Original title: “World Factory” China’s outsourced processing companies are facing a wave of elimination

According to the “Nihon Keizai Shimbun” report, due to the slowdown of the world economy, product safety issues, and rising labor costs, China’s outsourcing processing companies are facing the survival of the fittest.
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​​​According to reports, China, which has grown rapidly as the “world’s factory” in recent years, has a large number of outsourced processing companies that accept orders from foreign companies. However, due to the slowdown of the world economy, orders in many industries have declined. At the same time, the quality and safety standards required by orderers have become increasingly strict, and outsourced processing companies are facing a trend of elimination. According to data released by the National Bureau of Statistics of China, the average salary in Chinese cities from January to September 2008 increased by 18.3% year-on-year, and China’s labor costs continue to rise. Coupled with the appreciation of the RMB, China’s export competitiveness is declining. From the ordering side, it is difficult to understand the safety, labor management, and environmental issues of outsourced processing companies. A large number of foreign companies that carry out outsourcing processing cooperation in China are facing strategic adjustments, and an increase in Japanese companies are beginning to move their production bases to countries such as Vietnam with lower labor costs.
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Japanese toy manufacturers have reduced the number of outsourced processing companies in China and identified excellent companies as partners to strengthen product safety and improve production efficiency to cope with the credit crisis of Chinese products and rising labor costs. From 2006 to 2007, there were cases in which lead content in Chinese toys exceeded the safety standards of the Japan Toy Association. Due to rising labor costs in China, the processing fees for Japanese toy companies began to rise. Takaratomy will reduce the number of cooperative companies in China by March 2009, from the current 50-60 to about 10. Takaratomy will set new product safety and production cost standards, select several excellent companies in different fields such as sewing dolls and electronic toys, and change the previous method of signing short-term contracts at any time based on the time to market and choosing the lowest bid to sign contracts with partners. The annual contract guarantees the bottom line of the number of orders received. Takaratomy will also disperse production sites to Thailand and Vietnam, and will reduce the proportion of processing in China from 80% to 50% within three years. Bandai, another large toy manufacturer, has reduced its approximately 50 partners to 10 to facilitate inspection of the quality and production process of final products. Bandai currently produces 80% of its products in China and will expand its production capacity at its wholly-owned factory in Thailand in the future.
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Japanese clothing manufacturers have begun to adjust their production systems. Now most manufacturers produce 50-90% of their products in China. Children’s clothing company Chenggong now relies on China to produce 80% of its products such as clothing and groceries for babies under 6 months old. Since Japan found that Chinese-made baby shirts contained formaldehyde in 2008, Narimiya decided to transfer all such products to domestic production before the summer of 2010. The proportion of all products produced in China will drop from 80% to 70%. Fast Retailing Group (Uniqlo) will expand its production scale in Vietnam, Cambodia and other countries, and reduce the proportion of production in China from 90% to 2/3.