Pearl River Delta Shoe Enterprises Dilemma

For "made in China", the seemingly low-cost labor resources that seemed to be unlimited supply seemed to be approaching the limit.

The fierce competition in the labour market has brought difficulties to export oriented manufacturers. It is already off duty, but there are not many workers coming out of the factory area.

For some time, the heavy rain has torn away a lot of red paper notices on the front door of the factories.

Dongguan, a manufacturing center in southern China, which is known as the "world factory", seems to have washed away its usual clamour of lead dust.

During the rush hours, tens of thousands of workers were employed in many factories. At the moment, they were quiet, empty and empty, leaving behind only a few custodians or security guards, sitting idly in the security room, throwing out circles of smoke rings.

"Fewer businesses, less factories, lower rents, less total economic volume and slower growth."

In recent years, Dongguan's foreign-funded enterprises have indeed moved away like a typhoon. Among them, in Houjie Town, 74 foreign-funded enterprises have gone through a year and a half.

Local officials in Dongguan admits that the relocation of foreign-funded enterprises that once contributed to the GDP of the local government is a headache for the government recently.

Low labor costs no longer seem to be approaching the limit for the "low cost labor force" that seems to have unlimited supply in the past for "made in China".

Fierce competition in the labour market has brought difficulties to export oriented manufacturers.

According to a survey by the Hongkong Federation of industry, 10% of the more than 70 thousand enterprises operating in the Pearl River Delta will probably collapse this year. 37.3% of the Hong Kong enterprises are planning to move all or part of their production lines away from the PRD, and more than 63% of them plan to move out of Guangdong.

A survey report on the competitiveness of China's manufacturing industry by the American Chamber of Commerce in Shanghai also shows that 54% of respondents believe that China's competitive advantage in manufacturing is rapidly losing. Over half of the respondents believe that India, Thailand and Vietnam are challenging China's original advantages. At least nearly 1/5 of the companies have decided to pfer their operations in China (or part of their businesses) to other lower cost countries in Asia, such as Vietnam and India.

And Ron Haddock, the head of the survey, Alan, vice president of the survey, also claims that globalization is everywhere and China is no longer what it used to be (low cost).

In response to the correspondents' mail, He Degao said that the majority of the US enterprises in China decided to migrate to Southeast Asian countries. Labor force constituted the main cost of their competition.

"Labor costs are significantly considered as the primary consideration."

"It is clear that China is no longer a labor depression," he said.

These companies believe that in addition to China's leading labor costs, the existing tax preferences, competitive environment and intellectual property protection of Southeast Asian countries are five more attractive than China.

The new cost of these enterprises is about 50%, and the rising cost of manpower is the direct cause.

The survey also showed that their management pay increased by 9.1% per year, white-collar spending increased by 10.3%, blue collar workers increased by 7.6%, and raw materials increased by 7.1%.

In general, the companies interviewed said the change in labor prices increased 5% of the company's cost, and the cost of other materials was taken to 3% more.

Guangdong Provincial Bureau of statistics in a report this year suggested that since the implementation of the minimum wage standard system, the minimum wage standard of Guangdong has been raised again. With other factors, the production and operation cost of enterprises is estimated to increase by 20%~30%. Some labor-intensive enterprises can hardly digest the upward pressure of costs through technological upgrading, and expect to have a larger loss. They should consider the end of their business in the Pearl River Delta and move the factory to the inland or Southeast Asian countries.

Evacuate to Southeast Asia and India?

When Chinese market cost changes and eroded the profits of foreign enterprises, choosing to withdraw is the most primitive business impulse of foreign capital.

Data show that in January 2008 alone, more than 60 Taiwanese enterprises withdrew from Dongguan.

According to the survey data from Guangdong foreign trade and Economic Cooperation Department, more than 90% of the relocation enterprises in the Pearl River Delta are Hong Kong and Taiwan enterprises, involving sales of 1 billion 214 million yuan and about 13 thousand employees.

Obviously, from the perspective of quantity, Hong Kong and Taiwan enterprises are the most important lineup of this shift, and have also attracted official attention.

"We know that this will be a very difficult year. When all the unfavorable factors are concentrated, we have to think about what we should do."

Hongkong Textile Industry Federation Lin Xuanwu said.

For most powerful companies, the answer lies outside China, with a low growth but rapid growth in Southeast Asian countries.

According to a person who has set up a factory in Vietnam, Xining, it will cost 1000 yuan to invite a skilled worker in China to spend only 500 yuan in Vietnam.

When China has a significant cost disadvantage, many companies in India or Vietnam and even other Southeast Asian countries have increased.

Obviously, new projects tend to be records of a new business, new factory or new office pferred from some higher cost countries, which seems to reflect the steady rise of the company's pfer projects in the value chain.

A manager of a software company who is building a human resource base in India told reporters that more and more IT companies are also sending outsourced business to India, in addition to India's leading software advantage in China, but also because the human resource base here is quite cheap, "at least for the time being, it is very suitable for extrusion cost management companies."

Migration is not a panacea. No matter whether it moves to the mainland or Southeast Asian countries, there will be many new risks to face, but how to survive is the first consideration.

Xu Xiaoping, general manager of Hang Lung garment making company, who has been in Dongguan for over 20 years, said frankly.

Although from the current situation of Hang Lung garment, we can see that the production capacity is very high, but we also win more market because of the failure of other enterprises.

In Xu Xiaoping's own words, because of the lack of competition, this year has been a good year for powerful enterprises, but it has not failed to consider relocation.

However, the sharp calculation of capital for surplus value shows that even manpower cost savings are not necessarily cost-effective.

