Global manufacturing layout shift? The domestic textile industry should consider new competitive advantages

Some people attribute the decline in exports to exchange rate issues, sluggish demand for international procurement, high domestic labor costs, and tariff issues caused by trade agreements; they point the finger at Southeast Asian countries with lower costs. However, the report “The Shifting Economics of Global Manufacturing” released by the Boston Consulting Group BCG reminds everyone that looking around the world, there are deeper factors affecting the share of “Made in China” in the global market.
Is negative growth for the whole year a conclusion?
According to customs statistics, from January to October this year, my country’s total textile and apparel exports were US$234.98 billion, a year-on-year decrease of 5.4%, of which textile exports were US$91.06 billion, a decrease of 1.9%, and clothing exports were US$143.92 billion, a decrease of 7.5%.
Looking at the single-month data released by the General Administration of Customs, in January, China’s textile and clothing exports were US$25.54 billion, a year-on-year decrease of 10.8%; in February, textile and clothing exports were US$21.68 billion, a year-on-year increase of 99.3%; in March, exports were US$12.56 billion, down 32.6%; in April, exports were US$19.88 billion, down 16.3%; in May, exports were US$23.39 billion, down 6.3%; in June, exports were US$25.35 billion, down 1.2%; in July, exports were US$27.25 billion, down 1.02% %; in August, exports were US$28.82 billion, down 5.6%; in September, exports were US$26.91 billion, down 5.8%; in October, China’s textile and apparel exports were US$23.66 billion, down 10.9% year-on-year. It can be seen that only exports increased in February, while exports fell in other months. In addition, the declines in May, June, August and September were single digits, and the declines in other months were double digits. In June, the export decline narrowed to 1.2%. People thought that there would be an improvement later, but it turns out that the export situation in the next few months will still be severe.
Based on the data from the first three quarters, the United States is the only country that has achieved growth among my country’s major export markets. From January to September, my country’s textile and apparel exports to the United States totaled US$36.4 billion, an increase of 8.3%, forming a positive boost of 1.3 percentage points to my country’s overall exports.
Affected by exchange rates, both the EU market and the Japanese market continue to be depressed. In the first three quarters, my country’s cumulative exports to the EU were US$40.23 billion, a decrease of 10.7%. Among the 28 countries in the EU, exports to only 6 countries achieved growth. During the same period, my country’s cumulative exports to Japan were US$16.1 billion, down 11.6%, the fastest decline among the four major export markets.
Judging from the semi-annual report data released by several listed textile and apparel companies in August, there are very few companies with export growth. In the first half of the year, Zhejiang Furun Co., Ltd.’s main business revenue from export sales dropped 36.51% year-on-year; in the first half of the year, the textile and clothing export company affiliated to Shandong Xinhuajin International Co., Ltd.’s main business revenue from textiles dropped 0.14% year-on-year. Zhejiang Meizinda Printing and Dyeing Group Co., Ltd. also stated in its financial report that due to the depreciation of the yen and the euro and changes in the export environment, the company’s export business has been affected to a certain extent, resulting in a decrease in foreign revenue compared with the same period last year. Dalian Fanrick Garment Co., Ltd., which concentrates 60% of its business in the European market, expects its exports to the European market to fall by 10% to 20% this year. Chu Xuemei, general manager of the company, said: “The depreciation of the euro has greatly weakened the competitiveness of Chinese products. The order volume of individual customers this year has dropped by 50%.”
Is the purchasing power of the international market shrinking? Through interviews, companies have pointed out that although the slow global economic recovery this year has affected procurement demand, it is not enough to be the main reason for the decline in China’s exports. Companies have pointed to order diversion as the culprit. “This is not a temporary change in the export situation, but a long-term accumulation and outbreak of various factors.” Chu Xuemei believes, “The appreciation of the RMB, coupled with high domestic labor costs, Chinese products no longer have a price advantage.”
Will the transferred orders come back?
​Actually, order transfer is no longer a matter of a day or two. In recent years, many companies have felt this change. However, talking about order transfer in the early days will indeed cause companies to panic. As time goes by, many orders that have left have returned, which makes companies more calmly accept this reality. Lei Shengzu, the person in charge of Shenzhen Chuanglun Textile Co., Ltd. said: “Low-end orders will inevitably be transferred because China’s labor costs are too high; but orders with complex processes will still stay in China. After all, Chinese workers are still very skilled. In fact, Whether labor is expensive or not depends on the specific situation. If a company makes high-end goods, labor will definitely be expensive. But if a company wants to make complex, high-tech products, domestic skilled workers will not be expensive. In addition, Chinese workers are highly productive. More than enough to offset the cost loss.”
