Out of love with China, fashion factory moves west

As China is hiking up their wage index, the fashion industry is moving their factories back west--even as far as Detroit in the United States.
Written by Ina Muri, Weekend Editor

A string of countries around the fringes of western Europe are becoming the new centers of fashion clothes manufacturing as China is moving up the industrial value chain and brands are discovering adaptable suppliers closer to home, Reuters reports.

Sourcing from China is getting more expensive, but the decision to go for Made in Morocco or Made in Moldova instead is not all about the price.

This is an industry where fickle consumer behavior is the main drive of demand. Players have to be nimble to survive against heavyweights  like Inditex's Zahara, which can have a catwalk dress look-alike in its stores within weeks, and which already counts 60 percent of its offering as "close or nearby production."

"Of course it is more expensive for us to make things in Turkey and Tunisia than in China, but it is not that much more expensive considering how much salaries (in China) have increased, and it is much more convenient for us because it is closer, so we have more control over quality," Giovannig Bianchi, a La Perla designer, told Reuters.They have moved the production of its mass-market Studio La Perla label from China to Turkey and Tunisia last year, and also moved sourcing of its nightwear from China to Portugal.

They estimate that for every 10 euros they spend in China on labor, they spend 15-16 euros ($20-21) in Tunisia or Turkey-- so China still remain cheapest by its calculations.

But this might also be changing. China's national wage index has been rising on average by 15 percent every year in the past five years. Institute Francais de la Mode, France's fashion trade group, estimate that their monthly pay in China's coastal areas soared to 400 euros in 2011, from 240 in 2005. That compares with current pay rates of 160 euros in Tunisia, 152 euros in Morocco and 200 euros in Moldova.

Further, tougher manufacturing terms demanded by Chinese factories have given fashion companies second thoughts about working with them. French Fashion houses, Jean-Charles de Castelbajac and Barbara Bui, and ready-to wear group Etam, have also moved part of their production closer to home.

They say Chines manufacturers keep putting pressure on them to place orders bigger than they can commit to, risking unsold stock which results in discounts that might harm the brand image.

Stanley Lau, the deputy chairman of the Federation of Hong Kong Industries, which represents around 3000 industrialists running factories in China, estimates that production costs in China have gone up 20-30 percent of over the past two years.

"Foreign investors are already not treating China as the only choice, they make other considerations. In the past, they would only think about China as a place to set up a factory, but now there are four or five choices for them," Lau said. "We've seen some enterprises set up factories in Detroit. You can see that this has become a trend."

[Via Reuters}

Image courtesy: REUTERS/ Zoubeir Souissi

This post was originally published on Smartplanet.com

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