Cheaper to Make Textiles in the United States than in China: Reality or Myth?

NY times

A New York Times article back in August 2015 suggests that “yarn production costs in China are now 30 percent higher than in the United States” because of savings in raw and auxiliary material. The article believes the cost difference is why some Chinese textile companies are coming to build factories in the United States, such as Keer Group’s cotton mill in South Carolina.

cost

However, in a recent interview with China Textile News, Chairman of the Cixi Jiangnan Chemical Fiber Co (Cixi) provides a different cost sheet (above). In September 2013, Cixi invested a $45million polyester staple fiber mill in South Carolina. Because nearly 80% of Cixi’s outputs are sold outside of China, and the United States is its single largest export market, the investment intends to help the company maintain its presence in the U.S. market and substantially save transportation cost.

According to Cixi, it is a misunderstanding that making textiles in the United States is cheaper than in China. Although moving factories to the United States may help Chinese companies save money in land, electricity, natural gas, and logistics, it will significantly increase the costs in purchasing manufacturing equipment, building factories and managing daily operation of the company.  Additionally, culture and language barriers, as well as labor policy in the United States, could also become critical challenges facing Chinese investors. Cixi admits that to keep its U.S. factory running smoothly, members of its management team all come from China.

Chinese Manufacturer to Open $20 Million Garment Factory in the US

mou-signing-between-arkansas-and-suzhou-tianyuan_203804

We all know that China is the single largest supplier of textile and apparel to the U.S. market. But on Oct 20, 2016, Arkansas Gov. Asa Hutchinson announced Tianyuan Garments Company, a Chinese sport apparel manufacturer based in Suzhou, China will invest $20 million to build a new garment factory in the Little Rock area of Arkansas.

Tianyuan, founded in 1998, is a garment maker specializing in the production of casual and sport apparel, including garment for Adidas, Reebok and Armani. With five facilities in China, Tianyuan was named one of the top 100 garment companies in China in 2015. Tianyuan’s annual production rate is nearly 10 million articles and clothing. The company currently supplies 90% of the garments marketed by Adidas, which is the second-largest global sports and apparel maker behind Nike. Tianyuan was also one of several suppliers for the 2014 World Cup and for the Italian Olympic Team in 2016.  

According to the Memorandum of understanding (MOU) signed by Hutchinson and Tianyuan executives, the Chinese apparel giant will hire 400 full-time workers primarily from Arkansas within four years of starting operations in central Arkansas. It is said that these workers will be paid around $14/hour.

As part of the deal, Arkansas offers an incentive package that will include five-year, 3.9% annual tax rebate worth nearly $1.6 million annually. Other incentives include a $1 million infrastructure assistance grant for building improvements and equipment purchases, as well as a $500,000 stipend for worker training.

Arkansas will also help provide assistance in helping Tianyuan get 20 work visas for company executives who will live in Arkansas or travel between the U.S. and China on business related to the Little Rock manufacturing plant. Furthermore, the Chinese garment maker will receive abatement of up to 65% of property taxes from the city of Little Rock and Pulaski County.

Tianyuan is not the only Chinese textile and apparel company that invests in the US in recent years. Back in 2013, Keer Group, a Chinese textile company founded in 1995 and based in Zhejiang, China opened a new facility in Lancaster County, South Carolina as the base of operations for Keer Group’s expansion into the North American market. With $218 million total investment in 5 years, Keer America plans to open one plant with manufacturing capacity of 30,000 metric tons of yarn per year and another plant with 75,000 spindles to make 50 metric tons of yarns daily.

Please feel free to share your thoughts on the following discussion questions:

  1. Why do you think Tianyuan and Keer group decide to open factories in the US? Based on your research, do you think Tianyuan and Keer’s investments reflect a growing trend in the industry or are they just two individual cases?
  2. In your view, are investments made by Tianyuan and Keer group good or bad for the US economy? Why?
  3. What is the business outlook for Tianyuan’s garment factory in the US and Keer America? What are their opportunities and challenges?
  4. Any other thoughts or questions for the case?

[Discussion for this post is closed]