Feb 10, 2012. Hong Kong’s role in the global garment industry over the last 20 years has shifted away from a manufacturer to a servicing and sourcing centre. It will take on even more diverse roles in the future, as more production shifts to ASEAN.
In 2008 China’s labour costs began to rise rapidly. In 2010, the minimum wage in 30 provinces rose by 22.8%, while China’s 12th and current five-year plan (2011-15) has earmarked workers’ wages increasing at 15% per year over the period, effectively doubling within five years. The appreciation of the yuan, which has risen 26% against the dollar since 2005, is another factor behind the rising cost of doing business in China.
China’s share of world clothing exports is being gnawed at by its neighbours and the decline is likely to be more rapid in the near future. In the first eight months of 2011, the US imported 1.4% more clothing by volume, but saw a decline of 3.2% from China while most ASEAN countries rose.
There’s no doubt China and the ASEAN countries will continue to be the world’s major apparel producers. But they will diverge to produce products at three different price levels.
Low price products demanded by retailers such as Walmart and Kmart will be sourced from operations that pay less than US$ 200/month in workers’ wages, in countries like Bangladesh and Cambodia.
Medium priced products for retailers like JC Penney, Macy’s, Sears, Dillard’s, A&F, Polo Ralph Lauren and Banana Republic will come from Vietnam, Indonesia, India and the Philippines where wages are under $ 400/month.
Premium products which require skilled and quality workmanship or very short delivery times, such as those for Hugo Boss, Armani, Saks Fifth Avenue and Pal Zileri will come from China and Thailand where wages are above $ 400/month.
The ASEAN region’s supply and production chain may not yet be as comprehensive as that of China, but this is changing as factory operations move into the region. Likewise, work efficiency may not be as high as in China, but there is a steady supply of labour due to its young population. Not only are wages, taxes and operating costs lower than China’s, but there are many duty-free and low tariffs for exports to other countries.
International brands are increasingly adopting a ‘China + One’ strategy. For apparel manufacturers in China – whether Chinese or Hong Kong owned enterprises – this means they will also need to establish other manufacturing bases outside the country. Indonesia, Vietnam, Cambodia and the Philippines are most attractive locations to set up shop.