Apparel buyers battling Yuan appreciation, increasing labor and raw material costs are now seeking at other commercially viable options. Which other countries have the caliber to match with China's productivity, volume, expertise, and quality?

Selecting an optimum outsourcing location is a key issue for stakeholders. Sourcing in global perspective always meant sourcing from China. Manufacturers from all across the world chose China for their sourcing requirements. But, the current twist of market trends indicate spectacular views signaling that industry key players are slowly moving from China, considering other options for their sourcing requirements.

China - once a preferred sourcing destination:

Amid the development of global sourcing business, China was a hot favorite. China gets most of its raw materials and components from within itself. A range of enterprises have established their operations in various Chinese cities with significant economic and social development. Generally the evaluation criteria for selecting a sourcing destination include labor availability, skilled labor force, labor costs, infrastructure development, techniques, and skills available in the city. An outsourcing company accurately defines, and articulates these requirements. Based on all these key factors, China was considered to be cost advantageous comparatively over other countries.

But currently, global market is experiencing a twist of unpredicted events, making the industry players to be dismal about China. With costs rising drastically, buyers from around the world reassess their sourcing options. Apparelresources.com reports Gordan Chang, economic analyst and author of 'The Coming Collapse of China' saying, "Scratch the surface and there is a weak China, one that is in long-term decline and even on the verge of collapse".

Mounting costs put global buyers in dismay:

China's drastic development has also caused energy, labor, transportation, and raw material costs to increase. They are likely to affect the competitiveness of China at the global forefront. International buyers are reviewing the risks associated with their sourcing options in China.

A survey by Global Sources reveals that 68% of their respondents agreed that Yuan appreciation has affected their sourcing business with China. 54% of them have stated that they anticipate export prices to increase. An industry player who is sourcing apparel from China states that prices are much higher currently, increased up to 50%, and there is lack of innovation in the country. Areas of China such as Pearl River Delta, considered as the heartland of China's textile and apparel manufacturing industry involves higher labor, and raw material costs.

Over all wage rates in China are increasing about 15%-20% per year. This shortens the gap between cost of manufacturing in China, and in other countries. Industry analysts predict that by 2015, net labor costs of US and China will converge.


Alternative Options:


Buyers from China are now considering other options. Rising export prices, escalating Yuan, increasing labor, and raw material costs are making them to seek options that would be less expensive.


For textile, and apparel buyers, China's appeal as a core sourcing location is fading; gradually. They are looking at other countries which are capable to carry out their orders, and also would be satisfying their sourcing budget. Asian counter parts such as Vietnam, India, Thailand, Malaysia, and Indonesia are emerging as preferable sourcing options for China. Textile, and apparel buyers are now looking at Vietnam, as costs are 30% cheaper, and wage rates are three fifth; comparatively over China.


Though, the Chinese counterparts have positive factors, they too, have their weakness. Countries such as India, Bangladesh, Pakistan, and Indonesia are affected by frequent power crisis. Bangladesh, Cambodia, and Vietnam have inadequate port infrastructure. Thailand and Malaysia have labor shortage. Certain raw materials need to be brought from China, and this would be time consuming. Workers of Vietnam need to be trained, and currently take longer time to complete the tasks. Other countries such as Egypt and Tunisia have been affected by political violence.


As production moves out of China, mangers, and workers of apparel industries are puzzled. Orders are slowing down, and factories are facing a slump. China is in the position of speculation, and criticism. With the current situation, unceasing production of textile and apparel, and availability of cheap labor seems to become a distant memory. China might be losing its edge as a preferred sourcing destination.


References:


1)     Data source: globalsources.com/

2)     Prnewswire.com

3)     Blog.procurementleaders.com

4)     Retailgeeks.com

5)     Scmtimes.com