China’s pain, Italy’s gain: High costs push textile buyers west
HONG KONG/BIELLA, Italy (Reuters) – International textile buyers are increasingly switching away from China and back to Western suppliers, as rising labor, raw-material and energy costs make the world’s dominant producer more expensive.
In Biella, a small town in the foothills of the Alps at the heart of northern Italy’s wool industry, factory owners say a narrowing price difference with China and demands for nimbler production nearer home are winning back higher-end customers.
In the office of his family business, Alessandro Barberis Canonico recounts how one high-profile European client called him recently to say he was giving up on China because of rising costs there and the increased demand for quality – and he would need help from Biella for a big collection.
“He had tried his luck going abroad,” Barberis Canonico said. “Things did not go well, so he’s now back.”
For sure, China remains a world leader in textiles, employing more than 4.6 million people, contributing a tenth of GDP, with exports, including apparel, of $284 billion in 2015, according to data from China’s National Bureau of Statistics, the Ministry of Industry and Information Technology and the China Chamber of Commerce for Import and Export of Textile and Apparel.
But wages there have been rising at an annual compound growth rate of more than 12%, outpacing the economy, and are simply no longer cheap enough to compete just on price.
At the same time, China’s textiles sector faces rising costs of inputs such as cotton and wool, hefty import taxes for basic manufacturing equipment and costlier environmental rules.
The government’s five-year plan for textiles, released in September, acknowledged that higher costs are weakening its international advantage, and it faces a “double whammy” from developed countries, including Italy, with better technology and developing countries with lower wages.
‘LESS ATTRACTIVE’
The labor-cost gap between Italian and Chinese yarn narrowed by about 30% between 2008 and 2016 to $0.57 per kilogram from $0.82 per kg., according to International Textile Manufacturers Federation (ITMF) data.
The hourly wage for a Chinese weaver last year was $3.52, according to the ITMF, up 25% since 2014, though still a fraction of the more than $27.25 paid in Italy, an increase of 9% over the same period.
“When China’s wages are not that low, the process of shipping materials so far to China and then shipping products back to Europe becomes a lot less attractive,” said Shiu Lo Mo-ching, chairman of Hong Kong General Chamber of Textiles Ltd. and CEO of textile manufacturer Wah Fung Group. “They’d rather take the production back to Europe. This trend has been very obvious.”
That proximity is also an advantage at a time when Western clothing brands are under pressure to offer more collections, and customers increasingly want customized looks. Their suppliers need to be closer and faster.
“In China... their supply chain is not close and is scattered, giving [Italy] a competitive advantage,” said Ercole Botto Poala, CEO of Italian textile producer Reda.
Italy’s textile imports from China fell 8.7% in the first 10 months of last year to €347 million, according to SMI, Italy’s textile and fashion association. Its exports to China rose 2.8% to €165m. in the same period, though total textile exports last year dipped 2% to €4.3b.
For buyers, quality and transparency are also key.
“Before, given [brands] were paying much less; they turned a blind eye to quality,” said Giovanni Germanetti, director general of Italian yarn and textile producer Tollegno 1900, one of several producers who told Reuters that clients were returning for what he described was better value for money.
Alessandro Brun, a professor at the MIP Milan Politecnico, said brands are also motivated by concerns over product traceability and want to avoid potential risk to their reputations.
While suppliers were reluctant to name specific brands they sell to, so as to protect business confidentiality, several international apparel firms are switching to Italian wool fabrics so they can name the mill they source from on labels to differentiate from rivals, producers said.
Italian high-street brand Benetton said it used yarn from Tollegno 1900 in a newly launched Made-in-Italy line of limited-edition seamless wool jumpers.
MOVING AWAY
More than 9,000 kilometers from Biella, in the bustle of the biennial Canton Trade Fair, some buyers said they were moving away from China.
“We already buy 60% less from China compared to two years ago,” said Olesia Pryimak, who attended the trade fair late last year to source material for her plus-sized fashion firm Opri in Ukraine. She said her company is turning increasingly to Turkey for fabrics because of quality, price and proximity to Europe.
Many of the producers and buyers interviewed said it was too soon for data to show the flow out of China.
China’s textile exports to the European Union grew a modest 1.4% in the first 10 months of last year but dropped 4.1% in October, according to Chinese data.
In Zhuhai, in China’s industrial southern belt, middle-aged workers load bundles of white wool for washing and dyeing at a spacious, well-lit factory owned by Hong Kong-based Novetex Holdings, a supplier of wool and cashmere yarn to international brands, including Burberry and Max Mara.
The company employs about 1,100 workers during peak season. But rising wages mean it is now investing in more automation and will cut two-thirds of its workforce in two years.
“The overall cake is smaller,” director and CEO Milton Chan said. “Many agents and smaller factories have shut down.”