Apparel manufacturers rushed to assure shareholders last week that the China’s decision to allow the Renminbi, or yuan, to float more freely would not disrupt their supply chains even as they shifted production to the interior of China and elsewhere in Asia.
Hanesbrands Inc. said it had little exposure to Renminbi currency fluctuation, noting that a 5% appreciation of the Renminbi against the dollar would only increase its costs there by $1 million to $1.5 million in 2011. Jarden Corp. continued to insist it was properly hedged against currency risk in China. At a Reuter’s conference, a top executive of Li & Fung Ltd said that the low-cost era in China was likely over, but that the country would remain a dominant supplier.
Bruce Rokowitz, president and executive director of the gigantic Hong Kong-based sourcing company, said China’s decision to allow its currency to appreciate would not threaten the country’s dominance or the world’s largest apparel maker. Li & Fung annually exports about $8 billion in goods from China and $1 billion from Vietnam.
By Friday, the Renminbi was trading at about 6.79 to the dollar on the spot market, its highest level since mid-2008, when the country suspended a similar currency exchange regime that had allowed the currency to appreciate about 15% since 2005.
To mitigate the impact of a stronger Renminbi, western apparel brands began shifting production from Southeast China to the interior of the country, Vietnam, Thailand and even Bangladesh and India during that period.
The industry, however, has since discovered those countries face their own challenges, including poor infrastructure, less skilled workers and volatile labor markets.
The latter of those concerns came to light in Bangladesh on June 21 when sometimes violent protests by tens of thousands of garment workers led to the closure of more than 700 garment factories. Some factories reopened Wednesday with heavy police protection as the industry strived to meet orders from western brands. Wal-Mart, Tesco and H&M are among the western retailers who source from Bangladesh, which employs an estimated 800,000 workers, the Associated Press reported. Many workers are female and work for subcontractors, which are notoriously difficult to monitor. Workers are demanding minimum wages of about $70 per month, or three times current rates.
Rising standards of living in China and India, meanwhile, make them among the top three most desirable retail markets in the world, according to the 9th annual Global Retail Development Index study published by the management consulting firm A.T. Kearney.
China had not held the top spot in the index since its debut in 2002. India was ranked as the third best retail market, behind Kuwait. The index ranks countries by measuring political risk, timeliness of entry, market saturation, and other factors. Retail sales increased 8.2% in China in 2009 and are expected to grow by more than 9% this year, according to A.T. Kearney.
