Monday, August 1, 2011

Shoe manufacturing in China v Australia

This article was originally posted to Power Retail.

We're sometimes asked, 'Why don't you make your shoes in Australian rather than in China?'

It's a reasonable question and there are 3 key reasons we don't:

1. There are no support industries for shoe manufacturing in Australia
In the city of Guangzhou there is a Westfield sized leather shoe wholesale market where you can purchase literally everything needed to make high quality women's shoes from the leather, decorations and heels, to packaging and factory equipment. Need shoe boxes? Visit one of the 20 shoe box wholesale stores which sit together on the ground level. There you can see samples, sit with a box designer and 1 hour later walk out having placed an order for a sample which you'll receive 3 days later. Once that's approved, 1 week later you can have 5000 shoe boxes delivered to you.

Can you imagine trying to do the same in Australia? If you could even find a company to make shoe boxes you'd need to make an appointment at least a week out to meet with them. Having a design made up would take another week and then the back and forward to get the design right would add lots more time. All of that would take less than an hour in Guangzhou as the industry is built for doing this quickly. And for the pleasure of this slow experience you'd be charged triple the price per box and your boxes would likely be made in China anyway. It's much more efficient to do business in a place with the appropriate support industries.

2. We couldn't hire the people we'd need to make shoes in Australia
Shoe making is a reasonably highly skilled task, it takes years to learn the entire process properly. The Australian shoe manufacturing industry is very small and there just aren't many people with these skills in Australia. To make our shoes in Australia we'd need to open our own facility as there is no-one we could outsource the work to at the scale we're doing it. Once we had the facility, who would make our shoes? We'd need to hire and train lots of people but given we're at close to full employment in Australia it's not going to be easy to hire people who are keen to learn to make shoes and even if we could hire them, it would take years to train them up properly, time we don't have as a fast growing startup.

3. Wages are high
All our shoes are handmade and labour is the most significant cost. The bulk of the world's shoes are now made in China, including over 1 billion pairs a year in the Guangdong province where our shoes are made. We simply couldn't compete if we were making our shoes in Australian when other companies are making their shoes in China. Even if it were possible to make our shoes in Australia, which points 1 and 2 above show that it isn't, we'd need to be charging more than double our current retail prices to pay Australian wages for manufacturing shoes.

Video showing how our shoes are made:

Is this a problem?
This begs the question, is this a problem? In my view it's not. The Australian economy is running at close to full employment. The mining industry in particular has created 10,000's of new jobs as the demand for raw materials from the booming asian economies has seen this industry expand immensely over the last decade. Agriculture and education are also major export industries for our economy. Given our economy is running at close to full employment, where do we want to be creating jobs? My view is that we're better off creating mining industry or University jobs that can pay $100,000 a year than to try to encourage a manufacturing sector competing with low cost manufacturing countries like China and India. We only have 22 million people in Australia, we're doing the right thing building competitive advantages in high value industries like mining and education rather than manufacturing.

In Shoes of Prey's case our business is a great win for the Australian economy. Despite having our shoes made overseas we're a net exporter. Over 2/3 of our revenue comes from customers living outside Australia, which is more than our overseas expenses. By utilising the incredibly efficient Chinese manufacturing industry and coupling that with the high level of skills in the Australian workforce we can create create a product with demand all over the world, resulting in high paying customer service, software development and marketing jobs in Australia.

1 comment:

  1. Been awhile since i caught up with your blog and it's refreshing as always.

    As an Australian business with a manufacturing facility based in Guang Dong, I can so relate to these points when someone were to ask us why manufacture them out of Australia.

    Our main 2 reasons though is actually the quality of the manufacturing(again we're in-house) and the shipping infrastructure.