The Business of Sport - Adidas

The rising cost of manufacturing, combined with difficult labour conditions and a feeling that the playing pitches are not level for foreign operators, is putting increased pressure on manufacturing in China, for so long the world’s factory.

Companies are starting to shift elsewhere, mostly to other Asian venues. Sports equipment maker Adidas said this month that it would close its 160-worker factory in Suzhou, Jiangsu province, at the end of October. It looks like it will probably take its operations to Burma, which is slowly opening up.

China will remain a key market for sourcing goods for the Herzogenaurach- based Adidas as it has more than 300 supplier partners in the country and sourcing is something China still does better than anyone else in the region.

But as the global market slows, Adidas is keen to cut costs and manufacturing is becoming an increasingly expensive business in China. “Monthly salaries of workers in China’s sportswear industry are about 2,000 yuan (€255) to 3,000 yuan (€382),” analyst Ma Gang told the Global Times.

This is more than double what a worker would earn in Cambodia.

The China Daily, in a commentary, said the move was not something Chinese people needed to worry about. Nike closed its self- owned shoe plant in Taicang, also in Jiangsu province, in March 2009. “The rise of labour costs, house rent and resource prices in China necessarily make companies move their factories to other countries with lower production costs,” it said.

One reason is the growing domestic market in China. In 2011, the sportswear market in China was worth 124.7 billion yuan (€16 billion). Adidas’s sales in the first quarter this year increased 26 per cent year on year, and the Chinese market accounted for 23 per cent of its global sales, it said. Sales in Europe fell 7 per cent in the same period.

It has opened more than 6,000 stores since it entered the Chinese mainland market in 1997. And Adidas’s China unit is planning to open up to 600 shops in more than 300 lower-tier cities by the end of the year, most of them in western and northwestern China.

In April, the world’s biggest sporting goods maker, Nike, reported a 21 per cent increase in Chinese sales for its fiscal third quarter.

Closing Adidas’s last factory is the start of a new stage for Chinese industry, the China Daily said. “This change means China should gradually transform itself from a manufacturer to a designer. It also means China’s competitiveness in the world trade is no longer based on its cheap labour, but on its innovation and product quality.”