Economic Integration

The Wall Street Journal (subscription required) has reported that the rising cost of labor within the Chinese textile industry has prompted US apparel and accessory retailers to search for lower-cost suppliers in other parts of the region.

Ann Taylor Stores Corp., Coach Inc. and LF USA (a division of Li & Fung Ltd. of Hong Kong) are some of the companies mentioned in the article.  Chinese labor costs already have increased by 5 percent to 15 percent since January, a spokesman for LF USA said, and the monthly minimum wage was increased another 15 percent on May 1.

Vietnam, India and Bangladesh are among countries being considered, according to the article, though the retailers acknowledge that any savings achieved by moving to lower-wage countries could be partially offset by higher costs of transportation.  The relatively high quality of Chinese-produced goods, for the price, also is an important consideration, said the retailers, and could be difficult to equal over the near term.

Questions:

What are the prospects of a significant shift in textile and apparel manufacturing from China to other lower cost countries in the region within the next 10 to 15 years?  Which countries stand to benefit the most?

Cotton Incorporated, the research and promotion company financially supported by U.S. producers and cotton product importers, has issues a comprehensive reivew of how supply and demand volatility from the 2008/09 marketing year through the nearly-concluded 2009/10 season has impacted prices along the cotton supply chain. 

In its latest special edition of Supply Chain Insights, the organization explains how producers and consumers have responded to wide price swings that resulted first from a position of cotton oversupply and then the impact of reductions in plantings and adverse weather during the two most recent seasons.

The report details how major countries reacted to teh upheaval, causing unforeseen problems in some cases.  However, it concludes that balance will eventually be achieved when supply chain participants adjust to new levels of consumer demand.

Question:

Since the report reaffirms the cyclical nature of the global cotton market, what steps are available to those who make up the supply chain to reduce their risk to adverse price exposure over the long term?