Nearly three decades back, when China had “opened” itself to the outside world, textile and garment manufacturers in many high-cost production countries, including some directly in China’s geographical proximity such as Taiwan and Hong Kong, migrated to the mainland to avail of its low production and labor costs.
Three decades later and a long run of economic growth and prosperity, China itself has become an expensive production site for not only foreign manufacturers but also for China’s domestic industry which has quietly been migrating to other low-cost production sites in Vietnam, Cambodia and Bangladesh.
Vincent Fang, CEO of Toppy Ltd.
“You can learn a lot about this migration from Hong Kong’s example. Hong Kong’s garment industry was doing well. Its spinning, weaving and dyeing operations were flourishing despite the quota system in the US. But the rising costs in Hong Kong prompted many to migrate to China and, also, to the Philippines, Thailand, Malaysia, etc. Hong Kong functions today as the headquarters of many garment manufacturing companies which have been quietly migrating from China to low-cost producing sites such as Vietnam, Laos, Cambodia, etc.,” says Vincent Fang, a veteran apparel entrepreneur and the CEO of the Hong Kong-based Toppy Ltd., whose high-end ladies’ fashion brands include Episode and Jessica, have become household names in many countries. Fang is also the managing director of a garment manufacturing company called Fantastic Garments Limited.
Indeed, Fang runs a manufacturing plant in Nicaragua which provides Trade Preference Level (TPL) benefits. “I am taking advantage of the TPL benefits,” he says in an interview. “China’s wages are rising, making Chinese products less competitive, even though Chinese workers are adept and gifted in textile manufacture. We are now competing against China by engaging in OEM manufacturing in Vietnam, Cambodia, and elsewhere.”
While wages and production costs have risen dramatically in China, the mainland has itself become an interesting market for upper-end garment manufacturers. Since the US market is currently facing a downturn in demand, more and more Hong Kong suppliers look to the mainland market to sell their products.
One of the biggest advantages accruing to Hong Kong manufacturers is that their products shipped to China enjoy waiver from import duties under the Common Economic Partnership Agreement (CEPA) between the two. “The products enjoy duty-free import into China provided they are manufactured in Hong Kong,” Fang points out. However, Toppy’s products are upper-end in the price and quality range, they currently do not derive much benefit in terms of duty waiver. “But China’s market is changing rapidly as consumers are increasingly becoming quality conscious and are now seeking better products, including brand names, which is our forte,” Fang says.
One of the major problems encountered by foreign manufacturers on the mainland is maintaining their quality control in their manufacturing operations in China. There have been many cases of faulty or contaminated products entering the Western markets in the past, as a result of which there is skepticism about the quality of China-made products.
Fang tries to put the picture in perspective. “Big factories such as ours have very stringent quality-control standards. We maintain our own quality-control mechanisms to ensure that every product coming out of our factory is safe and fit for human consumption,” he emphasizes.
However, this may not always be possible in the case of outside companies that subcontract their orders to small manufacturers on the mainland, who can attempt to use faulty or defective materials in an effort to save costs. There is also talk of having an indemnity insurance to protect textile and garment importers against claims by consumers who may resort to legal proceedings to seek compensation for damages, which can be huge, particularly in the United States, the world’s biggest textile market in terms of per capita earning.
“Remember one thing, indemnity insurance against consumer claims will only add to the costs of shipments,” Fang cautions.
On the overall migration of apparel manufacturing from the developed to the developing economies, Fang says that the United States, for example, has already lost much of its apparel manufacturing to low-cost production sites. “We at Toppy have diversified our manufacturing operations to low-cost economies such as Vietnam, Cambodia, etc. although Hong Kong is and will remain the headquarters of our operations. We can control by means of computerized operations but also by appointing the right people in our overseas branches,” he says.
The economic crisis, unleashed in October 2008, had also affected Toppy’s business. However, as Fang puts it, it was “not as bad” as had been initially assumed. “We did some quick damage control by cooperating with our customers and giving them the feeling that we were with them. Our supplies have reduced in terms of volume, but the smaller suppliers have been worse hit than we are. We notice that buyers place much smaller quantities these days, exercising caution wherever they can. However, the orders have also become much more regular than in the past. Frankly, I am worried about the US economy, and hope it will recover fast. There are real estate problems, high unemployment, interest rates, etc. These can eventually also affect the garment business as well” he says.
Source: Manik Mehta, Hong Kong