Opportunities And Challenges Of SHEIN's Supply Chain Relocation

Opportunities and challenges of SHEIN's supply chain relocation

 

Fast fashion giant Shein is requesting some of its major clothing suppliers in China to set up new production lines in Vietnam, which Shein later denied. According to domestic media reports, several listed companies including Weixing Co., Ltd., Huafu Fashion, and Bailong Oriental have already established their industries in Southeast Asian countries such as Vietnam.

 

In fact, in the past few years, relocating production capacity to Vietnam seems to have become a new trend. For example, the footwear giant Baoyuan Footwear, which has been deeply rooted in Zhongshan for many years, and the Oasis Footwear, which has been operating in Houjie DONGGUAN , Dongguan for many years, plan to move all of their production capacity to Vietnam by 2025. Currently, the Oasis Shoe Factory in Vietnam is under intense construction. In addition, globally renowned sports brands such as Adidas and Nike also relocated their production capacity to Vietnam many years ago.

 

In the past, China was the world's factory. With the changes in international geopolitics, China's exports seem to be facing some obstacles. In this context, some companies have started to go global. And the overseas expansion of enterprises is not just the export of individual products or services, but to a large extent, the overseas expansion of the entire supply chain. In terms of supply chain, enterprise capital needs to rebuild and integrate high-quality resources globally, including raw materials, equipment, manpower, marketing, distribution, and other multiple links. This is a complex issue.

 

And the reason why these companies choose Vietnam is also due to Vietnam's advantages. On the surface, Vietnam does not have a direct free trade agreement with the United States, but as a member of the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP), Vietnam can enjoy some tariff preferences from the United States towards CPTPP countries, which allows for a reduction in tariffs on some of Vietnam's exports to the United States.

 

For example, in Vietnam's footwear industry, due to brands such as Nike and Adidas setting up factories in Vietnam for production, their footwear products can enjoy lower or even zero tariffs when exported to Europe and America. So, Chinese enterprises that set up factories in Vietnam can enjoy tariff preferences for their products exported to the United States and the European Union. So, many companies will transfer their industrial chains to Vietnam to avoid tariff risks.

 

 

BYD is another typical example of Chinese enterprises' industrial chain going global.

 

By 2025, BYD will achieve sales growth mainly through exports. ASEAN and Latin America will become BYD's main sales destinations, and despite facing protectionist pressures, Europe remains BYD's strategic focus. To cope with this sales structure and geopolitical situation, BYD is establishing overseas production bases. BYD plans to set up local production bases in Thailand, Brazil, Uzbekistan, Hungary, Indonesia, Türkiye and Cambodia.

 

In addition to avoiding the impact of tariffs, another opportunity brought by BYD's supply chain going global is the ability to obtain more local resources. For example, in 2023, BYD acquired mining rights for two lithium mines in Brazil.

 

So, some commentators have always believed that the export of China's industrial chain is also an opportunity for upgrading the domestic industrial chain. China's current advantage lies not only in low costs, but also in the efficiency of its industrial chain. When the low tech part of the industry chain migrates, it may also in turn prompt the Guangdong clothing industry belt to shift from low-end OEM to high value-added links such as design and brand operation. In the future, a new model of "Chinese design+Southeast Asian manufacturing" may be formed.

 

In short, by approaching advantageous resources globally and building a stable, flexible, and efficient global supply chain system, Chinese enterprises can provide more competitive products and services, ensuring their dominant position in global competition.

 

However, it should also be noted that the export of China's industrial chain will face some challenges. At the enterprise level, the internationalization of China's industrial chain faces severe compliance challenges due to the different cultures, systems, and legal systems of different countries and regions. Compliance covers all aspects, including product safety, consumer and investor protection, rights and interests protection, taxation, labor conditions and working environment, intellectual property, environmental protection, capital flow, anti-monopoly, anti commercial bribery, and anti money laundering. Compliance is the bottom line for the survival of enterprises and the foundation for their development.

 

Compliance comes first and foremost with product compliance. Taking Chery as an example, initially, Chery simply sold domestically produced cars overseas, but products produced according to Chinese customs and ideas did not fully meet the needs of local consumers.

 

To address these issues, Chery has established 6 research and development centers in North America, Europe, Shanghai, and 10 overseas production bases in countries such as Russia, Brazil, and Egypt, and has developed differentiated strategies around different regions. Chery's products from different brands are improved in detail when produced in different regions to meet the needs of local consumers and achieve compliance goals.

 

 

 

On a larger scale, the outward migration of the industrial chain will also bring about the problem of hollowing out the industrial chain, which in turn will affect exports and employment. In fact, this impact may already exist. In December 2024, the export of clothing and clothing accessories in Guangdong Province decreased by 11.4% year-on-year, and for the whole year of 2024, the export of clothing and clothing accessories decreased by 3.1% year-on-year.

 

In terms of employment, data shows that labor-intensive enterprises have experienced a reduction in job size due to the impact of industrial migration. Taking the textile, shoe, and hat manufacturing industry as an example, the number of employees in enterprises above designated size decreased from 4.495 million in 2015 to 2.315 million in 2022.

 

But what cannot be ignored is that in the long run, Chinese companies going global is also empowering other countries. In international trade practice, transit trade and OEM trade are just the beginning. At first, Hong Kong engaged in transit trade, and Shenzhen could be seen as its suburbs to some extent. Later, Shenzhen began to accept international orders, doing OEM and contract manufacturing; Later on, there were more and more Sino foreign joint ventures and foreign-funded enterprises in China; Finally, these orders and joint ventures have trained China's talents and cultivated its industrial ecosystem.

 

Any enterprise, industry, or region will follow the industrial chain upwards, which is in line with the laws of industrial development. Finally, foreign-funded enterprises left, the industrial chain stayed in China, and China also had its own brand. So, in the long run, as Chinese companies go global, other countries will inevitably experience the same story as China in the past 30 years and develop their own industrial chains. To some extent, this is the long-term goal of geopolitical tariff policies.