Local Manufacturers Stand to Gain as Plants Leave China

[Nike]

Local Manufacturers Stand to Gain as Plants Leave China

One of operating Indonesian textile factory


Jakarta. Relocating manufacturers from China will quicken that sector's growth in Indonesia until 2021, providing ample investment opportunities in the country's numerous industrial complexes, according to a report by real estate consultant Jones Lang LaSalle, or JLL, released on Thursday (20/04).

The study, titled "A Revival of Southeast Asian Manufacturing Hubs," said low-cost, export-oriented foreign manufacturers are facing the new reality of rising labor and land costs at a time when China is trying to refocus its economy towards higher domestic consumption rates, increased services and larger exports.

Typical manufacturing wages are now $3.90 per hour in China, compared to around $1-1.40 per hour in Indonesia and Vietnam, the report said.


"Our top picks for investing in industrial real estate are in Indonesia and Vietnam," said Regina Lim, head of Southeast Asia capital markets research at JLL.

"Indonesia's manufacturing sector is expected to grow 6-7 percent annually until 2021 – up from 5 percent in 2016 – thanks to a stabilizing currency and changes to economic policy. Meanwhile, Vietnam's edge is in its young and skilled workforce, relatively low cost base and stable political climate."

Indonesia recently implemented policies to encourage foreign participation in the country's industrial sector by providing tax incentives and relaxing restrictions in its negative investment list.

The JLL report also noted that Indonesia is looking forward to strong levels of domestic consumption as the country's middle-income population is expected to increase to 80 million by 2020 – providing wider markets for manufacturing goods.

However, there are still few listed industrial property developers in the country – the largest of which include Bekasi Fajar Industrial Estate, Kawasan Industri Jababeka, Lippo Cikarang, Puradelta Lestari, Surya Semesta Internusa and Intiland Development.

The sector grew 11.6 percent so far this year – according to Jakarta Globe's calculations – outperforming Jakarta Composite Index's total 6 percent increase.

This year, Indonesia will welcome new investments from at least eight footwear companies that plan to relocate production bases to the country from China and South Korea, said Achmad Sigit Dwiwahjono, the Industry Ministry's director general for chemicals, textile and miscellaneous industries.

Those companies will invest nearly Rp 7.6 trillion ($570 million) in Indonesia this year, much higher than last year's Rp 1.9 trillion investments in the footwear and leather products industry.

The government initially set a target of Rp 2 trillion investments in the sector this year.

JLL warned, however, that Indonesia and its Southeast Asian counterparts need to implement lasting reforms to sustain long-term manufacturing growth.

"The ability of Southeast Asia to move up the value chain will depend on the extent to which China's costs increase. It will also hinge on the growth of domestic consumption in these markets, the quality of education provided, the availability of infrastructure and the ease of doing business," Lim said.


http://jakartaglobe.id/news/local-manufacturers-stand-gain-plants-leave-china/

 

[Keel]

https://www.wsj.com/articles/SB10001424127887323798104578453073103566416

China Manufacturers Survive by Moving to Asian Neighbors
MAY 1, 2013 LEAVE A COMMENT

April 30, 2013, 4:00 p.m. ET

China Manufacturers Survive by Moving to Asian Neighbors

By KATHYCHU



SHENZHEN, China—In a corner of a sprawling factory in this coastal southern city, sewing machines that stitched blouses and shirts for Lever Style Inc.’s clients now gather dust. As the din on the factory floor has dropped, so, too, has the payroll. Over the past two years, Lever Style’s employee count in China has declined by one-third to 5,000 workers. The company in April began moving apparel production for Japanese retail chain Uniqlo to Vietnam, where wages can be half those in China. Lever Style also is testing a shift to India for U.S. department-store chain Nordstrom Inc. JWN +0.09% and moving production for other customers. It’s a matter of survival. After a decade of nearly 20% annual wage increases in China, Lever Style says it can no longer make money here.“Operating in Southern China is a break-even proposition at best,” says Stanley Szeto, a former investment banker who took over the family business from his father in 2000.

Companies from leather-goods chain Coach Inc. COH + 1.01% to clogs maker Crocs Inc. Crox +0.25% also are shifting some manufacturing to other countries as the onetime factory to the world becomes less competitive because of sharply rising wages and a persistent labor shortage. The moves allow the companies to keep consumer prices in check, although competition for labor in places such as Vietnam and Cambodia is pushing up wages in those countries as well.

At Crocs, 65% of its colorful shoes are expected to be made in China this year through third-party manufacturers, down from 80% last year. Coach will reduce its overall production in China to about 50% by 2015 from more than 80% in 2011 so the handbag maker isn’t too reliant on one country, a spokeswoman says.

Some migration of apparel manufacturing from China is expected, and even encouraged by the government, as the country’s economy matures. As other Asian nations become efficient at mass manufacturing, China must embrace research and high-technology production to transform its economy as South Korea and Japan once did. But healthy economic growth requires that China expand its service sector and create higher-skilled manufacturing jobs at a rapid clip to compensate.

