If Chinese consumers choose any pair of sneakers in Nike stores, they will most likely pick products made in Vietnam.
Before 2010, China was the largest manufacturer of Nike footwear products, and now more than half of Nike's shoes are produced in Vietnam. Similarly, Adidas' main producer is no longer China, and 40% of its shoes are produced by foundries in Vietnam.
What forces have pushed Nike and Adidas from "Made in China" to "Made in Vietnam", and what has China lost in this manufacturing industry?
Lost share
In 2020, Indonesia replaced China as nike's second-largest manufacturer of footwear products.
This is largely due to the decline in the share of Chinese manufacturing in Nike, rather than The blessing of external forces in Indonesia: Over the past fifteen years, Indonesia's production share has fluctuated between 21% and 26%.
Vietnam, which has a major share of Nike's footwear manufacturing sector, is Vietnam. Vietnam has gradually replaced China as the largest production base for Nike footwear products.
Nike's financial report shows that in 2010, Vietnam replaced China as the largest producer of Nike footwear products. Moreover, over time, the proportion of foundries in Vietnam has been rising. In 2020, Vietnam produced 50% of Nike's footwear products, and in 2021, the proportion further increased to 51%. At the same time, China's production share gradually fell from 35% in 2006 to 21% in 2021.
As the world's largest sportswear brand, Nike does not have its own production plant. The vast majority of its footwear products are manufactured outside the U.S. by more than 15 independent contract manufacturers with 191 footwear factories in 14 countries and territories. In general, Nike mainly manufactures in low-cost factories in Southeast Asia, and then sells its products to major markets such as North America, Europe, and Asia. North America is Nike's largest market, and in the second quarter of fiscal 2022, revenue in Greater China fell by 20%, while Nike's revenue in North America increased by 12%.
Similar to Nike, another sportswear giant, Adidas, has seen similar changes in footwear manufacturing. In 2013, Vietnam replaced China as the largest producer of Adidas footwear products. That year, Vietnam produced 35% of Adidas footwear products, while China accounted for 31%; in 2020, Vietnam's production ratio has risen to 42%, and China has only 15%.
Why has Vietnam become the best choice for major sportswear giants?
Preferential tax policies and cheap labor attract the shoe industry.
According to foreign media reports, Vietnam introduced an income tax incentive policy for manufacturing enterprises in January 2015. According to the relevant preferential policies, the enterprise income tax that meets certain conditions is exempted for the first 4 years, the tax payable in the next 9 years is reduced by 50%, and then 10% is reduced in the next 15 years. In addition, Vietnam's preferential policies include exemption from import duties on goods used to form fixed assets, quarterly VAT filings, and other investment credit incentives and exemptions from land and surface rents. In the following years, Vietnam's above policy was updated.
"Nike's salary is much higher than working in the fields, and the working environment is better." A worker from Vietnam spoke publicly at a forum. Although Nike's Vietnamese foundry workers are paid less than in China, the income levels of local workers are already competitive in the eyes of Vietnamese workers. According to a worker, the salary for making shoes for Nike in Vietnam is $5/day. Based on an eight-hour working day, it is $0.625 per hour, or about 3.98 yuan.
In contrast, the salary of Nike foundry in Putian, Fujian, China is relatively higher. A person close to the Putian Nike foundry told the first financial reporter that local workers work eight hours a day and have a single weekend off. Local workers earn about 19 yuan an hour.
For the reasons why Nike and Adi relocated the foundry, Cheng Weixiong, general manager of Shanghai Liangqi Brand Management Co., Ltd., who was interviewed by First Finance, said: "The layout of foreign trade export production enterprises and the global layout of international brand production needs to consider export quotas, exchange rates, labor costs, industrial chains, delivery periods, production capacity and other factors.
Good thing, or bad thing
In the past fifteen years, as the manufacturing link has moved in Asia, Nike has changed from "Made in China" to "Made in Vietnam". Does this mean the upgrading of China's footwear manufacturing process, or the defeat in the competition?
"Don't panic just because you have some capacity in Southeast Asia. In fact, most of the factories in Southeast Asia still need domestic supply in terms of raw materials, and the factories in Southeast Asia are simply processing. Backward capacity migration is a good thing for China. Cheng Weixiong told reporters that the domestic industry has undergone initial development and now needs industrial upgrading. The relocation of some production capacity actually has no impact on China's domestic sneaker industry, and the domestic production capacity is enough to meet the local market and export demand.
