Following rapidly increasing domestic production and labour costs, China’s largest online apparel retailer Vancl is shifting some production overseas. Since late last year, the company has been sourcing an undisclosed portion of its production from Bangladesh, with plans of a further increase.
According to Vancl, the main incentive behind the move was lower labour costs. Chen Chu, Vancl’s public relations director said: “Labour costs have been greatly reduced by moving part of the production to Bangladesh.”
With China’s minimum labour cost increasing by 23 per cent last year, Chen said wages in China had risen to $400 per person per month compared to $75-$80 in Bangladesh.
Even factoring in higher transportation and other costs, outsourcing would save the company five to ten percent of total costs.
Another reason behind the move was worker shortages. Younger Chinese migrant workers are increasingly reluctant to take factory employment, preferring instead service or white collar jobs.
But despite lower costs, Bangladesh poses numerous challenges- political unrest, poor infrastructure and longer production times. One company official said the production cycle in Bangladesh could be four to six months, while domestic suppliers deliver in 30 to 45 days.
Meeting Vancl’s production expectations could also be problematic. Chen said: “overseas production cannot meet such requirements. Despite higher costs in China, domestic factories still enjoy higher production skills and shorter production time.”
According to Shaun Rein of China Market Research in Shanghai: “Vancl only sells to the China market. One of the reasons they win is they can introduce new products, tailored specifically for China, very quickly.” He claimed that to source from Bangladesh could jeopardise this.
While all Vancl’s clothing manufacturing is outsourced, until recently, the majority was produced domestically in the Yangtze and Pearl River deltas. Besides Bangladesh, Vancl is considering opportunities in Indonesia, Cambodia, Vietnam and Pakistan.
With relatively cheap labour, materials around 30% cheaper than in China, and a mature textiles industry, Bangladesh is becoming a popular destination for Chinese brands considering overseas production.
Shao Ligang, from Beijing-based Jiupai Yixian apparel consultancy, believes rising domestic labour costs will see more production of Chinese brands outsourced to lower cost countries.
While Bangladesh may become a significant player in the manufacturing and production industry in the future, Torsten Stocker, head of Asian consumer goods practice at Monitor Group, believes other factors including labour productivity, training and skill level, degree of automation and speed to market continue to influence sourcing decisions. “This is far from the end of textile manufacturing in China,” he said.