Labor costs in the rapidly growing Chinese economy are increasing, prompting numerous global companies that have established operations in the country to consider how to reduce them. The solution lies in third-world countries, and one of the first companies to decide to relocate its operations there is the Swedish clothing manufacturer H&M.
H&M is the second largest clothing manufacturer in the world and has so far had operations in countries such as China, India, and Bangladesh, where 80 percent of its total production is located. However, labor costs in China have significantly increased over the past decade, rising by as much as 181 percent, and this growth continues – this year alone, wages in China are expected to rise by an additional 20 percent. Moreover, minimum wages in China are already comparable to wages in Romania and Bulgaria in some areas.
Therefore, it is not surprising that the company, in an effort to reduce costs, has turned to potential cheaper solutions with lower-paid labor. In Ethiopia, for example, the cost of making clothing is twice as cheap as in China. Additionally, it should be noted that transportation costs for production in Ethiopia will be significantly lower, and all of this will reflect in considerably more competitive delivery costs.
It seems that this is a new business trend, as besides H&M, British Tesco and some other companies are already present in the local market. All of this could soon have significant consequences not only for Ethiopia but also for a substantial part of the economy of the African continent, provided that these are countries with a certain degree of political stability.
