China may be losing its status as “the world’s factory” as an increasing number of manufacturers shift their production lines to Southeast Asia amid rising labor costs in the mainland.
But Robert Dorfman, chairman of toy and timepiece maker Herald Holdings (00114.HK), says his company is staying put. It has been operating in China for three decades.
His words may serve as a reminder for other businesses to rethink their options more carefully. While they could enjoy lower costs elsewhere, new problems may arise.
“Costs have been rising in China for the last three to four years. We have looked at the possibility of moving manufacturing elsewhere. But the more we look at other places, the more we are convinced that we should stay in China,” Dorfman said.
“It’s because even with a higher cost, the infrastructure and work ethic are much better in China,” he said, apparently in contrast to the old machinery and unskilled labor in many Southeast Asian nations.
“We have manufacturing in China for 30 years, so we understand the market, we understand the complexities,” he said.
“When we look at everything in balance, we’re actually better off staying in China, so we have no manufacturing base anywhere other than China.”
The company operates factories in Zhuhai, Dongguan and just outside Shanghai.
Many well-known brands, including sporting goods giant Adidas and handbag maker Coach, have either closed their factories in China or are gradually moving them to countries like Indonesia, Myanmar, Vietnam or the Philippines.
“Market conditions out there are still quite difficult. On one side, there is a lot of price pressure because of the rising costs in China. On the other side, because of the economic slowdown that occurred over the last few years, retail price points have come down,” Dorfman said.
He said Europe, the company’s key export market, is still on the soft side, although the US economy is improving.
For the six months to September 2013, Herald saw a 35 percent drop in its profit at HK$22.7 million (US$2.93 million) from a year earlier.
Amid weak demand, the company has been deploying the “lean manufacturing” strategy” for the last two or three years. “We are looking at different ways by which we can grow our business without having to lay off any workers,” Dorfman said.
The company has about 10,000 workers in its three factories in China at peak production and 6,000 during quieter times.
He said the company is exploring opportunities in Asia, with a particular focus on boosting airport and airline sales.
“Asia offers key growth opportunities for us, and that’s where we’ll put a lot of effort. We’re also putting a lot of effort into travel retail,” he said.
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