Business / Companies

Smart operator reaps rewards

By Wang Chao (China Daily) Updated: 2014-01-20 13:30

"Once, we had to raise prices several times in one day because so many people wanted to buy our clothes," Xu says.

In 2010, Xu joined with other textile companies and built an industrial park so they could become more financially secure and better able to negotiate with local governments.

Yuemei has a presence in seven African countries - including Nigeria, Ghana and Tanzania - and has hired 2,600 African workers. Instead of treating Africa purely as a manufacturing base and exporting the products to Europe and North America, as many shoe factories do, Yuemei considers Africa as a market in its own sight. Most clothes produced in Africa are sold locally, and the company quickly began to build a value chain there from cotton growing, yarning and weaving to dyeing and clothes making.

As the head of a labor-intensive company, Xu says he has noticed that China's competitive edge, which was based on cheap labor, has been fading over the past 10 years. The number of cotton-growing areas has shrunk and the cost of labor has continued to soar. Xu spotted this trend very early and began to think long-term.

"The cost of labor and raw materials made up two-thirds of a textile company's total costs," he says. "This was a big threat to the company, even to the industry."

Facing a future in China when the margins would be slimmer, Xu began to do something that many domestic counterparts are only doing now: moving the company first from the east coast to central and western China and then abroad. But unlike many cautious bosses who first move to Southeast Asia, Xu moved his business directly to Africa.

"I never thought about moving the factories to Southeast Asia in the first place, because the competitive advantage on labor is not significant enough," Xu says, citing a calculation by Justin Yifu Lin, former chief economist at the World Bank. Xu says the overall cost of labor for labor-intensive industries in Vietnam is about two-thirds that in China, while in Africa it is one-tenth.

"I believe this is a natural flow of labor-intensive industries - from high-cost areas to low-cost areas," he says. "In the 1980s, the Western countries moved their labor-intensive industries to China. Now it is China's turn. You have to admit this is the trend."

At present, Yuemei has design, development and some manufacturing jobs done in China, but in the future only research and design will remain there, Xu says.

In 2013, Xu made 10 trips to seven African countries, mostly in the west and southeast. In some of them, Xu already had bases, while others are still virgin territory for his company.

"Western and southeastern Africa have better infrastructure, relatively good social order and some industries, so it's easier for us to start there," he says.

Xu does have some worries in expanding business in Africa. Some African countries are not very stable and coups happen from time to time. Theft and robberies are common. In many places there is no infrastructure at all. So the company has to install electricity, build factories and dormitories, drill wells and even fund the local government to build a road first to get the ball rolling.

But still, Xu says, he has faith in the continent. "It's just like the early 1980s when the first foreign companies came to China. There are few skilled workers, but the situation will certainly improve. I believe Africa is the ultimate destination for labor-intensive industries."

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