Skip to main content
Part of complete coverage on

China wage hike spurs UK 'backshoring'

From Isa Soares, CNN
updated 6:13 AM EST, Thu December 13, 2012
STORY HIGHLIGHTS
  • Cushion maker brings production back to Britain following a steep rise in Chinese wages
  • Production was offshored in 2004 when labor costs differed significantly; they're estimated to be equal next year
  • UK employees are more productive, but young people in particular lack the requisite skills, Caldeira CEO says

(CNN) -- It moved half its production to China to keep costs down, but eight years later one company is bringing production back to Britain.

It's another example of the backshoring trend that has seen many European manufacturers relocate their business back home.

Caldeira is a cushion-making business headquartered in Merseyside, Northern England. Since 2004 it has also had a factory operating in Zhejiang province, China.

"At the time China was about to be admitted to the WTO and our Chinese competitors were actually selling products cheaper than we could make them", said CEO Tony Caldeira.

Read more: Chanel's exclusivity keeps it a cut above

According to Caldeira it was an obvious decision for the company at the time. "It was a good exchange rate, the salaries were only a tenth of their UK colleagues, a huge labor cost differential between China and the UK."

That has now changed; last year manufacturing wages increased by 20 percent according to the Chinese National Statistics Bureau.

Since setting up his Chinese factory, Tony Caldeira said his Chinese employees have had wages increase 400 percent. Add to that the increasing costs in shipping, packaging, duty rates and fabric costs, and it's not surprising Chinese production has become less attractive.

Read more: Will Greek crisis leave banks stronger?

Last year it was cost-effective to make velvet striped cushions in Caldeira's Chinese factory, it cost 90 cents less in production per cushion. However, this year that saving shrank to 13 cents and next year the company predicts it'll cost the same to make the cushion in China and the UK.

"There are quite a few differences between my Chinese and UK workforces -- the UK employees are more productive, they can make more cushions an hour, however, they work less hours a week. "The Chinese want to work more hours, many of them live on site and they just want to earn as much money as possible to send home to their families."

Read more: Why Europe needs a banking union

The company faces difficulties finding staff both in Britain and China, but for different reasons. "We have been very lucky in the UK as most of our staff have been here for more than 10 years", said Caldeira. However, this workforce is much older than the Chinese employees due to a skills shortage.

"Most of the staff here in the UK are in their 50s or 60s, although they won't like me saying that! They were taught in apprenticeships in the 1970s and 1980s, but those skills aren't being taught now."

And while the Chinese workers are younger with manufacturing and sewing machinery skills in abundance, Tony Caldeira said they don't have the same loyalty and there is a high turnover of staff.

"What you tend to find is people aren't as afraid to move jobs in the Chinese culture, a lot of workers move every year after Chinese New Year, the contracts are only 12 months, so at the end of the year they look for the best contract on the market."

Despite the rising costs in Chinese wages, the company won't be looking for another low-cost manufacturing base, for example in Vietnam or Bangladesh. "The raw materials are manufactured in China so we'd end up shipping it over, incurring extra costs and complications."

As far as Caldeira is concerned, Britain appears to be winning this round of the great pillow fight with China.

CNN's Anna Stewart contributed to this report.

ADVERTISEMENT
Part of complete coverage on
Marketplace Europe
updated 11:31 AM EST, Thu January 16, 2014
Marketplace Europe visits Latvia to see how the Baltic country has made its transition to the Euro from the Lat.
updated 11:30 AM EST, Thu January 16, 2014
CNN's Nina Dos Santos visits Latvia to speak to the country's outgoing Prime Minister and the prospects for the eurozone's 18th member.
updated 11:40 AM EST, Thu January 2, 2014
Malta is the gateway to Europe and on the frontline of the immigration flows. Isa Soares reports from a detention center on the Mediterranean island.
updated 11:41 AM EST, Thu January 2, 2014
CNN's Isa Soares speaks with people on the streets of Valletta who say their country can't cope with more migrants from Africa and the Middle East.
updated 5:06 AM EST, Thu January 9, 2014
Malta cannot afford to continue supporting migrants from war-torn countries in its over-crowded detention camps, the country's foreign minister has told CNN.
updated 4:23 PM EST, Thu December 26, 2013
Slow recoveries, bailouts, and youth unemployment. Richard Quest speaks to Europe's top CEOs about the issues of 2013.
updated 4:14 PM EST, Thu December 26, 2013
CNN's Richard Quest speaks to economist Bob Parker about defining moments of 2013 and about what to expect in 2014.
updated 1:15 PM EST, Thu December 5, 2013
Estonia is setting the pace for other European nations with a thriving economy and its tech industry, according to the Baltic nation's leader.
updated 2:03 PM EST, Thu December 5, 2013
The Baltic nation of Estonia is developing its oil shale energy reserves in a bid to become energy self-sufficient.
updated 4:25 AM EST, Fri November 29, 2013
Europe must stop being nationalistic if it wants to help a lost generation of workers, the regional boss of U.S. conglomerate General Electric says.
updated 12:06 PM EST, Thu November 14, 2013
Peer at the windows and you'll spot big colorful chairs, plastic plants and a huge bed, but this is no department store.
updated 5:06 AM EST, Tue November 19, 2013
There once was a time, many years ago, when the sounds of bagpipes struck fear into the stomachs of Englishmen.
updated 6:16 AM EST, Mon November 11, 2013
Greece is on the way to economic recovery as investor faith returns to the recession-ridden eurozone nation, an executive at Greece's largest bank has told CNN.
updated 7:00 AM EST, Fri November 8, 2013
Could Greece's famous spice help the country's farmers through a four-year long economic crisis.
updated 9:07 AM EDT, Fri November 1, 2013
One of the masterminds behind the euro says Europe would have suffered a far worse fate if the single currency had never been created.
updated 1:41 PM EDT, Thu October 31, 2013
Nina Dos Santos visits the Dutch city where the European treaty carrying the city's name came into force 20 years ago.
updated 11:10 AM EDT, Fri October 25, 2013
As Spain continues its drive to slash budgets and cut spending, one of the nation's favorite pastimes is under threat as ministers look for ways to boost productivity.
updated 12:17 PM EDT, Thu October 24, 2013
The high commissioner of Brand Spain talks about getting the country back on its fee and attracting business.
ADVERTISEMENT