The minimum wage in key coastal cities in China has increased by nearly 40% over the past 18 months, according to Stan Szeto, CEO of Lever Style Inc, a garment manufacturing business, during a Q&A session with A Level students at Crown Woods College. This is a result of the strong demand for labour in Chinese coastal cities, and of a change in government policy seeking to boost domestic demand.
His customers are mainly clothes retailers in recession-hit markets in Europe and the USA, so he is unable to pass on these increased costs in the form of higher prices – particularly given the appreciating Chinese currency.
In response, he is focussing on higher value-added market segments such as suits for high-end brands. These customers are willing to pay for the greater quality Chinese manufacturers can offer compared to countries with a lower wage cost such as Indonesia. Being fashion brands, they also value the increased flexibility of Chinese manufacturers who are able to offer substantially reduced lead times and get stock from design to shop-floor more quickly than manufacturers in low-cost countries. For customers who demand a simpler more commodity product, such as woven shirts, he is out-sourcing production to low-cost countries such as Indonesia.
He sees CRS as an essential part of their strategy to improve productivity and customer relations. He offers workers excellent working conditions, which helps attract and retain staff in the extremely tight Chinese labour market, and meets all customer compliance standards. Recently they have worked to reduce energy costs and emissions through the use of solar energy, and have partnered with the WWF on a low-carbon manufacturing programme. The lean production techniques he has introduced to reduce production lead times are also helping reduce his costs and improve employee motivation and productivity (just-in-time delivery; quality control circles; reorganising production into small multi-skilled teams instead of a continuous production line).
While European and US customers may be switching sourcing away from China owing to the increasing costs of production, Lever Style is finding the booming domestic market is taking up the slack.
Does this point the way forward for China - away from export-led growth based on low manufacturing costs, towards growth driven by booming domestic demand?
