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Mounting labor costs forces Nike to relocate in China

  • Staff Reporter
  • 2013-02-27
  • 15:44 (GMT+8)
A worker in a shoe factory in Hangzhou. (Photo/Xinhua)

A worker in a shoe factory in Hangzhou. (Photo/Xinhua)

A Guangdong shoe manufacturer for the leading US brand Nike has cut its work force to 4,000 from 13,000 since the global financial crisis five years ago, China Business News reported on Feb. 26.

The factory has no recruitment plans even in the current hiring season after the Chinese New Year holiday, said the factory manager, surnamed Wu.

Nike paid its workers US$200 a month in the 1990s, when plants came to China from Taiwan, Wu said. Labor costs have rocketed after the financial crisis, now over US$500 a month. The pay well exceeds Indonesian salaries at US$300 and Vietnam's US$250 a month, Wu added.

"We have lost part of our orders as Nike would not pay a cent more if it could strike a deal without that cent," Wu said. "If I felt like taking a risk, I could have kept about 10,000 employees. But this means we would have to pay an extra US$2 million each month to prevent orders from going to Indonesian competitors."

Rising labor costs and intense competition have put sportswear giants, such as Nike and Adidas, in a dilemma about slashing profits or making fewer products.

Another Guangdong manufacturer who has contracts with Nike told China Business News that it plans to raise quotes because minimum wages in China have skyrocketed over recent years. The manufacturer also admitted that it was very likely to receive fewer orders.

A pair of sports shoes manufactured in Guangdong costs US$1 to US$2 more than those made in Indonesia or Vietnam. Nike still leaves a reasonable amount of orders to Guangdong shoemakers because of quality standards, and the domestic market is still promising despite a 6% decrease in orders from China for five months through April 2013, a Nike contract manufacturer said.

Statistics compiled by China Business News showed that in 2001, China made 40% of Nike's sneakers and Vietnam 13%. In 2005, China's contribution declined to 36% while Vietnam's climbed to 26%. In 2009, Vietnam caught up with China, both individually making 36% of all Nike sneakers. In 2010, Vietnam overtook China, making 37% of Nike's sneakers versus 34% by China.

Sourcing raw materials for sneakers and sportswear and their assembly lines are easier to standardize, giving Nike leverage to move its production base to China's hinterland and Southeast Asian countries, said Li Peng, Asia Footwear Association secretary general.

Nike has established five production sites in Jiangxi province, employing tens of thousands of workers.

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