Case 3.1. Chinese are moving to Africa to make shoes Shoemakers are the wildebeests of global...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
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?
Expert Answer:
Answer rating: 100% (QA)
Chinese shoemakers are moving their manufacturing factories to Africa for several reasons 1 Cost Con... View the full answer
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
Posted Date:
Students also viewed these accounting questions
-
Western Boot and Shoe Company makes hand-sewn boots and shoes. Western uses a companywide overhead rate based on direct labor hours to allocate indirect manufacturing costs to its products. Making a...
-
A billboard says that it is 12.5miles or 20 kilometers to the next gas station. Use this information to find a mathematical model that relates miles x to kilometers y. Then use the model to find the...
-
Clarks Inc., a shoe retailer, sells boots in different styles. In early November the company starts selling Sun-Boots to customers for $70 per pair. When a customer purchases a pair of SunBoots,...
-
Consider an electric motor with a shaft power output of 20 kW and an efficiency of 88 percent. Determine the rate at which the motor dissipates heat to the room it is in when the motor operates at...
-
Use an Excel spreadsheet and the FV, PV, and PMT functions to determine the amount of each of the following. R = the annual interest rate and t = number of years. When there are multiple cash flows...
-
Mulligan Golf Corporation has 600,000 common shares outstanding. The corporation declares a 7% stock dividend when the shares fair value is $30 per share (their carrying value is $18 per share)....
-
2. YOU BE THE JUDGE WRITING PROBLEM United Technologies advertised a used Beechcraft Baron airplane for sale in an aviation journal. Attorney Thompson Comerford spoke with a United agent who...
-
At the time it defaulted on its interest payments and filed for bankruptcy, the McDaniel Mining Company had the following balance sheet (in thousands of dollars). The court, after trying...
-
pleaseshow calculations! thank you :) Suppose the term structure of risk-free interest rates is as shown below: a. Calculate the present value of an investment that pays \( \$ 2,500 \) in two years...
-
Fairview Corporation, a manufacturer of mobile phones, sold one hundred units of its deluxe phones to one of its best retail customers. Fairview's total selling price of the one hundred phones was...
-
The following activities are part of a project to be scheduled using CPM: ACTIVITY IMMEDIATE PREDECESSOR TIME (WEEKS) A A A 5 B 8 C 4 D C 6 E BD 2 F D G EF 6 a. What is the critical path? OA-B-E-G...
-
Do public sector organizations still have inadequate management controls (as was observed by Anthony and Young)?
-
Why and to what extent can compliance be included in performance audits?
-
Is management control fundamentally different in public sector organizations compared with their private sector counterparts?
-
Of all the blockchain use cases, which offers the best opportunity to enhance the adaptability and agility of organizations?
-
What are the benefits of CFSs in the public sector?
-
pecifically, discuss how social identities (race/ethnicity, social class, religion, sexual orientation, and gender identity) come together with stigma and compound one another to promote or...
-
Express these numbers in standard notation. a. 2.87 10-8 b. 1.78 1011 c. 1.381 10-23
-
Suppose, as in end-of-chapter exercise 6.9, you have $400,000 to spend on square feet of housing and all other goods. Assume the same is true for me. A. Suppose again that you initially face a $100...
-
In our discussion of economic versus statutory incidence, the text has focused primarily on the incidence of taxes. This exercise explores analogous issues related to the incidence of benefits from...
-
Smoothing the Business Cycle versus Fostering Economic Growth: Psychology Meets Normative Macroeconomics: It is sometimes argued that there is a policy trade-off between softening the impact of...
-
\(\sqrt{396}\) Simplify the square root by expressing it in lowest terms.
-
\(\sqrt{2,940}\) Simplify the square root by expressing it in lowest terms.
-
\(\sqrt{2,400}\) Simplify the square root by expressing it in lowest terms.
Study smarter with the SolutionInn App