From industry giants like Adidas AG to Nike Inc., the apparel and footwear sector has been in the midst of a supply chain transformation, driven by geopolitical factors and cost considerations. The goal: shift away from China. However, as global economic uncertainties and shifting consumer demands add complexity, many manufacturers find that establishing alternative production hubs is no simple task, and some are even reconsidering their moves back to mainland China.
Laura Magill, Global Head of Sustainability at Bata Group, highlights the mature ecosystem in China, developed over decades. It not only ensures competitive pricing but also delivers stable quality in mass production that’s challenging to replicate. This sentiment is echoed by various apparel makers and factory owners.
Consider the experience of Lin Feng, a businessman with apparel factories primarily serving US and European clients. His attempt to diversify by opening a production line in Hanoi in 2020 yielded fewer orders than expected, prompting his return to Guangzhou, China. Lin emphasizes that, in times of weak demand, factors like low labor costs and tariff exemptions lose their significance.
However, this potential shift back to China risks undermining the $1.8 billion invested by manufacturers in China who sought alternatives in neighboring Asian countries like Vietnam and Thailand. These countries have seen their exports to developed nations grow at China’s expense.
Another factory manager, Kee, experienced thin profit margins in Cambodia, where he operated production lines for over two decades. Rising minimum wages led him back to Zhongshan, a southern Chinese manufacturing city. In Zhongshan, he pays workers only 30% more than in Cambodia, achieving 20% better output rates with more skilled workers.
Expanding production in Southeast Asia is seen as an irrational decision by Kee, and he anticipates that business slowdown will continue in the next year or two.
It’s essential to note that China remains integral to the global apparel supply chain, and shifting to other countries doesn’t significantly reduce reliance due to factors like material sourcing. Language barriers, culture shocks, and managing less experienced workers in Southeast Asia present additional hurdles.
Despite political tensions motivating some to shift to Southeast Asia, stable orders remain elusive for many garment makers, who are struggling to adapt to weak global demand. Some are considering measures like cutting back to four-day work weeks to reduce costs.
While Vietnam aims for apparel exports of $40 billion this year, with hesitance to rely too much on China from some developed nations, new orders are primarily for final production, not manufacturing. The setup costs for new factories are high, and environmental concerns limit foreign plant expansion.
India has been a beneficiary of some manufacturers’ diversification from China, but whether any other nation can rival China’s vast manufacturing ecosystem remains uncertain.
In summary, the challenges of shifting away from China’s supply chain persist, and factors like cost competitiveness, infrastructure, and material sourcing contribute to China’s enduring significance in global apparel production.
