Adidas to cancel contracts with six Chinese factories
Staff Reporter
2012-08-14
16:53 (GMT+8)
Adidas products. (Photo/Xinhua)
Contract manufacturers which used to rely entirely on orders from international sports brand Adidas face closure if they are unable to find new customers and large orders soon.
Adidas' global integration strategy has begun impacting its downstream industries after it terminated its contracts with several Chinese firms.
Jiang Liuhong, assistant general manager at Shanghai Donglong Feather Manufacture, told the Shanghai-based First Financial Daily that four factories, including Donglong, had received notifications of termination of contract in October from Adidas. Two other contract manufacturers will see their contracts end in March 2013.
Donglong has worked with Adidas for more than 10 years. About 70% of capacity at its factory in Anhui province was used serving demand from the sportswear firm.
The capacity of two other of the six contract manufacturers was fully taken up by Adidas. If they are unable to obtain new orders soon, they would be forced to close, Jiang said.
One of the two manufacturers is Shanghai Minheng Industry, Adidas' first supplier in Shanghai. The owner of a factory affiliated with Minheng, surnamed Chen, said the soaring costs of labor and processing had prevented the factory from earning profits over the past two years. Before 2010, the factory earned about 8%-10% in profits.
Adidas China revealed that as its brand is optimizing its global structure, 10 of its suppliers had received notifications of contract termination.
The brand began cutting back on orders to Chinese contractors several years ago. In 2006 and 2007, Adidas placed orders for about 2 million items a year with Donglong, dropping to 1.5 million items in 2008 and 700,000 in 2011, according to Jiang.
There have been many signs that Adidas was relocating production to Southeast Asian countries due to the lower labor costs there, Chen said, adding that 600 workers at his factory could lose their jobs.
For some contract manufacturers, serving as suppliers to sports equipment giants such as Adidas and Nike is a mark of superior quality, given the high standards demanded by these international brands.
