This story originally ran in the Summer 2020 issue of The Voice.听

A few years ago, as the trade war with China heated up, Mark Wolf decided he had had enough. Already frustrated with theft of his company’s intellectual property in China鈥擶olf makes outdoor fire pits, camp grills, and fireproof covers, under the name Fireside Outdoor, among other products there鈥攈e shifted production of a large chunk of the work out of the country, to Vietnam.

Then, last winter, the coronavirus hit. And Wolf, like many in the outdoor industry, felt just how inextricably his fortunes remain tied to China.

The contagion all but shuttered the country for weeks, including its border with Vietnam and the flow of raw materials and components Wolf required. 鈥淲e had 13 containers sitting in Vietnam, stuck there. They were filled with kits waiting for nuts and bolts, the right fasteners,鈥� Wolf, the president of Fireside Outdoor, said about his predicament at the end of March. All of those nuts and bolts come from China. What鈥檚 more, he says, the aluminum ingots his Vietnamese factory needs also come from China. 鈥淭he coronavirus really exposed how dependent we are on China and their massive, disproportionate supply of raw materials,鈥� he said. 鈥淎nd that鈥檚 the key: disproportionate. It鈥檚 almost like Napoleon realizing he鈥檚 too far into Russia.鈥�

A reckoning is afoot, Wolf predicts. 鈥淲e can鈥檛 all leave China in the short term,鈥� said Wolf, who still makes 60 percent of his goods there. 鈥淏ut I can鈥檛 imagine there isn鈥檛 a boardroom in America that isn鈥檛 considering changing or offsetting their supply chain with China.鈥�

China has long been the world鈥檚 workshop, producing one fifth of the manufacturing output across the globe, according to the Brookings Institution, a public policy nonprofit. Increasingly, however, many companies have been wondering whether China is still the place to make their products. Some companies already have shifted elsewhere, or plan to. Nearly 40 percent of respondents in an American Chamber of Commerce in the People鈥檚 Republic of China survey in mid-2019 said they had either relocated manufacturing from China or were considering doing so.

This conversation is 鈥渁bsolutely front聽and center鈥� in the outdoor industry right now, says Drew Saunders, a member of the Outdoor Industry Association鈥檚 Trade Advisory Council and the country manager for Oberalp North America. Saunders knows from experience. He says that Oberalp鈥檚 brands鈥攊ncluding Salewa, Dynafit, and Pomoca鈥攈ave been making a 鈥渟low pivot鈥� away from producing apparel in China over the last five years. For other firms, the U.S. trade war with China and now the global pandemic that has convulsed through China and the rest of the world have forced them to face the question: Is China worth the trouble?

The issue seems urgent amid the economic crisis ushered in by the coronavirus, but the truth is that other factors are at play, and despite the reasons to leave, there are also compelling reasons to stay. Here鈥檚 what the manufacturing landscape looks like鈥攂oth in and out of China鈥攁nd why the only certain thing is that this question is not going away.

The Case for Leaving

Rising Costs

Until recently, the primary issue pushing companies to leave China was simple: the increasing cost of doing business there. Once, cheap labor was a huge draw. That鈥檚 no longer the case: Hourly labor costs in China-based manufacturing reached $5.78 in 2019, according to Statista.com. In Vietnam, it was $2.99 an hour.

Wages aren鈥檛 the only rising costs. The Chinese government has imposed increased regulatory requirements, and costs related to the environment have risen as well, as the country tries to address major pollution problems. 鈥淵ou can鈥檛 just dump stuff anymore,鈥� said Mary Lovely, a professor of economics at Syracuse University and a senior fellow at the Peterson Institute for International Economics. Outdoor companies are all for reducing pollution, of course, but it still changes the cost of doing business.

Sitting like a sour cherry atop these varying concerns are the tariffs of the U.S.-China trade war. Those costs are driving Fishpond USA to seek manufacturing elsewhere. Fishpond has successfully relocated some of its softgoods production, but still has significant ties to China, says founder Johnny Le Coq. 鈥淥h yeah. We鈥檙e looking. We鈥檙e looking at every opportunity we can, for the factories who have the ability, from a quality perspective, to make our products,鈥� he said. 鈥淥ur duty on packs and bags made in China is now over 42 percent, up from 17.6 percent just a few years ago.鈥�

That extra cost creates another frustration, Le Coq says. 鈥淲ith reduced margins, the incentive to innovate within that category is reduced and compromised. And we live in a world of innovation.鈥�

That leaves few options, Le Coq said. 鈥淭he implications of the tariffs are forcing brands like us to move.鈥�

Human Rights

Concerns about working conditions in China are hardly new (see: Apple and FoxConn). Human rights violations aren鈥檛, either. But a report released in early March now links these two in a troubling way. The Chinese government has transferred Uyghurs, a Muslim ethnic minority, and also other ethnic-minority citizens, to factories across the country and is making them work 鈥渦nder conditions that strongly suggest forced labor,鈥� according to the report 鈥淯yghurs for Sale鈥� by the Australian Strategic Policy Group, an independent, nonpartisan think tank. The Uyghurs are in the supply chains of 鈥渁t least 83 well-known global brands in the technology, clothing, and automotive sectors,鈥� the report alleges, citing Apple, BMW, Nike, Patagonia, and L.L.Bean, among others.