“If costs continue to rise, but China is unable to become more innovative or develop home-grown technologies, then the jobs that move offshore won’t be replaced by anything,” says Andrew Polk, a Beijing-based economist for the Conference Board, a research group for big American and European companies.

China continues to be the developing world’s largest recipient of foreign direct investment, attracting $112 billion last year. But that was down 3.7% from a year earlier. And exports still are rising in the double-digit percentages. Growth is slowing.

Here in the manufacturing hub of Guangdong province, Lever Style’s factories provide a glimpse into the future of China’s apparel industry.

The company, which is based in Hong Kong, used to manufacture its clients’ clothing at three factories in China. But rising labor costs have forced the apparel maker for Armani Collezioni, John Varvatos and Hugo Boss to focus on what it does best: helping clients develop clothing while the company outsources a growing part of production.

In five years, Lever Style expects about 80% of its production to be outsourced to factories it manages throughout Asia.

As it shifts production to Vietnam, Lever Style says it is able to offer clients a discount of up to 10% per garment. That is attractive to U.S. retailers, whose profit margins average 1% to 2%, according to the U.S.-based National Retail Federation.

This shift is already well under way. Lever Style expects that a few years from now, 40% of the clothes it makes for Uniqlo, one of Lever Style’s biggest customers, will come from Vietnam and 60% from China.

As China production slows for Uniqlo and other clients, Lever Style plans to return one factory here to the landlord and consolidate its shrinking workforce at the other two.

Uniqlo, the biggest apparel chain in Asia, says it makes 70% of its clothing in China but would like to cut its production in the country to two-thirds, mainly to reduce costs. A spokesman for parent company Fast Retailing Co. 983.TO +0.70%9 says the retailer has an “ongoing dialogue” with contract manufacturers of its 70 factories world-wide about where to produce its clothing.

Nordstrom, which works with 450 factories in nearly 40 countries, says cost is important but so are product quality and factory working conditions. The company hasn’t seen a “material change” in how much of its apparel is being made in China in recent years, a spokesman says.

Many retailers are less concerned about where a product is made than about price, delivery and quality, says Lever Style’s Mr. Szeto.

Still, he says, while China’s transformation of its economy is “the right move for the country, I see this as a huge challenge for us as a company.”

 

[Mista]

Vietnam seems to be surging ahead in the next few years.

 

[Viet]

Vietnam seems to be surging ahead in the next few years.

Yes but still at very slow pace 6-7 pct. we must grow 10 pct or higher.

 

[sinait]

Yes but still at very slow pace 6-7 pct. we must grow 10 pct or higher.

7 pct is not slow. Too fast may induce unrest. 10 pct spurt for a few years and 7 pct thereafter would be nice. Unfortunately you may not have a choice to take your time, as India and Indonesia are also eyeing for the same investments. I think Vietnam have an advantage, though.

 

[Beast]

7 pct is not slow. Too fast may induce unrest. 10 pct spurt for a few years and 7 pct thereafter would be nice. Unfortunately you may not have a choice to take your time, as India and Indonesia are also eyeing for the same investments. I think Vietnam have an advantage, though.

Yes, shifting from Guangdong to Vietnam is a massive advantage. Plus, if vietnam port is too ill efficient. They can make use of Chinese port for shipping.

 

[Viet]

7 pct is not slow. Too fast may induce unrest. 10 pct spurt for a few years and 7 pct thereafter would be nice. Unfortunately you may not have a choice to take your time, as India and Indonesia are also eyeing for the same investments. I think Vietnam have an advantage, though.

The 7pct rate is not high enough to create jobs for all those young Vietnamese, who flood the market every year. we need more money for infrastructure and investment.

 

[sinait]

The 7pct rate is not high enough to create jobs for all those young Vietnamese, who flood the market every year. we need more money for infrastructure and investment.

Well some of them can go work overseas, H1B?, and come back later and help with the economy after gaining valuable experience and knowledge. If not for dispute with China, I believe China would have invested massively in Vietnam.

 

[Viet]

Well some of them can go work overseas, H1B?, and come back later and help with the economy after gaining valuable experience and knowledge. If not for dispute with China, I believe China would have invested massively in Vietnam.

Not America, most go to Taiwan, followed by Korea, Japan, Malaysia, Thailand and Singapore. And some even go to China. Bullying Vietnam is the Chinese's national pastime. Hopeless. We have disputes with Chinese on and off since thousands of years.

 

[sinait]

Not America, most go to Taiwan, followed by Korea, Japan, Malaysia, Thailand and Singapore. And some even go to China. Bullying Vietnam is the Chinese's national pastime. Hopeless. We have disputes with Chinese on and off since thousands of years.

