By  on May 13, 2008

GENEVA — Spiraling energy and freight costs coupled with rising wages and other expenses in China's Pearl River Delta, the world's premier textile and apparel manufacturing hub, are spurring the relocation of factories to lower-cost Asian countries and a rethinking of sourcing plans to places closer to key home markets.

In contrast to the days of global quotas when firms moved around from country to country to secure access to restricted markets, relocation today is largely driven by increasing costs.

However, Asia is still positioned to retain its pivotal role as the world's textiles and apparel production hub and much of the relocation is expected to occur within the region.

The increase in wages is seeing a trend of firms moving production away from China toward Vietnam, Cambodia, India and Bangladesh, said Neil Kearney, general secretary of the International Textile Garment and Leather Workers Federation.

Analysts at the Zurich-based International Textile Manufacturers Federation who track investments in the sector note that there is a general trend of increasing investment in countries such as Vietnam, Bangladesh and Cambodia. Improved conditions in China's rural areas, as a result of the increases in prices for farm products, have also seen a reduction in the availability of cheap labor from the countryside, they said.

In addition, Kearney noted that the sharp increases in land and utility costs, and shortages of water, in coastal areas are increasing the transfer of plants to other low-cost Asian locations. But China still remains by far the biggest investor in the industry, although the outlays have leveled off, said ITMF analyst Christian Schindler.

Despite the increases in costs, China's big domestic market, good infrastructure compared with Pakistan of India, for example, and availability of inputs in the value chain from cotton to man-made fabrics still makes it an attractive sourcing location.

However, analysts note that in view of the congestion in the coastal areas there is also a move to relocate plants inland in China's poor western region. The area is set to benefit from the development of Euro-Asian Transport linkages that will enable the shipment of textiles and apparel merchandise by rail to Western European markets, and also on to the U.S. and Canada, and in the process slashing the time of getting the goods to market by at least 10 days compared with hauling the same goods by sea routes.European and Asian transport ministers have agreed to outlay $43 billion by 2014 to the revitalization of the ancient Silk Road and to modernize other networks throughout Eurasia.

Guozhi Chang, senior adviser at China's railways ministry, said at a recent United Nations conference here that China plans to invest $12.5 billion over the next few years.

"The future of this project is very bright," he said in an interview, adding that haulage of value-added products such as textiles and apparel rather than bulk commodities are seen being carried to and from China and Europe.

Proximity to market has also seen strong investment in recent years in Egypt, given its strategic closeness to Europe. Similarly, investments have also been strong in Turkey but seem to have reached a peak, Schindler said.

Asked who was likely to fare best in the new high-cost environment, a top Swiss private banker, who asked not to be named as he has clients in many countries, said, "Obviously those companies with the ability to locate and produce in various locations will be the winners in the long run. Those having to decide on a functional basis where to shift production will be losers because of trade and overall costs."

To continue reading this article...

To Read the Full Article

Tap into our Global Network

Of Industry Leaders and Designers

load comments
blog comments powered by Disqus