Footwear Manufacturing Faces Challenges &Nbsp; Generation Industry Will Be Terminated.

In August 4th, "made in China" is facing unprecedented challenges. With the sharp rise in inflation, a new round of attention has been given to the domestic footwear manufacturing industry, and the cost of running factories in China has been steadily increasing for many days.

The timing of inflation is also bad for business owners, and the rise in prices of major commodities makes it urgent for workers to raise wages. Including "appreciation of the renminbi, inflation of goods and the increase in the cost of property and equipment, and the rise in wages", Wang Zhihao, director of Greater China research at Standard Chartered Bank, said that some foreign companies had no incentive to base their production bases in China.

In view of this, some American companies with branches in China are considering various measures to offset the rising labor and export costs. Some companies are considering moving all factories out of China, while India, Vietnam, Burma, Kampuchea and other Southeast Asian low labor cost countries become their next stop.

The serious situation is much more than that. In a May report, Boston consulting firm predicted: "by 2015, the United States will beat China to regain the crown of manufacturing, and people will see that more and more commodities in the US market will be made in the United States." Hal HIR king, senior partner of Boston's consultancy, said that in the next five years, as the wage gap between the United States and China gradually shrinks, the era that the United States has largely outsourced manufacturing to China is coming to an end.

　　 Nike "Runaway"

Thanks to the "OEM mode", Nike, a multinational giant, does not have its own factory. All the shoes it sells, clothing As well as sports equipment products are from the foundries, for a long time, China is a major distributor of its foundries. The largest is the Taifeng enterprise Limited by Share Ltd (hereinafter referred to as "Taifeng enterprise") from Taiwan, China.

Taifeng has established foundry factories in Shenzhen, Dongguan and other places, and has slowly grown into Nike's biggest maker. About 1 pairs of Nike shoes in every 6 pairs come from Tai Fung. But now, if you just buy 1 pairs of Nike shoes produced by Taifeng company, half of these shoes may be produced by Vietnam factory of Taifeng enterprise.

It turned out that with the launching of Tai Fung enterprises in Vietnam's other provinces, such as naeni province and the province of batton, in 2007, Vietnam's capacity reached 51% of Taifeng enterprises, becoming the main source of revenue and profit for the company. Compared with that, the capacity of mainland China accounted for only about 32% of Taifeng enterprises.

Over the past few years, the trend of capacity withdrawal from mainland China is still increasing. "In 2010, mainland China's foundries accounted for 23% of shipments of Taifeng enterprises and 51% of Vietnam's share. Indonesia accounted for 18% of the total, and India accounted for 8% of the total volume." Market watchdog Ma Gang pointed out.

In fact, not only is Taifeng enterprise changing the geographical distribution of the foundries. Similar changes have also taken place in Yuyuan Industrial (Group) Co., Ltd., another important foundry company of Nike.

Statistics show that in 2003, Yuyuan group had 161, 78 and 51 production lines in mainland China, Vietnam and Indonesia, and by 2010, the number of production lines of Yuyuan group in the above three locations was 226, 120 and 114 respectively, and the number of production lines increased by 40.4%, 53.8% and 123.5% respectively. The increase of Vietnam and Indonesia production lines was much higher than that of mainland China.

The reason for the "shifting tide" of the foundries is that Taifeng company admits: "the labor cost increase and the appreciation of RMB in the mainland have indeed increased the difficulty of operation in recent years. Based on the high standard paid by the labor companies, the increase of these costs has been gradually reflected in the cost of the previous years." Yuyuan group pointed out that along with the improvement of living standards in the Pearl River Delta region, and with the minimum wage stipulated by the government, the cost of labour in the mainland should rise, thus continuing to develop production bases in Vietnam. {page_break}

Leaving China

Nike is not a special case. According to reports, American companies with branches in China are considering various measures to offset the rising labor and export costs. Some companies are considering moving all factories out of China.

First of all, Hong Kong and Taiwan funded enterprises, which account for quite a large proportion in China's foreign trade enterprises, are eyeing the Southeast Asian countries as well as Taifeng enterprises and Yuyuan group.

"The halo of China as a low-cost manufacturing country is fading away. With the increase of production cost, inflation and the steady appreciation of RMB, the operating cost of factories has been rising gradually. Many labor-intensive enterprises have left China to turn to India and Vietnam, especially some Taiwan enterprises and Hong Kong enterprises, and more enterprises are considering relocation. The Boston consulting firm reported in May.

