Sourcing Costs in China on the Rise for Textile Retailers

A recent survey from Credit Suisse found that nearly 40 percent of private consumer, technology and industrial companies will see the goods they source from China increase by at least 6 percent over 2009. Generally speaking, expenses for companies that produce “basic” products such as cotton cloth are determined mostly by the cost of raw materials, while the expenses of manufacturing intricate products, such as heavily embroidered items, are more affected more by the cost of labor.

Unfortunately, no companies in China are immune from rising expenses because both material and labor costs are on the rise for a variety of reasons, experts say:
* The cost of cotton is at a 15-year high;
* Worldwide stocks are at or near all-time lows because consumption has outpaced production for several years in a row;
* There are fewer factory workers available in China, and many of them refuse to work the long, overtime hours that previous generations of workers did; and
* At an average of US$3,900 per year, today’s Chinese workers earn more than double what they did in 2009, and nearly four times as much as they did in 2000.

Because consumers are particularly price-conscious during this global recession, many apparel manufacturers will lower their quality standards rather than raise prices. Some apparel companies might try to diversify their mix by shifting their sourcing to other regions such as Latin America and the Middle East, but many of those areas are already at or over capacity, and their quality standards and ability to deliver on time usually aren’t as high as those in China.