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Where Made-in-China Textiles Are Emigrating

2012-1-13

Low wages are drawing the industry to Cambodia and other countries in Southeast Asia

On a December morning, workers at Top Form International’s newest plant in Cambodia are painting a long line of latrines. Rows of sewing machines sit idle in a dimly lit warehouse, while next door 150 18-year-old women learn how to sew bras on used Singer sewing machines. Chairman Willie Fung has big plans for the factory on Phnom Penh’s outskirts: By the end of 2012, 1,200 workers will produce 80,000 bras a month for sale to the U.S. and Europe. Eventually, this tiny Southeast Asian nation of 14.7 million people could account for one-third of Top Form’s output.

“Cambodia is just like China was 20 years ago. It’s on the verge of a big expansion,” says Fung, a 40-year veteran of the business who may open more factories outside Phnom Penh. Hong Kong-based Top Form, which supplies Vanity Fair, Warnaco Group, and Wacoal, has reduced its China production from 65 percent of total output three years ago to just over 50 percent now. It could drop to just one-third. “In Cambodia, people are happy to have a job,” says Fung. “But in China we keep losing workers. Whether we like it or not, we will be moving out.”

Top Form is one of hundreds of textile manufacturers that have been diversifying beyond China, the world’s No.1 apparel producer. Cambodia is one popular destination. So are Vietnam, Bangladesh, and Indonesia; their combined share of exports to rich countries rose from 12 percent in 2004 to 17.3 percent in 2010, according to Oxford (U.K.) consultancy Clothesource Limited. They all have young people willing to work hard for less. In Cambodia, that means $76 for a 60-hour workweek. Chinese workers get from $280 in low-cost Jiangxi province to $460 in Shenzhen. That’s take-home pay in his factory for 48 hours’ work, including overtime, says Fung.

While in 2010, China produced 43.6 percent of rich countries’ apparel imports, that number shrank to 36.8 percent in the first half of last year, estimates Clothesource. The stronger yuan, stricter enforcement of environmental rules, and above all rising wages are pushing production out. “Chinese workers are ever more demanding,” says Willy Lin, chairman of the Hong Kong Textile Assn.

China’s factory wages have risen 18 percent to 20 percent annually over the last three years, while staff turnover is running at 10 percent monthly, estimates the Federation of Hong Kong Industries. On Dec. 30, Shenzhen labor officials announced a 13.6 percent hike in the monthly minimum wage, to 1,500 yuan ($237). According to the Hong Kong federation, squeezed margins mean that one-third of the estimated 60,000 Hong Kong-financed makers of textiles, electronics, and toys in China’s Pearl River Delta will have to shut down or move abroad. “If you are very low-cost, very soon you will have to become a gypsy factory,” says Roy C.P. Chung, the federation’s chairman.

In the past year, Cambodia’s textile industry has taken off. On the outskirts of Phnom Penh, trucks carrying workers from new plants clog rundown highways. Exports by about 300 licensed textile factories grew to $3.3 billion in the first 10 months of last year, up 35 percent, according to the Garment Manufacturers Assn. in Cambodia. (An additional 2,000 to 3,000 textile factories are subcontractors to the licensed plants.)

China’s infrastructure and supplier network still beat Cambodia’s handily. In Cambodia, “everything is imported—even the sewing needles and thread,” says David Tan Kok Ngan, director of Best Tan Garment, a jeans and cargo pants supplier for Zara and other brands. Tan says parts take one week by ship from Hong Kong and two weeks from Shanghai. Even Top Form intends to keep making its priciest products in China.

As in China, workers in Cambodia are showing a proclivity to strike. More seriously, other low-cost countries are vying for plants, too. “The challenge is if another country can pay salaries cheaper than Cambodia—maybe Myanmar,” says Tan. “We don’t know what will happen tomorrow.”

Source:Bloomberg
 
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