The Pain of Textile Order Shifts: Labor Costs Soar to Over 50%, Upstream Industry Chain Under Pressure!
Published on:
2020/11/01
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The latest data shows that in the first ten months, China's exports of textiles, including masks, increased by 34.8%. Behind this, the transfer of textile orders domestically, including from India, is one of the important factors.
During the recently passed peak season of September and October, the return of orders from India indeed brought a wave of warmth to the textile industry. Behind this wave, some companies made a big profit, while others faced even more difficulties.
More than one textile boss has complained to me that due to a shortage of workers, production capacity could not reach full load, affecting order delivery. The head of another manufacturing factory also said that the factory only recently started full machine operation. Last month, due to worker issues, one factory only maintained 80% operation, mainly because of the lack of skilled workers.
01 While orders surged, the labor shortage reappeared.
This indicates two facts:
1. The rush for fabrics has ended;
2. The labor shortage problem has returned!
In fact, as early as October when the market suddenly improved, the "labor shortage" issue began to enter the view of textile professionals.
In October, the market suddenly exploded, driving a surge in orders for mainstream autumn and winter down jackets and cotton-padded fabrics such as nylon spun, spun polyester, and taffeta. For a time, the market experienced shortages and queues for goods. Textile bosses welcomed the best "honeymoon period" of the year, with rapidly declining inventories of marketable products and rising prices for some greige fabrics.
The market surge made production enterprises change their usual practice of reducing output and taking turns off, starting full-load production. As a labor-intensive industry, textiles require workers to operate machines. However, due to the sluggish market in the first three quarters, many textile bosses had to reduce production, give workers time off, and cut wages to reduce costs, resulting in worker loss.
Faced with the sudden market boom, the labor shortage problem was about to erupt!
02 Significant increase in labor costs.
The textile industry is a typical labor-intensive industry. Labor advantages made China the world's largest textile exporter. But since 2012, as China's demographic dividend gradually disappears, labor costs have risen year by year. Surveys show that textile workers' wages in the southeast coastal areas concentrate between 5,000 and 10,000 yuan, while in central and western regions, wages are roughly between 3,000 and 6,000 yuan.
"Five years ago, labor costs accounted for only 20% of the company's expenses; now it has reached 60%." Wu Zhixiang, owner of Jiangsu Liqiang Textile Co., Ltd., said. In addition, employee instability and accelerated turnover causing extra costs are also challenges the company faces.
He believes the rise is due to two reasons: one is the increased living costs caused by inflation, and the other is the decline in the working population. "For example, in our textile industry, the work is very hard. The post-80s generation is gradually retiring, the post-90s don't want to do it, and forget about the post-00s."
Surveys found that although company bosses think the overall salary in the textile and apparel industry is not low, employees are not very satisfied with it.
Liang Wei (pseudonym) has been in the textile industry for 17 years, worked over 9 years in Fujian, 3 years in Jiangsu, then 2 years in Guangzhou and Shantou, doing machine operation, management, and maintenance. Currently, he works in Zhejiang in weaving, responsible for controlling 2 machines. When busy, he works 12 hours a day with morning and evening shifts, few holidays, and considerable pressure.
He said his initial salary was only over 4,000 yuan, now monthly salary is over 9,000 yuan. "Generally, workers watching 2 machines have a basic salary of 7,500 yuan, but skilled workers can watch 6 machines between two people and earn an extra 7,500 yuan. The boss will appropriately increase the salary for these two."
Although he receives more salary, Liang Wei said, "After working so many years, I feel the salary hasn't really increased. While wages rise, prices also rise."
Deng Jian (pseudonym) has a similar feeling. He has worked in the textile industry for 11 years and currently works as a sand remover in a textile factory in Fujian. His wage is piece-rate with a minimum of 1,800 yuan, and after one or two months, it exceeds 6,000 yuan. "Working in the textile industry, the salary is relatively stable. As long as you work, you don't worry about money, and supporting a family is not a problem."
