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The Esquel Group (Esquel) was an apparel and textile

manufacturer founded in 1978
It set up its first factory in Shanghai, to benefit from the abundance
and low price of labor.
Chairperson of Esquel, transformed the business that competed
on lower costs to one that provided superior quality and competed
Speed to Market and Value for the Customer

The privately-owned company was one of the leading cotton

apparel and textile manufacturers in the world
The company employed 47,000 people and manufactured 60
million shirts a year.
Esquel offered its clients 1000 different fabrics annually
The company made a substantial investment in innovations, to
create new designs and fabric. Its factories were located in various
parts of China and also in Sri Lanka, Vietnam, Malaysia and

The company grew its own cotton, spun thread, weaved and dyed
its fabrics and manufactured garments.
While its rivals concentrated on outsourcing and specialization,
Esquel carved a unique niche for itself through vertical integration.
Esquel worked as a one-stop shop for its famous clients by
providing all the necessary services itself.
The company exported garments to clients in USA, Europe, and
Japan. The company also began retailing in China.
Vertical integration provided the company with control over its
supply and quality of its products.

Marjorie Yang prioritized three things at Esquel.

The first was to complete Esquels vertical integration.
The second was to introduce the latest technology and
management concepts into the company.
And finally, to develop Esquel into a socially conscious
company that contributed to the betterment of society

. The company made a huge investment in IT as a tool to enhance

its competitiveness.
Esquel utilized Intranet and Wide Area Network (WAN) which
linked its facilities across the globe, to get instant updates about its
numerous activities and keep track of operations at its various
Esquel used Electronic Data Interchange (EDI) to connect with its
clients and adapt its production, based on the feedback received
about its garments in an effort to provide better customer service.
It set up Esquel Technologies to share its management skills and
technical knowledge with Chinas textile factories.

The companys website stated, Esquels success lies in a

vertically integrated supply chain which encompasses cotton
farming, spinning, weaving, knitting, garment and accessories
manufacturing, exporting and retailing.
Esquels strategic integration ensures that quality and lead time
are controlled throughout the manufacturing process

Esquel forward integrated to manufacture accessories; it

also started retailing activity to distribute products under its
own brand namePYE
The company provided garment accessories including labels,
buttons, carton boxes and brand seals to its brand name clients
. The company introduced PYE with the aim of developing its
own brand that symbolized high quality.
The PYE garments were priced lower than those of foreign
designers but higher than local garments and made available
in select outlets in China.

The company engaged suppliers across many countries that

supplied certain raw materials and aided in the provision of labels,
accessories and packaging.

Advantages Of Vertically Integration.

Vertical Integration improved the companys supply chain
coordination, enabling it to reduce its lead times and move the
product faster through its supply chain.
Vertical Integration provided Esquel with opportunities to
differentiate its products from its competitors and control the
quality of its products through strict control over its inputs.

This control overall the operations/supply chain enabled Esquel to

obtain higher margins than its competitors
Vertical integration allowed the company to control its supply
and also the quality of its products.
The company used the latest technology across all of its activities
to gain competitive advantage by reducing waste, improving
quality, accelerating production.
All of its cotton was used internally in the production of its high
quality shirts so there was no wastage.

Another advantage of vertical integration was that the company

could track and solve problems quickly as it did not depend on
subcontractors and could control the entire manufacturing process.
Esquels increased flexibility to coordinate across its various
activities enabled it to incorporate and adapt to the changes in the
marketplace in a timely manner

Disadvantages Of Vertically Integration.

Huge capital investments to acquire, maintain and update the
latest machinery, equipment and technology required in each area
of operation.
As it integrated backwards, the company needed to develop new
competencies and the learning process resulted in some wastage.
Another disadvantage of vertical integration was that a problem in
any one of its activities could delay the entire process.

Although vertical integration enabled Esquel control over its

supply and the quality of its production, the cotton it produced
accounted for only a small part of its total requirement, and hence
the company couldnt achieve economies of scale. Through
specialization ,the companys resources could be diverted to its
more profitable activities Esquel focused on continuous
innovations in the type of fabrics manufactured and designs in
order to differentiate itself from its competitors, but its products
were imitated by its competitors and resulted in a very little longterm advantage.