Case 3.1. Chinese are moving to Africa to make shoes Shoemakers are the wildebeests of global...

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Case 3.1. Chinese are moving to Africa to make shoes Shoemakers are the wildebeests of global trade, migrating to wherever the grass is greenest-or in their case, labor costs are lowest. Huajian Shoes, one of China's leading shoe exporters, employing twenty-five thousand workers, makes ladies' shoes for Tommy Hilfiger, Guess, Naturalizer, Clarks, and other Western brands. When Huajian Shoes launched its first overseas operations last year, it was following a well-trodden path. Only the destination -Ethiopia was surprising. A handful of Chinese supervisors at the Huajian factory watch hundreds of Ethiopian workers trim leather, glue soles, and lace up boots in the Eastern Industry Zone in Dukem, 30 kilometers (20 miles) south of Addis Ababa, the Ethiopian capital. Helen Hai, the Chinese group's vice president who oversaw the Ethiopian move, says the gradual appreciation of the Renminbi and rising labor 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 percent cheaper to produce shoes in China compared with Taiwan." 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, although representing a somewhat daunting leap culturally. "Locally the labor 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 where there's a great supply of sheep and goat skin," she says. The biggest incentive of all, however, were the preferential tariffs in Ethiopia, which in some cases give companies a 27.5 percent 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 deindustrialization. Trade between China and Africa rose above US$200 billion in 2012, twenty 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. 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 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 where there's a great supply of sheep and goat skin," she says. The biggest incentive of all, however, were the preferential tariffs in Ethiopia, which in some cases give companies a 27.5 percent 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 deindustrialization. Trade between China and Africa rose above US$200 billion in 2012, twenty 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. 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. Cultural differences, the language barrier, and a poor work ethic among the locals also pose hurdles, says Paul Lu, Huajian's HR manager, but he also noted that the availability of labor and raw materials were key attractions. Their greatest asset, Ms. Hai emphasizes, 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." Sources: Adapted from William Wallis, "Chinese Shoemaker Takes Road Less Travelled to Africa, Financial Times, June 3, 2013; Jenny Vaughan, "Ethiopia Shoe Factory Widens Footprint of China in Africa," China Post, May 21, 2012. QUESTIONS FOR CASE ANALYSIS AND DISCUSSION 1. Why are Chinese shoemakers moving their manufacturing factories to Africa? Case 3.1. Chinese are moving to Africa to make shoes Shoemakers are the wildebeests of global trade, migrating to wherever the grass is greenest-or in their case, labor costs are lowest. Huajian Shoes, one of China's leading shoe exporters, employing twenty-five thousand workers, makes ladies' shoes for Tommy Hilfiger, Guess, Naturalizer, Clarks, and other Western brands. When Huajian Shoes launched its first overseas operations last year, it was following a well-trodden path. Only the destination -Ethiopia was surprising. A handful of Chinese supervisors at the Huajian factory watch hundreds of Ethiopian workers trim leather, glue soles, and lace up boots in the Eastern Industry Zone in Dukem, 30 kilometers (20 miles) south of Addis Ababa, the Ethiopian capital. Helen Hai, the Chinese group's vice president who oversaw the Ethiopian move, says the gradual appreciation of the Renminbi and rising labor 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 percent cheaper to produce shoes in China compared with Taiwan." 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, although representing a somewhat daunting leap culturally. "Locally the labor 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 where there's a great supply of sheep and goat skin," she says. The biggest incentive of all, however, were the preferential tariffs in Ethiopia, which in some cases give companies a 27.5 percent 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 deindustrialization. Trade between China and Africa rose above US$200 billion in 2012, twenty 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. 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 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 where there's a great supply of sheep and goat skin," she says. The biggest incentive of all, however, were the preferential tariffs in Ethiopia, which in some cases give companies a 27.5 percent 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 deindustrialization. Trade between China and Africa rose above US$200 billion in 2012, twenty 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. 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. Cultural differences, the language barrier, and a poor work ethic among the locals also pose hurdles, says Paul Lu, Huajian's HR manager, but he also noted that the availability of labor and raw materials were key attractions. Their greatest asset, Ms. Hai emphasizes, 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." Sources: Adapted from William Wallis, "Chinese Shoemaker Takes Road Less Travelled to Africa, Financial Times, June 3, 2013; Jenny Vaughan, "Ethiopia Shoe Factory Widens Footprint of China in Africa," China Post, May 21, 2012. QUESTIONS FOR CASE ANALYSIS AND DISCUSSION 1. Why are Chinese shoemakers moving their manufacturing factories to Africa?

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Chinese shoemakers are moving their manufacturing factories to Africa for several reasons 1 Cost Con... View the full answer