ADI Closes Suppliers In Chinese Factories, Rebounds Or Faces Lawsuits

A very sensitive price.

In the industry, Adidas's factories have been migrating like migratory birds.

Adidas recently announced a decision to close its factory in Suzhou, which is Adidas's only direct factory in China.

According to the reporter's interview, the number of employees in Adidas Suzhou factory and its own capacity are negligible, but it accounts for about 60% of its sales in China, and has been subcontracted through this factory for a long time.

With the closure of its Suzhou plant, this part of the production business will be directly incorporated into Adidas's international procurement department.

Observers said that a major adjustment of Adidas's structure can reflect its concerns about the advantages of China's manufacturing industry, not only because of the continuous rise in China's labor costs, but also the import and export tax rates and the RMB exchange rate of the clothing and footwear industry.

From the trend, the advantages of Chinese manufacturing are gradually being eaten up.

Adidas shut down its direct factories and lifted the contract of cooperation between its suppliers, which also sparked a sharp rebound in suppliers.

While closing the factory, it will also face possible litigation and social responsibility.

Termination of multiple supplier cooperation

In April 26th, Sun Yingli, director of Shanghai man Lang Textile Co., Ltd. received a notice from Adidas, asking for a meeting in a hotel in Suzhou.

With its peers, there are 5 other Adidas suppliers.

As the main supplier of Adidas factory in Suzhou, the 6 OEM enterprises receive more than 12 million garment orders from Adidas each year, accounting for 60% of the total annual sales of Adidas in China.

Of the 6 foundry enterprises, 5 are garment manufacturers and 1 are knitted fabric suppliers.

Sun Yingli's company has 6 foundry factories, ranging from 300 to 1200 employees.

Even in 2009 and 2010, when Adidas China's inventory remained high, it received more than 1 million 200 thousand orders from the company.

"After we arrived in Suzhou, we were dragged into a small conference room by the heads of the factory in Adidas Suzhou, telling us that the contract for the OEM between the two sides will be terminated because the Suzhou factory will be closed."

Sun Yingli said, for these suppliers, this is undoubtedly a bolt from the blue.

"When Adidas was a baby in China, we were working together, and now the other side terminates the contract unilaterally. What do our employees do? What is the input of our equipment?" Sun Yingli said that in 2006, Adidas signed a long-term processing cooperation agreement with several major suppliers, so that every supplier had to make and constantly update the strategic plan for 3 years every year.

At that time, one of the contracts was considered by suppliers as "overlord clause", that is, if Adidas wishes to lift the cooperation between the two sides, it only needs 6 months ahead of time to inform the obligation.

In July 25th, Adidas responded to this newspaper's written reply that "with regard to terminating the business contract, Adidas has made fair and appropriate legal advice to our supplier partners.

Adidas complied with all the commitments in our written agreement, but there was no legal obligation to further undertake the loss. "

Sun Yingli said that in fact, in 2010, the news that Adidas would close the Suzhou factory had already been heard.

In order to dispel the concerns of suppliers, Erick Haskell, the chief executive officer of ADI China financial operations and ADI Suzhou factory, has even sought talks with suppliers, hoping that they will continue to support the factory's orders on equipment and software systems, and promise that they will not terminate the contract by 2015.

After eating the "reassuring" suppliers, most employees renewed their labor contracts with their employees and placed the time nodes of the labor contracts in 2015.

"Recently, Adidas's social responsibility department helped us calculate that the loss of only one of the employees was more than 30 million yuan."

Sun Yingli said, and no one who is a boss is willing to see the situation of large-scale dismissal of employees.

Cost migratory birds release migration signals

In July 25th, Adidas confirmed to this newspaper that it would close the Suzhou plant.

Adidas said: "China is still an important procurement market for Adidas. We are now working closely with more than 300 suppliers in China, far more than any other regional market.

Our commitment to the Chinese market remains unchanged. "

Adidas also said: "the final result of this restructuring will not affect the total Adidas production in China."

Although not answering the questions raised by our reporter, the subtext of this sentence should be that closing the Suzhou plant is part of its restructuring business in China. The capacity of the Suzhou plant will also come from China, instead of replacing a number of suppliers, instead of rumors that the orders have been pferred to Southeast Asian countries.

A supplier told reporters that before the closure of the Suzhou plant, Adidas's production and procurement operations in China were divided into two parts, some of which were outsourced to the representative plant through Suzhou factories, which were mainly used to meet the needs of the Chinese market, accounting for about 60% of the total demand of the Chinese market.

The other part is completed by Adidas's international purchasing department, which covers and covers its global market.

After the reorganization, all orders in China were pferred to its international purchasing department.

Why is there any change? Adidas will not hesitate to abolish its suppliers who grow together. Adidas only said that it would provide corresponding consultation and assistance for this part of the suppliers in communication planning and pition work.

Some suppliers speculate that this is related to the struggle between Adidas departments and that they hope to replace a group of weaker suppliers, so that when the cost of manufacturing in China reaches a certain critical point, it will be more convenient to evacuate.

As the most core Department of "cost migratory birds", Adidas international procurement department has been closely watching the cost changes and trends all over the world.

"Closing the Suzhou plant and concentrating its procurement in China to the international procurement department has released an important signal that Adidas has at least made a judgement that the comprehensive cost of manufacturing in China is not the lowest, and there is a sharp upward trend."

Yang Dayun, President of UTA Fashion Management Group in China, said that this also means that Adidas will feel free to fly away at any time in the future if it feels that the overall cost of manufacturing in China reaches its critical point.

Sun Yingli has compared the overall cost of Chinese factories with Southeast Asian countries such as Vietnam and Kampuchea.

"The average monthly salary of Chinese workers is 3000 yuan, Vietnam is 1800 yuan, and Kampuchea is 1200 yuan."

Sun Yingli said that the cost of labor is the biggest expenditure in production.

But by contrast, China's factories have the most complete support for surface and auxiliary materials, and the productivity of their employees is the highest.

But there are also insiders pointed out that Adidas's domestic production mainly in the form of subcontracting, and the foundries do not have the right to sell, so its products sold in the domestic market need to export to domestic sales, not only to pay VAT, but also tariffs.

Shoes imported from Southeast Asian countries will not cost higher due to tariffs.

This is also the reason why Adidas and Nike have weakened their enthusiasm for production since China lost its demographic dividend in recent years.

Yang said that the decision of Adidas should be considered in many ways, such as the continued decline of the euro to the RMB exchange rate, which has made many European enterprises in China continuously reduce the investment in RMB assets.

If the euro's weakness will continue, it will be difficult to guarantee that the production lines of European enterprises in China will no longer be removed.

As early as in 2009, Adidas's old rival Nike also closed the only shoe factory in China.