Of course, some people in the industry believe that the migration of brand manufacturing links such as Nike has no small negative effect on China's manufacturing industry and local brands. The negative impact of the shift in manufacturing may include direct job losses and delays in the spread of technologies such as new production processes.
Wu Daiqi, CEO of Siqisheng Company, told the first financial reporter: "First of all, China's foundries have reduced orders, affecting manufacturing costs, and it is likely that there will be a shrinkage of factories. Secondly, for Chinese local brands, if they all use the same foundry, they will get the information of new styles of competitors faster. If the competitor processing plant is not in China, the information source is missing. ”
"As one of the world's largest sneaker companies, Nike's exit means that (China) has lost a lot of jobs, huge taxes, and a lot of social value. In addition, it could lead to a loss of a virtuous cycle of competition and potential opportunities to improve domestic manufacturing and train relevant skilled workers. "An Guangyong, an expert of the Credit Management Committee of the All-Union Mergers and Acquisitions Association, also believes that the gradual relocation of foundries to Vietnam will have a very negative effect on China." The domestic footwear manufacturing industry will also lose the opportunity to further improve its technology, marketing, management and other aspects by competing with the world's top companies. ”
During the epidemic, the manufacturing industry in some Southeast Asian countries such as Vietnam was affected, and the normal operation of factories was once unsustainable, and some textile and apparel orders returned to China.
After May 2021, an outbreak broke out in Ho Chi Minh City and spread to the surrounding provinces where manufacturing is located. In mid-July, nearly 80 percent of Nike's footwear manufacturers and half of its apparel suppliers in Vietnam were forced to stop production. Until early November, the Vietnamese government said about 200 contract factories in Vietnam that produced sportswear for Nike resumed operations after months of shutdowns.
"The closure of the Vietnam factory caused us to cancel the production of about 130 million products." Nike executives said on a conference call in the second quarter of fiscal 2022. However, Nike executives also revealed that all factories in Vietnam have been operating normally, and production capacity has returned to about 80% of the pre-epidemic level, and Nike is confident that the global supply level will return to normal in fiscal 2023.
The distance from "Made in China" to "Chinese Brand"
As far as the sportswear industry is concerned, the separation of the brand side and the manufacturing link is the general trend. International brands Nike and Adidas are like this, and Chinese brands have also chosen this path.
"(ANTA products) are mainly supplied by supply chain partners, and the proportion of self-production is very low." A middle-level manager of ANTA told the first financial reporter that ANTA's footwear products mainly rely on foundry enterprises in Jinjiang City, Fujian Province, while the foundries of clothing products are distributed in Henan, Anhui and other places.
Li Ning also adopts the model of taking into account both foundries and own factories. Xtep's own factories are located in Fujian, Hunan and Anhui.
If international brands such as Nike and Adidas are decoupling from Chinese manufacturing, have Chinese local brands grown up from the soil of Chinese manufacturing?
"In recent years, the rise of Local Chinese brands has weakened the market share of brands such as Nike Adi in China to a certain extent." Wu Daiqi believes: "There is still a gap between local brands and foreign brands such as Nike, which is mainly reflected in brand building and product design innovation. Because of this, local brands do not yet have a high premium. ”
In the past two years, China's local sports brands have been further consolidated due to factors such as national tide and online business development. In the first half of 2021, the revenue of ANTA Sports, the leader of domestic sports consumer goods, exceeded 22.8 billion yuan, an increase of 55% year-on-year; the net profit attributable to the mother exceeded 3.8 billion yuan, an increase of 132% year-on-year. From the perspective of net profit alone, Nike only received a net profit of 3.2 billion yuan in the first two quarters of fiscal 2022.
In fact, the performance of China's local sports in the first half of this year is relatively good. In addition to Anta, Li Ning (2332. Both HK) and 1368.HK saw significant year-over-year increases in revenue and net profit.
In An Guangyong's view, if only the low-end market with low domestic profit margins is considered, Chinese local brands already have a great advantage. But if you want to do a high-end market with high profit margins, the real sense of the word, I am afraid that the gap is still very large.
"International brands such as Nike and Adi are still the head brands in the domestic sports market, which cannot be replaced by local sports brands such as ANTA and Li Ning in the short term." Once nike, Adi and other international brands increase their online business, it will still have an impact on the sinking market and popular products. Cheng Weixiong told the first financial reporter: "For domestic sports brands, the era of heavy marketing and light research and development has passed. Local brands need to increase investment in research and development, and they need continuous investment and breakthroughs in the innovative application of surface accessories, functional innovative materials, and layout research. ”