When Will The Manufacturing Cost Of Chinese Shoes Be No Longer Low?

Dongguan, Guangdong, is a manufacturing city in southern China. The average monthly wage in the local shoemaking industry is 960 yuan.

As one of Nike's largest contract factories, Yuyuan industry now offers a monthly salary of 1472 yuan.

Such a gap would have been a problem in such an industry where many enterprises had a headache for rising costs.

But the fact that Yuyuan industry is booming may be a reference for manufacturing enterprises outside Dongguan and even the Pearl River Delta region.

Over the past 5 years, China's export prices have been rising.

Jonathan Anderson, a UBS economist Jonathan, said in a recent research report: "data from the partners of China trade show that the price of footwear, toys, furniture and textiles imported from China decreased by about 3% per year in dollar terms before 2003, but the annual increase is 3% to 4% after 2003."

Considering that labor cost is only one of the problems, and Yuyuan industries and other enterprises are facing more and more rising costs, the price increase in recent years is very mild.

As a subsidiary of Taiwan Baocheng group in Hongkong, Yuyuan industry has been able to digest and absorb the factors of rising costs, which provides some clues for people to understand how China's exports continue to grow.

The trade and inflation figures released by the Chinese government last week show how difficult the business environment of Chinese exporters is.

The Chinese government announced on the 11 th that the consumer price index in February this year rose by 8.7% over the same period last year, reaching a 12 year high. The shortage of commodities caused by severe snowstorms in January this year has intensified the price rise.

To make exporters worse, since the middle of 2005, the RMB exchange rate has risen by 15% against the US dollar, and now it will break through the 7 to 1 mark.

China's basic inflationary pressure is important because inflation may make it harder for exporters to absorb the impact of domestic cost pressures.

Although seasonal factors such as this year's severe winter weather caused serious distortions in trade data, China's trade surplus between January and February dropped 29% from last year to $28 billion, suggesting a possible future situation.

Li Jing, chairman of China securities market of JP Morgan chase, said in a research report: "we expect that China's export figures will rebound in March, but we still expect that this year's export growth will show a more moderate slowdown.

Slowing growth in China's export sector is one of the most important risks facing economic growth. "

She mentioned the reduced demand in the OECD economies.

Exports to OECD account for 2/3 of China's total exports.

However, Yuyuan Industrial Factory in Dongguan has provided ample evidence for the elasticity of China's export industry.

Last year, Guangdong's footwear exports increased by 14.6% to $9 billion 600 million, and textile exports surged 18.4% to $42 billion.

Yuyuan Industrial and other large exporters first benefited from its huge business scale.

For example, Yuyuan industry's Nike foundry business in Dongguan has 27 thousand employees, producing 14 million pairs of shoes annually, and this is only a small part of the total output of a manufacturing group with a total workforce of 100 thousand and larger.

Yuyuan's wages are more than 50% higher than the industry average, but its relatively expensive labor costs also disguise productivity incentives.

In most shoe-making enterprises in Dongguan, the average monthly wage is determined by working hours and overtime hours, and their overtime time usually exceeds the statutory limit.

But in Yuyuan industry, only about 2/3 of the average wage comes from the hourly wage.

"If you have overtime problems, you will also have quality and delivery problems," said Hanna Jones, vice president of corporate responsibility at Nike, Hannah.

The remaining 1/3 of Yuyuan's industrial average salary comes from the productivity and quality objectives of the group based production line.

These lines imitate the "lean" production principle that TOYOTA first adopted.

Sonya (Durkin-Jones), head of compliance affairs in North Asia, said: "(employees) can't throw a bad part off (to another group member) and say goodbye to Jones," said Nike.

Every lean line of Nike is named "NOS", which is the initial letter of the Latin Novus ordo Seclorum, which means "the new order of the world".

This sentence also appears on the back of the US dollar note, which may explain how it is rooted in Nike's institutional memory.

At the beginning of this month, Nike executives spent 3 days with reporters visiting Yuyuan's factory in Dongguan and called the factory an example of Nike's entire supply chain in China.

Nike's China supply chain includes about 180 factories, with a total of 210 thousand employees.

1/3 of Nike's shoes are made in China.

The high wages of Yuyuan industry have made the company return in terms of productivity and quality. Another advantage is that the supply and demand situation in the labour market has recently been in a favorable environment for employees, and the recruitment problem of the company is less than those of the less paid competitors.

"We have been challenged by the industry environment - some of our competitors are offering overtime pay," says Johnson Tong, a manager of Baocheng group. "But employees want to make money, not (increase) working hours."

"In this environment, you want to reduce employee turnover," Jones added.

"Time to market is not only our driving force.

If you jump from one factory to another, how do you achieve this?

This is not about pursuing labor costs, but about stability and innovation.

On the other side of the PRD, Yida group, a privately owned Hongkong shirt manufacturer, has a similar attitude.

The company's factory in Foshan employs 26 thousand employees, and its chairman is Yang Minde, the daughter of the company's founder. Its clients include Gap, JCPenney and Nike.

Last year, the company produced 6500 shirts.

Like Yuyuan industries, Yida group must deal with a series of rising costs.

The company also intends to increase its cost and invest $50 million to build clean manufacturing facilities, including its own power plants and water treatment plants.

Its water treatment plant is responsible for all links from sewage treatment to industrial dyeing.

These investments make the foundation of Yida group more stable in the Pearl River Delta, where there are abundant textile workers' labor force available for use by the company.

"You have to pay for the work and wisdom of your employees," Yang Minde said of her staff.

"For us, stability is the most important, so we can take advantage of our management skills to deal with external problems."