I would rate it as akin to a family quarrel. Similar to what the Chinese do to the Koreans. I find them quite benign considering the bullying incidents that happened are what I gathered off Korean dramas. Nothing of the sort done by the Japanese.
What is important is they don't do massacre or genocide and mass rape like what the Malaysians(1969) and Indonesians(1965,1998) do to the Chinese, not so long ago. China stuck to its non interference policy and the world did nothing to stop it. So much for US fighting for human freedom and democracy. We in Singapore have 1st hand account of what happened. I remember it well. Malaysia also tried to commit genocide of Chinese in Singapore during the 1964 and 1969 racial riots. It was frightening. I was around 10 years old and witness the killing 1st hand. Have you ever seen intestines coming out of the stomach and the poor guy trying to put it back inside. I have never heard of the Chinese do this to their minorities or to their neighboring smaller countries. I have not heard that the Chinese round up Vietnamese civilians and commit massacre and mass rape during your border wars with them, or have you?
Vietnam will gain much if relations with China can somehow improve.

 

[Mista]

I would rate it as akin to a family quarrel. Similar to what the Chinese do to the Koreans. I find them quite benign considering the bullying incidents that happened are what I gathered off Korean dramas. Nothing of the sort done by the Japanese.
What is important is they don't do massacre or genocide and mass rape like what the Malaysians(1969) and Indonesians(1965,1998) do to the Chinese, not so long ago. China stuck to its non interference policy and the world did nothing to stop it. So much for US fighting for human freedom and democracy. We in Singapore have 1st hand account of what happened. I remember it well. Malaysia also tried to commit genocide of Chinese in Singapore during the 1964 and 1969 racial riots. It was frightening. I was around 10 years old and witness the killing 1st hand. Have you ever seen intestines coming out of the stomach and the poor guy trying to put it back inside. I have never heard of the Chinese do this to their minorities or to their neighboring smaller countries. I have not heard that the Chinese round up Vietnamese civilians and commit massacre and mass rape during your border wars with them, or have you?
Vietnam will gain much if relations with China can somehow improve.

You must be quite old.

 

[Viet]

I would rate it as akin to a family quarrel. Similar to what the Chinese do to the Koreans. I find them quite benign considering the bullying incidents that happened are what I gathered off Korean dramas. Nothing of the sort done by the Japanese.
What is important is they don't do massacre or genocide and mass rape like what the Malaysians(1969) and Indonesians(1965,1998) do to the Chinese, not so long ago. China stuck to its non interference policy and the world did nothing to stop it. So much for US fighting for human freedom and democracy. We in Singapore have 1st hand account of what happened. I remember it well. Malaysia also tried to commit genocide of Chinese in Singapore during the 1964 and 1969 racial riots. It was frightening. I was around 10 years old and witness the killing 1st hand. Have you ever seen intestines coming out of the stomach and the poor guy trying to put it back inside. I have never heard of the Chinese do this to their minorities or to their neighboring smaller countries. I have not heard that the Chinese round up Vietnamese civilians and commit massacre and mass rape during your border wars with them, or have you?
Vietnam will gain much if relations with China can somehow improve.

Ok our relationship to the chinese is not as bad as the Moslems or the Japanese to them, not even in worst times. It is very complicated though, I think most people will never understand. It is between cooperation and confrontation. And sometimes it is like a movie scene: in a bar two men sit down for a beer with loaded pistols hidden under the table.

 

[sinait]

You must be quite old.

nope, I am 63 years young, 37 more to go. haha.

Ok our relationship to the chinese is not as bad as the Moslems or the Japanese to them, not even in worst times. It is very complicated though, I think most people will never understand. It is between cooperation and confrontation. And sometimes it is like a movie scene: in a bar two men sit down for a beer with loaded pistols hidden under the table.

I agree. In fact I am surprised it went as bad as it did, especially regarding the border war. I thought something could have been worked out between China and Vietnam over the latter's desire to have control over the former Indochina territories, but in a peaceful manner with deference to China's interest. I think Vietnam felt invincible after its victory over the mighty USA and the Soviets don't want China and Vietnam to be too friendly. Maybe you have more info on this.

It is between cooperation and confrontation

Frenemy?? haha

 

[Viet]

I agree. In fact I am surprised it went as bad as it did, especially regarding the border war. I thought something could have been worked out between China and Vietnam over the latter's desire to have control over the former Indochina territories, but in a peaceful manner with deference to China's interest. I think Vietnam felt invincible after its victory over the mighty USA and the Soviets don't want China and Vietnam to be too friendly. Maybe you have more info on this.

Frenemy?? haha

It depends on from where you look at. If you look from our side, the Vietnamese people will be more relax and be ready for more cooperations if the Chinese say having no more territorial design on Vietnam.
True, we tend to inscrease territory and strengthen defense to make harder for the Chinese to swallow our country, but Vietnam military campaign against Cambodia has another reason nothing with indochina conquest.

 

[313ghazi]

Pakistan needs to get it's act in order and get in on the action. As costs increase in China we also should try to attract their manufacturing industry to our country, particularly that we have the advantage of CPEC and the Gwadar port which means easier shipping to Europe, Africa and Middle East. Unfortunately step 1 to this is a secure power supply.