Will OEM Enterprises Turn The Manufacturing Land Out Of China?

Some OEM companies are having a hard time.

Cost pressures allow some brands to turn their manufacturing out of China.

There are signs that some international brands have been or are moving their processing parts out of China to Southeast Asia.

The value of existence lies in its ultra-low cost: cheap labor, cheap raw materials purchased locally, low rent and so on.

Now, these so-called "advantages" are undergoing obvious changes.

On the one hand, China's cotton based raw material prices, including factory rents, oil and rubber, continue to soar; on the other hand, factory workers are resisting excessive overtime and ultra-low pay.

Before 2010, China was still the largest foundry of Nike, and now Nike has already moved to Vietnam and other cheaper countries and regions.

Nike's annual report shows that in 2001, China produced 40% of its shoes, ranking first in the world, Vietnam only 13%. By 2005, China's share dropped to 36%, Vietnam rose to 26%, ranked second, and in 2009, China and Vietnam respectively ranked 36% in the first place; in 2010, Vietnam's share rose to 37%, more than China's 34%.

Nike's foundry factories in China are mainly distributed in Fujian, Guangdong, Shandong Qingdao, Jiangsu Taicang, Jiangxi Nanchang and Taiwan, most of which belong to Nike's large generation of industrial and commercial treasure.

Baocheng was founded in 1969 by Cai Qirui in Taiwan. It is not only the foundry Nike, but also the international sports brand such as Adidas, Reebok and so on. It is the largest representative factory of Nike and Adidas.

For the foundries, especially the big factories like Baocheng, there are generally two major problems.

First, the cost sensitivity is very high, because the large quantity of supply and the small change of unit cost will have great impact on the final profit. Therefore, the foundries usually have the characteristics of moving from high cost to low cost. In the history of the development of the foundries, they have never stopped the location pfer, from North America to South America, Japan, Korea and Taiwan, until now the southeastern coast of the mainland (soon to become the past), then Vietnam and Indonesia (the next station of the factory).

According to Nike's website, sports shoes are especially sensitive to labor costs. Enterprises must control labor costs within 24%, so that they can be competitive.

Two, the demand for production time is rather harsh, especially for the foundry of sports shoes. Because of the improvement of people's consumption level, the life cycle of the shoe type is gradually shortened, and the sales period of products is shortened. This has raised a high demand for the reaction speed of the foundries. The delivery has been delivered in the past 5~6 months and has been delivered to the present 3 months or so.

This means that the generation plant must shorten the production process and speed up the reaction.

In China, the rising cost has forced Nike to shift to Vietnam and other places. At the same time, because of the shrinking profit margins of foundries, some factories began to take orders less, which led directly to Nike's shortage of some shoe types (as is known to all, Nike is out of stock all the year round).

Other manufacturers are asking brands to raise their prices to cope with rising costs.

about

Such a strong brand, this threat seems to be less than fear: you do not do, naturally some people do.

But in the face of Nike's vast majority of business orders, Nike's negotiating capital is obviously insufficient.

In early 2011, Nike said it wanted to raise the price of most products.

Nike released its third quarter earnings report in 2011, saying its business revenue increased by 5.2% in the quarter, but because of the rise in oil, cotton, labor costs and freight rates, Nike's gross margin was not high.

Nike executives said that in order to ease rising cost pressures, only raise prices.

To a certain extent, Nike is indirectly hostage to the OEM mode because of its lack of control over production links.

In addition to the inevitable price hike, the shortage has also plagued Nike.

There is a popular saying in Dongguan: "Dongguan traffic jam, global shortage."

Besides, the runaway of cost links made Nike's profits lower.

In the first quarter of 2012 fiscal year (June 2011 to August), Nike's earnings in the first quarter of fiscal year (June 2011 to August) increased by 15% compared to the previous year, and the pre tax profit increased by 4% over the same period.

In addition, the total stock of Nike in the first quarter of fiscal year 2012 reached US $3 billion 107 million, and the global stock amount increased by 41% over the same period last year.

This inventory is at the highest level compared with the inventory of Nike over the past 2006 fiscal years.

Judging from the amount of inventory, Nike now seems to be facing 2008-2009 years of substantial increase in inventory problems. Nike has paid a corresponding price for its price rise: Taking the Chinese market as an example, Nike has raised the price of its products (about 8% increase), prompting a large increase in stock.

As a whole, the increase in upstream costs is like a magic spell. The chain reaction is continuing. The mirror has turned the other side, and the market situation has made Nike unoptimistic.

On the other hand, the direct selection of brand origin is the practice of some new generation clothing brands.

On CHIC2012, I interviewed the American exhibitor brand Hudson, who made it clear that all their costumes were made in the United States.

At present, Losangeles, California has become the largest clothing and textile manufacturing site in the United States.

According to a recent industry meeting held by ILSE Metchek, chairman of the California Fashion Association, Losangeles's clothing and textile sector's profit increased from US $22 billion 800 million in 1997 to US $40 billion 300 million in 2010, despite nearly half of the workforce in the same period.

In the southern California, manufacturing sectors related to textiles and clothing, including Orange and San Diego, employ 207318 workers in 1997.

