ADIDAS confirmed yesterday that it will close its only company-owned factory in China, signaling a strategic transition by the German sportswear giant to fully subcontracted production.
The factory in Suzhou, east China’s Jiangsu Province, will be shut in October to allow the company to “realign its global resources,” according to Chen Qi, a spokesman with Adidas Greater China.
As labor costs in China go up and the profits go down, why own your own factory. To sub contract your production is the way to go. It cuts costs and risks. If you sub contract and the quality is bad, you get it back from the manufacture.
“We will not move the factory anywhere else,” Chen said, adding that China, as the company’s second-largest market, remains very important. As over all costs go up in China the cost of doing it your self and trying to making the manufacture profit goes out the window.
Workers at the factory, which employs less than 200 people, suspect that the closure might be caused by rising salaries. It’s not only the salaries that go up so do the taxes. For salaries to up so do the taxes you have to pay for retirement.
“The factory announced the closure not long after our salaries were raised,” said a worker who requested anonymity.
The worker said monthly pay at the factory had been kept at about 1,100 yuan (US$175) before 2010 and was raised by between 400 yuan and 600 yuan over the past two years.
Chen, however, said there was no direct link.