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New sourcing destinations in Asia: Let’s be serious.

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Sourcing New SuppliersSome importers are constantly scanning Asia for new producing countries. They are chasing the lowest wages.

It is not possible in all industries, of course. In many hard goods categories (toys, consumer electronics, DIY…), there is no real alternative to China in the coming few years.

But when it comes to textile products, there seems to be a very wide choice.

For example, Bangladeshi manufacturers have been very successful in attracting orders. Wages are about 0.4 USD per hour, versus 1 USD in India and 4 USD in China. The good factories there can’t keep up with the volumes of orders their customers want to give them!

But many importers such as Tesco are considering the possibility of a social breakdown — like in Tunisia or in Egypt — because of social conditions in that country. The violent events of the last few days can only accentuate these concerns.

A few years ago, people were excited with Vietnam, Cambodia, Laos, Indonesia, and India. Unfortunately, wages are going up fast in these countries.

Since last year, I noticed Myanmar and North Korea are “fashionable”. They are the “next frontier”.

So let’s make a guess. What country is next on the list? What will be the “flavor of the month” in one or two years?

A friend from Damco, a large logistics firm, tells me China is building an export-processing zone in Ethiopia. It was announced last year. The plan is to send fabrics and accessories free of duties, to make shoes (and probably other textile products) there, and then to re-export them to Western Europe and the US.

So, here you go… The new destinations for importers who chase low wages in Asia will be… in Africa.

 

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Comments

  1. I also heard that some Chinese entrepreneurs were developing African factories in various places there. Never hear of Ethiopia though.

    Two thoughts:
    1. China has strong leverage in many African countries where they purchase lots of raw material and “control” key people in government. So it helps business people.

    2. Social breakdown, riots, civil war, kidnapping, pirating are all possibilities in many of these countries. So, beside quality inspection services, security services may re required too in you total cost of ownership (for people and for goods). Remember, this is off the shore of Ethiopia that many boats are pirated.

    • Yes, the Chinese are definitely going to set up manufacturing in Africa. And I am sure they will build fortresses around the factories! I read that the Chinese navy is going to go after pirates in that area. It will be fun to follow up on these developments.