Xu Xiaoping assumed that when he moved to Sri Lanka to build a factory, he could pay 10 yuan per day for local workers to create 10 yuan output value, which was 1 to 1. However, if he paid 500 yuan in China, he could create 1500 yuan worth for workers.

"There is still a certain gap between the quality of the staff in the tropics and the quality of the workers in China. Besides, the industry matching that China has developed over the past 20 years is not what low-cost countries can do immediately."

Xu Xiaoping said, but for the size of orders from overseas enterprises may have another matter.

Hang Lung clothing is now mainly supplying the domestic market (95%), which gives him some comfort.

This means that he does not need to think too hard about another key cost pressure? The RMB has appreciated continuously. Since the reform, the RMB has risen to 15% against the US dollar.

Xu Xiaoping told reporters that the relocation of enterprises to Southeast Asian countries usually has two driving factors, one is that Southeast Asian countries are less restricted by quotas, and the second is that the appreciation of currencies is not as strong as China.

Although the BRICS Economic Research Institute of Japan has thrown out the "VISTA theory" of new emerging markets (Vietnam, Indonesia and other countries), it is predicted that it will become a new locomotive to drive the world economy to take off. However, Vietnam, Indonesia and other countries are faced with many problems such as inadequate infrastructure, frequent short balance of payments and so on.

According to the analysis of merchants who have the intention to move, the construction of factories in Eastern European countries, though low cost, is far away, but Malaysia and Indonesia are relatively exclusive. Although the labor cost of Vietnam is low, its supporting facilities are not good. Thailand has been politically stable recently, but the cost is not low.

Even so, the first sports brand Adidas is asking its suppliers not only to build factories in the mainland, but also to focus on Southeast Asian countries.

In the same year, because the cost pressure shifted the production line from Guangzhou to Qingyuan's Wan Bang shoe industry (mainly for Adidas and other big brand OEM shoes, all products exported), in addition to considering the establishment of factories in Hunan and Guangxi, India also re opened a production line.

However, the cost of Wan Bang's factory in India is almost three times that of China.

It is understood that the local government requires that its factory buildings must be built in strict accordance with the requirements of building materials in the United Kingdom, and local water and power cuts are frequent.

"But Adidas has asked us to move to India as soon as possible. In fact, the capacity of the India production line is only 65% of that in China."

A manager of Wan Bang shoe industry worried that if he invested too fast in India, he would probably lose it.

Angel, a marketing manager at the Wolverine World Wide (WWW) office in Guangdong, who is now beset by the Vietnam financial crisis, said that the problem of imperfect industrial chains in Southeast Asian countries is not too big. These soft environments are all man-made and can be rebuilt. No matter whether they move or not, they are all adapting to the laws of the market.

"But Vietnam is very prone to strike. Last year, WWW Vietnam factory strike had a very bad impact on the company."

Angel said that with the increase of foreign investment in Southeast Asian countries, the output is increasing and the risk is also big. "It is difficult to guarantee when the EU will give you any policy. Mainland China is only copying the situation of Taiwan in the early years, and other countries will be unable to guarantee that such a cost pressure shift will happen later."

The pfer of industries to foreign countries will not only take time but also bring in more capital.

It will take nearly 10 years to develop a complete logistics network and supporting industries, which will mean a more difficult reconstruction.

"We have more than 100 suppliers in the Dongguan area. If we really want to move up, it will be very difficult."

Xu Tianding, the head of Samsung Lighting Co. Ltd. sighed.

But similar to the 10000 shoe industry, which even costs more than three times to produce a production line in India, he says it is understandable that "to expand productivity to achieve more stable and sustainable development in the future".

No matter what the policy environment is, the local governments try to explain from the angle of industrial structure adjustment that migration is the result of market economy environment.

Last year, 909 enterprises were terminated in Dongguan, and 54 foreign businesses in Houjie.

"There are more than 20 (foreign investment) companies in the past six months, and we obviously feel that the pace of industrial pfer and upgrading has accelerated."

Li Huiqin, Secretary of the Houjie Town Party committee, said that this is the result of the combined effects of various factors in the market. The industrial adjustment has reached a certain turning point. Although the momentum of outward relocation is much faster than that of previous years, it shows that the economic pformation of Houjie has been quicker.

Dongguan's local government's argument is that the foreign enterprises are mainly labor-intensive traditional manufacturing industries, which are concentrated in hardware, toys, clothing, shoes, plastics and other industries.

In the relocation of foreign enterprises, about 92% are SMEs with contractual foreign capital between 1 million and 3 million yuan.

In addition to a small part of the pfer to other parts of the country, a considerable number of foreign enterprises have chosen Southeast Asian countries as their new habitat.

At present, there are more than 3100 private enterprises and 595 foreign-funded enterprises in Houjie town.

Although foreign-funded enterprises are far less than the private sector, they contribute more than 80% to the local GDP.

According to Li Huiqin, the 70 foreign-funded enterprises who have moved out are not large in scale. The average investment per household is less than $1 million.

According to the data provided by the Dongguan municipal government, there are only 175 Taiwanese funded enterprises moving abroad this year. The data provided by Dongguan foreign trade and Economic Cooperation Bureau are 50. However, from Xu Ti Ding, the head of the Taiwan Businessmen Association has learned that more enterprises are moving out.

Li Huiqin disclosed that 20% of enterprises (foreign capital) are in a wait-and-see state.

"It may not achieve two digit economic growth this year, which is also the result of normal macroeconomic regulation and control."

He said that the withdrawal of some foreign enterprises is only a partial or temporary change in investment, which reflects the investment in the Pearl River Delta region.