As Wages Rise in China, Industry Seeks Sourcing Alternatives

| Jun 21, 2012 | BY WRAP

As China continues its rapid economic growth, the costs of apparel production continue to rise. The cost of living in China is increasing—and so are the wages paid to apparel workers, making it more expensive to source from the Asian giant. Additionally, the Chinese middle class is rapidly growing—with hundreds of thousands of people rising out of poverty and joining the middle class, China’s domestic apparel market is also growing—resulting in more factories working to meet domestic demand.

Brands are turning away from China and seeking cheaper labor. This was highlighted at the annual AAFA executive summit in Washington, D.C. in March, where executives discussed sourcing options and strategy shifts.

Manufacturers are searching for lower cost alternatives from emerging markets—and turning to South Asia and the Western Hemisphere. Top challengers for a sourcing leader include Bangladesh, Vietnam, Pakistan, Indonesia, Brazil, Turkey, India and the Western Hemisphere. (Sourcing Journal)

Vietnam is becoming an increasingly popular sourcing location for furniture, garments, textiles and workers, reports the Sourcing Journal.

The Western Hemisphere, because of its proximity to the United States and Europe, is rising up again as a popular sourcing locale. Mexico is becoming an increasingly more attractive sourcing nation, with the once-abandoned maquiladoras, or border factories, re-starting production.(Sourcing Journal).

Central America, particularly nations that are part of the Central American Free Trade Agreement (DR-CAFTA) are growing in popularity because of their speed-to-market production, quality control and better inventory, wrote Arthur Friedman in the April 24, 2012 edition of Women’s Wear Daily.

The DR-CAFTA nations are Costa Rica, El Salvador, Honduras, Nicaragua and the Dominican Republic, which joined later. Of the nations, Guatemala has the most diversified manufacturing sector with value-added products and a more sophisticated production process. The small Central American country has 142 apparel producing companies and is a nation WRAP works with regularly.

The Philippines is another potential sourcing destination that could offset the sourcing hole left by China’s decline. Lobbyists are pushing for a free trade agreement between the U.S. and the Philippines as well as passage of The SAVE Act, which would allow apparel produced in the Philippines made with U.S.-made fabrics to enter America duty-free (Women’s Wear Daily April 3, 2012 edition).

Will China adjust to economic changes and effectively maintain its grasp as an apparel producing giant? Only time will tell. One thing is for sure—the competition is ready.

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