Hong Kong-based Li & Fung says it is restructuring its distribution network in China to meet the fast-growing demand for consumer goods even as rising costs pressure the retail products company’s sourcing and supply base.
“Income levels will rise until the Chinese government is satisfied that there is a large enough domestic consumption market to balance imports and exports,” Tommy Lui, senior vice president of hubbing and freight solutions at Li & Fung, said in an interview,
Lui, a keynote speaker at The Journal of Commerce Shanghai Container Shipping conference June 21-22, said the rising costs in China may push the company to look elsewhere low-cost manufacturing and sourcing.
The company, a $16 billion giant in the consumer goods sector, sources about 50 percent of its goods from some 6,000 factories in China. Many of those makers are moving inland, and as costs rise, Lui said, the industrial conglomerate may look to locations such as Vietnam, Indonesia and Bangladesh for low-cost goods.
“Labor cost is one spur,” he said. “But the cost of everything is increasing in China. Wages increased by more than 10 percent in 2010 and will increase by double-digits this year.”
But Lui said that also is prompting Li & Fung to create a deeper domestic distribution network to serve the large populations in sprawling cities such as Chongqing and Chengdu, cities in two provinces that have a combined population of 130 million people and 10 percent of China’s GDP.
“These are people who have money,” he said. “They have industry, they have agriculture, they have good universities. Consumerism is at a high level.”
To read the full interview, click here.