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FDRA Survey Highlights China’s Labor Shortage, Wage Woes

An increasing number of China’s footwear factories are coping with production and cost challenges with strategies that run the risk of not complying with buyers’ social performance standards, according to the 5th Factory Survey Analysis by the Footwear Distributors and Retailers of America (FDRA).

For the third consecutive year, factory owners named the rising cost of raw materials as the most significant difficulty they face, and one that is driving the majority of changes in the industry. Coupled with currency appreciation and increased competition, spurred on by consolidation and factory closures, FDRA president Matt Priest said this “new normal” is making it harder than ever for factories to fulfill their orders.

“We’re entering a historic time where brands and factories must find ways to navigate through a number of challenges at once in China,” Priest said. With more than 80 percent of footwear produced in China destined for the U.S. market, Priest said understanding the complex challenges both workers and factory owners face is vitally important to the overall success of the industry.

Factory owners also reported to be grappling with challenges related to China’s shrinking labor pools. “They are having a much harder time finding and maintaining labor,” Priest noted, made even more difficult by the rising cost of wages and compensation, which on average increased 15 percent last year.

The report revealed that more factories are resorting to longer working hours in order to fulfill orders on time, as well as hiring more employees who are of retirement age, or considered juvenile workers (14-17 years old). Despite the special protections in place to safeguard juvenile workers with regard to overtime, night shifts and other potentially dangerous or more skillful tasks, Priest warned that factories are getting “creative” to fill the labor gap, and are at risk of resorting to non-compliant terms in order to stay afloat during the shortage. “We are trying to caution our members so that they fully understand those laws,” he said.

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Of the 110 factories surveyed, 11 percent reportedly do not pay the legal minimum wage. FDRA’s Factory Survey has indicated for several years now that failing to meet wage and benefit requirements on a consistent basis is a rather common challenge among footwear factories.

Year after year, the survey has shown that audits are not enough to tackle these compliance risks. “Policing rigorously doesn’t necessarily turn a factory into one that is honest and transparent,” Priest revealed. Instead, the organization said the industry needs to work toward continuous improvement rather than rely on micromanagement to have a positive impact on worker retention.

The need for more transparency will likely grow as the labor shortage continues to plague the country, however, Priest said factories are recognizing the importance of corporate social responsibility. Ninety-seven percent of factories surveyed said someone is on staff to monitor CSR and 45 percent have an employee devoted to the cause full time.

Factory owners are optimistic about their business for the year, according to the survey. “The glimmer of hope is that the U.S. market is picking up,” Priest noted. “Small but important data indicate there is growth. That, paired with some positive movement from Europe is lifting moods,” he said.

“If we can better help our members understand what issues factories face and what challenges they prioritize, we can enhance industry communication and more effectively work with factories in a collaborative way,” Priest said.