Higher Costs Put the Squeeze on Low-End Exports

Makers of entry-level finished goods are receiving fewer orders as buyers shift sourcing to lower-cost countries in Asia.
Because of rising costs and the yuan’s appreciation, China’s export manufacturers are losing low-value orders to competitors in Vietnam, India and other countries in Asia. Production of higher-value items, however, remains unfazed.
The garments industry, in particular, has been hit hard by the constant increases in raw material and labor costs, and the strengthening currency, which together raised manufacturing outlay 15 to 25 percent. At present, Vietnam-made apparel is 30 percent less expensive. In addition, EU import duties from Vietnam are lower than in China.
Most factories in Vietnam, however, are suitable alternatives only for large-volume orders of basic apparel. Production of more complicated designs is often kept in China. Eighty percent of orders at Jiaxing Mengdi Import & Export Co. Ltd now consist of such styles. Operations Research Industrial Engineering Further, whereas the MOQ used to be larger and for just one design, order quantities are now lower and comprise several styles and items. Typically, small-volume orders for T-shirts mean 1,000 to 2,000 pieces. Large-volume orders are for at least 10,000 pieces.
Moreover, delivery lead times are longer in Vietnam. What would normally take two months in China can extend to six months in that country.
While the situation is very similar in the cookware Medium Industry, makers are less worried. For one, buyers have been sourcing cookware from Vietnam and India for a long time. In fact, some India companies were set up in the 1990s, much earlier than many factories in China. But while stainless steel cookware in India and Vietnam is 50 to 60 percent less expensive, many such models are only 0.3 to 0.4mm thick. In contrast, typical releases from China are 1.8mm thick. Cookware maker Yaward Industrial Development Ltd said suppliers there rarely provide FDA and LFGB certification, and models may not be PTFE and PFOA-free.
India does have its strength, especially in the software and jewelry industries. The country’s software industry is ranked second in the world, with exports growing 50 percent annually. India’s strong software technology development capability made the country a major player in other high-tech fields as well. But an underdeveloped supply chain for consumer electronics is making it difficult for the country to become a major contender for electronic products such as laptops, MP3 players, digital photo frames and GPS receivers.
The country has a strong diamond and gold jewelry processing industry as well. But Top Jewelry Fty sales manager Simon Wong said there is no basis for comparison since China makes mostly metal alloy and mixed-material jewelry. India’s jewelry pieces are often handcrafted as well, whereas models from China are machine-processed.
Despite rising costs, Maura Elizabeth Cunningham, editor of The China Beat, believes China will still be a major source of low-cost consumer items, at least in the short term. She also said that since a lot of companies have invested heavily in building factories in China, such businesses are not likely to move elsewhere unless the savings were truly substantial.

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