In August 2004 ECCO began the construction of a new factory in Xiamen in the South-eastern part of China. The new factory is being built with help from Novo Nordisk engineering who has valuable experience from building several factories in China for Novozymes and Novo Nordisk.
“The factory should be ready for installing the first machines at the end of January next year,” says Morten Bay Jensen who will be leaving his position as Deputy Managing Director of ECCO Thailand to resume the same position at the new factory in China.
The first pair of shoes is scheduled to be ready in the middle of February. This will then lead to export from China starting in March or April 1st at the latest.
“This timeline should be possible due to the fact that all machines have already been ordered,” Morten Bay Jensen ads.
Because operations are just taking off in the end of first quarter of 2005 expectations are to make around 400.000 pairs of shoes the first year. This number is expected to climb substantially to 2 million pairs the following year. When the factory is fully up and running it will employ more than 3000 people ending up with a yearly production just short of 5 million pairs
Having a factory in China is not necessarily a lot cheaper than Thailand in regards to the cost level, but more than half of the entire world’s production of shoes is located in China. This creates a market with good support production and every material is readily available.
“We are selling more and more in China so the main purpose is to get close to the market,” Morten Bay Jensen explains.
“ECCO’s shoe sales on the Chinese market have been climbing with two digit percentages over the last couple of years.”
This is the main reason that great efforts and great expectations have been put into the Chinese market.
For many companies setting up business in China, the biggest challenge is in many cases getting well qualified people to fill the middle managers and managers positions. This is not just in regards to getting people with the right qualifications but also at a reasonable cost as wages are playing a more and more dominant role for job seekers in China. Many middle managers and managers are jumping from job to job in a pursuit of better wages.
Due to the large amount of uneducated people in China the risk of this trend hitting the production workers is according to Morten Bay Jensen not very high. Hence there is no fear of these wages rising substantially within the next many years.
“The reason for being in Xiamen instead of many other locations in China is that we can avoid having our own dormitories”
Many places in China such a Guangzhou, factories receive workers who work and live at the factory for example for a period of 3 years and then they go back to their village and buy a small piece of land for the money they have saved up. For this reason many companies in China end up having an annual turnover of employees at around 30-35 percent.
By being located in Xiamen ECCO is expecting to avoid a large turnover of employees thus creating more consistency and maintaining a high skill level.
ECCO is aiming for an employee turnover relatively close to that of the factory in Thailand where it is less than 7 percent a year. This is mainly due to the fact that ECCO is trying to embed a sense of family in their workers for example by having yearly football and volleyball tournaments as well as karaoke contests. Also “family days” where the entire family is invited to see the factory gives the employees a feeling of being part of the company.
In the future, ECCO Thailand will be responsible for more of the complicated shoe production as the skill level of the Thai employees have been increasing noticeably over the last couple of years. In general the Thais have a good eye for the small details and provide first class workmanship. As an example, all the golf shoes are now being produced in ECCO Thailand as well as most of the rather complicated trekking boots.
Golf shoes is s one of the latest successes of ECCO. Last year ECCO produced more than 300.000 of golf shoes
“For a brand not traditionally known for making golf shoes that is rather good,” Morten Bay Jensen modestly notes, adding that the goal is to have a yearly production of more than 500.000 pairs a year. All of which will be produced at the factory in Thailand.
