free HBS t-shirts is a Gildan shirt.
With large customers [†] in the United States, Canada and Europe and a commodity product, it is essential that Gildan delivers products reliably, on-time, and at the absolute lowest cost. Gildan has does this by vertically integrating its supply chain to maintain visibility and control. To meet the demands of its customers, Gildan has located its production facilities in low cost centers around the world (see the table below) where trade agreements exist with its biggest customer market, the US[‡].
With the United States renegotiating or threatening to withdraw from major trade agreements, this value chain is at risk of cost escalation. The potential for further disruption to trade agreements between the United States and the various countries where Gildan operates increases uncertainty, making it difficult for Gildan to price contracts, plan production and make hiring/firing decisions.
The head of Bain & Company’s supply chain practice Joe Terino says that taking a wait and see approach in response to this uncertainty won’t work. In his recent Harvard Business Review article, Terino suggests companies anticipate a range of regulatory scenarios and plan a series of moves that are ‘no-regrets’, create natural options and hedges, or represent significant bets. Gildan has thus far heeded this advice with the moves outlined below:
|Type of Action||Description||Gildan Action|
|No-regret moves||Actions benefitting a company’s competitive advantage, no matter which scenario plays out
|Option building / hedge moves||Investments that companies can make to develop strategic options for different scenarios||
|Big bets||Large scale investments that have different payouts depending on the scenario outcomes|
Building a diversified, decentralized supply chain like Gildan has is expensive. As prices for its products continue to face pressure, it is in Gildan’s best interest to consolidate its supply chain and enhance its position as the lowest cost supplier. To offset the political risk inherent in geographical consolidation, the company will need to develop earlier visibility into policy developments to shorten its response time. Terino suggests identifying key signposts in the development of policy and tying them to strategic initiatives. In the case of NAFTA this would include closely monitoring the details of negotiations in real time and making strategic decisions about its Canada and Mexico operations based on these signposts.
Gildan needs to get as close as possible to negotiations to gain as early of access to information as early as possible. Other Canadian companies, such as Linamar (an auto parts manufacturer) have gone so far as ‘volunteering’ as advisors to the Canadian government’s NAFTA team, trading off CEO time and resources for advance info on developments and an ability to influence conversations. Gildan should be right there with them.
With this isolationist trend still in its infancy, many questions remain. Will it spread to many more countries around the world? Should Gildan be investing in a full-time lobbying / regulatory team? Should it be investing in full, vertical operations in each of its customer markets?
Regardless of the answers to the above, Gildan needs to get its policy response right, or risk losing its shirt.
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[*] Assumes US$1.44B of Printwear Revenue in the United States and a Printwear Basics market of US$2.7B in the United States
[†] Two customers combined for 30.6% of revenue in 2016
[‡] 87% of 2016 revenue
[§] Based on November 14 closing price of US$ 30.09/share
 Gildan Activewear Inc., “Gildan Investor Presentation” (National Bank Financial Markets 7th Annual Quebec Conference, Toronto), 6–7, accessed November 13, 2017, http://www.gildancorp.com/documents/NBF.June7.2017.Annual.Conference.pdf.
 Joe Terino, “Is Your Supply Chain Ready for a NAFTA Overhaul?,” Harvard Business Review, accessed November 12, 2017, https://hbr.org/2017/06/is-your-supply-chain-ready-for-a-nafta-overhaul.
 Elizabeth Segran, “An Inside Look at Gildan, The Company That Just Acquired American Apparel,” FastCompany, November 15, 2016, https://www.fastcompany.com/3065686/how-to-make-a-t-shirt-in-trumps-anti-trade-america.
 “Bloomberg.com | Gildan Activewear” (Bloomberg, November 14, 2017), https://www.bloomberg.com/quote/GIL:US.
 Gildan Activewear, “Annual Report for 2016,” 8.
 Terino, “Is Your Supply Chain Ready for a NAFTA Overhaul?”
 Global Affairs Canada, “NAFTA Council Members and New Diplomatic Appointees,” August 2017, https://www.canada.ca/en/global-affairs/news/2017/08/nafta_council_membersandnewdiplomaticappointees.html.