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Sourcing 2050: As China Goes, the World Follows

All roads lead back to China.

Ron Klein, director of retail and consumer management at PricewaterhouseCoopers, said the long-term outlook for global apparel sourcing rotates around one country—China—although no longer as just “the world’s factory.”

“As China goes, that creates other opportunities for other emerging markets when it comes to producing products for the U.S. market,” said Klein, presenting the results of a PWC white paper, “2050: Key Apparel Sourcing Countries—Future View” at Sourcing at Magic in Las Vegas.

“Where China wants to play, it’s hard to compete,” he said. ‘Where China decides it doesn’t want to play anymore, that’s where opportunities can open up for other players and other countries.”

“In terms of consumer goods and apparel, we see a continued fragmentation of retail formats and the rise of a greater middle class and its ability to consume,” Klein continued. “While that bodes well for U.S. brands to have a rising middle class in emerging markets, it also means there are new local competitors. For instance, Chinese local brands have become more sophisticated in serving the local market and meeting increased local demand.”

There’s been a “new normal” for economic growth in China, Klein noted, with gross domestic product growth for many years scoring annual double-digit increases and now seeing 6 percent to 7 percent annual growth. That being said, China is still adding several hundred million dollars of GDP output a year, “which is still very significant.”

This is all part of China trying to transform its economy to the point where “China no longer wants to be the factory of the world. They really want to position their economy to be more service oriented and consumer oriented like to U.S.,” Klein said. China implemented the “Made in China 2025” policy in 2015 to upgrade its manufacturing sector toward higher-value goods from the image of cheap consumer products, which is “shifting the perception of China on the world stage.”

“They don’t want generations to toil in factories,” Klein said. “They want their future generations to work in offices and white collar and high-tech jobs because they believe that leads to happiness and social harmony and stability, and gives a better quality of life.”

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China is investing in high-value production and pushing out low-value manufacturing, which is a lot of what is sourced now in apparel and accessories, and thinking out where they should invest in the future.

[Read more about China’s sustained dominance in production: When it Comes to Footwear Sourcing, China May be the New China]

“As the government tries to move to a more consumption-based free market economy, they recognize they have to reduce overcapacity,” he said.

Much of these policies relate to China’s “One Belt, One Road” efforts, which he said is aimed at “shifting the power balance” geopolitically and economically in the world away from the West to China.

On Belt, One Road consists of more than 65 countries and 40 percent of the world’s GDP.

“China sees it can shift the balance of power by changing the pulse of gravity by investing in building deeper alliances across Asia with investments in infrastructure projects throughout Southeast Asia and East Africa,” Klein said. “One Belt, One Road puts China in a position to help build those economies and support its own state-owned enterprises.”
China is also part of the ASEAN Economic Community free trade zone consisting of a consortium of nations across Southeast Asia.

However, the shift in consumer buying habits and the emergence of digital commerce does open up needs for faster production turn times and more localized manufacturing capabilities, Klein noted, notably in Central America, Mexico and the U.S.

He cited a recent study PWC did for a client that showed in five years, Mexico and China cost of manufacturing would equalize, given rising labor and other costs and China and proximity to the U.S. market and lower logistics expenses in Mexico.

“When we think about the future of sourcing, the ability to leverage analytics and…the speed of decision making is and having a strategic business partner” becomes more important, Klein added.