Indonesia, Bangladesh ‘Winners’ as China Costs Rise, KPMG Says

Indonesian footwear manufacturers and Bangladeshi textile makers have been two of the “biggest winners” in the past year as China becomes less competitive in low-cost manufacturing, according to a report by KPMG LLP.

While China is still the major supplier for consumer electronics and furniture, apparel and footwear production has shifted to countries across Asia, the accounting firm said in a report released today. Indonesia posted a 42 percent jump in footwear exports in 2010 to $2.1 billion while Bangladesh’s textile exports rose 43 percent to more than $18 billion in the 12 months ended in July 2011, the report said.

Chinese Premier Wen Jiabao is targeting an increase in minimum wages of 13 percent a year through 2015 to help boost consumption and narrow the wealth gap, according to the nation’s 12th Five-Year Plan that starts this year. The government has also allowed a faster appreciation of its currency against the U.S. dollar to ease pressure from imported inflation.

“Sourcing goods in China purely because of ultra-low costs is a thing of the past,” Nick Debnam, a partner at KPMG China, said in a release today. “There will still be good reason to invest more in younger and cheaper countries such as Bangladesh, Vietnam, Cambodia and Pakistan.”

In addition to cost comparisons, an aging population and labor shortages in some regions in China are also driving companies to source products from other countries in the region, KPMG said.

Still, Asia’s biggest economy remains competitive for some goods due to its investment, infrastructure and skills, allowing productivity gains to offset higher labor costs, the report said.

To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net