Regarding such a “positive” idea, Chu Xuemei has a different view: “Two to three years ago, the orders were indeed transferred first, and then came back one after another when they found that they were unsuccessful. But after several years of searching, and the rapid development of the manufacturing industry in Southeast Asian countries, development, now many European and American merchants have successfully transferred orders. For some complex products, they will ask Chinese companies to make a small part first, make a prototype, understand the technical difficulties, and then take the bulk goods to Southeast Asia and other regional countries. Do it to reduce total cost.”
The report “Global Manufacturing Economic Shift” released by the Boston Consulting Group BCG pointed out that in the past 30 years, worker wages, productivity, and energy costs have…�Subtle changes in currency values ​​and other factors quietly but also dramatically affect a business’s purchasing decisions.
Take workers’ wages as an example. The report points out that although manufacturing wages in the world’s top 25 exporting countries have increased from 2004 to 2014, the average annual wage growth rate in China and Russia has reached 10% to 20%, and this situation has continued for 10 years. , while the average annual wage growth rate in other economies is only 2% to 3%. Ten years ago, the average manufacturing wage, adjusted for productivity, was about $4.35 an hour in China, compared with $17.54 an hour in the United States. Today, the average manufacturing wage adjusted for productivity has tripled to $12.47 an hour in China and $21.90 in Russia, while in the United States it has only risen 27% to $22.32 an hour.
Ling Fangcai, chairman of Guangdong Textile Import and Export Co., Ltd., said: “Labor costs account for 30% to 40% of the company’s production costs, so companies are very sensitive to labor costs. Now, our labor costs are 5 to 6 times higher than those in Southeast Asian countries. times, so these foreign merchants have to look for production locations that can replace China.” This year, some of the company’s European and American customers reduced their orders, causing slight fluctuations in the company.
Although the growth momentum of Jiangsu Sumida Textile International Trading Co., Ltd. is still good this year, with exports expected to grow by 20% throughout the year, Xu Jian, deputy general manager of the company, also believes that labor costs are a major problem facing China’s textile and garment industry. “After several salary increases, the current average monthly salary of workers in Vietnam is about US$150, while the monthly salary of workers in China reaches US$500 or even higher.” What worries Chinese companies the most is happening. China’s productivity has been reduced. To offset the impact of the surge in labor costs, the transferred orders will no longer return.
Xu Jian pointed out that the demographic structure of workers is his biggest concern: “What is more serious than labor costs is that China is aging, and there are still many young people who are unwilling to engage in textile and clothing production, while our surrounding countries have A large number of young labor forces. As long as foreign production efficiency can reach 70% to 80% of domestic levels, their labor force advantage will be very obvious.”
Is ASEAN the only competitor?
​When most companies mention order transfer, they regard Southeast Asian countries such as Vietnam and Cambodia as comparison objects. In fact, as can be seen from the “Global Manufacturing Economic Shift” report, our imaginary enemies are far more than these. The landscape of “global manufacturing cost competitiveness” has changed significantly. Who would have thought that manufacturing costs in Brazil are already higher than those in the United States? Who would have thought that the UK has become the economy with the lowest manufacturing costs in Western Europe? Have manufacturing costs in Russia and Eastern Europe risen to almost the same level as those in the United States? According to the report, among the world’s top 10 commodity exporters, except for China and South Korea, the manufacturing costs of other economies are higher than those of the United States. The United States and Mexico are now the rising stars of global manufacturing. China’s factory manufacturing cost advantage compared to the United States has weakened to less than 5%. If this trend continues for 10 years, the cost gap between China and the United States will disappear. In terms of unit cost, Mexico’s average manufacturing cost is expected to be 13% lower than China’s.
In recent years, both the United Kingdom and the United States have adopted the slogan of reshoring manufacturing. Many people in the industry do not agree with this and believe that labor costs in these developed countries must be very high. However, this cost report does a good job of explaining the rationale for reshoring manufacturing.
In addition to China, the competitive advantages of several other economies that were considered to have low manufacturing costs in the past, such as Brazil, the Czech Republic, Poland and Russia, also weakened significantly from 2004 to 2014. According to statistics from the report, Brazil’s manufacturing costs have risen sharply, and by 2014 were even 23% higher than those in the United States; while the average costs in Poland and Russia are roughly the same as those in the United States.
From this report, we not only see that China’s labor cost advantage is disappearing, but more importantly, the global procurement landscape is changing. The global manufacturing industry may no longer have a core procurement area, but will be scattered across various regions. Because there are relatively low-cost manufacturing centers in every region of the world, more consumer goods in Europe and the Americas will be manufactured closer to home. By then, why should China allow European and American buyers to overcome their geographical advantages and travel thousands of miles to purchase?
As a result, Chinese companies can no longer focus their competitive perspective only on Asia, but must look globally. Instead of thinking about what advantages our competitors have, we should think about how to position our textile and apparel exports in the face of such a situation. What new competitive advantages should China create to make up for the shortcomings caused by the irreversible rise in labor costs to the textile industry?