In reply, companies told media outlets they take an ethical supply chain seriously and are committed to upholding compliance standards that prohibit forced labor. Patagonia and L.L.Bean both issued statements affirming this, with L.L.Bean saying, 鈥淥ur Supply Chain Code of Conduct strictly prohibits the use of forced labor of any kind. Our global compliance programs and auditors cover every country聽where a factory makes L.L.Bean-branded product, including China, and we are actively working with our fellow industry leaders, associations, and our partners in the region to ensure that our supply chain standards are being met at the highest level.鈥� Amy Celico, principal at global business consultant Albright Stonebridge Group, expects this issue will continue to be a big deal in the coming months. Some companies will decide remaining in China is not worth it, she says, given the need to police supply chains.

Emerging Alternatives

While forces within China are pushing companies out, there are opportunities elsewhere that are pulling them in. For example, skilled workers in other countries are drawing brands that need cut-and-sew manufacturing.

Vietnam is one of those places. Osprey discovered it years ago, and recently the ski glove maker Hestra USA followed suit. About three years ago, the company purchased a building there and installed new equipment, as part of a long-range plan to shift part of its glove production from China to Vietnam, says Dino Dardano, the company鈥檚 president. 鈥淲e鈥檝e had tremendous success鈥攕o much so that we actually expanded the facility by about 30 percent last fall to accommodate about 125 more workers,鈥� he said.

Dardano says Hestra has been in China for 50 years, owning two companies there in a joint venture. But experienced sewers are in decline there, and the company has not found young people to replace them. 鈥淚 can tell you that I鈥檝e had a lot of conversations with my peers and they鈥檙e faced with the same challenges when it comes to sewn goods,鈥� he said. Dardano attributes the change in part to China鈥檚 now-defunct one-child policy, and the problem is likely exacerbated by the natural evolution of a maturing economy.

Vietnam isn鈥檛 the only country benefiting from the exodus. South Asia saw a 34 percent increase in demand for factory inspections and audits in the first half of 2019 over the same period in 2018, according to supply chain consultant QIMA. And the migration is not limited to Asia. Tariffs and the coronavirus have also made it more appealing to bring production聽closer to home. The volume of inspections 鈥淎s a company has no plans to move production and audits ordered of factories in Latin America by U.S. businesses increased nearly 50 percent last year,” QIMA reported.

Another shift away from China came at the prompting of the outdoor industry itself. Travel goods鈥攍uggage, backpacks, sports bags鈥攎ade in China can be taxed steeply upon entering the U.S. Sensing opportunity, the outdoor industry lobbied to have such goods made eligible for the Generalized System of Preferences (GSP), a trade-preference program that allows qualified products to enter the U.S. duty-free when a substantial amount of their value is produced in more than 120 developing countries. The effort has been successful in recent years. 鈥淪ince that went into effect, we鈥檝e seen a movement out of China to Indonesia, Philippines, Thailand, and other GSP countries on travel goods,鈥� said Rich Harper, manager of international trade for Outdoor Industry Association. In 2015, China produced about 64 percent of GSP-eligible travel goods. By January of this year, that share of 鈥渕ade in China鈥� had been cut by 40 percent. 鈥淭he duty savings that first year was something like $90 million鈥� for outdoor companies, Harper says.

A Natural Evolution

What companies are experiencing overall with China is part of a natural evolution: As a country matures, so does the nature of the work that鈥檚 done there. You can see the Chinese government directing this transition, says Celico, of the Albright Stonebridge Group. 鈥淎s the country has become more economically advanced, it鈥檚 not just that it became more expensive to manufacture there, it鈥檚 that the Chinese government started to鈥攕orry for the lack of a technical phrase鈥攑ooh-pooh low-end manufacturing,鈥� Celico said. 鈥淭he government has started to become more selective about the kinds of manufacturing it wants to encourage, as well as the location of manufacturing facilities.”

Celico recalls working with a sporting goods manufacturer there. Government officials told the company they didn鈥檛 want the factory in the middle of Shenzhen anymore because the area was being turned into a high-tech manufacturing zone. 鈥淲e just decided that if we鈥檙e gonna move, we鈥檙e gonna move to Mexico,鈥� Celico said.

