Why do textile companies go to Cambodia and India to build factories?
This is Li Chunwei’s sixth inspection trip to India this year. After returning, he will give feedback to his boss on his inspections over the past year and make a final decision on whether to build a textile factory in India. Li Chunwei is the deputy general manager of Zhejiang Shaoxing Feiang Textile Co., Ltd. (hereinafter referred to as “Feiang Textile”). Due to the global economic downturn in recent years, the export volume of companies mainly engaged in bedding products such as fleece blankets has dropped significantly. In order to increase orders and improve profitability, Li Chunwei, who is in charge of export business, came up with the idea of building factories in overseas markets. “About a quarter of the company’s export orders to India this year.”
As the largest clothing import and export company in Anhui, Anhui Garment Import and Export Co., Ltd. (hereinafter referred to as “Anhui Garment”) is building factories overseas faster than Feion Textile. The company established a large-scale garment factory in Cambodia with more than 800 workers two years ago. Comparing various comprehensive costs, the reporter found that the greater temptation behind the real bill lies in the market and tariffs.
The biggest temptation to build a factory in India is the market
“The operating costs of Indian factories are higher than those in China. Chinese factories are highly efficient and have relatively high profitability.” Haier Group’s South Asia and India product director Huang Decheng, who has been in India for more than ten years, told reporters. Nine years after entering India, Haier India began to turn a profit. The company ranks third in the Indian refrigerator market and is one of the most popular Chinese brands among locals. Huang Decheng’s statement refreshed many people’s views on the low manufacturing costs in India. After considering factors such as labor efficiency, power supply, technical personnel dispatch, politics and culture, Li Chunwei came to the preliminary conclusion that the comprehensive manufacturing cost of the Indian textile industry is not much lower than that of China. “When we set up a factory in India, we will not consider other markets. We will only sell in India. In terms of taxation, if all sales are domestic, India’s taxation will definitely be lower than China’s, about 4-5% lower.” Li Chunwei said that worker costs It can save about 30%, but the company needs to send management and technical personnel from China. This cost will almost wipe out the 30% saving in labor costs.
In terms of land and hydropower energy costs, India and China seem to be about the same, but the lack of electricity brings other costs. Zhang Qinghua, director of the business development department of Shanghai Electric India Branch, said that self-provided diesel generators are standard equipment for commercial buildings in India, and are even more necessary for industrial areas. Shanghai Urban Construction also has its own power generation equipment at its construction sites in India. The company’s project manager Li Rongxiang told reporters that the self-provided power generation equipment is worth about 10 million yuan and consumes 3,000 liters of diesel every day, which costs almost 20,000 yuan per day. Blackouts have made electricity costs in India at least double those at home. For Li Chunwei, the biggest problem with power outages is that it affects efficiency and increases the rate of defective products. “Switching to self-contained power generation equipment not only takes time, but sudden machine shutdowns will also increase the rate of defective products.”
If you compare building a factory in India and selling in India with producing in China and re-exporting to India, the former can save nearly 25% of costs including tariffs and transportation costs. The raw materials for printing and dyeing currently have to be imported from China, so it is estimated that the cost will increase by about 5%. “Li Chunwei told reporters that overall, local manufacturing in India will have a cost advantage of about 20%. In a difficult period when the company’s domestic profitability is only 5%, ensuring continued orders for the company to survive may be the biggest problem at the moment.
Regarding the fundamental purpose of building overseas factories, Li Chunwei thought very clearly. “In the long run, India’s economy is rising, but its foundation is poor, so there is a lot of room for growth. Coupled with its huge population, there is a considerable market.” For companies such as Haier, Shanghai Electric, and Shanghai Urban Construction, the biggest opportunity to enter India is The purpose is also to take a fancy to the local large-scale market and future potential.
Cambodia’s zero tariff is attractive
Anhui Garment’s Cambodian factory has been operating for more than two years. Meng Zhuo, the company’s Japanese manager, collected data from three or four factories in Phnom Penh, the capital of Cambodia, and factories in Anhui, and calculated that the comprehensive labor cost of Cambodian factories is slightly lower, about 10%. In terms of taxation, the overall taxes on Cambodian factories are about 20% lower than those in China. However, there is basically no difference between the two countries in terms of value-added tax, the “biggest” item. “Cambodia’s value-added tax is 10%. Foreign-invested enterprises in the capital Phnom Penh can be tax-free for three years, and can apply for an extension for two years. China’s value-added tax is 17%, but export products can enjoy China’s export tax rebate policy. So although the value-added tax of the two countries is There is a difference on the surface, but in fact it is zero to the garment factory,” Meng Zhuo said.
According to the official website of the Economic and Commercial Counselor’s Office of the Chinese Embassy in Cambodia, the main taxes and rates levied by Cambodia on private investment enterprises are: profit tax 9%, value-added tax 10%, and business tax 2%. In addition to value-added tax, the taxes on the “big head” of Chinese companies also include corporate tax, which is equivalent to Cambodia’s profit tax. The corporate income tax rate is 25%. For qualified small and low-profit enterprises, the tax rate is reduced to 20%; for high-tech enterprises that need key support from the state, the tax rate is reduced to 15%. In addition, the value-added tax rate stipulated in our country is 17%. China’s export tax rebate policy stipulates that goods exported by enterprises with export operation rights can be exported with relevant certificates after customs declaration and financial sales.The certificate shall be submitted to the tax authorities on a monthly basis for approval of refund or exemption of value-added tax and consumption tax.
According to Cambodia’s foreign trade regulations and policies, as a least developed country, 28 countries and regions including the European Union, the United States, and Japan grant Cambodia GSP treatment. The United States gives Cambodia relatively loose quotas and import tariffs, and the European Union, under the “Everything But Arms Initiative”, gives Cambodia zero-tariff treatment for almost all products except arms. Cambodia’s exports to Japan also enjoy zero-tariff treatment. Compared with direct exports from China to Japan, which require about 10% tariff, products produced in Cambodia are obviously more price competitive when sold to Japan. Taking into account the entire operating costs, Cambodian factories can only save 5-10% compared to Chinese factories, but the 10% tariff reduction is undoubtedly a great temptation for labor-intensive enterprises with extremely thin profits.
As a labor-intensive enterprise, what Meng Zhuo’s garment manufacturing industry needs most is manpower, not technology or equipment. Therefore, unlike the hotly debated Fuyao Glass Chairman Cao Dewang’s choice to open a factory in the United States, Meng Zhuo’s needs are different. Zhuo believes that garment factories must go to places with a large number of people in order to find stable employees to meet production needs. “Labor-intensive industries like clothing will continue to move to Southeast Asia, or to countries such as India and Mexico, but they will not move to developed countries such as the United States, Japan, and Germany.” Meng Zhuo said with certainty. Why do textile companies go to Cambodia and India to build factories?
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