Global firms not put off by rising mainland costs

Updated: 2012-09-21 09:46

By Li Woke (China Daily)

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Large companies also purchase more from Southeast Asian nations

Most international companies will continue making purchases in the Chinese mainland even though costs are rising there, the China Federation of Logistics and Purchasing said on Thursday.

This year's economic slowdown, which has increased labor and transport costs, has impeded many international companies' procurement business, according to the federation's Development Report for China Purchasing.

Global firms not put off by rising mainland costs

Among giant companies surveyed in the report, 66 percent said they would continue making purchases in the Chinese mainland, a number up 5 percentage points from a year before, the report said.

"A lot of international companies still choose to purchase things in the Chinese mainland," said Chang Ka-mun, managing director of the Hong Kong-based Li & Fung Research Center.

"China still possesses great strength in its complete industry chains and provides a great variety of goods."

At the same time, the report found that many enterprises that had once only made purchases in the Chinese mainland are now buying things in Southeast Asian countries, such as Vietnam and Thailand, where costs tend to be low.

In June, German sportswear company Adidas SA said it will close its only company-owned factory in China, where it employs 160 workers. The operation, which is in Suzhou, a city in East China's Jiangsu province, will be shut down next month to enable the company to "realign its global resources", Adidas said.

In contrast, consumer goods giant Unilever has announced it will build new plants in Tianjin; Hefei, Anhui province; and Meishan, Sichuan province, this year. The operations will manufacture laundry products and toothpaste.

"Products made by some international companies' plants in China are maybe for overseas markets, but most of Unilever's production lines here are for the needs of Chinese consumers," said Alan Jope, Unilever's North Asia president.

Another consumer goods giant, Procter & Gamble, began in March to build a large manufacturing site in Guangzhou, Guangdong province, where it will produce a variety of goods including Pampers diapers and other baby care products.

"Most international companies that produce and purchase things inside China have begun caring less about cost increases," Chang said. "They are often making goods for the local markets, which require goods to be produced and in stores quickly."

"If some companies are concerned about costs, they can produce or purchase the chief components of many goods or goods with the highest profit margins inside China. For the rest, low-profit goods, they can get outside the country."