However, he added, "Although wages have increased, prices have also risen, so earning more means spending more."
Not only labor costs are rising, but also raw material costs. Chen Huan told 21st Century Business Herald that previously, the company's labor cost was about 30%, material cost 30%. Now labor costs exceed 50%, even reaching 60%, and material costs are 40%. Therefore, it is difficult to achieve a profit margin of 5%. Larger volumes can still make money, but price increases are inevitable.
With labor costs continuously rising and product prices unable to increase, profit margins are squeezed, putting pressure on textile companies. Currently, some foreign-transferred textile orders can be retained for a while, but long-term retention is very difficult.
03 Pain points in textile industry upgrading and transformation.
High labor costs, especially in eastern enterprises, have caused two trends in China's textile and apparel industry chain: one is migration from the east to the central and western regions, and the other is migration from China to Southeast Asia and India.
Previously, many eastern cities where textiles were a main industry have seen a decline in the textile industry's share of local industry.
For example, in Huzhou, Zhejiang, in 2015, the main business income of industrial enterprises above designated size was 408.24 billion yuan, with textiles at 5.16 billion yuan; but by 2019, the main business income was 491.69 billion yuan, with textiles only 2.41 billion yuan. In Shaoxing, Zhejiang, textiles are one of the four traditional local industries, but in 2019, the output of major products in industrial enterprises above designated size declined in several textile and apparel subcategories. For example, total fabric output was 4.774 billion meters in 2015, dropping to 1.337 billion meters in 2019.
The reasons for these results lie in two aspects:
On one hand, constrained by capital and cost pressures, many small and medium-sized enterprises find it difficult to recruit higher-level technical talents.
Generally, factories can recruit workers but cannot find experienced masters. Meanwhile, some skilled workers think the textile and apparel industry is tiring and do not intend to continue. In fact, the lack of highly skilled workers is a dilemma for the entire textile and apparel industry and even manufacturing.
The market demand for workers with technical grades and professional technical titles exceeds supply, with a significant gap in demand for professional technical personnel and senior skilled workers; compared to the previous quarter and the same period last year, the demand for general workers and workers with certain technical grades in the market has increased. From the demand side, 41.4% of market employment demand has clear requirements for technical grades or titles.
On the other hand, the maturity of the high-end product market in the domestic textile and apparel industry is still not high. Chen Huan, the owner of Guangzhou Canping Garment Co., Ltd., frankly admitted that it is generally difficult for small and medium-sized enterprises to produce high-precision automated manufacturing products, mainly because the domestic high-end product consumer base is not large enough and the high-end product market is not yet mature. "We also can't produce high-quality products; this requires the promotion of the entire market."
Moreover, machines are updated very quickly, and the cost of a single machine is relatively high. If automation is promoted, with the original number of workers unchanged, productivity can increase by 10%-20%, and profit margins can be maintained at around 10%. However, if old machines are used, the above effects cannot be achieved.
At present, the textile and apparel orders transferred from abroad can "relieve temporary thirst," but the long-term development of the domestic textile and apparel industry still needs to repeatedly balance between high costs and high quality, progressing slowly.
Facing the market in November that has already arrived, in addition to grasping the current market share in hand, we must also seize opportunities and continuously innovate and break through.
2020-11-04
CCTV News: China's textile and apparel industry was severely affected by the pandemic in the first half of this year, facing high inventory levels and tight cash flow, with the entire upstream and downstream industrial chain in a sluggish state. After entering August, the textile and apparel industry began to recover, and in September and October, the industry's exhibition economy became active again.
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2020-11-03
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2020-11-01
The latest data shows that in the first 10 months, China's exports of textiles, including masks, increased by 34.8%. Behind this, the transfer of textile orders to domestic markets, including from India, is one of the important factors. During the recently passed peak season, the return of orders from India indeed brought a wave of warmth to the textile industry. Behind this wave, some companies made a big profit, while others faced even more difficulties.