The Triad's core manufacturing industries are prepared for another challenging year in 2006, but most executives still competing in the cutthroat world of furniture, tobacco and textiles think they already have weathered tougher years than the one they're about to face. Global issues will continue to dog local furniture and textile businesses. In furniture, the key challenge will be logistical. Manufacturing in China has long been a reality, but consumers and retailers are pushing for faster innovation and turnaround. Meeting that demand as the manufacturing process continues to stretch from one continent to another will push furniture makers either to find efficiencies or absorb higher freight costs. Meanwhile, textile companies will have to be wary of more than just China. The Central America Free Trade Agreement further opens another market, while India looms as a potentially huge player with its large and well-trained work force. The challenge for tobacco companies, however, is more serious than that. Manufacturers must figure out new ways to expand their business in the midst of shrinking U.S. demand. Tobacco The industry continues to contract as cigarette taxes rise and smoking restrictions increase, both discouraging consumers to smoke. At least industry officials aren't as concerned about lawsuits next year. The federal government's racketeering case against the major tobacco companies, including Greensboro-based Lorillard and Winston-Salem-based Reynolds American Inc., may finally play out in 2006, but most industry officials don't expect much to come of it. "I don't think the government will succeed," says Patrick Carroll, CEO of Freedom Tobacco in New Jersey. "I think tobacco companies feel betrayed because they did the master settlement agreement with the states and the government keeps coming back for more." Carroll says the case may come down to a settlement. "If the number is small enough, (tobacco companies) may settle it just to settle it," he says. "But I think that on principle they won't settle it at all. It'll probably be business as usual next year." That's not necessarily good news. The economic and social climate for tobacco companies continues to be hostile. Cigarette taxes continue to rise, including in North Carolina, one of the last bastions for cheap smokes. The state legislature agreed to raise cigarette taxes in August in two stages. A 25-cent hike went into affect last September, and the tax will go up an additional 5 cents "All across the country, cigarette taxes have gone up, and I think that's led to a reduction in smoking," says Carroll. "It's a little unclear whether that's caused people to trade down from premium cigarettes or just smoke less." Either way, manufacturers such as R.J. Reynolds Tobacco Co., the largest subsidiary of Reynolds American Inc., are consolidating along with the market to gain more market share. Company spokesman Seth Moskowitz says Reynolds is focusing on two of its brands for growth. "Eighty percent of our equity resources are devoted to the Camel and Kool brands," he says. "We're reallocating resources to focus on our strengths and moderating the decline of other our brands. In our plan, the growth of Kool and Camel over a five- to seven-year period is to exceed the decline on the other brands." Textiles Global competition will continue to reshape the Triad's textile sector in 2006 as nations other than China gain a firmer foothold in the market. But the impact is expected to be more subtle than it was about a decade ago, when scores of plants were shuttered. "The same market pressures are there, but the downsizing that occurred in late '90s has subsided," says Peter Kilduff, associate professor in the Consumer Apparel and Retail Studies Department at UNC- Greensboro. "The big issues now are the ending of quota restrictions and the impact of a more open trading environment." Primarily, the Central American Free Trade Agreement opens up commerce with the Caribbean basin in 2006. Kilduff thinks it will benefit local textile companies. "A lot of the apparel from the Caribbean is made from U.S. yarn and fabric," he says. "The suppliers there get the primary benefits from the trade deal if they continue to use it." On the other hand, Lloyd Wood, a spokesman for the American Manufacturing Trade Action Coalition, worries that the Central American Free Trade Agreement will encourage Triad companies to move more production to Central America. "With NAFTA, it took four to five years for that to take place," he adds. "Who knows if that window will be even smaller this time?" Wood is hoping the U.S. government's textile agreement with China will help offset any ill effects from CAFTA in 2006, but he has doubts. In the past, he says, China has shipped its goods to the United States through other countries to circumvent restrictions. Wood says permanently stabilizing the industry will take more government intervention. At the same time, Kilduff says China may not be the main country to worry about in 2006. Apparel imports from India, he says, were up 34 percent in 2005. "In real terms, India has been growing faster as an exporter to the U.S. than China," he adds. "Everyone has been focusing on China, but I think we'll see India come up and be more square in people's sights. They have a population almost as big as China's; Indians speak English for business, and they have a long-established Anglo business model." Furniture Time is of the essence for Triad furniture companies. A generally strong residential real estate market nationwide and rebuilding efforts along the Gulf Coast will keep business robust. But manufacturers will be pressed to get the latest merchandise to consumers fast enough. Mark Phillips, president of The Phillips Collection in High Point, says his customers -- furniture dealers and specialty retailers -- expect freight to be a fixed percentage of the price of goods. But their demands require shipping methods that cost more.