'Only low-end Chinese textile sector may opt for Vietnam'

16 Apr '14

2 min read

As costs of labour are increasing in China, it is widely anticipated that textile companies would relocate to Southeast Asia, especially Vietnam, but it would not be prudent for high-end product manufacturing companies to do so, and only low-end production firms may opt to relocate, according to industry experts.

In recent years, the average annual wage increase in China has remained between 15 percent and 20 percent, and China has lost its earlier labour cost advantage to countries like Vietnam, where wages are about one-third of those currently existing in the Chinese textile and garment industry.

Textile companies are eyeing Southeast Asia for relocation, but Vietnam is their pick, as it has relative advantages compared to other countries like Cambodia. In addition to lower labour costs, Vietnam also has an advantage of power supply at lower rates, which help reduce the cost of production and improve gross profit margin.

In China, including the amount paid towards domestic human social security, welfare, etc, the domestic wages now stand at more than 40,000 yuan per year, or over 3,000 yuan a month. In comparison, the wage in Vietnam is only one-third, while the cost of electricity in that country is only half of the existing tariff in China.

Vietnam also has an advantage in terms of raw material supply and shipping, compared to Cambodia, which mostly produces garments on a single production line, which is more suitable for direct processing of fabrics. However, for industries that require more complex production Vietnam would be better suited as it has more complete supporting facilities. Vietnam also has advantage of lower transportation costs.

However, low quality of talent is one of the worries for the Chinese textile enterprises planning to relocate to that country, according to experts. In addition, management of the business would remain difficult due to language and cultural differences.

Hence, only manufacturers of low-cost textiles may opt for relocation to Vietnam, aver experts.

Fibre2fashion News Desk - India

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