Analysis: Steiff leaves China
A July 6, 2008 article in AFP entitled “German firms pull out as Chinese fluff teddy production,” reports that Steiff, the German plush toy maker, is pulling its production out of China. Steiff, started in the 19th Century, has long been the gold standard for teddy bears and other stuffed animals.
In reading the article, four things immediatley caught my eye: The reported sharp increase in costs, their inability to maintain Q.C. in China even with the most rigorous efforts, the impact of new safety laws in Europe and the movement of manufacturing back to Europe.
As to the increase in costs, my eye was immediatley caught by this quote: “’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.” I have not seen that figure anywhere before, but if accurate and I see no reason to believe it is not, it is a significant increase.
Desiring to cut costs, Stieff moved production to China in 2004. It was serious about maintaining quality so it sent 300 employees over to assure that quality control was maintained. Apparently, their efforts weren’t good enough. "’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 [Steiff] chief executive Martin Frechen as saying.”
It also appears that new, more rigorous safety laws mean that the cost advantage may not be as great for those producing in China. “‘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 . . . We are feeling that there is a movement in this direction, of returning,” Silvia Jungbauer from the industry’s federation in Germany told AFP.”
Where is the production going? Well, according to the article, it’s coming back to Europe but not to Germany. That is still too expensive. Stieff is moving its production back to Portugal while the rest of the German toy industry is considering Albania, Macedonia and Serbia-Montenegro. Maybe its time for U.S. manufacturers to give Mexico or the Caribbean another look.
It will be interesting to see if companies continue to leave China and at what rate. Stay tuned.
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