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city, remains a busy, bustling and – superficially at any rate – a
typically confident Chinese metropolis in spite of losing
industrial jobs. The most likely explanation seems to be that
companies are indeed moving away from the now costly
regions of China’s coastal provinces to relocate inland, where
costs are still low. But this applies primarily to the actual
manufacturing stage. Other parts of the business, mainly those
which could be termed ‘white collar’ have not moved. They
have remained in cities like Guangzhou because those parts of
the company–finance, design, sales and marketing and so
on–are simply impossible to set up in the new locations
because of a lack of people with the right skills, companies
have found. This is pretty much what happened to Hong Kong
companies some 10 years back. Manufacturing moved to the
mainland, but the rest of the business, including for major
footwear brands, remained in Hong Kong. Guangzhou is a new
Hong Kong for the footwear manufacturing sector.
One of the key points Silk Road Associates has made is that
Vietnam, especially northern Vietnam, can be an option for
companies looking to move production now. “Let’s remember
that moving to inland China from Guangzhou is geographically
farther away than moving to the north of Vietnam; Guangzhou
to Wuhan is 1,019 kilometres, while Guangzhou to Hanoi is just
796,” the consultancy says.
Vietnam currently has more than 230 footwear factories that
together produced 850 million pairs of shoes in 2011, with
most of the manufacturing facilities in the south of the country.
Recent reports suggest export-focused footwear businesses
have faced a fall in both output and revenues in the first part of
2012. According to the Ministry of Industry and Trade, shoe
exports for the first four months of 2012 were down by 3.9%
compared to 2011.
A recent article in the
Financial Times
seemed to confirm that
the CLIA may be correct to say that Vietnam is three times
cheaper for footwear production than China at the moment,
but it warned that the situation may not be enough to attract
large numbers of new brands or manufacturing companies,
which a decline in exports would seem to support. The
newspaper spoke to a number of manufacturers, across a
variety of industries, about the attractions of setting up
production in Vietnam instead of China. Most agree that China
has better infrastructure, including energy supply and port
facilities. However, because manufacturers can pay unskilled
workers $100 per month in many parts of Vietnam compared
to the $300 per month their counterparts in China can earn,
some companies are willing to put up with the shortcomings.
However, what you win on price, you stand a good chance of
losing on price, and the newspaper quoted inflation figures
(“the highest in Asia”) of 16.4% in February and an ageing
population as reasons why any advantage the price difference
gives Vietnam is likely not to last. Other obstacles include poor
ports and road infrastructure, and corruption holding back
projects to improve these.
Perhaps the attraction of outsourcing shoe production to
manufacturing partners in Vietnam is less strong than the
price difference between that country and China would
suggest, or perhaps footwear companies have not yet had
time to adjust and make the move. Those who do cross the
border will have to work hard to make the most of the cost
savings on offer.
13
VIETNAM: THREE TIMES CHEAPER MAY NOT BE ENOUGH
MAY/JUNE 2012 | www.footwearbiz.com
Current supply cycles suggest shoes are three times cheaper to
make in Vietnam compared to neighbouring China.
CREDIT: PALLADIUM