Straits Times: Chinese shoemakers scaling up value chain

China Labour Bulletin is quoted in the following article. Copyright remains with the original publisher.

Esther Teo

28 April 2014

No longer low-cost and determined not to be low-end, Chinese manufacturers such as Quanzhou Dexin Shoes have been stepping up their game as surging labour expenses crimp their profits.

The company, which employs 100 workers in the coastal city of Jinjiang, has gone out on a limb to buy new machines costing up to 700,000 yuan (S$140,650) each which can turn out more innovative designs.

"We wanted to make shoes of higher quality and better workmanship," general manager Zeng Yuanjing told The Straits Times.

At the same time, the firm has invested in single rooms in its dormitories, complete with air-conditioning and attached bathrooms, to keep its workers happy.
The investments have paid off.

"The production process is more complicated, but we are able to charge higher prices and keep competitive," said Zeng.

Quanzhou Dexin is just one of the tens of thousands of shoemakers that are coping with rising labour pressures by accelerating their shift from being the world's factory for cheap, low-end footwear to becoming innovative producers of snazzy gear.

Jinjiang makes 20 per cent of the world's sports shoes, while Dongguan, another shoe hub, produces about 65 per cent of higher-end footwear. This means that its upgrading efforts are closely watched as China seeks to restructure the world's No. 2 economy.

Moving up the value chain is seen by analysts as the key for China to stay competitive as lower-cost manufacturing centres like Vietnam grab export orders.

This comes as Chinese workers "wake up" to their labour rights and demand not just higher pay, but also better welfare benefits, noted social affairs commentator Wang Chuantao.

In the past two months alone, there have reportedly been about 30 mass strikes, involving at least 500 workers each, across China.

The biggest one was by some 30,000 employees of Taiwanese shoemaker Yue Yuen's factory complex in Dongguan, Guangdong province.

They demanded better social insurance to safeguard their retirement from Yue Yuen, which is a key supplier for Nike and Adidas.

Earlier last month, 6,000 workers in Shenzhen went on a strike over drastically reduced wages at a Crocs and New Balance factory.

While strikes were a regular feature of factory life in China over the past five years, their number has been rising in the last two years, said Geoffrey Crothall, communications director for labour rights group China Labour Bulletin.

"The manufacturing industry in China is currently in a state of transition," he told The Straits Times. "Many businesses are closing down, relocating or changing ownership, and this has created a lot of tension and uncertainty in the workforce."

And it is under this looming shadow that the shoe hubs are battling to keep their dominance.

Some firms, like Quanzhou Dexin, have shrugged off the Yue Yuen incident as an isolated one.

The way to avoid unrest is to treat workers well while laying out terms and conditions of hire very clearly, said Zeng.

Many shoemakers are also turning to mechanisation and innovation to offset higher labour costs.

Sean Yu, director of Yihong Shoemaking Machinery, said demand for his toe lasting machines, which help mould the shape of a shoe's sole, has risen in the past two years despite their steep prices: Tooling up one production line can cost up to about US$200,000.

But Yu points out that each machine can produce 75 pairs of shoes in an hour, compared to 10 to 15 if the work is done manually.

Meanwhile, Jinjiang - where 17 per cent of its two million population work in the footwear trade - is considering moving some of its lower-end manufacturing operations to countries in South-east Asia and Africa, said its mayor, Liu Wenru.

The city will keep its core manufacturing and the more profitable higher-end production intact by upgrading its 97.5 billion yuan industry.

An industrial design centre set up in December 2012 has organised nationwide competitions that spawned innovative new designs not only for shoes, but also for a wide range of products, including paper furniture and down jackets.

The city has organised the annual Jinjiang Footwear International Expo since 1999 to showcase local brands like Anta and 361 Degrees and boost exports further. US basketball stars Kevin Garnett and Kevin Love are the spokesmen for Anta and 361 Degrees respectively.

Elsewhere, Chengdu, Sichuan, known as the "women's shoe capital", offers tax incentives for developing auxiliary industries like shoe leather and chemicals.

Better-grade materials will mean higher-quality pumps, said Zhang Weijian, a manager at the Shanda New Fashion factory, which has 100 workers.

Similarly, in Dongguan, shoe materials producers have gradually increased the proportion of high-end leather, costing 30 yuan per metre, to 70 per cent, according to the local trade association chairman Liu Guomin.

Jinjiang officials hope the city's upgrading efforts will eventually become a model for other Chinese manufacturers.

"We are confident that (our approach) will help us not only deal with the challenge of rising labour cost, but also keep our edge as an innovative shoemaking centre," said its mayor, Liu.

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