Do They Have To Move? Logistics Cost Analysis of Shanghai Textile and Apparel Industrial Transfer

The Chinese renminbi had been steadily appreciating against the U.S. dollar since 2005 and in 2008, the Chinese government introduced a revised labor law and minimum wage legislation. These factors brought a steady rise in Chinese labor costs, and this trend was going to continue as Chinese governments intended to double the minimum wage by 2015 through an annual series of incremental wage increases of 20% each year. In this situation, a medium-sized OEM — a Shanghai textile and apparel company — was considering whether to relocate its factory in Jiangsu Province. According to Fisher’s supply chain model, transportation and labor costs were the two major cost components that could have a great impact in deciding whether to relocate the factory. The case analyzes the logistics cost of Company A with different factory locations through comparisons of Shanghai and Jiangsu with regard to transportation costs and labor costs. With the labor cost increases and industry clustering, Shanghai textile and apparel companies were facing the challenges of increases in labor costs and transportation costs. Therefore, they needed to make a decision about whether to move from Shanghai to Jiangsu Province.