The Next China, According to Experts, is Still China
Date: Thursday, August 22, 2019
Source: Sourcing Journal
Scale back, de-risk, avoid—whatever the present production plan, apparel and footwear companies can’t altogether quit China, even if that appears to be the sensible workaround to the present trade war’s perils.
While it’s true that the country’s labor costs have risen, GDP per capita has nearly doubled in the past decade, and its economy has grown at a quick clip, it’s equally that true China’s manufacturing capabilities, capacity and responsiveness remain grossly unmatched anywhere else in the world.
China, Jeff Streader, managing director of Go Global Brand Investment Platform, said speaking Monday at Apparel Textile Sourcing Canada, is “still the New England Patriots of the NFL. They’re still the team to beat. They still have a plan with a leadership that thinks corporate.”
The list of China’s pros for apparel sourcing still largely win out over the cons that the battle between President Trump and his Chinese counterpart Xi Jinping have brought on.
“They have the best raw material pipeline, and that’s a significant component,” Streader said. “Their roads are phenomenal, their ports are phenomenal. They have a focused, supportive government and they have a flexible manufacturing base.”
More than that, though, China has an ability to respond to demand at a rate and pace most countries can’t rival. Shipping from China to the U.S. can take 14 days, while bringing something in from Bangladesh—a Southeast Asia locale increasingly snagging market share as companies diversify their sourcing—requires about 32.
And that, according to Streader, is a “competitive cost that will offset any savings you might get from going to another country.”
Companies have to understand their total cost before considering going on a China sourcing cleanse that will prove both pricey and disruptive.
Freight on board, or FOB costs, Streader pointed out, represents 20 percent of your average unit retail price, while labor accounts for a much smaller 6 percent.
“If my shirt is $100 bucks, the labor on it is $6 bucks. Is that really enough for me to move from country A to country B?” Streader said. “Do I want to chase the cheapest price or do I want to make sure that that shirt I just saved $1 on, that I have it at the end of the year and don’t have to discount it to 50 percent off?”
In highlighting key alternative sourcing countries, Streader indicated that each will come with its own perks and headaches.
Myanmar, he said, struggles with underdeveloped infrastructure and persistent human rights issues, though costs are still low. The Philippines has a sizable young workforce, and Thailand is “a viable option to supplement your sourcing base that’s China heavy,” according to Streader. Though it has the capacity to take on more sourcing, Pakistan’s apparel industry has been “stagnant,” and while Indonesia’s experience is good, the country is focused on big orders at a time when companies are looking for smaller minimum order quantities (MOQs) as they take more cautious inventory positions.
Beyond what each new sourcing country brings with it, companies have to consider what they’d be losing when leaving China behind, too.
Speaking on a recent media call hosted by Tariffs Hurt the Heartland, Joseph Shamie, president of crib manufacturer Delta Children, said that while the company is weighing its options for sourcing in light of impending tariffs, a scale back on China won’t happen all that easily.
“I have over 100 employees in China checking on the safety of the product…testing the products every single day,” Shamie said. “We have moved some production to Vietnam and Indonesia, and No. 1, they don’t have the infrastructure to produce the quantities that are needed, No. 2, they don’t have the training to produce a safe product…it’s almost ludicrous to think that we can move all of that production overnight.”
Even for companies who do opt to move, which JOANN Stores has done for some of its production, Wade Miquelon, the chain’s CEO, said on the Tariffs Hurt the Heartland call, “You just can’t flip a switch on a wall.”
“When we can move supply, we’re starting a process which usually—from start to end—takes 18 months and is very expensive and very disruptive,” he said. “And what happens if we end up having some kind of skirmish with the next country? We could see a worse thing with the core consumer as a result.”
Complicated as maintaining the relationship with China may be, the benefits of maintaining some sort of status quo could prove beneficial to both production lines and bottom lines, despite the added pressure new tariffs may pose.
“They are the undisputed leader,” Streader said, acknowledging companies looking for the next new place to source product. “Of all of the countries I just mentioned, aggregate them, put them together, when it comes to textile innovation, bar none, it’s China.”
“The new China,” he said, “is the old China.”