Wages Rise in China/Vietnam, Cambodia and Other Countries Gain Manufacturing Market Share

The Coronavirus pandemic hit manufacturers hard the world over, including in China. Now, many Chinese factories were struggling to find sufficient workers. At the same time, record numbers of Chinese students are graduating from college, but these new grads want white-collar positions, not jobs on the manufacturing floor. The Chinese working-age population is also falling, with only 63% of the total population in the country now of working age (between 15 and 59) in 2021 compared to 70%in 2010 according to China’s census data. Many manufacturing companies are having to raise wages and pay bonuses in order to attract and retain employees.

As a result, manufacturing is logically moving to nations with lower cost bases. Vietnam, especially, is reaping the rewards of its cheap labor. The U.S. Department of Commerce reported that U.S. imports from Vietnam of apparel and non-apparel textiles rose significantly from 2021 ($15.42 bil.) to 2022 ($19.65 bil). In fact, Vietnam is rapidly catching up with China as a top provider of apparel and textiles to the U.S. Other nations with growing manufacturing bases in this industry, fueled by extremely low wages, include Bangladesh, India and Cambodia.

Over many years, China was forced to improve the quality of its goods in order to stay competitive. Since many developing nations are capable of providing low-cost apparel manufacturing of reasonable quality, China needed to move ahead in terms of overall quality and efficiency in order to maintain a competitive advantage. Manufacturing trends in China evolved somewhat like they did in post-World War II Japan. In the 1950s and 1960s, Japan was seen as a very low-cost producer of goods that were generally poor in quality. However, as Japan’s post-war industrial giants gained engineering prowess and a greater understanding of global consumer markets, Japanese quality (and consumers’ awareness of that quality) began to rise steadily. In fact, in many respects Japan is now a world leader in producing goods of the highest quality. Watch for the Chinese manufacture of all manner of goods to evolve from among the world’s cheapest to become eventually some of the world’s best. This is already happening in telecommunications equipment, aerospace, biotech, automobiles and certain other goods. China is one of the world’s top nations in terms of annual investment in factory automation and robotics—key equipment for the manufacture of advanced technology goods.

China faces a significant problem in that its labor force is expected to shrink by 67 million workers from 2010 to 2030 according to United Nations projections. Not only does this mean that productivity will fall, but a smaller population equals less demand for goods and services, further hindering GDP. Supply chain and transportation challenges during the Coronavirus pandemic of 2020 encouraged manufacturers to become even less reliant on China and to spread their manufacturing across a broader number of nations.

India has been reaping the expected rewards of free markets in apparel and textiles, while it grows as a center of manufacturing in consumer electronics and automobiles. The Indian government has funded a long-term effort to boost vital infrastructure, from railroads and highways to airports, subways and shipping facilities. It is also boosting electricity generation. Combined with India’s extremely large workforce (the nation enjoys a very low median age) and reasonably high literacy rate, manufacturing is gaining a lot of traction. While the nation’s manufacturing segment was only about 10% of the size of China’s as of 2023, it is nonetheless of growing global importance.

Walmart announced plans in 2020 to triple its sourcing in India to a total of $10 billion by 2027. Huge commitments like this make the nation more attractive to companies that can make investments in Indian manufacturing. In addition to a massive range of small- to mid-size manufacturers, the nation is also increasingly home to massive manufacturing facilities. Importantly, Taiwan-based Foxconn, the world’s largest consumer electronics manufacturing services provider, has long-term plans to invest several billion dollars in India. Foxconn is a major outsourced iPhone maker for Apple, and in August 2023 Foxconn launched the manufacture of the advanced iPhone 15 in the Indian state of Tamil Nadu. Foxconn’s workforce in India will quadruple to 70,000+ from 2022 to 2024 or so.

Africa is also seeing increases in apparel and textile factory work, and in many other types of lower-end manufacturing, as wages are far cheaper there. In Ethiopia, for example, the garment sector’s minimum wage is about one-third that of Bangladesh. Major clothing manufacturers that are sourcing in Africa include VF, and PVH Corp., parent company of Calvin Klein and Tommy Hilfiger. Wal-Mart Stores, Inc., J.C. Penney Co. and Levi Strauss & Co. are sourcing in sub-Saharan Africa.

The apparel and textiles industry has long been ruled by complex import and export agreements that limit the volume of particular garments (such as t-shirts, pants and sweaters) and textiles (such as yarns and fabrics) that may be exported to specific markets around the world. In an effort to safeguard domestic production, the United States, Canada and several additional countries now part of the European Union established the Multifiber Agreement (MFA) in 1973. Under the provisions of the agreement, a quota system was put in place that established the maximum numbers of products produced in developing countries that could be legally exported to MFA member countries. These amounts differed from country to country and were based on historic purchasing patterns.

Internet Research Tip:

For in-depth explanation of the Multifiber Agreement and subsequent treaties, see the World Trade Organization’s “Textiles Monitoring Body” page at www.wto.org/english/tratop_e/texti_e/texintro_e.htm

By the mid-1990s, many factors, including global demand for cheaper goods and political pressures for free trade, brought about the World Trade Organization’s (WTO) Agreement on Textiles and Clothing. This agreement defined a 10-year phase-out of the MFA quotas, finalizing on January 1, 2005, after which all WTO member countries were to have virtually unrestricted access to U.S., Canadian and European markets. The abolition of these quotas had a marked effect, particularly in apparel and textiles exported from China. Chinese apparel manufacturing grew at a very rapid rate for years. This apparel is eventually sold under thousands of leading brand names worldwide, although it was manufactured by firms in China that may be completely unknown to consumers. The U.S. imported apparel and textiles from China totaling $31.60 billion during 2021 and $32.66 billion in 2022.

Some Chinese apparel manufacturing companies have been moving labor-intense manufacturing to countries such as Bangladesh, Nigeria and Cambodia. Chinese firms are benefitting from lower operating costs in those nations, particularly for labor and real estate.

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