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June 3, 2013 6:53 pm
Shoemakers are the wildebeests of global trade, migrating to wherever the grass is greenest – or in their case, labour costs are lowest.
So when Huajian Shoes, one of China’s leading shoe exporters, launched its first overseas operations last year, it was following a well trodden path. Only the destination – Ethiopia – was surprising.
Helen Hai, the Chinese group’s vice-president who oversaw the Ethiopian move, says the gradual appreciation of the Renminbi and rising labour costs are squeezing margins and forcing many Chinese shoemakers to consider similar moves. But most have stuck closer to home in Asia.
“Thirty years ago the Chinese had no idea how to make shoes for international markets,” says Ms Hai. “It was the Taiwanese and Hong Kong people who came to China to set up factories – because 30 years ago it was 20 per cent cheaper to produce shoes in China compared with Taiwan.”
Huajian, which makes ladies’ shoes for Tommy Hilfiger, Guess, Naturalizer, Clarks and other western brands, and which employs 25,000 workers in mainland China, is among the first Chinese manufacturers to launch large scale operations in Africa. In just over a year it has employed 1,750 people at its factory outside Addis Ababa, the Ethiopian capital. It is now planning a major expansion into injection moulded shoes.
When the late Ethiopian prime minister, Meles Zenawi, put his country’s case to a gathering of Chinese manufacturers in late 2011, Ms Hai says it was a relatively easy decision to make in terms of cost calculations, if a more vertiginous leap culturally.
“Locally the labour is very competitive; and also the electricity cost is actually only half of the cost compared with China. And then for shoemaking there is also the advantage in Ethiopia that there’s a great supply of sheep and goat skin,” she says.
The biggest incentive of all, however, were the preferential tariffs Ethiopia has to access the EU and US markets, which in some cases give the company a 27.5 per cent advantage over manufacturers in China.
Despite this, the group’s ambitions in Africa go against the grain. There is growing concern among African officials that the flood of cheap imports that has accompanied China’s expanding role in the continent is contributing to its deindustrialisation.
Trade between China and Africa rose above $200bn in 2012, 20 times what it was in 2000 when Beijing committed to a policy of accelerated engagement. But booming relations have coincided with the relative decline of African manufacturing.
But Ms Hai sees the industrial journey Ethiopia has embarked on as something China was setting out on itself 30 years ago, when as a small girl, she travelled with her father to Beijing for the first time. They found the first hotel they tried to check in to beyond their means.
“The moment I left that hotel I thought, there’s a world that does not belong to me, but my life has changed dramatically,” she says. A scholarship to study in the UK saw her become a trained actuary, and employee of the Zurich insurance group, before she entered manufacturing.
Ms Hai believes Ethiopia, which already has its own homegrown footwear sector, could become a global hub for the shoe industry, supplying African, European and American markets.
“When you have thousands of shoe factories, you will have thousands of suppliers providing all the material. And that’s when you have economies of scale and you see the costs coming down,” she says. For now, one of the biggest constraints to doing business, she says, is the logistics, high transport costs and the need to import many of the inputs.
Chinese companies come to Africa in some ways at a disadvantage, she adds, noting language and other cultural barriers. Their great asset, she says on the other hand, is their willingness to take a leap into the unknown.
“There is a big difference between Chinese and European entrepreneurs. You see a tiger, you study its characteristics and work out how to overcome it. You do all kinds of feasibility studies before you take any action,” she says.
“Chinese entrepreneurs . . . look at the tiger, they jump on top of the tiger and they think OK, what am I going to do next? This kind of mindset helped China grow so fast in the last 20 years.”
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