Date: Thursday, December 15, 2022
Source: Nikkei Asia
TOKYO -- Major Japanese apparel manufacturers are shifting more of their overseas production from China to Southeast Asia, as China's rising labor costs and zero-COVID policy chip away at its dominance.
Amid a depreciating yen and rising costs of raw materials, apparel companies are using every available method to lower costs. The Regional Comprehensive Economic Partnership (RCEP), the Asia-Pacific trade deal that came into effect in January, has given companies a new lifeline.
Major apparel companies, such as Adastria, Aoyama Trading and suppliers of Uniqlo, are moving some of their production bases to RCEP member countries in Southeast Asia, taking advantage of reductions in or exemptions from textile import tariffs.
Adastria, which owns popular fashion brands including Global Work, has increased production in Cambodia and Vietnam from this year, mainly for standard products such as blouses. The ratio of production in Southeast Asia by volume as of August doubled year-on-year to 22%.
The company plans to expand production areas to include Indonesia, Bangladesh and other countries, and increase production in Southeast Asia to 50% by the fiscal year ending February 2026.
Of the company's clothing imported into Japan, the amount of items produced in China fell to 59% in 2021, down from 81% a decade earlier.
Meanwhile, Aoyama Trading, a major menswear company, is expanding its product procurement from Indonesia and Vietnam. Goods from China constituted 36% of its imports in fiscal 2021, down 7 percentage points from the prior year. "Over the medium to long term, the ratio of production in China will likely decrease further," said company president Osamu Aoyama.
Matsuoka Corporation, a contract manufacturer for Fast Retailing subsidiary Uniqlo, produced 50% of its clothing, by sales, in China in the fiscal year ending in March 2022, but plans to decrease that to 29% by fiscal 2025.
Over the same period, it will increase production in Bangladesh to 34% from 28% and in Vietnam to 28% from 16%. The company is also increasing production capacity in the two countries, having committed 8.7 billion yen ($64 million) to invest in new factories over the two-year period ending in March 2023.
Many processes in the clothing industry still rely on human hands as sewing work can be difficult to automate, making labor the biggest production cost beside raw materials.
Starting in the 1980s, companies began shifting production from Japan to China in search of cheap labor. But from around 2010, the movement has expanded into Southeast Asia as part of a "China plus one" policy, amid rising labor costs in China spurred by its economic development.
According to the Japan External Trade Organization, the average monthly salary of a factory worker in Guangzhou, China, recently reached about $670, greatly exceeding the approximately $270 monthly salary in Vietnam's Ho Chi Minh City and the $120 figure in Dhaka, Bangladesh.
In addition, China's zero-COVID policy of initiating massive lockdowns to prevent the spread of the coronavirus has deeply impacted production and logistics in the country. Japan's apparel makers have found it difficult to keep up with demand, highlighting the risk of concentrating production in China.
The apparel industry is not alone in increasing procurement in Southeast Asia.
Furniture and homeware giant Nitori plans to acquire new land at a factory in Vietnam to expand production. And office furniture manufacturer Okamura has adjusted the material used for its chair cushions so materials from outside China could be used.
But in a sign that many companies still consider China a vital link in their supply chains, Okamura plans to increase procurement of certain other materials from the country.
For apparel companies, part of China's appeal continues to be its proximity to Japan.
"China has high technological capabilities and a well-developed supply chain for raw materials such as fabrics," said Matsuoka Corporation CFO Hiroyuki Kaneko.