Another tipping point for global trade patterns?

by rdan

Hat tip to reader Henry Cobb.

Yahoo news has an article on new directions for globalization:

In an effort to cut costs Steiff began outsourcing production to Chinese factories in 2004, and even sent 300 workers there to make sure the bears were up to scratch.

But this week Steiff called time on its Chinese adventure.

“We are withdrawing from China step by step. For toys of high quality, China is simply not a reliable source,” the Stuttgarter Nachrichten newspaper quoted chief executive Martin Frechen as saying.

But for this privately owned company, whose teddies sell for up to 120 euros (190 dollars) each and which is trying to win back market share for its trademark bear with a button sewn into its ear, quality is everything.

The multi-billion dollar toy industry has been at the forefront of the massive shift of manufacturing to China where it can pay workers a fraction of what it pays them in the West.

Four out of five toys sold in Europe were made in a Chinese factory, and China exported 22 billion of them of them in 2006.

But problems with quality and a series of scares about safety has made firms a lot more wary.

In the most high profile episode, US toy giant Mattel recalled 21 million toys like Barbie dolls and Batman action figures last year over concerns about toxic lead paint and small magnets that children could choke on.

Mattel admitted later its problems were down to design more than manufacturing flaws, and Chinese authorities have since tightened quality controls and have cracked down on factories producing dangerous toys.

But safety and quality problems remain, and stricter import laws are having the effect of reducing the cost advantage of going east, firms say.

“There are going to be new regulations in the European Union,” said Ulrich Brobeil from the German toymakers association DVSI, so it is set to be “easier and cheaper to manufacture in Germany or in nearby countries.”

The story is the same in other industries, as textile firms attest.

“We are feeling that there is a movement in this direction,” of “returning,” Silvia Jungbauer from the industry’s federation in Germany told AFP.

“Geographical proximity is playing a predominant role again, quality too,” Jungbauer said, and most importantly “cost in China have risen sharply in recent months.”

Wages for Chinese workers are going up and up, and oil prices above 140 dollars a barrel are also making it significantly pricier for container ships full of teddies and radio-controlled mini-helicopters to sail around the world.

In the past year alone, the cost of producing in China has risen 30 percent, estimates Reinhard Doepfer from the European Fashion and Textile Export Council.

Apart from Chine, “Albania, Macedonia and Serbia-Montenegro are the hot topics for German industry,” Doepfer said. “(But) I can’t see production coming back to Germany, no way.”

Indeed Steiff is not moving back to Germany, but to Portugal.

Update: Economist’s View carried a post from VoxEU on ‘The WTO tipping point?’ worth reading.