China costs encourage overseas expansion

A Lastest News about Cotton in China

Last updated: 13 Oct 2011

Suppliers have been moving some production to countries where labor and utility expenses are lower. Now, their long-term customers are buying directly from these offshore plants.

The rising cost of manufacturing has encouraged some China makers to build factories in countries with less expensive production outlay. It has also resulted in buyers placing orders directly at those offshore facilities.

This is true particularly for suppliers that have formed long-term relationships with customers. The possibility of lower export prices and fewer trade restrictions led such clients to source from China makers' overseas factories, which are often located in Southeast Asia or Africa. Countries in these regions typically have lower import taxes and manufacturing costs.

For instance, the US imposes a 37.1 percent import tax for candles purchased from China, but only 5 percent when procuring from Vietnam. China-made LEDs have a 6 percent levy, but those from Vietnam are duty-free.

Further, monthly salaries in Vietnam are three-fifths of what China workers receive. The country does not have labor recruitment problems as well.

LED maker Neo-Neon LED Lighting International Ltd is among the China manufacturers that moved a few production lines to Vietnam. The company sometimes suggests sourcing from the offshore facility to long-term clients as the quality is the same but export prices are up to 15 percent lower. This is because both factories adopt the same technology, raw materials and management systems. The only drawback is that shipping from Vietnam may take about five days longer. Hong Kong-based logistics and container transport company OOCL, for instance, needs 13 to 15 days to ship from Shenzhen in Guangdong province to California in the US. Shipping from Ho Chi Minh city in Vietnam, however, takes 15 to 18 days.

Neo-Neon's Vietnam factory now registers $50 million in annual sales, roughly one-third of the China facility's revenue.

Importing garments and textiles from Vietnam can be 15 to 20 percent less expensive as well. Since 2006, suppliers have been gradually losing orders to factories in Vietnam, Burma and Bangladesh because of the lower costs there. To recover sales volume and capture orders from buyers looking to source from lower-cost centers, China makers have started building factories in these Asian countries.

Smaller makers tend to lack the capital to construct plants overseas. Most that do are large enterprises that have been in the business for more than three years. The offshore factories are often large facilities with at least 500 workers.

The Hazan Group, one of China's major footwear manufacturers, has nine production lines at its overseas factory, which turns out 15,000 pairs daily. About 80 percent of revenue comes from this facility.

 

This article was written by managing editor Aimee Ocampo originally for Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through our e-magazines, trade shows and industry research.


Posted: 12 April 2011, last updated 13 October 2011

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