China’s Woes Cause Strategy Shifts

The country's rising labor prices troubled buyers and sellers at the recent Interstoff Asia textile fair.

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HONG KONG — China’s rising labor prices troubled buyers and sellers at the recent Interstoff Asia textile fair.

This story first appeared in the March 27, 2012 issue of WWD.  Subscribe Today.

Attendees and exhibitors at the event, which ended its three-day run March 16 at the Hong Kong Convention & Exhibition Center, said higher labor costs have been squeezing their margins as they are only able to pass on some of the added costs. To survive, they’re trying different approaches — offering more special products, shifting production and expanding their customer base to include more Asian clients.

Messe Frankfurt, which organized the fair, said attendance numbers were up from a year ago with 245 exhibitors and 7,625 visitors, compared with 209 exhibitors and 7,062 visitors in 2011.

Raymond Leung of Hong Kong-based San Shing Cotton Weaving, said his profit margins have declined 10 percent over the last year because of higher labor prices.

“Labor prices are up 15 percent from a year ago and fabric prices are also more expensive, but I cannot charge [my customers] more,” Leung said.

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He said San Shing, which operates one factory in Dongguan, China, has been seeing smaller orders this year, particularly from Europe.

Kowen Tam, sales executive for Yagi & Co. Ltd., a Japan-based maker of recycled textiles, said the company has moved about 20 to 30 percent of its production to Southeast Asia in the last year alone due to rising wage rates and related costs in China.

Still, he faces price pressure. Tam said there’s actually been a bit more price pressure since cotton prices have come down. The price of recycled cotton stayed fairly steady, in contrast to fluctuating cotton prices. When cotton prices soared, the price of recycled cotton looked appealing. But now that cotton prices have come down, recycled cotton doesn’t look like as much of a bargain, he explained.

“They’ll say last year it was 40 percent less than [standard] cotton and now it’s only 23 percent less,” Tam said.

Exhibitors from outside of China had a different perspective. Asif Ali Khan, business development manager for Pakistan-based Cotton Web, said the company has a full order book for the year ahead and is seeing more interest as buyers look for alternatives to China in Pakistan and Bangladesh. The company has also been helped by the European Union’s move to relax import taxes on textiles from Pakistan.

“China will lose many customers in the days to come,” Khan said.

Like many others, Cotton Web is also looking to expand its customer base beyond Europe. Khan said he’s talked to a few Chinese buyers at the show and may consider attending more shows in China.

For buyers, China’s escalating labor prices similarly drives companies to look for alternatives, by moving manufacturing or by differentiating with a novelty product.

“Everybody is suffering. It’s not the same as two to three years ago,” said Australia-based designer Carmel Pachet, who was visiting the show to source recycled and other eco-friendly materials. “To stay alive in fashion now as a boutique line we must create something at a price point that’s different from the department stores.”

Only then is it possible to pass on some of the costs, though margins are still getting squeezed, she said.

While there was a fair bit of hand-wringing over labor costs, not everyone was looking at alternative production.

Jim Lee of Taiwan-based Shiny Textile Co. Ltd. said the company intends to keep all of its manufacturing in Taiwan for better quality control, despite the higher cost. The company makes functional fabrics and special yarns. Lee said he’s been seeing strong demand for Coolmax and ice touch fabrics, which feel cool against the skin.

Higher-end buyers weren’t as troubled by costs. Hong Kong-based designer Diane Freis said she doesn’t have any plans to move manufacturing from China. As a luxury brand, Freis said she strives to offer “something special” to customers at a reasonable price by being creative and improvising.

Eco fabrics were a key attraction at the fair. Colors were generally quite bright featuring neons and jewel tones as well as more subdued neutral colors with a bit of iridescence.

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