Stanley Szeto’s clients are some of America’s best known brands. His factory Lever Style, in China’s southern Shenzhen, manufactures shirts for top designers …among them Calvin Klein and Banana Republic.
Szeto employs over 7,000 workers, but recently revamped his China manufacturing model because of soaring wages. He says, “If you factor in 5% appreciation of the RMB our labor cost is up by about 50% in US dollar terms.”
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That’s why 30% of what Lever makes inside China will move to cheaper places where, in some cases the move is worth the savings in wages.
As Szeto says, “In the short term we want to move the moderate price point items towards cheap locations northern china, western china, Bangladesh, Vietnam and so forth.”
It’s all part of China’s economic plan to wean its economy off exports by moving low end production to inner provinces as it tries to move up the value chain to more sophisticated goods.
But for some, it means pushing manufacturing out of China.
John Poon, COO of Lever Style says, “Specifically in terms of minimum wages, Vietnam is $60 a month. But in China they are already up to $200 a month.”
More proof that the model is changing – factories like Lever Style have revamped the way its Shenzhen factory runs, implementing so called lean manufacturing.
Reuters’ correspondent, Deborah Kan reports:
“And as some manufacturing moves inland and the government pours money into infrastructure projects, migrant workers can now find jobs closer to home, causing labor shortages in traditional manufacturing areas like Shenzhen.”
A protest between migrant workers and police last month near Guangzhou shows just how volatile the situation can sometimes get as the government juggles the fine line between keeping workers happy amid rising inflation and rebalancing its economy.
According to Harris and Moure lawyer, Dan Harris, “China doesn’t want low end jobs in Guangdong anymore. China will tolerate those jobs but those jobs have to be in the far west.”
As manufacturers look for cheaper alternatives, China’s share of US imports of labor intensive goods is declining.
US apparel imports for the first few months of 2011 show higher rates of growth in Vietnam and Indonesia when compared with China indicating sourcing is flowing into other markets.
And for manufacturers like Stanley Szeto, moving some manufacturing out of China is the only solution, as higher costs cannot be passed onto the consumer at a time when the US and Europe are still in the financial doldrums.
Bottom line: Soaring costs force some companies to rethink their China strategy and look for cheaper options outside the country.