While much has been said about the erosion of China’s status as the global leader in footwear manufacturing, a new report by the FDRA says that the East Asian powerhouse will remain central to footwear sourcing for the foreseeable future, even as Vietnam takes away market share.
Speaking at the trade organization’s Footwear Sourcing Intelligence Summit in New York, coinciding with the release of the group’s 2016 global footwear sourcing assessment, FDRA President Matt Priest outlined China’s continued dominance.
“[China’s] dominant position persisted in 2015 as the value of footwear shipped to U.S. shores rose 1.2%, higher for the seventeenth time in the last nineteen years, surpassing an unprecedented $17.2 billion,” he cited in the group’s report. “The volume of footwear destined for U.S. shoppers also expanded in 2015, rebounding 2.8% to a four-year high of 1.9 billion pairs.”
Adding, “In short, America’s largest footwear supplier grew even bigger in 2015, owing in part to modestly lower landed costs of those shoes reaching U.S. shores.”
Despite this, China’s status as a dominant supplier of U.S. goods continues to fade, in large part due to rivals who performed even more strongly. Enter China’s neighbor from the south: In 2015, footwear imports to the U.S from Vietnam rocketed 19.3% to 331.2 million pairs, the fourteenth straight record year and sixth straight double-digit increase.
China’s gradual erosion in market share nearly mirrors Vietnam’s growth. In 2015, Vietnam controlled 16.2% of the market, up from just 5 percent a decade ago. FDRA predicts that by 2020, Vietnam could snatch as much as 22 percent of the U.S. import market, reducing China’s share to around 65 percent.
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Despite its rapid ascent, Vietnam presents its own share of challenges. During a panel discussion with BSI Supply Chain Intelligence Analyst Scott Small, issues stemming from political tensions, worker strife, and environmental responsibility all impact sourcing in the country.
The recent South China Sea dispute has recently ratcheted up tensions in the region, bringing back to the surface the same sentiments that caused the 2014 anti-China protests, which stemmed from China deploying an oil rig in disputed waters.
According to Small, the biggest threat to the stability of factories in Vietnam remained protests. During the 2014 unrest, one worker was killed at a Taiwanese-invested bicycle factory.
“In 2014 we saw several weeks worth of very serious riots in Vietnam, and these riots specifically targeted factories,” he said. “The protesters perceived we were owned by Chinese companies and in some instances, they actually got it wrong. They misinterpreted the language on the signs, so what they saw as being foreign-owned facilities they very much tried to damage.”
It’s an issue that cuts across borders. As GDP growth has slowed and factories have picked up house from China and moved to neighboring countries, Chinese workers are becoming increasingly likely to strike, Small said.
Another growing issue is that, as pollution has become a widespread concern in the country, the Chinese government has begun the shut down of factories at will to reduce air pollution in certain areas.
“We’ve already seen that more than 240 industrial centers in Shanghai will be closing to reduce pollution,” he said.
During the same chat, Impactiva CEO Jose R. Suarez said that too many factory owners are not focused enough on the long-term, preferring to country-hop when conditions in one country become unfavorable.
“The mentality of factory owners is still very short-term. Their solution is still country hopping, looking for a lower rate,” he said, explaining that managers need to change their style and take better care of the factories they have, rather than running to create new ones.
Central to forcing change among management according to Suarez are brands. Citing a chat with Wolverine’s president of supply chain, “He told his entire Asian factory base that he’s not going to accept any labor price increases going forward.”
He added, “I think finally we’re at a tipping point because of the perfect storm of labor costs, increased labor shortages and pressure from Vietnam. We’re going to see China start transforming itself in the next 5 years in terms of the way they manage the factories.”
As social media drives lead times to become ever shorter, brands are putting more pressure than ever on their supply chains, making it difficult for smaller markets such as India and Mexico—where supply chains are less mature—to take larger slices of the pie.
“People don’t want to wait 90 days to produce a shoe anymore,” Suarez said. “That’s why I feel China and Vietnam will continue to be the players five years, ten years down the road, because the supply chain is already set up.”
Another thing set to change in the coming years? The manufacturing process itself. Citing innovations at Adidas, such as its impending Speedfactory which will add regional plants to cut down on lead times, Suarez said automation will have a significant impact on the footwear industry.
“Just as auto industry changed, we’ll see that in a big way in the footwear industry.”