Sourcing Trends Shift in the Asian Markets

13 May 2012

The following article was published in the ICTI Care Foundation May 2013 “News Flash”

China is losing the competitive advantage it has enjoyed in traditional labor-intensive industries over the last two decades. Operating conditions for factories remain challenging, with quadrupling blue-collar wages, a shrinking labor market, and rising raw material costs coupled with expected appreciation of the RMB of about 3.5% in 2013. In response, companies are not so much looking to exit manufacturing in China as they are considering setting up parallel operations in other countries. Foreign direct investment in Cambodia, for example, jumped last year by a solid 70%, reaching US$1.5 billion, and also soared in Myanmar, The Philippines, Thailand and Vietnam.

Piet Holten, President of Pactics, a Belgian company producing microfiber sleeves for luxury sunglasses in China and Cambodia, was quoted as saying Cambodia "…will never have China's productivity, but the cost is less than a third of China's, and China only gets more expensive." Mrs. Tatiana Olchanetzky, a consultant in the handbag and luggage industry, has analyzed the cost of moving manufacturing to countries like Cambodia, Indonesia, The Philippines or Vietnam. She found that any savings would be very small, because China has most of the needed materials, which would have to be shipped to these countries if final assembly is moved out of China. Apart from the cost aspect the increasingly important "time to market" aspect is negatively affected.

At the same time, LEGO of Denmark just announced that it will set up a major manufacturing facility in Zhejiang, near Shanghai, to become operational in 2014. They plan that by the time the plant is fully completed in 2017, it will supply 70 - 80% of all LEGO bricks sold in Asia.

The ICTI CARE Process has anticipated the market changes underway, is ready to expand and has prepared to do business in new geographies. A basic cadre of trained and accredited auditors has been established in the important secondary sourcing Asian markets for the children's products industry. According to ICTI CARE Foundation President and CEO, Christian Ewert, "We are ready to scale up as needed to service any upcoming demand from these new regions."

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