The UK manufacturer taking on China
- 8 May 2012
- From the section Business
For years, companies have been shifting manufacturing to China attracted by the cheap labour, but wages and costs are escalating, and for one businessman at least, investing in British manufacturing has become an increasingly attractive option.
On a recent trip to his cushion factory in China, Liverpool businessman Tony Caldeira was confronted by Xiao Qi, one of the local workforce.
She was not happy that she had only been offered a 30% wage increase and told him it was not enough.
"If we're going to be as busy as last year, then I think I cannot accept this. If you want to find another worker, that's fine," said Xiao Qi calmly.
Rising aspirations and soaring costs in shops are motivating Chinese workers like Xiao Qi to demand higher pay.
"She's actually wanting a 50% pay rise in essence," said Mr Caldeira, "and basically sticking a gun to my head and saying: 'Well if you don't pay me 50% more, then I'm off somewhere else.'
"In the UK warehouse, if somebody came to me and said I want a 25% pay rise, they'd be on the next bus back to Kirkby, it just wouldn't happen.
"Because there's another 100 people waiting to take their place. It's not like that here."
Mr Caldeira began work on the family market stall selling cushions in the mid-1980s aged 15 and helped grow a successful company with two factories - one in Kirkby on Merseyside and one in nearby St Helens.
But about 10 years ago, he closed the factory in St Helens with the loss of about 100 jobs.
"It was a question of survival," he said.
"We actually had the cheapest cushions in Europe, and then literally within a matter of three or four years the Chinese competition could sell products more cheaply then we could even make them.
"If we hadn't reacted, we wouldn't be here now because the company would have gone bust."
He moved half the business to Zhejiang province in China, attracted by the low costs of the local labour market in China's textile capital - the Hangzhou Bay region.
Workers would travel thousands of miles to seek job opportunities, often sleeping at the workplace in basic accommodation and only visiting loved ones back home once a year.
This skilled but cheap manufacturing workforce and close proximity to shipping routes in an internationally recognised textiles region made manufacturing in China extremely competitive.
The business grew and was moved into a large purpose-built new factory.
At the peak Mr Caldeira was employing 200 people. But in the last eight years, basic pay has risen from 20 pence per hour to £1 ($1.60). The workforce has been reduced to 50.
At a recent employment fair in Hangzhou, Caldeira was one of dozens of textile factory owners all offering similar jobs, with potential workers haggling over the basic wage on offer, secure in the knowledge that their skills were now highly valued.
"In the UK there are more workers than jobs. In China there are more jobs than workers," said Mr Caldeira.
"You've got literally millions of people who have the opportunity of choosing which place to go to, which factory to actually work in."
Made in the UK
Set against a backdrop of Chinese inflation and the rising costs of shipping goods globally, he believes the investment landscape has changed radically.
Another factor is the quality of the workforce.
Whereas the cushion factory in China produces cheaper cushions, the Kirkby factory offers high-end, hand-finished products, often ending up on the shelves of well-known department stores.
"Productivity in the UK factory is much higher than it is in the Chinese factory," said Mr Caldeira.
"My UK staff tend to have a longer attention span and they are able to focus for a longer period of time, whereas in China they tend to work for longer hours but don't tend to do as many products per hour."
At a recent textile trade fair in Frankfurt, Germany, it was the higher-quality products that were selling best.
The biggest order, worth several hundreds of thousands of pounds, came from a large chain of US stores which wanted a product made in the UK.
"The UK product in the States adds value just because it's made in the UK. The customer sees value in that," said Jessica Lewis buyer for TJX, the parent group of TK Maxx stores.
"We do buy a lot from China, it sells quite well, but the stuff we get from the UK is specific and it's more fashion driven."
Costs have converged as well.
A year ago, one particular cushion cost 55 pence less to manufacture in China than in the UK. This year the difference is down to just eight pence.
But recruiting for factory work in the UK is a challenge.
Pay is at or close to the minimum wage and it is hard to recruit and hang on to a skilled labour force.
Tony Caldeira recently hired 17 new members of staff in a variety of jobs in his Kirkby factory, but five quickly left.
"It is frustrating when people are very positive and tell you 'I want to learn how to do this, I want to do a full-time job' and then after two or three weeks just leave and go somewhere else," he said.
"In many ways, a lot of our workforce is getting older and a lot of the skill bases are getting older as well.
"We're getting to the point where we need to get some younger people in to the industry, in order that we have a long-term sustainable future."
But whereas Mr Caldeira used to believe all his manufacturing would end up in China, now he sees things differently.
"I still need a business in China, but not the kind of business that I envisaged say five to 10 years ago when I thought it was all going to go over to there.
"People would say China was the cheapest place in the world to manufacture. It isn't any more. So the fact of the matter is fairly simple, China isn't going to dominate the world's manufacturing forever."