Rising labor costs in China have led to major shifts in manufacturing over the last five years. Fast-fashion producers responded quickly, moving to more affordable production bases in Asia, chiefly Vietnam, Cambodia, Bangladesh and Indonesia. Now even small European companies — particularly handbag and accessories brands — with plenty of China experience are moving their manufacturing base to Italy.Labor costs are the key driver, but they're not the only factor.Italian designer Enrico Lucich fondly recalls the heady days of manufacturing in China in the late Nineties when labor was cheap and production volumes were high.“I was manufacturing handbags and fashion accessories for department stores and high street brands in Italy and Europe — often in high volume,” said Lucich, chief designer and owner of G&M Global Manufacturing Limited.He could produce a high street-quality handbag for $7 to $8 and a small purse for just $1.80. Most of the bags were made of PVC or used Chinese leather. Most of the factories he used were based in Guangshou and Hengzhou and occasionally in Xiamen. Manufacturing products for sale halfway around the world came with its drawbacks — there was a limited selection of materials in China, transportation costs could be high and there was the added blow of import duties on goods coming into Europe.“Because of the high volumes I preferred to ship by sea, but sometimes because of delays in production I was obliged to pay for transport by air and that would double the cost,” said Lucich.But the access to cheap labor made it worth putting up with those glitches. That all changed as China became more developed and labor costs increased. When the cost of producing a bag more than doubled, China was no longer such an attractive option.Lucich decided it was time to move his production, so in 2015 he did: To Tuscany in Italy.“In Tuscany you can find a full line of sourcing from the materials up to the printing, dyeing and manufacturing. At the same cost level [as China], you can add ‘Made in Italy’ original brand — and that counts for a lot in Japan and the U.S.,” said Lucich, who now sells to Japan, the U.S. and Europe.Carla Giusti is another “old China hand” who has ditched production on the mainland for Tuscany. After 15 years as a senior product developer working with Chinese factories, she is preparing to launch her own label, Chiwi, a luxury leather handbag brand.“China is no longer so convenient given the increasing cost of labor and materials and the high price of import duties. And on top of that, the minimum order quantities are too high for my new brand and also the quality isn’t good enough,” said Giusti.Barbara Dall’Acqua was so keen on the attractions of production in Tuscany that she called her new handbag brand Manufatto Fiorentino.“The brand name is to underline that our product is handcrafted in Florence, Tuscany. We want to express the Italian tradition, style and innovation,” said Dall’Acqua, who spent 16 years as a handbag and leather goods designer and consultant in China for big brands such as Levi’s, Braccialini, LC Waikiki and Killah.For those brands and others, she used factories in Guangzhou, Dongguan, Ningbo and Hangzhou. The high cost of labor was the critical factor in deciding to set up in Italy for her own collection, but access to good quality products, particularly high-end leather, was also a consideration.“Manufatto Fiorentino is still in its early days and at the moment we just sell in Italy, but our goal is to sell all over the world and why not to China. I know people in China who are very interested in buying Italian brands,” said Dall’Acqua.She says she receives up to 10 messages a day on LinkedIn from sales managers of Chinese factories asking if she wants to produce in their factory or if she knows someone who does. They even offer to send free samples to check the quality. Sound desperate? Dall’Acqua thinks so.“There are too many Chinese factories offering the same low standards, only the bigger companies can survive. The others risk bankruptcy unless they do something dramatic like upgrade their product quality or give a chance to small brands to produce in low quantities,” said Dall’Acqua.She suggested Chinese firms might even consider establishing their own tanneries or collaborating with tanneries in other countries, such as Japan.Lucich expects to see large global brands continuing to manufacture in China, particularly those that use PVC rather than leather, but said it’s no longer a viable option for more boutique labels.“For brands like Blanc de Chine and Shanghai Tang, China is still good, especially for embroidery and luxury fabric, but for me, Italy is much better,” he said.Giusti agreed. “Big brands will remain in China for obvious reasons, but moving to Italy is a trend for small commercial realities,” she said.
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