Will China Lose its Market Share Due to Rising Labor Costs?

Will China Lose its Market Share Due to Rising Labor Costs?

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Will China Lose its Market Share Due to Rising Labor Costs?
Posted on January 4,
2016
Last year marked the tenth anniversary of the end of global textile and apparel quotas under the Multi-Fiber
Arrangement on Jan. 1, 2005, which unleashed powerful forces of consolidation of the supplier base.
During this period, China’s market share of the U.S. total apparel imports rose from 14-36 percent. On some
“sensitive categories,” the increases in the shares of the U.S. market were even more striking: e.g., from 3-23
percent for woven shirts and from 2-22 percent for knit shirts.
The popular question on a lot of people’s mind in the sourcing world today is: Will China lose its market share due to
rising labor costs? Will there be massive migration of textile and apparel-making capacities to new emerging
economies which offer lower labor costs?
If we try to continue in the old ways of manufacturing and not transform ourselves, then we have no choice but to
move garment operations from China to so-called “low-labor-cost” countries.
However, we believe in an alternative strategy: By using innovation, automation and process improvements, we
increase our garment factories’ productivity, reduce unit-labor cost and remain competitive against rising wages.
Also, keep in mind that rising wages mean higher labor income. If we are against that, then we are against sharing
the benefits of economic development and progress with the work force.
In addition to China, Esquel has long-adopted a diversified base of garment manufacturing, which was necessitated
under the old quota days to have multiple countries of origin for exports. Thus, while China is Esquel’s largest textile
base, it accounts for only about two-thirds of our garment production. In fact, Esquel’s garment footprint already
encompasses China-plus four: Malaysia, Vietnam, Sri Lanka and Mauritius.
With all of these garment operations across different countries, Esquel is working to improve productivity, enhance
labor income and make competitive offerings to customers. We have been in Malaysia for more than 30 years and
Vietnam for more than 12 years, and these operations are well positioned to gain competitiveness from the TransPacific Partnership (TPP).
But to further illustrate the importance of China to Esquel’s overall strategy, the company is making a major new
investment in the city of Guilin. This is an integrated development on a scenic site, encompassing brand new
specialty-spinning and garment-making factories that will embrace innovation and green technologies, textile and
apparel museums, design and R&D work-shops, a conference center and extensive landscaping in harmony with
nature.
The $300 million investment project has already started, with the phase-one factories and R&D facilities to be
completed in the first half 2017.
Despite the rising labor costs, we are committed to sustainable development and manufacturing in China.
By John Cheh, Esquel Group vice chairman and CEO