This evolution has played out elsewhere. Japan, for instance, became the place to produce cheap goods right after World War II, and was later supplanted by Taiwan. Eventually manufacturing went to places such as Korea. Thirty years ago, South Korea was the world鈥檚 primary supplier of backpacking tents. Now it supplies the high-end fabric and poles for those tents, but the tents themselves are made elsewhere. Today, South Korea has a booming outdoor recreation scene and its participants now buy those tents.

The Case for Staying

Quality and Capacity

Despite qualms about China, many outdoor companies say it鈥檚 not good for business to leave. For starters, the work is usually fast and high quality. Of course, not every company鈥檚 experience in China is the same because not every supply chain is the same, says Lovely, the economics professor. Small companies that don鈥檛 require much sophistication, or don鈥檛 need many subcontractors to make their products, can pick up and move rather quickly in the face of headwinds, she says. Meanwhile, very large multinational companies (Samsung, for example) may be able to shift production to another factory they own elsewhere, if trouble strikes. But a lot of outdoor companies probably fall in between the two, she says. Their products require knowledge to make, perhaps specialized equipment and techniques, a mature supplier system, and contractors and subcontractors. Finding this elsewhere is not easy, she says. That makes China 鈥渟ticky,鈥� as it were.

Big Agnes manufactures throughout Southeast Asia, including in the Philippines for furniture and, more recently, in Vietnam for stuff sacks. But the Colorado-based company has no plans to move production of its well-regarded sleeping bags and tents, the latter of which can command $700 or more, out of China, says founder Bill Gamber. 鈥淭he best sleeping bag manufacturers in the world are in China. Same goes for tents,鈥� Gamber said. In 2019, 95 percent of all down sleeping bags imported to the U.S.鈥攁nd nearly 90 percent of all kinds of sleeping bags鈥攃ame from China, according to statistics from the International Trade Commission.

Relationships

More than a physical factory and skilled workers keep Big Agnes in China, however. 鈥淎 really high-end, ultralight backpacking tent is not as complicated as an electric car,鈥� Gamber acknowledged. 鈥淏ut our supply chain is very specific for building a very specialized tent.鈥� Big Agnes鈥檚 manufacturer leans on an ecosystem of suppliers. 鈥淲e鈥檝e been working with both our factory and fabric supplier for 20 years,鈥� he said. 鈥淚t would take years to rebuild what we鈥檝e done.鈥�

Such talk of 鈥渞elationships鈥� is not mushy sentiment; a relationship can save you money, says Gail Ross, chief operating officer of Krimson Klover, whose apparel company continues to work with the same factory in China that it has for a decade, even as some of the brand鈥檚 manufacturing of sweaters and other clothing has shifted elsewhere. 鈥淚 can say, 鈥楬ey, do you remember that silhouette from five years ago? I want you to haul that out, and do this, this, and this with it,鈥欌�� Ross said. Less back-and-forth with a factory owner translates into less time and money spent air shipping prototypes. And a longstanding relationship means Ross only goes to the factory in person twice a year. 鈥淲ith brand-new factories, we need to go three, maybe four times a year.鈥�

A small company like Krimson Klover also found something else when shopping around for alternative manufacturing options: 鈥淭here are other countries鈥擨ndonesia, Vietnam鈥攖hat are really great at cut-and-sew and printing. But the minimums are much higher,鈥� Ross says. So, for now, the same Chinese factory that gets the 鈥渃arrot鈥� of her fall business is willing to accept the 鈥渟tick鈥� of her tiny spring production.

Culture

And then there are cultural differences that can work in China鈥檚 favor. In China, 鈥渁 normal shift is 12 hours,鈥� said Wolf of Fireside Outdoor. 鈥淭hey work seven days a week. And then they really, really enjoy their holidays.鈥� He added, 鈥淲hat we鈥檙e seeing in Vietnam, and we also saw this in the Philippines, is that they have a different work ethic. In Vietnam we鈥檙e having challenges where an employee won鈥檛 show up for three days. Then he just shows up on the fourth day and says, 鈥楬ere I am.鈥� It鈥檚 hard to do a production line when someone doesn鈥檛 show up at their post.鈥�

In China, workers historically have been more willing to move where the work is, says Neil Burch, who has 35 years of experience manufacturing in Asia and today is president of the North American group of Joinease, which designs, manufactures, and does market research for drinkware for the suppliers to Nike, Gatorade, and Brita. 鈥淏ut in Vietnam, they kind of want to live at [or near] home,鈥� he said, which can cause issues for manufacturers in locating and moving factories. Burch says his company聽has looked at Vietnam, and could establish a factory there eventually. But not yet.