Maybe that's exactly what happened in June 2010. OEM Chen Weiliang, chairman and chief executive officer of Foxconn international, said that they were considering moving some factories to India and Vietnam. In early 2011, Taiwan Shenghua Polytron Technologies Inc, which provided the original brand phones for apple and many other brand phones, started construction in Vietnam. According to the introduction, the whole plant is expected to invest 150 million dollars.

"It is almost necessary to go somewhere else with lower cost. When it comes to specific spanfers, it depends on how fast Chinese wages rise and how fast the renminbi appreciates. Yu Yuan Industrial (Group) Co., Ltd., investor relations director Cen Li also pointed out.

In fact, Vietnam, Indonesia and Thailand are also the choices for Chinese and American enterprises. DavidBohan, chief executive of BrooksSportsInc., a running shoe and sportswear manufacturer, pointed out that "considering that China's hourly wage rate has increased by 50% over the past two years and the renminbi has continued to appreciate", they are considering the use of new partners in Indonesia and Vietnam.

At the same time, some enterprises are considering moving back to the United States. According to Hal Xi Jin, senior partner of Boston consulting company, China's wages will grow at an average annual rate of 17%, and the appreciation of the RMB will continue to rise. Considering the relatively high labor productivity of the US workers, the net labor cost of China's manufacturing industry will be equivalent to that of the United States by 2015. "In the next five years, the enterprises that will be sold in the US will reduce investment in China, and we will see that more and more products are made in the United States."

In order to explain why these American companies moved back, Hal. "Considering the relatively high labor productivity in the United States, the wages of workers in Shanghai and other places are only 30% cheaper than those in some states with low labor costs in the United States." Added, "because wages account for 20%-30% in total costs, and even before considering inventory and spanportation, China makes only 10%-15% cheaper than the US. Thus, the total cost advantage of Chinese products will drop to single digit or even be completely erased."

China's advantage

Although China's manufacturing competitiveness is weakening, it should not be overstated. In the eyes of many analysts, China is still a manufacturing paradise and the domestic market is also huge. In the next few years, the strength of China's manufacturing sector will remain. "China has the advantage of great power and the industry chain is very long, which is unmatched by Southeast Asian countries." Shen Minggao, chief economist of Citibank (China) Co., Ltd.

"There are very strong reasons why factories remain in China: relocation of production bases is time-consuming and costly, and new markets, especially those outside China, have their own unknown risks." Meng Kewen, President of the Chinese American Chamber of Commerce, believes that companies that are partly dependent on low labor costs will be spanferred, but other areas are difficult, such as laptop manufacturers, which have little labor costs and are very dependent on China's supply chain, "after all, enterprise fixed assets are in place." {page_break}

In fact, the lack of infrastructure and the small size of the country are the reasons why some Southeast Asian countries are unable to attract the overall relocation of an industry chain. "If only a certain section of the industrial chain was spanferred to the past, there would be other inconvenience and difficulties for the enterprise." Meng Kewen pointed out.

Moreover, some Southeast Asian countries have other problems, such as economic or political instability. In February this year, the Vietnamese shield was devalued by 10%, and the strike problem in Thailand was more serious.

The size and scope of China's domestic market as well as the high quality of workers are also the reason for those American companies to choose to stick to China. According to the white paper published by the American Chamber of Commerce in the United States in China, 61% of the 350 enterprises surveyed were produced and purchased in China and supplied to the Chinese market. Only 10% of the enterprises in the US market accounted for 8% of the market in China and the United States. "The temptation of the Chinese market can be seen." Meng Kewen said.

The American Chamber of Commerce survey shows that Chinese workers have a good quality rating compared with other variables in the manufacturing industry. According to the survey feedback, although China scored very low in terms of intellectual property protection, government efficiency, logistics infrastructure and legal compliance, the score of workers' quality was very high.

Compared with the US, the labor cost of Chinese manufacturing industry has the same advantage. Shen Minggao pointed out that in 2008, for example, the labor cost of China's manufacturing industry is only 8% of that of the United States, even if it grows at a rate of 15% per year, it will take a long time to reach the level of the United States.

"Because of the continued appreciation of the renminbi, it may cause some American companies to feel pressure to withdraw from China, but in the short term there should be no large number of enterprises leaving China." Wang Zhihao pointed out.

Wang's view has also been supported by facts. Standard Chartered Bank surveyed 80 export companies in the first quarter, including 58 manufacturers in Hongkong, 9 in Shanghai and 13 in Chongqing. Of the surveyed enterprises, only 6 enterprises considered leaving China due to higher wages, including 4 in the Pearl River Delta, 1 in Shanghai and 1 in Chongqing.