The firm expects a 14-15 per cent increase in the costs of made-in-China products this year, due to higher labour, commodity and currency costs, as well as the impact of additional product safety testing, according to an article in the Financial Times.
David Hargreaves, chief financial officer, said: “Some of our vendors are moving further into China in order to obviate the higher labour costs.”
Al Verrecchia, current CEO (pictured), predicts suppliers will respond to rising prices by gradually extending their own supply chains to factories based around inland cities.
“I think you are liable to see more people moving inland into China, and.probably over a longer period of time, you’ll see some sub-assemblies, some painting operations moving inland, and then final assembly continuing to be done at existing factories,” Verrecchia said.
However, increasing production in inland regions could pose significant challenges for suppliers, as they can lack infrastructure for modern manufacturing.
But Verrechia said inland China is more attractive than shifting production to Vietnam, which is limited by its smaller size, language issues and a lack of support services and infrastructure.
“You start to develop new vendors in places like Vietnam, you’ve got to start all over again with issues of quality and safety and product reliability,” he said.