And China is not alone in wrestling with issues of human and workers鈥� rights. Ethical ratings in Malaysia, Vietnam, and the Philippines have been 鈥渟lipping,鈥� according to the consultant QIMA, and factory safety can be poor. (One outdoor company executive says she wasn鈥檛 comfortable leaving China for another country, where working conditions and human rights would be even harder for her to track.)

For his part, Burch鈥檚 company is refocusing on China. 鈥淲e鈥檙e looking at doubling down and reinvesting,鈥� he said.

Emerging Middle Class

An enormous reason to stay in China is the Chinese market itself. 鈥淐hina is poised to replace the United States as the biggest consumer market in the world,鈥� said Celico, from the Albright Stonebridge Group. 鈥淭hat is a massive change. This is a country of 1.4 billion people. The middle class is basically larger than the population of the U.S.鈥� China has a thriving outdoor gear market. It was worth $60 billion in聽2018, and it鈥檚 expected to be worth $100 billion by 2025, according to a 2019 report by Research in China.

鈥淎nd so, what a lot of companies are doing is sort of splitting the baby, saying, 鈥極K, maybe we have to diversify our global supply chain, but we still have to manufacture inside China, for China,鈥欌�� said Celico.

To Leave or Not to Leave

Every company will use a slightly different calculus to determine if it鈥檚 time to go. And many will find, like Wolf, that even when you decide to get out, truly disengaging from China is harder than it appears. But every company will have to confront the same basic issues, and this unavoidable fact: The worldwide ecosystem of manufacturing and consumer sales is more complicated, and more intertwined, than ever before. China is at the center of that world and no matter what you make or where you make it, managing how the global Goliath impacts your business matters more than ever.

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Salewa will build off six years of footwear experience for its limited North American launch into the outdoor apparel market. The targeted introduction of approximately 60 pieces will concentrate on its core alpine and run-hike apparel and hit shelves in August 2017.

The brand enters the U.S. and Canadian apparel market when other European brands are leaving. Berghaus and Bergan’s of Norway have pulled out, while Millet will shift to an exclusive distribution partnership with Backcountry.com. As part of the family-owned Oberalp Group SPA, Salewa will focus on long-term growth, something like a five-year plan, without the quarterly expectations of public companies.

Brian Mecham, Salewa North America’s general manager, says the brand has the infrastructure and service in place to support the addition of apparel. “And from a brand and product perspective, we continue to believe Salewa is well positioned for the North American market,” he said. “The feedback we鈥檝e received from dealers who鈥檝e been exposed to the line and brand positioning further substantiates this.” Mecham added that the long-term perspective on growth meant the brand could continue to emphasize quality over quantity.

A group of selected specialty retailers will initiate the apparel launch. The brand chose these partners for their success with Salewa footwear, reputation and a history of supporting new entries to the market.

Mike Donahue, chief instigating officer for the Vermont-based Outdoor Gear Exchange, said he’s been aware of Salewa since the ’90s and liked the apparel he’d seen at international trade shows since. He was among the dealers that sold Salewa footwear when that launched, and was impressed with the product quality. “While that was a new venture for Salewa globally, the company’s apparel is well established and the smart, tight collection we previewed was cherry picked to go together and be a great way to introduce the brand to our customers,” Donahue said.

The TirolWool jackets reflect the heritage, ethos, and technology of Salewa’s apparel. Headquartered in the autonomous South Tyrol region of Italy, the brand works with nearby wool farmers for a sustainable insulation and will debut Celliant technology in outdoor apparel. Celliant is a U.S. developed tech that uses thermo-reactive minerals fused with fibers to reflect body heat. The claim is that infrared light increases blood flow, and so aids in performance and recovery. The Fanes TirolWool Hooded Jacket will retail for $219.

The majority of the new apparel will come from two other collections. The Ortles collection is designed for alpine and ski mountaineering, with hybrid constructions of Gore-Tex, down, and fleece. The Pedroc collection is a lightweight run and hike line, with a a broad thermal range and performance attributes. Noting the high foot traffic in the mountains during the fall season, and the delayed onset of winter, Salewa seeks to tap into a fall audience that stays active well into the fourth quarter. Salewa will position these garments as Q3 options to help freshen retailer inventories, when summer gear is moving to sales racks. On the performance end, the apparel is designed for those who use mountains for training or sustained “hill” workouts. It’s a budding trend, but one that Salewa has targeted specifically.

Already part of an international business reaching into Asia and the Americas from its European base, Salewa is prepared to tap into its established product collections as its apparel business grows. “Our goal is to maintain our brand position and strategically introduce product that is aligned with the end consumer from an activity, product feature, and value perspective as we continue to grow in the right way,” Mecham said.

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