China has overtaken the United States as the world’s biggest food and grocery retail market. It is a significant milestone, and underscores the importance of this market to international retailers as the world continues to shrink and home markets stagnate.
Two stories this week, from outside Retail Week’s core coverage, caught my attention.
The first is that China has overtaken the United States as the world’s biggest food and grocery retail market, according to IGD figures. The Chinese grocery sector was worth £607bn at the end of 2011, while the US market came in at £572bn over the same period – the second largest in the world. By 2015, the Chinese market is forecast to be worth £918bn compared to a US value of £675bn.
It is a significant milestone, and underscores the importance of this market to international retailers as the world continues to shrink and home markets stagnate.
The second is interlinked. It was the news that Foxconn Technology, which produces Apple Inc’s iPads and iPhones, has agreed to improve the conditions of its 1.2 million workers in China. It was enough to prompt a Reuters article suggesting this was “a signal that China is losing its title as the world’s lowest-cost producer of everything”.
It’s a complex financial and moral issue. The growth in China’s middle class and increase in living standards holds with it the growth hopes of many of the West’s leading consumer brands. Retailers, such as Zara, Kingfisher, M&S and Tesco have all invested heavily in the market already. Yet, if we really are witnessing the sunset of cheap labour in China, the significance for all those brands whose sourcing strategies hinge on that market cannot be underestimated.
A couple of months ago - in life before Retail Week - I helped host a webinar on whether there was a realistic alternative for apparel companies to sourcing in China. The general conclusion was there wasn’t, despite the rising costs.
But, there should be more at play than just the bottom line. Calls to improve working conditions in China – where they have occurred in the past – have often come from international lobby groups or brands keen to drive a CSR agenda. But there seems to have been a shift in internal politics in the last 12 months with Chinese authorities focussed on boosting domestic consumption and aware of the benefits of a harmonious workforce.
To abandon China as a primary sourcing destination now in search of cheaper labour will raise some uncomfortable moral questions.
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