But this figure dropped to 128148 by 2010.

It can be said that the United States has created an upsurge of "local clothing manufacturing".

{page_break}

Pam, President of a research firm in Pennsylvania, said: "the public is more concerned about the origin of goods and the impact of negative trade balance on the whole political situation.

Consumers believe that locally manufactured goods are bad for themselves, for the commodity brand and for the country. "

A recent survey shows that American consumers' attitudes towards local manufactured goods are gradually improving.

Meanwhile, as the number of unemployed people increased, the Obama administration also encouraged enterprises to locate factories in the United States.

As of May 2011, the proportion of unemployed Americans increased to 9.1%.

When President Obama came to power, he said that in the future, the United States could win by rebuilding its capability in manufacturing.

He said the United States will spend 2 billion dollars on vocational training and employment.

According to the relevant statistics, the employment rate of garment manufacturing has risen in recent months.

The employment rate of the government is expected to decline steadily as a result of improvements in imports and technology.

To some extent, the only way to get out of the long-term economic plight is to develop manufacturing. The smallest centimeter of the garment manufacturing industry may just make a T-shirt.

Ayers, President of the California Fashion Federation, said: "in the aspect of improving the employment rate, the clothing industry has indeed created many job opportunities.

However, the local government also needs to make more efforts to stimulate the development of the garment manufacturing industry through tax relief, equipment financing, training and marketing.

Ulri Dunya, a local designer in New York, agrees with the practice of making local clothing in the United States.

She is committed to creating more job opportunities for local garment manufacturers through these garment manufacturers and putting them into the New York market.

The joint venture between the public space design organization and the US apparel design committee will provide some suggestions for the local government to help rebuild the garment manufacturing industry. These proposals are targeted and can stimulate economic development.

"People tend to focus too much on automation and technology, but the clothing industry is actually a multi billion dollar potential industry," says a designer who is known for designing high-end clothing.

In September this year, he moved her company to the same building in the clothing area of New York as her office of design and production. This phenomenon fully demonstrates that the closer the workers, factories and suppliers are, the easier it will be to maximize profits.

At the same time, based on speed, quality control and cost benefits, the manufacturing industry in the United States is attracting more and more clothing enterprises.

Within a mere two weeks, a single brand in Losangeles can provide 800 silk print dresses for Neman Marcus department store, and now 90% of their products are made locally.

"In the near future, we are also selling more of our products to China."

Glina, a designer and founder of a $1 billion 500 million brand, said.

Kaine founded a clothing company, he said: "compared with the products made abroad, each dress is only $1 in price, and it is also much more convenient for quality and time control.

We also provide a lot of employment opportunities to ensure the normal operation of domestic factories. "

Kaine and his wife founded the $10 billion women's clothing brand in 1979.

Later, especially after the recent inflation and price rise in China, they realized that local clothing production was no more expensive than production in China, so they decided to move the factory back to the United States and make clothes locally.

After Kaine changed the clothing label, the word "made in America" became particularly evident on clothing.

Similar cases also appeared in Japanese and French brands.

Japanese retailers commissioned production and sporting goods manufacturers to accelerate the establishment of an overseas production system of "China +1", that is, establishing another production base outside China and in Southeast Asian countries.

The reasons for this trend are: first, enterprises should disperse production bases to deal with unexpected situations such as urgent increase in production or labor shortage and ensure stable supply; two, avoid the risk of China's labor costs growth.

Ito's function underwear production 95% in China, in 2012, it plans to pfer some of its capacity to Southeast Asian countries such as Thailand. It is expected to reduce its production to 75% in China. The retail giant UNY plans to reduce its clothing production proportion from 74% to 65% in 2014, and increase from 9% to 13% in Thailand production. ASICS and MIZUNO reduce the proportion of sporting goods such as sports shoes in China, and expand the scale of production in Vietnam and Indonesia.

According to Japanese Ministry of finance statistics, imports from China in 2011 decreased by more than 10% from 2007, and imports from ASEAN countries increased for 8 consecutive years.

It is reported that in order to avoid the sharp rise in China's labor costs, enterprises have accelerated the pfer of production to Southeast Asian countries, but the advantages of cheap labor in Southeast Asia are limited, and the risk of rising costs is also increasing.

France's imports of China's textile and clothing increased by 7% in the first 11 months of 2011, but less.

In fact, it only increased by 4%.

The increase in imports to Bangladesh and Pakistan reached 26% and 29% respectively.

The wages of Chinese garment industry workers have risen to 180 euros to 300 euros per month, roughly equal to Belarus, 160 euros in Tunisia, and only 50 euros in Madagascar.

More and more French clothing brands, such as IgG, boat, and West Europe, have begun to build processing land on this island.

In addition to wages, pport efficiency is also an important consideration.

France's clothing brands began to look for processing areas nearby: Eastern Europe, the Mediterranean region and Madagascar.

Romania, known as "Europe China", has become France's largest supplier of textiles and clothing in Europe.

In addition, the continuous expansion of China's domestic market demand and labor shortage also make Chinese enterprises unwilling to sign long-term contracts with small and medium-sized clothing brands in Europe.