Trend offers producers chance to upgrade, build brands: experts
More and more domestic shoemakers in traditional manufacturing bases in East China and South China are seeking growth across the globe to deal with the pressure of rising costs in the domestic market, according to a new report.
It's time for domestic enterprises to pursue industrial upgrading through technological development and brand-building, experts said.
About 27 percent of 640 labor-intensive firms in China's Yangtze River Delta and Pearl River Delta have invested in or plan to enter foreign markets in the coming three years, the 21st Century Business Herald reported on Wednesday, citing an industry report.
The report, jointly released by the Centers for New Structural Economics at Peking University and the UK-based Overseas Development Institute, looked at 640 labor-intensive companies in China's Yangtze River Delta and Pearl River Delta areas in four sectors including garments, shoes, toys and household electrical appliances.
China's labor-intensive enterprises are losing their competitive advantage, with employee costs becoming their No.1 challenge, the report said, noting that 10 percent of the companies it surveyed have invested abroad or are planning to do so.
More than 60 percent of the companies surveyed had chosen to upgrade technology as their foremost strategy to counter pressure from increased labor costs and to improve productivity, according to the report.
Chinese firms in the light manufacturing sector started moving their operations to overseas markets around 2012, especially to Southeast Asian locations such as Indonesia and Vietnam, Cong Yi, a professor at the Tianjin University of Finance and Economics, told the Global Times Wednesday.
East China has seen fast economic growth in recent years but rising labor costs in the region mean it is no longer an optimal environment for labor-intensive industries, said Cong.
Whether light manufacturers shift their operations abroad or to domestic locations in central or western China, it's not a bad move, he noted.
"Instead, it is a way for domestic industries to upgrade and move to the upper reaches of the industry chain, where they can focus on technology, design and brand-building," Cong said.
It's not just Chinese manufacturers that are relocating to Southeast Asia. It is a growing trend for parts of the global industry chain to move to such regions, which tend to have large labor pools, according to Wang Danqing, a partner at the Beijing-based ACME consultancy.
In 2010, many companies began to relocate their production facilities to low-wage developing countries, the report said. Although only a small number of businesses have shifted, the speed of this industrial transfer is accelerating.
Henan Rebecca Hair Products Inc opened production lines in Nigeria and Ghana in December 2011, and those facilities account for almost half of the company's total capacity, according to media reports. Guangdong-based shoemaker Huajian Group opened a shoe factory in Ethiopia in 2012.
Wang told the Global Times on Wednesday that although some Chinese companies choose to go to Africa, less-developed parts of Asia remain more popular.
Labor costs total just 700 yuan ($106) per month for workers in Bangladesh, the market favored by many large garment firms, according to the 21st Century Business Herald report.
In 2012, labor costs in Vietnam and Indonesia were 50 percent lower than in China, according to Cong.
Numbers like these are powerful attractions to Chinese manufacturers that are grappling with increasing domestic labor costs, Wang said.
"China's labor-intensive industries have built up a lot of experience and resources, such as their business models, operational management and client bases," noted Wang.
Domestic firms want to retain their clients after they shift operations to foreign markets, he said, so those firms should be cautious when making such shifts and develop an understanding of local laws and regulations.
Also, those firms should try to integrate into local societies through their relations with local governments, partners and the public, experts said.