Some rethinking is happening in the "factory to the world."
With costs on the rise, labor laws getting tough and reality setting in about the hassles of doing business in a transitional economy, the polish is fading from China's gleaming reputation as the world's prime manufacturing spot, industry sources and analysts say.
Although few businesses are actually moving production out of China, many more are thinking twice and considering other locations when they plan new manufacturing ventures.
"Based on what we're seeing in the field, new manufacturing is being placed in other spots rather than China," said Kevin O'Marah, chief strategy officer for the supply chain analysis firm AMR Research. "What's in place is staying in place, but new operations are often going elsewhere."
In the late Nineties and early part of this decade, China became the globe's main destination for manufacturers, lured primarily by its cheap and seemingly endless labor force. The Chinese government, eager to attract foreign investment, used preferential tax policies and promises of smooth logistics to encourage multinational firms to set up shop here. Those forces combined to make China the world's top destination for foreign direct investment, drawing $72 billion to the Mainland in international investment in 2006.
But China's manufacturing rise is proving like any other bull market — eventually feverish investment begins to slow and investors become more concerned about aspects of doing business here that often went ignored when China was seen as the hot place to produce. Roughly one-third of the world's apparel is now made in China.
"At the start, there was a gold rush mentality," explained Cliff Waldman, an economist with the Manufacturers Alliance/MAPI. "In a gold rush period, companies often don't do as much research as they should have."
"Anecdotally, I find that corporations have logistics issues, bureaucratic issues, language issues, that they never fully considered," said Waldman. "You can't really consider these things until you experience them."
Retail billionaire Philip Green bucked the China trend early, announcing in late 2005 that he was moving production from China to Eastern Europe. Green, whose Arcadia Group owns the British retailer Topshop and others, was quoted as saying he wanted his operations closer to retail outlets in Europe for a cleaner, much faster supply chain. But the move sparked speculation that China's rising costs and unavoidable difficulties would lead to a string of similar defections.
Thus far, there has been no exodus. Yet there is plenty of anecdotal evidence that China is no longer the hands-down winner when a company looks at potential manufacturing sites.
Doug Hart, a partner with the BDO Seidman retail practice, said several factors have combined to make China less attractive in recent years. The first is cost.
Wages in the manufacturing sector have risen between 10 and 15 percent over the past five years, according to research from the Chinese Academy of Social Sciences. As China's massive migrant labor force becomes less willing to settle for subpar wages, pockets of worker shortages have appeared and manufacturers have needed to raise salaries to attract and retain workers.
Costs are expected to rise yet again with the implementation this year of a strict new labor contract law that mandates certain obligations to employees. The law gives greater protections to migrant workers — the bulk of the country's manufacturing labor force — and mandates certain levels of benefits for long-term employees.
In addition to labor costs, Hart noted, commodity prices are going up worldwide and China is no exception. Meanwhile, the Chinese government this year equalized corporate tax rates on foreign and domestic companies, meaning that most international firms will within five years lose the tax breaks that helped to draw them here in the first place.
Said AMR's O'Marah: "The cost differential is finally being eroded and many people now want to be closer to their markets."
The potential loss of new manufacturing business appears to be a very calculated risk for the Chinese government. In pursuing an equalized tax policy, stronger labor law and other measures like an appreciating currency that might dissuade some international manufacturing business, the government appears to be on track with its plans to move China away from a manufacturing base to an economy based more on innovation.
Cai Fang, director of the Institute of Population and Labor Economics at the Chinese Academy of Social Sciences, said China is no longer interested in attracting low-level manufacturing jobs that pay poorly and fail to help the country advance. Cai said the new labor law and other moves to boost workers' rights will benefit the country in the long run.
@fearofgod and @maxfieldla have teamed up on a pop-up installation. The store, located in the gallery space across from Maxfield’s Melrose Ave location, is the site of the brand’s House of God pop-up in which Fear of God founder @jerrylorenzo has created a church-inspired installation. A dozen vintage church pews sit in front of an LED screen playing 90s gospel singers in an effort to re-create an environment akin to a Southern Baptist Church, Lorenzo explained. Read more about the pop-up on WWD.com #wwdfashion (📷: Jennifer Johnson)
Known for his sleek, sophisticated American glamour, Norman Norell is the subject of an upcoming exhibition at @fitnyc. “Norell: Dean of American Fashion,” which runs from February 9 through April 14, will feature approximately 100 ensembles and accessories. His best work is exemplified by the designer’s glittering “mermaid” gowns frosted with thousands of hand-sewn sequins – like the one pictured. (📷: William Helburn) #wwdfashion
For pre-fall 2018, @balmain didn’t let go of the glitz. A crystal embroidered baseball jacket priced at around $40,000 hangs in the “couture” section of the brand’s first men’s pre-collection. Sporting the words “Balmain Army” across the back, the item took around two months to make. “When it was completed, it was like Christmas, it was like, ‘It’s done, it’s exactly what I wanted,’” said Balmain’s creative director @olivier_rousteing during a tour of the collection in a Paris showroom on Monday. #wwdfashion
Eighty degree temperatures and outdoor installations at the annual Art Basel Miami Beach called for bright, elevated beachwear. See more street style pictures on WWD.com. #theyarewearing #ABMB (📷: @lifeinreverie)
Following September’s emotional tribute to her brother Gianni, Donatella Versace wanted to bring the spring show’s deep sense of intimacy to her @versace_official pre-fall collection. Donatella found inspiration in Versace Palazzo in Milan and from Gianni’s opulent apartment. Archival patterns and new motifs were splashed on silk shirtdresses and fitted jersey frocks. See the rest of the photos on WWD.com. #wwdfashion
Demna Gvasalia continues to shake up the Paris fashion calendar — and experiment with new runway timetables for his @vetements_official brand. WWD has learned that Vetements plans to stage its next coed show for the fall 2018 season on January 19 during Men’s Fashion Week in the French capital. Details about the timing and venue have not been confirmed — stay tuned on WWD.com to catch the latest. #wwdnews (📷: @giovanni_giannoni_photo)
@zacposen's go-to holiday gift? Cookies! "I'll usually bake cookies and send them as a gift," said the designer, who recently released his cookbook "Cooking With Zac: Recipes from Rustic to Refined." Get the recipe for his Brown Butter-Chocolate Chip Cookies via link in bio 🍪🍪🍪 #wwdeye #cookingwithzac
For @monsemaison’s pre-fall 2018 collection, Fernando Garcia and Laura Kim honed in on the brand’s many signatures — men’s wear, which was tweaked and feminized through deconstruction, proportion play and lots of bare shoulders. See the rest of the photos on WWD.com #wwdfashion (📷: George Chinese)
On Friday night, @yohjiyamamotoofficial received the Design for Asia Lifetime Achievement Award in Hong Kong. The 75-year-old designer has been celebrated for many years and is best known for his dark and avant-garde tailoring. “In my long career, in design, architecture, [I’ve been to] so many parties, this is the very first time that I have such a warm feeling, I really appreciate this,” Yamamoto said. #wwdfashion (📷: @dominiquemaitre)