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News Index | the TALA TIMES -
07/20/2010
the TALA TIMES - Does 'Made in China' continue to make sense?
the Tala Times - Textile Association of Los Angeles (www.talausa.org) Newsletter

July 20th, 2010

Sourcing from China
Does 'Made in China' continue to make sense?

At this time the Chinese workforce is pushing for higher wages and better working conditions, cotton prices have more than doubled, and the pending re-evaluation of the currency is making it more expensive to source from China. 

If costs do continue to go up, manufacturers might well be looking for other venues.  The low-margin suppliers for retailers such as Wal-Mart and Target are the hardest hit, while those manufacturers seeking to pass some of the increased costs on to the next price point level of retailing are also seeing the push back from their buyers.

Balancing these negatives are the advantages of supply-side accessibility. From yarn to textiles, zippers, thread, buttons, etc.;  all are available within the country. The same cannot be said of most of the other supplying nations.

However, when focusing specifically on the Chinese textile industry, there could be serious repercussions if the currency (yuan) appreciates by only 5% against the dollar. Textile profits in China have already been affected by prior appreciations of the yuan; from 2005 to 2008 its value has risen by 21%. When adding the new increase to the rising cost of raw materials and labor, the Chinese government voices its concern about an industry (textiles) whose output accounted for 11% of China's gross domestic product in 2009!

As China's textile products become more and more expensive, the result will be diminishing price advantages compared with Vietnam, Indonesia, Bangladesh, India, and sourcing centers in other parts of the world. 
 
Despite the rising cost of raw materials there is not the mad dash of shifting sourcing that one would expect. Wages are under pressure everywhere that clothes are made; wages in Bangladesh will have tripled by year's end, and India's wage increases will have equaled those of China. The cost of raw materials, especially cotton, is going up everywhere. As to the growing concerns about compliance issues, China has reacted far better to growing western concerns than have companies in India or Bangladesh.

China's textile and garment producers are asking that their current high levels of rebates on exports be preserved, and they want banks to continue facilitating easy credit. Their profit making ability will depend on whether or not they get these concessions from the Chinese government.

Most supply-side buyers will need a greater variety of sourcing options as a fall-back option, and, as competitiveness changes, buyers will use a wide range of suppliers. There will probably not ever be another individual country with the option for the whole range of garments, as China has been.

At the same time, China's move to allow the yuan to float more will mean that the purchasing power of the Chinese consumer is going to increase substantially . "If you are sourcing there, prices are going to go up, but selling to the Chinese is going to be easier. Local retailers have begun expanding and international brand names are rushing in as well, some through partnerships, using a franchise model."  (A.T. Kearney Global Retail Development Index).
 
For additional information, read:
Just Style, July 19th, 2010
California Apparel News, July 2nd, 2010
Women's Wear Daily, July 14th, 2010