China wage hike spurs UK 'backshoring'

(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.

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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.

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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."

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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.