Adidas Announces Closing of China Factory for Production Line

On July 17th, adidas, the sportswear brand, announced that it will close its only direct factory in China and may move to Southeast Asia.

This sole direct factory is located in Suzhou Industrial Park and is a 100% wholly-owned subsidiary of Adidas Group. The news that the factory will be closed was first reported by the workers who faced demobilization. The reporter then confirmed at the adidas China headquarters that at the end of 2012, Adidas will close its only factory in China."

Although the company level did not explicitly explain the reasons for the closure of the plant, according to expert analysis: In the context of the current sharp increase in sales in China, Adidas's only move to shut down the plant explained that the multinational company wanted to reduce manufacturing costs and was prepared to relocate the production line to a low cost. South East Asia.

Close the sole direct factory employee to receive generous compensation

In fact, Adidas' news of shutting down the Suzhou plant had been widespread on the Internet in April. The factory staff of the Suzhou factory revealed that the factory had issued a notice, and the factory would be closed in October this year.
It is reported that Adidas China Co., Ltd. is a 100% wholly-owned subsidiary of Adidas Group. It registered and opened a production base in Suzhou, and its trading headquarters is located in Shanghai. It has branch offices in Beijing and Guangzhou. The Suzhou plant is also its only own factory in China. However, due to strategic considerations for the reintegration of global resources, it is inevitable that Adidas will shut down its only own factory in China.

Regarding the future of this factory, Adidas did not explain it in detail. According to informed sources, Adidas's closure of the Suzhou plant is preparing to relocate to Myanmar. All employees of the plant will be disbanded on the spot, but Adidas said it would provide generous compensation for the departure.

When a reporter asked “How to compensate the demobilized workers?”, the person in charge of the factory administration department said: “At that time, the employees of the factory will receive N+1 according to their own jobs and the number of years of working in the factory. N is the compensation for the full year of work in the factory multiplied by the monthly salary. The compensation standard is far higher than the relevant national standards."

It is understood that Adidas's own factory closure is not alone. As early as three years ago, its "eternal rival" Nike made the same decision. In March 2009, Nike shut down the company’s only footwear production facility in China, the Taicang Factory, and dismissed 1,400 Chinese employees. At that time, the compensation program failed to reach agreement with the workers and triggered a large-scale worker strike.

The key to the migratory cost of migratory birds at production sites is the key

The Adidas Group is headquartered in Herzog-Olach, Germany, and has continued to expand in China in recent years. It opened 1,175 stores in China last year alone and now has 6,700 points of sale. The company previously stated that Adidas will continue to invest and hope to create new sales records in China in 2012. At present Adidas Group's sales in the Chinese market exceed 1 billion euros, and its market share ranks second.

In fact, the rumor that Adidas shut down the Chinese production line was first reported around 2008. At the time, Herbert Heiner, the global CEO of adidas, said in an interview in Germany that due to the increasingly high wage standards set by the Chinese government, Adidas hopes to withdraw partially from China and shift to a cheaper workforce. Area.

This position was immediately interpreted as Adidas' withdrawal of the production line from China. Although at the end of the company's level, it was necessary to issue a statement specifically saying: "Adidas has no plans to withdraw any production line in China but will increase production in China." However, rumours about Adidas closing the production line are still circulating.

Is the closure of the Suzhou plant based on considerations such as labor costs? Adidas’s official statement is "a strategy for reintegrating global resources," and factory workers revealed that the factory is preparing to move to Burma.

Wang Wei, secretary-general of the China Garment Association, pointed out: “With the increasing labor force value, production cost, and peripheral cost in China, internationally-operated companies like Adidas have chosen some countries in Southeast Asia with low labor costs to build factories that are in line with international standards. Environment and business needs."

It is understood that sports and apparel companies such as Adidas, Nike, and Puma are relatively sensitive to the cost of labor. In general, companies will control labor costs between 20% and 30%. Wang Hao said that only in the low-cost environment, such enterprises as Adidas can be competitive. "You can see that in the past 20-30 years, Adidas' production base was like a migratory bird, and it was constantly shut down and relocated according to changes in production costs everywhere."

Adidas pursues cost advantages. Its production base was first established in Europe, then it moved to Japan where production costs were lower, then Korea and Taiwan, and then China. It experienced migratory paths like migratory birds. With the increase in the cost of labor in China, their factories will be transferred to Cambodia, Vietnam, Bangladesh and other Southeast Asian countries."

Southeast Asia hard to reach climate in the country or lead chain reaction

Regarding the closure of the Adidas Suzhou factory, garment industry observer Ma Gang told NetEase that as the cost of manufacturing in China has been rising in recent years, the “China Made” international competitiveness has gradually weakened and the cost has exceeded Adidas’ expectations. It is "reasonable" to make factory transfers in this case.

Adidas pointed out in its annual report released earlier this year that it is expected that in 2012, Adidas Group's gross profit margin will reach about 47.5%, a slight decline from the same period of last year. For this reason, Adidas stated that "increasing input and labor costs will become a drag on the Group's profit growth."

There has just been a counter-evidence about the cost of production. The British media recently revealed that Adidas pays only 10 pounds (about 15 US dollars) per week for Cambodian garment factory workers who produce licensed products for the London Olympic Games, even if the average monthly wage of Adidas’s local workers is 130 US dollars. Together with 828 RMB), this figure is also far from the Suzhou factory's previous claim to foreign recruitment that the "per capita monthly wage is not less than 3,000 yuan."

However, there are different views in the industry regarding the move of Adidas' production base. Li Peng, the secretary general of the Asian Footwear Association, said that in addition to the low labor costs in Southeast Asia, there is no competition at all in China compared to China. The production facilities in the region are far from complete in mainland China, and a large amount of raw materials are mainly sourced from mainland China. “Adidas shut down the Suzhou plant or simply shut down based on integrated resources considerations, not relocation.”

Whether or not relocating, in short, Adidas' closure of the only factory in China will mark that all Adidas products manufactured in China will be completed by the foundry. It is understood that China has been regarded as the most important production base by Adidas. At present, Adidas has 300 foundries in China, involving more than 300,000 employees.

Li Peng also analyzed with reporters: “If companies such as Nike and Adidas are to reduce their production lines on a large scale, the impact on OEMs and suppliers will be significant. Due to the integrity of the product process, many foundries are difficult to survive on their own. Under this circumstance, if foundries still want to rely on orders from companies such as Adidas and Nike, they must move to Southeast Asia together."

Of the 300 factories that were built for Adidas, Taiwan’s Yuyuan Group had a large share of orders. The company also has many factories in the mainland, which specialize in doing OEM services for Adi, but “this company has been A large-scale shift to Southeast Asia began, and factories in mainland China have begun to shift from the coastal areas to areas with lower labor costs in the Mainland,” Li Peng said.