The Real Reason For Foreign Capital Moving Away From China

In December 9th,

Announced that it will open Speedfactory in Germany, using intelligent robot manufacturing.

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Not long ago, at the investor conference, Adidas decided to gradually reduce its capacity in China and pfer manufacturing plants to Southeast Asia - Vietnam, Kampuchea, Burma and other countries.

This is not the first time multinational companies have announced closing factories or reducing production capacity in China.

Why do we buy and buy more and more holidays and reduce consumption? The fact that foreign capital closes factories and reduces production capacity in China is becoming more and more common. We sort out a few factors, which may be the reason why they have moved away from China.

Among all the costs, the labor cost is the most significant.

According to the data of the National Bureau of statistics, from 2008 to 2013, the growth rate of above scale industries (which refers to industrial enterprises or state-owned industrial enterprises whose annual main income is greater than 20 million) has maintained a two digit growth rate of 11.4%, which is 5% faster than that of the same period labor productivity (per capita added value).

More than doubled.

This figure has been verified by foreign institutions: according to the economist, the average annual wage growth of Chinese manufacturing workers has increased by 12% since 2001.

Why is the increase so fast? Because in the early days of reform and opening up, the wages of the manufacturing workers were low and the social welfare was poor.

With the awakening of workers' rights and interests and the enhancement of the state's protection of workers, the wage increase is relatively large.

In April last year, it assumed Nike, Adidas, Puma and other brands.

Yuyuan shoe factory, a product OEM, has been shut down because of workers' social security disputes.

The storm ended with the shoe factory paying social insurance and provident fund and raising worker subsidies.

In addition, because of the aging of the population, the development of the third industry has brought more and more related career opportunities, and the number and proportion of young people willing to work in manufacturing factories have been reduced.

Many manufacturing factories complain that it is more difficult to recruit workers in China than in Southeast Asia.

In addition to labor costs, raw material prices and land prices have risen.

In addition, in recent years, the preferential policies for foreign investment have been reduced, and the country's environmental policy has been tightened gradually. The rising costs have made China's attractiveness as a "world factory" less attractive.

Poor performance in the Chinese market is an important reason for closing factories and reducing production capacity.

Consumers are facing more and more choices. With the influence of the electricity supplier, more and more young consumers are more inclined to some non popular brands.

For sports brands like Adidas and Nike, the products produced by Chinese factories are not only for the local market, but also for a large part of the products sold around the world.

Especially Nike.

In the 2015 fiscal year, Nike's sales in China increased by 30% compared with the same period last year, while Adidas's sales in China increased 10% in the fiscal year of 2014, reaching 1 billion 810 million euros.

In addition to returning to its German stronghold, Adidas announced that it would set up a new factory in Detroit, USA in 2017.

This coincides with Nike's move.

When Obama visited Nike factory in May this year, Nike said it plans to offer more than 10000 jobs in the United States, including manufacturing jobs, technology research and development, engineers and so on.

In fact, Nike has been stripping off non core businesses all the time. In the 2012-2014 years, the number of Nike's global agency factories has decreased by 14%. It has spent more energy on technology, research and development, materials and so on to grasp the future market demand.

In addition, the gap between manufacturing costs and China in developed countries is decreasing.

According to a report of Boston consulting company in July this year, because of the decline in energy prices, the average cost of manufacturing in the United States is very close to China's production cost, which is only 5% higher than that of China.

In this case, back to the production of our country, we can get rid of the word-of-mouth of "made in China" and the "sweatshops" that have been accused from time to time.

Like Speedfactory in Germany, Adidas plans to build new factories in the United States by using robots and automated production.

This will reduce the amount of labor and produce no high labor costs.

They are also closer to their technology and development centers. Returning to developed countries may be more conducive to the implementation of robotics and automated mass production.

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While returning to Germany to open Speedfactory, Adidas announced that it will cooperate with Johnson automation, engineering enterprise Manz, robotics development company KSLKeilmann and a number of scientific research institutions.

In the new mode of production, only about 10 people will participate in the pre test stage, and then fully automated production.

They plan to make the machine sew all the vamp and make the elastic sole with the new Speedfactory.

Not only Adidas but also Nike has been upgrading technology since 2012, planning to increase machine production and reduce workers' participation.

They launched a technology called Flyknit in 2012, which can greatly reduce the participation of labor force in sports shoes production: only manual sewing of shoe upper and sole interlayer is needed.

However, the technology of machine tailoring and sewing has not been fully promoted.

I-Generator, a consultant at a business consulting firm who worked for Adidas and Nike, said: "the footwear industry in the past was labor-intensive, and there were several parts of each shoe that need to be sewn by hand.

In the future, reducing workers' participation is the ultimate goal of shoemaking industry. "

Not only in the footwear industry, but also in the garment industry, Gap, Gap and J.Crew's OEM, TALGroup, are developing robots and automated production.

In sports brands, personalization and customization have become a trend in the future.

Nike, Adidas, NewBalance and other brands have launched customized services, consumers can choose their own shoes, patterns, colors and even materials. Their sportswear is also gradually opening up, and more and more varieties allow consumers to design "unique products".

Do you want your sneakers more comfortable? Apart from the personalized appearance, Adidas and Nike are planning to customize sneakers for different consumers.

In the past, only stars and celebrities could enjoy customized "privileges".

If you want to promote customized services, this is obviously different from the pipeline system of another mode of production.

Personalized demand will reduce the production volume of each inventory unit (SKU).

More than 74% of Adidas's sales now come from new products launched in 1 years.

Traditional labor-intensive factories are no longer suited to such a rapidly changing market demand.

In addition to those above, it is purely for the purpose of finding lower labor costs.

It's like 1970s when Nike's shoe factories moved from Japan to Korea and Taiwan, 1980

The era has gradually shifted to mainland China.

The cost sensitive footwear and clothing industries have always been moving to areas where labour costs are relatively low.

Now, after the cost of production in China has increased, some of them have moved to Southeast Asia, and some have moved to African countries such as Ethiopia.

Huajian is an OEM shoemaker of Jiu Xi (NineWest) and Guess.

The company opened a factory of about 3500 people in Ethiopia around January 2012.

The monthly wages of workers here are around 40 dollars, less than 1/10 of the average wage of Chinese workers.

In fact, the shift of middle and low end manufacturing industry has long started.

Around 2012, Indonesia surpassed China as Adidas's largest producer in the world.

According to the economist, the average labor cost in China's manufacturing sector in 2014 was US $3.27 per hour, two higher than Vietnam and 1/4 higher than that in Malaysia.

But it is worth noting that the rise in labor costs does not mean closing factories is the right choice.

Because the formation of a manufacturing center means matching maturity (for example, in a morning in Huaqiang North of Shenzhen, all mobile phone accessories can be combined to produce a new brand of Shanzhai mobile phone), which means that the qualified labor market is mature, which means that the supply of funds is adequate, which means that the supply and development of these non manufacturing labor force is adequate, which means that the ability to upgrade is stronger.

All these factors will affect the decision of the company, but anyway, we hope to see the upgrading of technology made in China, the upgrading of word of mouth, and the upgrading of voice.