A painfully protracted trade war has forced the U.S. and China to change their relationship status to: it’s complicated.
The rocky, months-long fight between the world’s largest manufacturing body and its most prominent global customer culminated in new tariff developments that had the showroom floor at Footwear Sourcing at MAGIC in Las Vegas rattled last week.
Chinese manufacturers—who made up the bulk of the show’s exhibitors—have the most to lose come Sept. 1 when the first wave of tariffs takes effect. But other manufacturers from Southeast Asia, Africa, Central America and the U.S. may face complicated challenges as they jockey for position over the coming months.
Brands have demonstrated a palpable desire to diversify their sourcing from China, and that would seem to indicate a golden opportunity for footwear sourcing hopefuls with yet-untapped resources and manpower. But does any other country actually have the capacity to take on China’s share of sourcing?
Widely acknowledged as China’s runner-up for manufacturing, the most capable and attractive option for footwear sourcing was notably absent from the show’s proceedings.
That’s because Vietnam’s resources are tapped, according to Jessie Zhang, sales director for UBM Americas, which runs the Sourcing shows. Vietnamese footwear manufacturers “can’t accommodate more business, and that’s why they don’t need to be here,” she said.
Many brands have operated on a “China, plus one” strategy for years now, Zhang said, which means they’ve diverted a portion of their manufacturing to one other country outside of the superpower. Over the past decade, Vietnam has been the recipient of much of that business.
During the negotiations surrounding the Trans-Pacific Partnership—which moved forward after the United States’ withdrawal as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)—Vietnam became an even more attractive option for brands looking to diversify their sourcing.
“Vietnam is right next to China, so it was easy for people to move their production there. They built factories, mills and wholesale supply chains,” Zhang said. “Vietnam has industry parks for footwear, apparel and textiles, too.”
Since business began to trickle slowly out of China, Chinese and Taiwanese manufacturers have been steadily opening up factories in Vietnam in an attempt to recapture some of what they’ve lost—and avoid new or steadily looming tariffs.
Still, Zhang said, Vietnam only accounts for 16 percent of footwear imports to the U.S., while China still dominates at 65 percent.
What happens to Chinese manufacturers?
“The Chinese market is too big to be totally replaced,” secretary general of the China Chamber of Commerce, Wang Ying, said.
Though Ying believes China will always own a sizable piece of the sourcing pie, she acknowledged that roughly 20 percent of Chinese business has transferred to other markets over the past decade.
There are other issues beyond tariffs that have contributed to brands’ quiet exodus from China, too. “In China, the labor and everything is high. It’s higher than in Vietnam and Southeast Asia,” she told Sourcing Journal.
Even so, Vietnam is at capacity and can’t take on more U.S. business, Ying echoed. Potential suitors for American brands could include Indonesia, India, Cambodia and Bangladesh.
As for the future of China’s footwear sourcing, Ying believes higher-value products will stay put, while “lower-priced [products] could transfer to the other countries.”
China will win with products that rely on superior technique and design, Ying said. After many years as the reigning leader in manufacturing, the country’s workforce demonstrates a skill-set and proven capacity for the production of luxury goods.
“All of these brands that compete with low prices…there is no space in China for them.” Moving out of the country is “the only way” for those businesses to survive, she opined.
Manufacturers of mass market products might have a shot at two to three more years of healthy business with Europe, Africa and other countries outside of the U.S., she added. “But long term, there’s no chance for them in China.”
Who’s next in line?
“There are conversations going on, but we haven’t gotten any real orders out of it,” said Liku Colombowala of Choudhary International Pvt. Ltd., whose India-based business makes leather footwear for men and women, about the implications of the trade war.
Though he acknowledges his business has benefitted from some inquiries and added foot traffic, he is reticent to call the increasingly complicated relationship between the U.S. and China a boon for India’s footwear manufacturing sector.
“They’re coming to us for specific articles that China doesn’t make, like woven shoes and embroidered sandals,” Colombowala said of his typical American customers. The point of difference in product has allowed Indian footwear manufacturers to corner a specific niche in the market, but he doesn’t see mass appeal for the country’s manufacturing sector.
While he hopes business will continue to grow as brands free up funds, Colombowala is also wary of speculation that brands will truly pull away from the sourcing capital.
“These large companies are already invested in China. They have too much going on there. It’s very difficult for them to just move,” he said.
Acknowledging that brands have already started to diversify their businesses, Colombowala said he “hasn’t seen much movement” from brands looking to India for the full-leather styles, like boots and sandals, that the country is known for. He also isn’t sure if India is ready to take on an influx of new business.
“The question is, are we prepared for it? Honestly speaking, we are not. Our prices are high. We don’t have government support in the form of drawbacks and duty-free. So, it’s a very tricky place to be,” he admitted.
Neighbors south of the border couldn’t feel more differently, according to Luis G. Lopez of Shoes From Mexico, an organization headed by CICEG (Mexican Footwear Chamber) and COFOCE (Guanajuato World Trade Commission).
“It’s an opportunity for us, for many manufacturers in Mexico,” he said of the tariff increases on Chinese goods. “In some cases, with some kinds of shoes, we’re more competitive than China,” Lopez insisted, adding that “the tariffs will make us stronger in some categories, like casual leather footwear and synthetics.”
Though Mexico is not a newcomer to footwear production, Lopez said the country currently only exports 10 percent of the shoes it manufactures.
“In Mexico, domestic buyers consume 90 percent of what the country produces,” he explained. Consumer appetite for footwear is high enough that Mexico also has to import shoes from other countries to fulfill demand.
However, Lopez said, there are about nine footwear manufacturers he can name who export a sizable portion of the footwear they produce.
“Mexico is not China,” Lopez said definitively. “We don’t have those big, big factories. But we ask that the U.S. partner with us and do the same thing that they did in China. They invested in China, to grow the factories there. We ask the same thing of potential brand partners.”
In order to expand its capacity to manufacture footwear for the U.S., Lopez said significant investments would need to be made in machinery and technology. The workforce is there, he said, and willing to embrace the opportunity to do more business with U.S. footwear brands.
And, Lopez added, even though Mexico doesn’t have yet have the capacity for massive quantities, turnaround time for product is fast, as is transportation. Mexico is the only possible manufacturing alternative that benefits from proximity to the U.S. market. “We are in the same time zone,” Lopez added, explaining that doing business would be much easier for brands who value ease of communication with their suppliers.
“Some brands are waiting” to see what happens with China, while “some are here,” Lopez said, gesturing out over the showroom floor. “They are trying to talk to some new brands and tell them, Mexico is here.”