Parka makers feel chill from labour shortage

PUBLISHED : Monday, 10 April, 2006, 12:00am
UPDATED : Monday, 10 April, 2006, 12:00am

Lack of skilled workers forces factories to subcontract production, raise prices

China's worsening labour shortage is hurting manufacturers, curbing sales and squeezing profit margins, and particularly hard hit are those making parkas and windbreakers.

China accounts for 30 per cent of the world's supply of these garments, exporting US$3.8 billion worth in the first 10 months of last year.

A number of Chinese factories in this industry are struggling with only half their required permanent workforce, with the rest working part time, according to a report by Global Sources, a Nasdaq-listed trade services firm.

The lack of skilled workers has forced many firms to subcontract as much as 30 per cent of parka and windbreaker production, and raise prices by 5 to 15 per cent this year, according to the report.

The production of parkas and windbreakers is concentrated in the provinces of Zhejiang, Fujian and Jiangsu. China's labour shortage, which was limited to Guangdong province a few years ago, had spread to Zhejiang and Fujian, Global Sources said.

Fuzhou Fedtex Garment, based in Fujian, is feeling the pinch.

'The labour shortage is very tough. We wish we could keep hiring more workers, as it is no problem to get more orders. But we can't expand because we can't find workers,' said Fuzhou Fedtex general manager Zheng Zhiyi.

The company produces US$12 million of parkas and windbreakers annually, all exported to Europe.

The monthly salary Fuzhou Fedtex pays its 300 workers had risen to 1,000 yuan from 700 yuan three years ago, said Mr Zheng. 'We're under a lot of pressure from the rising yuan, high oil prices and increasing wage costs. Every year gets more difficult than last year. Our profit margins are being squeezed by these factors.'

The gross profit margin of Fuzhou Fedtex has shrunk from 10 per cent two years ago to 5 per cent now, he added. 'Workers prefer to work in other industries which pay more. As China's GDP grows, demand for labour also grows, making it easier for workers to find better-paying jobs.'

China's labour shortage is slowing the revenue growth of another manufacturer of parkas and windbreakers in Fujian, Cashion Garment. Cashion's revenue grew 30 per cent to US$10 million last year, exporting mostly to the US and Europe, but its revenue growth this year would be to 10 to 20 per cent, said general manager Wang Xin. 'Our growth will slow this year. Finding workers is tough. We want to expand, but it's very difficult.'

Neeraj Sawhney, director of Topnet International, a Hong Kong textile trading firm, estimated Guangdong's labour shortage to be 10 per cent more acute than last year. 'After Chinese New Year, many migrant workers didn't come back to Guangdong,' he said.

Guangdong's labour shortage would cause minimum wages to rise about 20 per cent this year, estimated Willy Lin Sun-mo, vice chairman of the Hong Kong Textile Council. 'Otherwise, workers will not want to work in the Pearl River Delta. This will hurt China's garment exporters quite a bit.'

Garment manufacturers in the Indian subcontinent and Southeast Asian nations were also raising wages, but not as much as Guangdong, said Mr Lin.

In China, labour shortage was a problem for most labour-intensive industries including garments, but less so for upstream textile manufacturers such as Weiqiao Textile which were more capital-intensive, said Wang Donghua, head of investor relations at Weiqiao, China's largest cotton textile producer.

Although Weiqiao cut its staff from 15,000 to 14,000 over the past year, it is upgrading the efficiency of its machines, said chairman Zhang Bo. Next year, the number of workers needed for each of its new machines will be half the number needed for its older machines.