When the burden is a.s.sumed by the selling agent, or factor, he in turn may shift it to the bank, either by indorsing the note of the mill, or by indorsing the note of the purchaser of the cloth or by borrowing directly from the bank on his own paper.

The converter, as a rule, is not a factor, but a merchant pure and simple, seeking accommodations from a factor or a bank as his needs may require it. Inasmuch as he usually buys for cash or on short-term notes, and sells to jobbers or retailers upon more extended terms, his needs are frequently heavy. His relation with his factor may be, and frequently is, upon the basis of accounts receivable, or he may borrow upon his own collateral, or, if he is counted an "A1" risk, upon his unsecured note.

These, in brief are the financial steps in the progress of cotton from the grower to the jobber. A cursory view is all that is possible, because in the words of a textile banker of standing "every textile banking transaction is a law unto itself." Yet enough has been said to show the all-important part which banking plays in the cotton industry, and to indicate how dependent are the turning of wheels and the distribution of cotton and of cloth upon the credit which banks and bankers are able to provide.

Factors and Their Wide Financial Service

Frequent use has been made of the word factor, and no adequate definition of its meaning has yet been given. The factor is, briefly, the commercial banker of the industry, and his duty is to provide, at any stage of the cotton process, the financial a.s.sistance which may be necessary, either from his own resources or through his affiliations with some large bank.

It is true, of course, that some factors work only with those dealing in raw stock, and some confine their services to mills. Some factors are cotton buyers, some are selling agents, some deal with buyers and some deal with selling agents. Some are employed only by the mills. Recently, however, the tendency has been to develop under one roof a unit inst.i.tution capable of handling every textile banking transaction. It will be interesting to enumerate here, briefly, the various functions and facilities of one such inst.i.tution:

1. It makes loans to cotton buyers and to mills on cotton held in warehouses or in transit.

2. It checks the credit of the mill's prospective customers.

3. It cashes accounts receivable.

4. It makes advances against merchandise for the account of mill, converter, or jobber.

5. It finances merchandise and raw material requirements, and current operations.

6. It deals in acceptances, specializing, of course, upon paper arising out of transactions in the textile industry.

7. It maintains an Industrial Department, which includes:

(a) the services of a consulting architect, expert in mill construction.

(b) the services of a production engineer, skilled in the laying out of plants in the line of greatest efficiency, and in diagnosing and correcting the production mistakes of an inefficient mill.

(c) information as to the newest mill practice, which it is ready to provide for its clients and others.

(d) readiness to a.s.sist customers in the expansion of their business either by financing new mill construction or by providing sales representatives in other countries.

(e) maintenance offices abroad, either for the buying or selling of textiles or equipment, or raw materials, or for the complete and direct financing of such transactions.

CHAPTER VI

American Cloth in Foreign Markets

We have seen that the American cotton grower supplies more than half of the world's demand for raw cotton. The cotton manufacturer in the United States is in no such position. This is not to say that American cotton goods are not exported in very considerable amounts. From the inception of the industry in this country varying percentages of the total product have been sent abroad. The following table, taken from the United States Statistical Abstract (1910) shows the average annual exports of cotton goods for the five year periods named, expressed in millions of dollars:

_Uncolored _Colored _Total_ Cloth_ Cloth_ _Other_ 1856-60 $7.5 $2.4 $2.3 $2.8 1861-65 3.7 .4 .9 2.4 1866-70 4.1 .9 .3 2.8 1871-75 3.1 1.7 .6 .7 1876-80 10.0 6.1 2.6 1.2 1881-85 13.0 8.0 2.9 2.1 1886-90 12.4 7.4 3.2 1.6 1891-95 13.3 7.7 3.0 2.5 1896-1900 20.4 11.6 4.4 4.3 1901-05 31.3 17.2 7.0 7.0 1906-10 35.1 16.8 7.2 11.0

The irregularity of the export trade, as shown by these figures, has been explained on several grounds, the chief factors being, apparently, the fluctuations in the prosperity and consequently in the buying power of the home market, and the pressure upon the home market exerted by the rapid growth of cotton manufacturing in the South.

The normal position of the United States as an exporter of cotton goods is shown by the following table, which gives the exports of the chief manufacturing countries in the year before the war (the figures for 1915 are also given because they show the changes which had already begun):

1913 1915

United Kingdom $618,000,000 $418,000,000 Germany 117,000,000 30,100,000 France 78,000,000 60,000,000 j.a.pan 58,000,000 95,800,000 United States 55,500,000 60,200,000 Switzerland 50,300,000 65,800,000 Italy 47,800,000 30,500,000 India 38,900,000 27,300,000 Holland 30,900,000 Austria Hungary 27,800,000 Belgium 23,700,000 Russia 22,500,000 19,700,000[B]

Spain 8,300,000 17,400,000 China 1,400,000 2,100,000

----- [B] Eleven months.

