AN OVERVIEW OF CHINA'S TEXTILE INDUSTRY
By: David Armstrong
China has experienced a long and successful history, both in invention and in
the manufacturing arts, but in examining the present textile manufacturing
situation we are confronted with a number of paradoxes. While there are a vast
number of highly successful organizations and individuals in China who have
seized the available opportunities, there are many businesses either failing or
underperforming and in this appraisal we seek to understand some of the
The Textile Industry has played a highly important role in China, both
historically and with the recent economic development and success of China.
However, there are a number of areas of concern that require examination and
remedy if the industry is to achieve ongoing prosperity. The Export Value of
China's textile and garment industries exceeds USD$60 Billion P.A. in 2010 and
equals approximately 7% of the total Chinese exports according to Chinese
publications. By and large, China has attracted a reputation for cheap, poor
quality goods, and the current uncoordinated approach encourages participation
by both professional and unprofessional companies at every price level, but is
often wasteful of China’s resources. The general and complex issue of improving
the value and market price should be addressed to secure the future of China’s
textile industry. We have described below several points that deserve further
Since the introduction of the privatization initiatives in China over a decade
ago, the traditional structure of a fragmented textile industry has largely
remained intact. The dominance of the trading companies in the customer/market
interface has resulted in underdeveloped industrial companies which are
compelled to compete for business as commission processors on the basis of price
alone, which has resulted in many impoverished manufacturing companies. As a
consequence these factories have little or no opportunity to create a surplus
and build the capital of the business, purchase equipment to control
environmental pollution or improve quality and productivity.
Furthermore, as a consequence of the poor economic performance of the textile
industry, the Chinese banks will not easily lend to the textile sector. As these
factories are unable to borrow or generate surplus funds, it appears that the
present pace of capacity shrinkage in the textile industry will continue. We
must also remember that the industry has existed for a long time with large
underutilized capacity. Part of this adjustment will provide benefits to those
companies that survive this process.
Indeed many manufacturing enterprises exist in fear of antagonizing the small
number of trading companies they supply. As a consequence, they will often
accept loss making deals as to not threaten the existing relationship. These
practices are further exaggerated by cash accounting methods and lack of
provisional accounting techniques. Therefore the real costs are not recognized
in the short term and become detrimental to business survival.
It is also evident that many business owners and working shareholders have
received little training or exposure to international best practice. The same
can be said for any management or marketing training prior to the leveraged
purchase of these formerly state owned enterprises. Furthermore, due to cultural
and historical reasons, the questioning of existing practices is not encouraged.
The lower levels of management tend to be more concerned with continued
employment, and take great care not to provoke or cause loss of face to their
There is little evidence of industry based organizations acting as industry
spokespersons, or of any cross-industry co-operation. The violent movement from
government controlled enterprises to a privatized “free for all” has produced
winners, but also a great many losers as a consequence of the education and
policy vacuum that accompanied this change.
It is my opinion that we will continue to see enterprise failures in the textile
sector of China. A relatively few companies are prepared to acquire the assets
of these enterprises and given the low profitability in the industry, there are
very few new entrants into the more capital intensive sectors of the textile
industries. Given the limited portability of the textile sector, it is in the
interest of the Chinese government to develop policy initiatives to secure the
future of this industry.
