Hong Kong-based bra maker Top Form International has warned that rising costs in China may force it to expand in other countries if it is to meet growing customer demand.
The company, which has 56% of its global capacity located in China, followed by Thailand (33%), and the Philippines (11%), blamed a decision by the Chinese government in early summer 2010 to increase minimum wage levels by 10-25% in industrial regions of the country.
It also noted there is a dwindling supply of labour in Southern China, and said the decision to allow the RMB to appreciate against the US dollar in a controlled manner “will inevitably impact on costs.”
While less than 8% of Top Form’s revenues are received in the Euro, the currency’s weakening value “may discourage consumption and erode margin if we fail to pass on the cost to customers,” it added.
The projection came as the company swung to a full-year profit of HK$53.684m (US$6.9m), from a loss of HK$13.95m the year before, which it attributed to the ongoing market recovery. Manufacturing sales in the 12 months to 30 June were flat at HK$1,342m.
During the year, the firm’s core OEM business sold 42.9m bras, with the US market accounting for 65% of sales by value, followed by the EU (21%) and the rest of the world (14%).
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By GlobalDataAnd it managed to lift gross margin from 19% to 22% by trimming both its most expensive capacity and low margin sales. “Production was migrated to our most effective locations and, in order to broaden our labour sources, smaller new facilities were developed,” the company said.
