Shein’s supply chain model, which has disrupted the fashion industry, offers insights into the future of Chinese manufacturing, labor costs, and the potential impact of demographic changes.
Shein’s Competitive Edge in the Fashion Industry
Shein, a Chinese start-up valued at $66bn, has made a significant impact on the fashion industry with its low-cost clothing, challenging established brands like Zara and H&M. The company’s low prices are not a result of low labor costs, but rather a combination of using cheaper materials and eliminating middlemen by shipping directly from Chinese warehouses to western consumers. This model also allows the majority of Shein’s packages to bypass import duties.
The Strengths and Challenges of Chinese Manufacturing
China’s manufacturing hubs, like Panyu, offer an efficient supply chain with all components concentrated in one district. This allows for quick order placement, delivery, and maintenance. The migrant worker population in China also provides an advantage, as workers often live in nearby dormitories, reducing commuting time and allowing for longer working hours.
However, demographic changes pose a significant challenge to this model. The shrinking working-age population and the reluctance of young workers to take up factory jobs have led to rising labor costs. The average wages in private sector manufacturing have more than doubled in the decade to the end of 2022, according to China’s National Bureau of Statistics.
The Future of Chinese Manufacturing
While Shein has expressed plans to source more from outside China, including Brazil and Turkey, these locations may not offer the efficiency required for the fast-fashion platform’s constant product updates. The future of Chinese manufacturing may also be impacted by the country’s demographic crisis and the increasing difficulty in hiring skilled workers.
Beijing’s policy solutions include preparing the industry for a future with fewer workers and automating manufacturing. However, the high cost of technological upgrades and the slim margins of factories make this a challenging prospect. Without significant changes, the future of industrial China could see a permanent halt in machinery and a lack of workers.