Development of Management and Marketing Culture:
There is a general disconnect in the Chinese textile industry between
manufacturing and customer requirements due to structural, cultural and language
issues as well as customer insulation by the trading companies. This is a poor
environment for new product creation and development. Most manufacturing
enterprises have limited ability to address the market in their own right and
have little understanding of external customer needs and how to address these
needs. This is compounded by poor organizational skills in the areas of
materials requirements planning, accurate production scheduling, language and
cultural perspective, lack of exposure to western market requirements, and
limited understanding of the demands and disciplines required of quality
All too often, an employee engages with customers with only an elementary
education in English and is found to be unable to communicate to a
satisfactorily level with the customers, buyers and controllers to achieve
accurate outcomes. China has allowed freedom of access to external business
people (HK, Taiwan, Japan, USA and Europe) and there have been many positive
benefits that have resulted from this enlightened and open approach to economic
stimulation. However, there are limited opportunities to share information in
China across the industry and as “knowledge is power” - it is diligently
Labor Stability and Skills :
It is now common for factories on the Eastern seaboard of China to lose 30% -
50% of their staff every Chinese New Year when the workers return to their home
provinces. One can only imagine the resulting cost and effect that has on
customers, as well as the need for recurring training effort. Although basic
labor skills can be readily obtained, specialized textile skills are becoming
increasingly difficult to obtain. As a result, now many textile companies are
moving to northern and western provinces where labor is more easily obtainable
and cheaper. However, lack of management and technical skills in these more
remote provinces becomes an even more apparent issue.
Labor, energy, raw materials and compliance costs are all rising and the
inflation level in China is greater than most western countries. We will
continue to see fluctuations as the central government continues to adjust
economy settings and resources. However, as there is increasing instability
throughout the major textile producing economies, it would be reasonable to
suggest that the Chinese government soon start to develop some policy
initiatives to provide some direction and stability to the still valuable
The definition of productivity and the techniques used to achieve productivity
improvement are not well known in China. It was always easier to direct abundant
and cheap labor at an increasing output. This is becoming increasingly difficult
to do with the rising costs and limited availability of labor and other
resources. As a result, the management of productivity improvement has become a
more pressing need. However, as there is little tradition of seeking external
assistance and cultural / historical impediments, there is a need for a policy
catalyst to encourage intervention in this area.
The primary environmental concerns in China’s textile sector are obviously in
the textile dying and finishing plants. Due to the reasons of
under-capitalization, use of substandard low-cost materials and poor technology,
this sector is still contracting. At the same time, it is coming under increased
scrutiny by various organizations such as Greenpeace, Oecotex, etc. High profile
brands that purchase from China who cannot be assured of an environmentally
compliant supply chain run an increasing risk of being “named and shamed” with
consequential risk to their commercial success.
China is reluctant to maintain the pace of coal fired power generation due to
the resulting environmental load. This causes serious power outages that occur
throughout the summer months and which result in power being unavailable on a
regular and extended basis. This, in turn, has a negative consequential effect
on delivery performance and resource utilization.
While a substantial amount of making up activity has transferred out of China to
lower labor cost countries, the transfer of textile capacity has been limited.
This is due to the long lead-times required to achieve economic and commercial
viability in low labor cost environments that have little previous textile
tradition or skills. Presently, this mitigates in China’s favor, but may not
always be the case. Therefore, it may be prudent for the Chinese government to
commence examination of these factors.
It does not require a great deal of imagination to visualize the negative effect
on product quality that is caused by a fragmented supply chain structure, along
with the fact that no individual producer is likely to take effective
responsibility for finished product quality. This along with the tendency to
employ extreme efforts to utilize low cost components all results in poor
quality. There are a large number of inspection services but it is well known
that inspecting a product after it is manufactured will not ensure “built –in”
quality and compromises are often required to ensure that delivery expectations
All the elements described above have an effect on product quality and
obtainable price levels. In addition, other external factors that will also
influence events are; the flattening of supply chains and the reduction of non
value-adding elements, such as wholesalers and buying agencies as retailers that
will increasingly seek to work directly with manufacturers to maintain margins.
There will be the emergence of a “new protectionism’ in the form of demanded
supply chain conformance. Factors such as environment, working conditions,
product life, carbon footprint etc. will come into play and if these elements
are not addressed it will cause business to redirect to suppliers that are
capable of addressing these requirements.
Consumers in today’s economic times are seeking higher product quality, with
purchases occurring less frequently. This is evident by higher-end retailers
continuing to prosper, while the lower-end retailers are generally experiencing
more difficulties. It is not possible to address all issues simultaneously and
successfully in the short term, but the creation of an overall strategy
supported by policy, education and investment incentives can create an
environment that will generate progressive incremental improvement to the
security and profitability of China’s textile industry.