Thus, despite the very remarkable growth which had taken place between 1910 and 1913, the United States ranked fifth among the nations exporting cotton goods. The reasons for this might be summed up in almost a word.

The attractiveness and rapid growth of the home market provided an outlet for practically the whole output of American mills. With high prices prevailing in the home market, the manufacturer was not called upon to exert himself to stimulate sales in regions where compet.i.tion would inevitably be keen and profits small.

Minor Handicaps to Trade Development

Supporting this main objection there have been others. Until recently the banking facilities abroad were insufficient to the needs of a greater commerce; and shipping facilities, in pre-war days, were not such as to make regular shipments possible to many foreign markets. Over these conditions manufacturers had not direct control, but there were other matters in which their own short-comings were all too evident. There is little need to list again the familiar complaints, known to every reader of Commerce Reports and the export magazines. Faulty packing and insufficient attention to orders were the most frequent. The former was undoubtedly due to inexperience, and the latter to the tendency of the manufacturer or merchant to consider the foreign market as a place for disposing of a surplus unsalable at home. To this att.i.tude may also be attributed the frequency with which shipments for which orders had been accepted have been delayed or overlooked altogether.

[Ill.u.s.tration: _Compress bales awaiting export on a Savannah wharf_]

The foreign market remained for the American manufacturer a prize so distant and of such questionable value that he was simply not willing to make the effort and spend the money that would be necessary to compete with British, German, French, and other sellers. He would have had to know local customs and tastes, and all the details that he had so arduously acquired a knowledge of for the home market. The time was not ripe.

U. S. Export Trade As Affected By War

The war served to disarrange the system of cotton cloth distribution of the whole world. It is now a commonplace to say that the United States, by the cutting off of the usual sources of supply, succeeded for the first time in entering in force markets which hitherto had been closed.

It would probably be truer to say that foreign buyers, finding it impossible to secure their customary supply from their regular sources, came to the United States and asked American manufacturers to supply their imperative wants.

Just what this meant is found in the statement that while in 1913 our total exports of cotton goods amounted to about 445,000,000 yards, in 1917 the figure was about 690,000,000 yards, an increase of fifty-five per cent. The increase, moreover, has been in the colored cottons, the uncolored cloths showing an actual decrease.

The United Kingdom, during 1917, exported nearly 5,000,000,000 yards of cloth, so there is no immediate prospect that the United States will be a dangerous compet.i.tor for that country, except in a few limited lines and in a few markets. The chief gain to the American cotton industry brought by the war was the opportunity it gave merchants to introduce their goods abroad at a time when loss was next to impossible. Operating at an a.s.sured profit they were able to learn the markets without the long and discouraging fight which would have been necessary had the compet.i.tive power of the other nations been at full force. If, as seems likely, the economic forces which projected the United States so suddenly and dramatically into the world's markets shall continue to operate, then the future will see a further development of our sales.

Future of Foreign Sales And Probable Markets

Our best and most permanent markets are probably to be found in such countries as Cuba, Mexico, the Philippines, Central and South America, and, to a certain extent, Canada and Australia, and parts of Asia and Africa. To be sure, compet.i.tion will have to be met both from European countries and from j.a.pan, whose development in the cotton industry in recent years has been nothing short of phenomenal. She has practically doubled the number of her spindles in the last ten years, and her compet.i.tion has already been felt, for instance, in China, where American gray goods have been practically eliminated from the market. Other growing markets for j.a.panese cotton goods are South Africa, Australia, India, and the west coast of South America.

In Cuba and the Philippine Islands, the United States has the advantage of a preferential tariff agreement and excellent shipping facilities. In Canada and Australia our cotton goods are popular but the tariff duties are in favor of Great Britain. In the Dutch East Indies there is at present a good opportunity for getting a foothold in the white goods trade. Argentina has lately been our best market for cotton goods, and as the imports of cotton products into that country amounted to $65,000,000 in 1916, this trade is worth the intensive efforts which are now being made to clinch it.

Future Development Up to Merchants

On the west coast of South America, as in the Manila market, there are established American trading firms that are doing extensive development work and their efforts have produced favorable results. In the other Latin-American markets there are practically no local American firms and in none of them have the possibilities of the trade been more than touched.

The general opinion seems to be that if the United States is to keep what she has gained by the war in the cotton goods trade the same care and aggressiveness will have to be shown in the foreign as in the domestic trade. England's position today as the foremost exporter of cotton manufactures is the result of careful study of foreign markets and their requirements, of catering to the tastes of the people, of aggressive advertising, of competent foreign salesmen, of reliability in filling orders, of good packing, and of more or less liberal credit terms.

Manufacturers in the United States will have to follow the same procedure if this country is to keep her present position in international trade.

CHAPTER VII