Rising labour costs may force fashion accessories maker Coach to shift from China

Coach Inc, the $3.6 billion US-based designer, producer, and marketer of women and men accessories is planning to shift nearly half of its manufacturing out of China in order to avoid increasing labour cost.

Even as Coach intends to expand sales in China, it, like other overseas companies find that they can no longer afford high labour costs in a highly competitive world.
 
Although Coach plans to increase annual sales to $500 million in China within the next three years, it intends to cut production in China to 40-50 per cent from 85 per cent at present and open new factories in countries where wages are lower like Vietnam, Philippines and India.

New York-based Coach, best known for its high-end handbags and wallets, reported net income of $303.4 million, for the second quarter ended 1 January 2011, up 26 per cent from $240.9 million.

For decades, plenty and cheap Chinese labour was the main attraction for Western companies to set up manufacturing units in China as it kept the costs of goods low that were bought mainly by Americans. Even China's low value of its currency gave domestic exporters a competitive edge.

But over the past five years there has been a gradual increase of minimum wages across Chinese cities and provinces and accelerated last year due to China's economic boom.

Beijing city raised the index for minimum wages by 200 yuan to 1,160 yuan ($175) a month from 1 January 2011, this was after it had increased wages by 20 per cent in July 2010. In April 2011, Shanghai city increased the city's minimum wage by more than 10 per cent from the prevailing 1,120 yuan ($170) per month. Jiangsu, one of the richest region, hiked its minimum monthly wages by 15 per cent and Guangdong, by about 19 per cent in March this year to 1,300 yuan ($200).