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By : Nicola Mentore
Senior Consultant, Werner International
For the first half of 2011 China is still, by far, the biggest apparel producer
in the world, regardless of the fiber type or if the products are woven or
knitted. China also boasts stability in terms of figures (while growing slightly
in 2010) compared to the previous and terrible year.
This is in despite of the following factors - rising wages and the increasing
cost of labour, a booming economy which has led most local textile and apparel
producers to turn away from export markets to concentrate on an increasing
richer domestic market (various European entrepreneurs complain about growing
difficulties in importing, in terms of lead times, minimum lots, prices, service
in general); and the fact that several European brands (UK first of all, but
they are certainly not alone) have all decided to relocate their production to
Europe again. This is because an increasing number of customers are fed-up with
paying outrageous prices for branded goods that are actually labeled “made in
Many of us reckoned that the “expected” declining role as China as an apparel
goods exporter would make way for other countries to grow and build up on new
market shares. This has actually happened in the past couple of years, but in a
The USA imports show a remarkable increase only from four countries - Vietnam,
Bangladesh, Indonesia and India. These figures are still far from Chinese
records - Vietnam (number two in the rank) accounts only for one fifth of China,
although with an increase of about 18%. As far as Europe is concerned, the only
two countries to register a decisive increase are India and Romania (data at the
end of 2010, India +12% to 2008 and +31% to 2009, considering the 12 main
On the other hand, countries that were expected to grow (such as Brazil and
Russia) are still lagging behind and do not seem able to increase their role
significantly. Brazil’s exports of fashion goods, also due to a high Real rate,
are still only 15% of their total production.
One reason for the disappointing performances is the uncertainty about their use
of child labour and/or unsafe labour conditions in some developing countries.
The British retailer Primark lost a huge number of clients due to a BBC TV
broadcast (that turned out to be unreliable and untrue), reporting the use of
slavery labour in the Indian factory of one of their suppliers.
Other reasons can be found within the differences of the various distribution
systems. The imports of apparel goods in Europe and the USA are led by the
distribution system and by the brands. The fashion brands still rely on China
for “second line” productions, addressed at a cheaper price level, but bigger
quantities. As mentioned above, they are reconsidering production in countries,
like Italy, where costs are certainly higher, but the image of a “made in Italy”
label can more than justify the expected price level.
The “big surface” distribution (ipermarkets, supermarkets, chain stores,
catalogues) are still relying heavily on China for most of their merchandising,
as they need price and they can guarantee volumes.
The so-called “fast retailers” (Zara, H&M), follow a typical European
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NEW PARTNERSHIP BETWEEN WERNER INTL. AND SUVIN, INDIA
Werner International is pleased to announce we have joined forces with Suvin
Advisors to collaborate within the Indian textile industry. Suvin is an exciting
consulting company formed by experienced consultants in the Indian textile and
apparel industry. Suvin brings a relevant know-how in project management,
architecture and optimization of utilities in textile projects.
Combined with the Werner recognized strengths in starting up plants, training of
the personnel and implementation of management systems – Werner and Suvin will be able
to extensively cover all client needs from the planning, feasibility, design and
Suvin will be representing Werner exclusively in India, but will also be
providing their specialized know-how in other countries when applicable
Please contact our office for further information.
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COLLABORATION WITH EVI
International knows the importance of staying current with today’s environmental
initiatives. That is why we are pleased to announce our collaboration with
Emergent Ventures (EVI). EVI is a clean energy company and works across the
spectrum of climate change and carbon markets, renewable energy and sustainable
development. Find out today how EVI can assist your organization.
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2011 LABOR COST COMPARISON REPORT
Werner International is still in the process of compiling the data for the
updated 2010-2011 Labor Cost Comparison Report, but we need your help. This
useful tool, utilized world-wide, cannot be completed without accurate data.
If your organization is interested in participating, please contact
Beth Marshall at
firstname.lastname@example.org for further information.
All participants will receive a complimentary copy of the report when completed.
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