China’s supply chains keep it competitive vs Asia rivals

By Serajul Islam Quadir and James Pomfret

GAZIPUR, Bangladesh/DONGGUAN, China (BestGrowthStock) – Far from China’s “workshop of the world” in the Pearl River Delta, a surging textiles industry in Bangladesh is trying to challenge powerful Chinese clothing makers.

Over the past decade, foreign firms — including a number from China — have moved into industrial belts such as Gazipur, on the outskirts of the capital Dhaka, where 800 factories have emerged from rice paddies.

The attraction? Wages as low as $24 a month, a fifth of what many Chinese workers get, though in recent months the minimum wage was hiked to $43.

Bangladesh, better known for the monsoon flooding and other natural disasters that plague the low-lying country of 155 million people, is fast becoming a cog in the global supply chain for low-end textiles and clothing.

Textiles make up 80 percent of the country’s $15.6 billion in annual exports, although its share of global clothing exports is tiny compared to China.

Patchy infrastructure, frequent electricity outages and weak logistical support including slow turnaround times in major ports have hampered export growth. Labor unrest and political instability have exacerbated business risks.

Violent protests by workers demanding higher wages halted production recently at hundreds of textiles factories for Western brands such as Wal-Mart (WMT.N: ), Marks & Spencer (MKS.L: ) and JC Penney (JCP.N: ). Demands for wage hikes of 300 percent to $72 a month — resisted so far by many employers — would substantially narrow Bangladesh’s comparative advantage over China.

PLAYING CATCH-UP

For countries such as Bangladesh, playing catch-up with China even at low-end manufacturing is difficult because of the giant exporter’s sophisticated supply chains.

Take Dongguan, a city in the heart of the Pearl River Delta. Its once pastoral landscape, sprinkled with rice paddies and villages, has metamorphosed into a giant supply chain with thousands of interlinked, interdependent factories served by a modern lattice of highways, ports, airports and railways.

The financial hub of Hong Kong lies on its doorstep.

In China, formidable industrial clusters for watches, toys, garments and electronic goods are helping to preserve China’s industrial competitiveness despite rising costs.

“If you continue to do just simple products, then you won’t be able to compete with countries like Bangladesh or Cambodia,” said Henry Tan, CEO of Luen Thai, which makes high-end clothes for Ralph Lauren, Adidas and Levi’s in a Dongguan facility named “Supply Chain City.”

“So there will still be certain products that are still viable — higher-value products or things that we have to turn around at very high speed.”

For a typical Ralph Lauren Polo shirt, everything comes from suppliers no more than an hour away. Fabrics are sourced from local mills, and woven labels from Shenzhen and Hong Kong. Sewing threads are made at a plant in Shenzhen, buttons from local factories, and dyes from a BASF chemical plant in the area. More sophisticated material, such as synthetic fibers from Taiwan or zippers from Japan, are flown into Shenzhen airport.

Bangladesh’s weaker supply chains have also left it vulnerable to a stronger yuan, because many local industrialists rely heavily on downstream raw materials sourced from China.

Likewise for Vietnam — a major rival for China’s low-end manufacturing base including shoes, garments and furniture. Around 80 percent of Vietnam’s raw materials for footwear, and 70 percent for garments, are imported from China, according to Hong Kong’s Trade Development Council.

(Editing by Bill Tarrant)

China’s supply chains keep it competitive vs Asia rivals