Rising labor costs and a shortage of workers in coastal China are two of the most serious problems footwear producers in that country face, and those challenges will motivate U.S. footwear importers to diversify some of their sourcing to other countries.
“Labor is one of several factors driving sourcing to other countries,” Matt Priest, president of the Footwear Distributors and Retailers of America, told the JOC.
FDRA today released its annual Factory Survey Analysis of footwear production in China. As in previous surveys, the 2013 report cited the cost of raw materials, wages and compensation and labor shortages as the most significant business issues, by far, affecting footwear manufacturers in China. Of course, these challenges are relative because China continues to be the main supplier of footwear to the U.S., and is likely to remain so for some time. According to PIERS, the data division of the JOC Group, China accounted for 70 percent of U.S. footwear imports in 2013.
U.S. imports from China increased 5 percent last year, but China’s share of the U.S. import market decreased 0.7 percent compared with 2012. Vietnam, Indonesia, India and the Dominican Republic fractionally increased their share of U.S. footwear imports.
Vietnam recorded the largest growth. U.S. footwear imports from Vietnam increased 27 percent over 2012, and Vietnam’s market share increased 1.9 percent, according to PIERS.
Factories in China cited the cost of raw materials as the most significant business issue they faced, although that response was down slightly to 75.8 percent from 76.4 percent the year before.
The wages and compensation issue shot up to 73.6 percent from 51.4 percent, and labor shortages were cited as a key issue by 67 percent of the factories, up from 55.6 percent. Currency appreciation, worker retention and business competition were at 16.5 percent or lower among the responses.
Priest said labor costs and worker shortages are of growing concern to footwear manufacturers in coastal provinces such as Guangdong and Fujian because factories there are competing for labor with higher-paying industries such as electronics and autos.
Footwear manufacturers are tied primarily to the hourly wage system, but an increasing number of factories are supplementing the hourly wages with piece-rate incentives and bonuses.
“The more motivating a factory’s wage system, the fewer issues the factory experiences with worker turnover and labor shortages,” the FDRA study stated.
Footwear manufacturers have a significant problem holding on to new hires. The survey found that footwear factories lose 30 percent of new hires within the first three months. Factories that establish strong recruitment and internal communication systems experience fewer losses of new hires.
The survey also showed that factories which in the past produced almost exclusively for the export markets in North America and Europe are selling an increasing share of their production within China. That trend indicates that China’s overall economic goal of promoting domestic consumption and relying less on exports is affecting the footwear industry.
Although footwear manufacturers in coastal China are contending with labor issues, relocating factories to lower-cost locations in western China or Southeast Asia carries with it issues such as inadequate infrastructure and transportation services, so “there is no panacea,” Priest said.
An important message for U.S. footwear importers is that they should look closely at the macro-economic trends outlined in the report as they develop their future sourcing plans, he said. This summer, FDRA will come out with its annual sourcing report that goes into greater detail as to what countries importers are turning to for their sourcing needs.