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Some Japanese companies are withdrawing business from China due to tighter competition and continuous labor cost increase.
Growing competition between Japanese and Chinese retailers has resulted in stagnant profit for Japanese businesses in China. As a result, some retailers have pulled out their operations, while some have shut down flagship stores in the country.
Itokin, a Tokyo-based women’s apparel company, used to have over 300 branches in China. However, the company decided to shut down its operations in the country due to the increasing difficulty of competing with local retailers. Likewise, Honey’s, another Japanese-owned clothing company, has discontinued operations of its flagship stores in shopping centers in China.
Although China had been a hub for low-cost manufacturing, recent trends in the country such as wage hikes have caused production costs to increase. As a result, some Japanese manufacturers have been forced to halt operations in China, which were intentionally transferred there to cut production costs.
The effect of wage increase on labor costs may eventually end China’s cheap labor. Strikes, particularly in the southern province of Guangdong in China, were prevalent in the early 2000s. The demonstrations eventually resulted in a 35% increase in workers’ pay.
Over the years, several manufacturers have been slowly moving their operations to Southeast Asian countries such as Myanmar, Cambodia, and Vietnam, where the pay and labor conditions resemble those of China a decade ago.
Today, China holds a mid-range position when it comes to cheap labor, but it may take a while before its minimum wage rate becomes comparable to the rates in Japan, South Korea, and Hong Kong.