Olivier and Mann – Increasing salaries in China has prompted Chinese textile companies transferring production to Vietnam where salaries are almost 60 percent cheaper.
While the labour transfer is loaded with risks due to China and Vietnam’s territorial disagreements in the South China Sea, amongst other issues, analysts see the movement continuing.
One such company is Nameson Holdings, based in Guangdong Province, which has been producing knitwear at its plant in Ho Chi Minh City for over a year and with expansion of the factory nearing completion, plans to increase production in Vietnam by the second quarter of 2017.
Nameson is a supplier of the Japanese firm Fast Retailing, owner of the Uniqlo chain of clothes shops. More than half of Nameson’s income was generated by its supply agreement with Fast Retailing, relocating its production in Vietnam is in part due to the 2009 economic partnership deal that resulted in the removal of tariffs on Vietnam’s textile exports to Japan. Nameson is trying to increase its presence in the Japanese marketplace.
Bosideng International Holdings of China is a major producer and retailer of down jackets and is now working on increasing production in Vietnam. Bosideng is presently test running production with a Vietnamese textile factory associated with the Japanese trading firm Itochu. Bosideng’s expansion into Vietnam is still under review as it assesses the developments of its Vietnam factory.
Bosideng’s CFO disclosed that their clients are seriously looking for a cross-border supply chain, and in part, Bosideng missed out on potential orders for Original Equipment Manufacturing. The CFO also admitted that their transfer to Vietnam will result in lower production costs.
China’s annual overseas shipment of clothing amounts to around US$170 billion and the country used to hold the distinction of being the textile king of Asia. But with Chinese wages doubling over the last five years, China’s textile industry is now experiencing increasing pressure from customers to reduce costs and manufacturers are moving production to other countries that could help in lowering the costs of production, such as Vietnam.
Relocating businesses to other countries comes with risks, like in 2014 when Vietnamese protesters expressed their anger against China’s oil exploration in the South China Sea and Taiwanese and Chinese firms have experienced violent mass actions leading to the disruptions in their operations.
Donald Trump has expressed his desire to pull the U.S. out of the Trans-Pacific Partnership, a free trade agreement between 12 countries, which includes Japan and Vietnam. With the TPP’s future on the line, the prospect of relocating China’s textile production to Vietnam might slow down.