Apparel / Textiles & Accessories

According to a report from the US Quartz Finance and Economics Network on the 16th, in the past few years, American companies have been transferring manufacturing from China to neighboring Southeast Asian countries, on the one hand to take advantage of cheap labor in other countries, and on the other to escape the Trump administration. Tariffs imposed during the trade war with China. Vietnam, Cambodia, Indonesia, Myanmar and Malaysia have been the most popular destinations for American companies to open new factories.

However, nowadays, after factories across Vietnam were closed due to the new crown epidemic, some companies are abandoning these efforts and moving factories back to China.

According to a management meeting minutes of FactSet on September 14th, Roger Rawlins, CEO of Designer Brands, a shoe and accessories conglomerate, said: “Think about how everyone wants to leave China It took so much effort, and now one place where you can buy goods is China-it’s really crazy, everyone has experienced a roller coaster."

After June of this year, the highly contagious new crown delta mutant strain caused a surge in infection cases across Vietnam. The outbreak threatened the entire country. Only 4% of the country's population was vaccinated. As a response, the Vietnamese government closed the factories and ordered them to reopen only under strict conditions.

These restrictions have drastically reduced Vietnam’s manufacturing output and have begun to erode the profits of global brands. For example, Adidas has said that delays in production in Vietnam will cost the company US$600 million in sales this year. Hooker Furniture executives estimate that due to the lockdown, sales of their Home Meridian International brand will fall by 30% this quarter.

The report pointed out that some companies have responded and reversed the transfer to Vietnam as soon as possible. Charles Roberson of Lakeland Industries, a protective clothing manufacturer, said on an earnings call on September 9 that the company hired new managers to help the company “in a few weeks to increase production capacity. Transfer from Vietnam to China."

Some companies have taken a more cautious approach and expanded throughout the region. Jeremy Hoff, CEO of Hook Furniture Company, said on the September 9 earnings call. "Actually, we have done a lot of diversified operations outside of Vietnam," but he also admitted: "Frankly, we need to go back to China when necessary."

The report also mentioned that despite another cost-the United States imposed customs on Chinese exports, some companies still insisted on moving their factories back to China. Shawn Nelson, chief executive of furniture maker LoveSac, said on the September 9 earnings call that his company had to move production orders from Vietnam to China. He said: "We know that inventory from China will be affected by tariffs, but this allows us to maintain inventory, which is very important for us and our customers."

During the epidemic, China won a stable reputation. For many people, returning to China is the best choice in order to increase production before the upcoming holiday shopping season. Willy Shih, a professor of management at Harvard University, said that some companies started moving back to China as early as last year. He wrote in an email: "The key issue is that if you want reliable manufacturing, China is often the most suitable place."