Made in China: Sourcing in the “New Normal”
Made in China: Sourcing in the “New Normal”
Finding the Right Balance
VF is a USD 12 billion apparel and footwear powerhouse, with an incredibly diverse, international portfolio of brands and products, including The North Face, Nautica, Timberland, Vans, and more. VF has sourcing relationships with more than 1,000 product manufacturing facilities in Asia-Pacific region countries, including China, Bangladesh, Vietnam, Indonesia, Thailand, Cambodia, Pakistan, and India.
China Focus interviews Veit Geise, VP Sourcing of VF, on his opinion of China as a sourcing destination and what trends and challenges to expect when operating there.
How important is China for you compared to other production countries?
This largely depends on the brands and whether we are looking at export or at Chinafor-China business. Price-sensitive brands continue to move or have already moved their activities to other countries several years ago, while very technical brands with a complicated outerwear segment, for example, still depend on China to a large extend. Growing sales & marketing activities in China continue to result in an increase of the Chinafor-China volume, which compensates for a loss of export volume. China, therefore, will continue to be one of the most important sourcing destinations in the future.
What factors do you consider when deciding to stay or move your production location?
This, too, depends on the brands that you are looking at. A price-sensitive business will react very fast to labour cost increases or a change in the geopolitical environment. The more technical a brand is, the less you will be inclined to move volumes to other areas for small incentives. A supplier who understands the complexity and DNA of a technically complex brand, is worth a lot more than saving a few pennies by moving countries. Nonetheless, depending on the product, a supplier’s readiness to react and adapt to changes is critical.
Is price the only factor for your customers?
Definitely not, although it is clearly a driver for making sourcing decisions. Gross margin pressure will not become less in the future, and with inflation at the sourcing locations and little chances to increase retail prices in general, the price pressure will not go away. It is the right balance and mix that you need to find and manage for each brand individually.
What are the challenges you face now in China and beyond? How do you overcome them?
The sourcing business has become much more complex over the past years, and we can anticipate even more complexity in the years to come. Today we require a much greater level of transparency from our factories than we have done in the past. CSR requirements, as well as responsible sourcing, have become very important factors in a relationship. The only way to build successful alliances in the future is an even closer partnership between the buyer and the seller. We will continue to see a further decline of purely transactional business.
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