Saturday, May 14, 2011

Coach Shifts Half of Manufacturing Out of China *Moving to lower-wage India, Vietnam, Philippines*

Chinese labor becoming too expensive. India, Vietnam, and Philippines have cheaper labor.

Coach, the U.S. accessories brand, is planning to shift up to half of its manufacturing out of China to escape rising labour costs at the same time as it moves aggressively to expand its sales in the country.

Lew Frankfort, Coach’s chief executive, said that over the next five years the company would cut its China production to 40-50 per cent of its total from 85 per cent at present by opening factories in lower-wage economies including India, Vietnam and the Philippines.

Coach’s plans point to the shift in China’s role from workshop of the world to consumer of first resort. Coach is aiming to make annual sales of $500 million in China within the next three years.

The move is also reminder that while China’s consumer class is expanding because incomes are rising, companies manufacturing goods in the country to meet that demand face the risk of narrower profit margins.

Mr. Frankfort said: “We are subject to rapid wage increases in China among employees working in the manufacturing sector, which we support. We work with factories to offset high labour costs through improved efficiency and lean manufacturing.”

But he also said: “We are beginning to diversify production out of China into other Asian countries that are not enjoying that level of prosperity.” He was speaking at conference of the Committee of 100, a Chinese-American group in New York.

Coach Shifts Half of Manufacturing Out of China - CNBC