Why are Chinese and Indian yarn manufacturers opening US plants ?

An article in the. Wall Street Journal (December 21,2013) titled “A Good Yarn for US workers” describes decisions by the Chinese yarn manufacturer Kerr to open a plant in North Carolina and the Indian Shrivallabh Pitte group to open a yarn plant in Georgia. These yarn producer decisions are impacted by US “yarn forward” rules that provide breaks for apparel that is made by yarn sourced within countries with duty-free deals with the US. But the Indian producer also benefits from low energy costs in the US, and uninterrupted power supply, along with low borrowing costs and tax breaks. Will the US production costs, which are cheaper than Turkey, Korea and. Brazil, suggest a movement of manufacturing back to the US from China and India for other benefits ? Given the available of cheap uninterrupted power in the US, compared to energy shortages in emerging markets, will that be a driver for a US manufacturing renaissance ? Or is the yarn forward rule making the difference ?

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13 Responses to Why are Chinese and Indian yarn manufacturers opening US plants ?

  1. Ryan says:

    I think an increasing labor cost in China compels Chinese entrepreneurs build factories out of China. But I don’t believe there will be America yarn manufacture resurgence, because south Asian countries, like Vietnam, have a great advantage of labor cost. What’s more, India Premier Modi complements lots of policy to promote India manufacture.

  2. Devin Morgan says:

    Yes I believe it suggests that there will be a movement back to the US. because of the lower production costs and the duty free costs of outsourcing this product to be made in the US.Yes it will be a driver for the United States because they can guarantee consistent reliable energy for foreign countries. Many countries do not have this luxury so is definitely a main driver for the U.S to attract foreign companies to want to produce in the US. I do not believe that yarn is making a rule difference because the reliable energy the United States offers can be used for many different types of products.

  3. Kyu Kang says:

    I think it is mainly because of the production cost. To my knowledge, production costs combine labor and raw materials.

    labor costs in China or India are still lower than the costs in the US. However, if we looked over past data, we can easily find how exponentially the labor costs have increased in China during past decade. Consequently, the labor costs in China might exceed the costs in the US in the future (well… who knows…).

    In terms of raw material costs, I think the US has competitive raw material costs with China or other South Asian countries, who may be the competitors in yarn manufacturing.

    Therefore, I believe these two elements of production costs are the major reason for a boom in the yarn manufacturing industry in the US.

  4. Ryan P. Case says:

    With labor costs on the rise in China it is possible that the U.S. could experience a rebirth in markets. I would have to research more into the subject to determine if this was cotton or synthetic yarn and how the suppliers and manufacturers were aligned to produce at a lower cost. I’m not convinced that our “low cost” stable energy supply alone with increased transportation costs, lead times, etc would be sufficient.
    It would also be interesting to explore the shipping loads of major sea freight carriers to see if there is an increasing trend in textile exports from the U.S.
    From other articles and TV programs, it appears that our power grid structure in the U.S. is degrading at a rate that cannot be managed. It is possible in the near future that brown outs and black outs will also be more widespread in the U.S.

    • Joseph Mista says:

      I agree with Ryan in that it’s important to consider how these previously developing areas are now changing at rapid rates. When we look at China and India for instance in many parts, reliable electrical flow is no longer an issue, so these markets become more and more popular if they can continue to offer cheap labor. It is obviously important for a company to consider the costs of importing/exporting when they could simply build and produce in the appropriate country, so one must take all of these ideas into account.

  5. Greg Nichter says:

    Although the yarn forward rule has an impact on production moving to the United States, I believe that this effect is not as great as the effect that reliable energy has on attracting foreign companies. In addition, factors such as location and rising wages in Asia are making the U.S. a much more viable option when it comes to production.

  6. Jiawei Zhang says:

    It’s ture that many clothing manufacturers move their plants out of China because of the increasing labor costs. But I don’t believe this indicates a US manufacturing renaissance. Many countires in Southeast Asia have strong advantage in labor cost. Many big shoes manufacturers, like Nike, Adidas, move thier plants to Southeast Asia countries. I think the yarn manufacture is a special example, it is restricted to the US market.

  7. Juechen Xia says:

    It is obvious that the labor cost in China has surged dramatically during these years. But the huge population still provide opportunities for comparatively advantages. Apart from China, southeast Asia offer cheaper labor and raw materials. It should be noted that Chinese and Indian open yarn factories in US could be another performance to enter foreign markets. The yarn manufacture shifting to US markets may be relevant to customers’ favor. If customers are more likely to purchase local yarn products, companies would be sure to build factory in local. Thus Chinese and Indian companies may be willing to sacrifice part profits to seize the market.
    As a special case here, it cannot be a sign of US manufacturing renaissance.

  8. Xiaofan Li says:

    For industries like yarn production, a renaissance might occur in a slow procedure in US, but not the whole manufacturing industry.
    We know that yarn production is a industry which has already reached a highly automation level. Thus the production costs mostly caused by energy costs, borrowing costs,tax and labor costs play an unimportant role in these industries. As “yarn forward” rules provided a convinient production environment, a movement of manufacturing back to the US will occcur despite higher labor cost within US. But it won’t be a quick procedure because China and India as manufacturing centers still have amount of suppliers and high demand.
    In terms of labor-intensive industries such as clothing factory, low labor cost meets the first consideration and some Southeast Asian countries have strong advantage in it. Those manufacturing centers will still remain in Asia.

  9. Qidi Cao says:

    Labor costs in China is increasing, and compare to other countries in Southeast Asia, it is a wise move to move the factories out of China. However, in my opinion, the yarn manufactures will not moving back to the States. It is still a benefits for them to place factories outside America.

  10. Rahul Sucharitha says:

    I believe that the yarn forward rule would not be as impactful as it should be. The main reason being that India and China are mainly agricultural based countries and majority of the population work in this field at with a low wage as well. There are not enough government rules to protect the farmers or the people working this area in these countries thereby increasing the chances of companies to have factories in these nations and ensure wider profitability than having it in the U.S.

  11. Kevin Morrisroe says:

    I feel like the “yarn forward” rule is the main contribution for these manufacturing plants moving to the US. This is the same thing that has happened to the automotive industry; the government put a large tax on cars being imported so all Japanese manufacturers have moved factories over to the US in order to build cars. Yes the labor is more expensive but we are seeing a trend of Chinese wages rising so it is becoming less and less compelling to take on this import duty.

  12. Cheng Zhang says:

    I don’t think this will drive the US manufacture industry much.
    For Chinese and Indian manufacturers, opening the US plant is mainly due to the benefit of US “yarn forward” rules. Although the manufacturing cost increased for the last few years in both countries, it is not the reason why they opened US plant. They can simply open plant in other developing countries with low labor cost if they simply want to pursue a lower cost. This case is hard to be duplicated in other industry as the rule only applies to yarn industry.

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