The mounting pressurescreated by the rising labor costs are making the apparel retailers, especiallyfrom the US to look afar China. What are the possibilities for Its Asiancounterparts to grab those opportunities?
Previously, China was considered as a country with inexhaustible labor; but not any longer. The biggestchallenge in front of the apparel manufacturers today is finding good workersat a lesser cost. The skyrocketing labor wages in China are pushing the apparelretailers of US to consider other alternative options. Labor costs have risenby 5% to 15% in the current year. In the Southern coastal province of Guangdong, the monthly minimum wages increased by 20%. Soaring wages are a result of wagedisputes. Labor charges account to 15-22% of the cost of an apparel made inthis province, with logistics accounting for 60%. Increase in labor will affectthe profit margins of the apparel manufacturers who have their manufacturingbase in Guangdong.
Apart from this, the Governmentalso seeks to focus on more sophisticated products such as electronics, ratherthan low technology, and labor intensive industries like textiles. High laborcosts are benefiting the Chinese workers, but apparel chains, especially fromthe US are mainly dependent on the low labor costs of China, and hence the increase in wages is pressuring them. Apparel retail costs are likelyto increase by 2% to 5% a year in China. Apparel manufacturing companies arelooking for countries where labor costs are 'easy on the pocket.' Countriespreferred are India, Indonesia, Cambodia, Bangladesh, and Vietnam.
Rising wages - The ChangingGame in China:
Rising labor costs of the dragonnation has sent the apparel retailers jostling for new options with favorablelabor costs. Otherwise they will be facing a situation of accepting higherproductions costs, battering their profit margins. This would not be preferredby them at the time, when they are just recovering from the jolt of recession. Thiscan be a break point for the Chinese economy, as well as for the foreignmanufacturers operating in China.
Retail giants such as Coach, andAnnTaylor Stores Corp are contemplating to shift their operations to othercountries where labor costs are less expensive comparatively over China. Ann Taylor is planning to relocate 65% of its products to countries which have lowlabor cost structure. Guess Inc is considering other alternative options incountries like Cambodia, India, Vietnam, and Indonesia. JC Penney Co isconsidering of shifting its operations to countries such as India, Bangladesh, Indonesia, Cambodia, and Vietnam. In their opinion these countries have a better costbase. These companies are not only concerned about the expenses, but areequally focused on the quality part as well. They expect quality products to bemanufactured from their factories, along with cheaper labor expenses.
Does the conversion benefitother Asian countries?
China possess high skill level,and quality fabrics. The country has good familiarity with the American retailers.Whilst these factors are beneficial to them, high import duties, and risinglabor costs does not favor them from the views of apparel manufacturers. As pera report of 2010, labor costs are $1.84 for an hour, which is a 14% increaseover the corresponding period of the previous year. India on the other hand, isequipped with good skills such as beading, and is advanced in home textiles,but has the disadvantage of taking longer time for transportation. Furthermore,labor costs are $2.99 for an hour which, likewise China is an increase of 17%comparatively over the 2009 rates. Cheap labor and less transportation costsare available in Bangladesh as the country favors shipping lines.
Vietnam has a competitiveadvantage over China and India while considering the labor charges. Theircharges are $0.49 per hour, which though is an increase of 2% from the 2009 rates,is still lesser when compared with the other two countries.
Factories in the coastal areasare increasing their hourly payment rates. Government is increasing the wagestandards. Along with this, if the Chinese Yuan also appreciates against the USdollar, cost of manufacturing in China will definitely increase. Economicanalysts believe that this will create ripples in the global economy driving upthe apparel prices. Possibilities exist, that China might not lose itsmanufacturing base owing to its huge domestic market, but there may be aperceptible shift towards high-end goods.
References:
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