Source Code: Beyond China

Source Code: Beyond China
A worker in a shoe factory.

It’s no secret that rising sourcing costs have been the cause of more than a few sleepless nights for footwear industry executives.

With expenses slated to rise as much as 20 percent this year, footwear firms have been on the hunt for new spots where to move — or at least diversify — their production.

But where to go?

To find out, Footwear News spoke with the heads of footwear trade organizations in Brazil, Ethiopia, Indonesia, Mexico and Vietnam to find out what these governments are doing to attract companies, and why shoe firms should consider moving production to their countries.

Of course, for many, China remains the most logical place for footwear production. Last year, the country produced more than 12 billion pairs of shoes, and at least 20,000 footwear factories are in operation there. And the country’s vast sourcing network and transportation system make it an efficient one-stop shopping destination for footwear production.

But times are changing. Labor costs are on the rise, and once-stable shoe factories are exiting the footwear business in favor of more-lucrative, higher-wage paying industries, while others are relocating to the interior and north of the country, farther away from key ports.

The good news is that plenty of other countries are vying for business. Mexico makes the case that its close proximity to the U.S., as well as a new quality-assurance program, mean it’s a natural location for U.S. manufacturers. Indonesia, which is refocusing its efforts to appeal to footwear firms, says it has a skilled labor force ready to tackle the needs of U.S.-based firms. Meanwhile, Vietnam and Ethiopia both offer land and tax holidays for companies that move production to the countries.

As costs in China continue to increase, it’s clear that these five countries are working hard to ramp up production. Read on to find out their key selling points.

Brazil
Factories in operation:
8,200
Average hourly wage: $3.18
Footwear specialties: Women’s, men’s, children’s
Heitor Klein, executive director, Abicalçados (Brazilian Footwear Industries Association)

Why should footwear companies choose Brazil as a production source?
“Brazil has a self-sufficient supply chain and is not dependent on raw material imports. Besides, it has the largest herd in the world, and consequently a greater supply of hides. The technology employed in the Brazilian footwear industry is modern, and the technical education network provides skilled labor in several production clusters.”

What improvements are being made to support growth?
“Several initiatives in logistics are being undertaken by the federal government and by the states [where] the manufacture of footwear is significant, especially in the Northeast.”

What incentives are offered to footwear companies who open production in your country?

“Some northeastern states offer special programs for new investments, especially with infrastructure development and financing.”

Ethiopia
Factories in operation: 1,150
Average hourly wage: 15 cents to $1.50
Footwear specialties: Casual and dress shoes; synthetic canvas and leather
Teshome Kebede, vice director, USAID’s Agribusiness & Trade Expansion Program

Why should footwear companies choose Ethiopia as a production source?

“Some of the world’s finest raw materials for making footwear originate from Ethiopia. Labor cost is, at the most, an eighth of what it is in China.”

What improvements are being made to support growth?

“Industrial zones are being built by the government all over the country. Roads have been upgraded to world-class standards to and from all the major cities of the country. Power supply has increased by several folds, eliminating power [shortages]. A dry port facility has been established in the hinterland to expedite clearance of imports. A top-level national coordination committee oversees fast tracking industrial development activities, including the footwear industry, which is a priority.”

What incentives are offered to footwear companies who open production in your country?

“Land for factory building is provided to them from free to negligible costs, depending on which part of the country the investment is in. [We also offer] tax holidays of up to seven years.”

Indonesia
Factories in operation:
Overall number unavailable, but 12 new factories are opening this year
Average hourly wage: 70 cents to $1.20
Footwear specialties: Athletic, slippers, casual styles
Binsar Marpaung, secretary general, APRISINDO (Indonesian Footwear Association)

Why should footwear companies choose Indonesia as a production source?
“Indonesia has a long history in the footwear trade. Workers are experienced in footwear production and product development, [and] continuous efforts [are under way] to improve the infrastructure.”

What improvements are being made to support growth?

“Serious improvements are being undertaken by both the government and the business community to tackle problems in infrastructure, including highways, transportation and electricity.”

Mexico
Factories in operation:
More than 11,000, including both large and small facilities
Average hourly wage: $3.03
Footwear specialties: Men’s, women’s, children’s
Luis Lopez, foreign trade director, Mexican Footwear Chamber (CIGEG)

Why should footwear companies choose Mexico as a production source?

“[Because of] our geographic location; [we are in the] same time zone as the U.S.; [we are] part of NAFTA with no duties and tariffs; we have a state-of-the-art logistics infrastructure at Guanajuato Inland Port; and we have strong manufacturing capabilities and skills.”

What improvements are being made to support growth?

“The signing of [the U.S. and Mexico Memorandum of Understanding on long-haul cross-border trucking] will allow for carriers originating in Mexico and the U.S. to operate permanently in both countries after enrolling in a new program. This program will help to improve deliveries, security procedures and trade between the U.S. and Mexico.”

What incentives are offered to footwear companies who open production in your country?
“The state government of Guanajuato, in conjunction with the federal government, provides incentives based on the number of new jobs created, as well as investments in [staff training].”

Vietnam
Factories in operation:
600
Average hourly wage: $1 to $1.20
Footwear specialties: Athletic, slippers, sandals
Chi Dang, secretary, LEFASO (Vietnam Leather & Footwear Association)

Why should footwear companies choose Vietnam as a production source?
“Labor costs in Vietnam are lower than in China, the Philippines, Malaysia and Thailand. [Also], the labor laws in Vietnam comply with big [footwear companies such as] Nike, Adidas and Clarks.”

What improvements are being made to support growth?

“The most remarkable infrastructure improvement is the development of a new seaport. Vietnam will be able to transport direct containers to the European Union and U.S. in a few years.”

What incentives are offered to footwear companies who open production in your country?
“The government will adjust the specific tax policy and offer more-specific preferences of land and investment credit to attract foreign projects.”

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