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Inside the Chinese factory in Ethiopia where Ivanka Trump places her shoe orders

Trump will not be able to bring many jobs back to the United States. “Made in China” has the know-how, experiences and customers, and now it’s able to cut production cost further by moving to Africa where labour and tariffs are cheaper.

By Zhang Zizhu in Ethiopia.

This feature was produced by Zhang Zizhu with a reporting grant provided by the Africa-China Reporting Project. It was originally published in Chinese on Initium Media on 18 November 2015. Any updates and corrections will be displayed there.  

Dongguan Huajian Group’s factory in Ethiopia (Zhang Zizhu).

Newly inaugurated US President Donald Trump has frequently accused China of stealing US jobs in the manufacturing sector through unfair trade practices, and pledged to take work opportunities back from China.

Trump is going to have a hard time putting his money where his mouth is, if Ethiopia is any indication of how manufacturing jobs in China have moved to Africa. Due to increasing operational costs domestically, some Chinese manufacturers are relocating their investments to Africa, including Huajian, a Chinese shoe giant that produces products for Ivanka Trump.

The agreement between Ivanka and Huajian was signed four years ago. Huajian group is one of the largest women’s shoe manufacturers, with its headquarters in Dongguan, Guangdong in southern China. With two factories in Ganzhou and Dongguan, Huajian produces more than 100,000 pairs of fashionable shoes for Ivanka Trump every year. For now, Ivanka’s orders come from China, but there is a possibility that production might be moved to Africa.

“It is an understandable pursuit of the United States to create jobs. But it is unlikely for some industries to go back there”, says the Chairman of Huajian Group Zhang Huarong.

Given that shoe making and garment making are labour intensive, the high labour costs in the United States has put US manufacturers at a disadvantage compared to countries in the developing world. Mr. Zhang doesn’t think President Trump will cast shadows over his business, because a veteran like Trump “would never choose politics over business”.

Moreover, the solution to the current challenges faced by the US manufacturing industry might be beyond Trump’s purported policy moves against China’s exports to the US, as US trade policy to Africa itself also has terms that could contribute to job losses in the US. Thanks to the renewal of the African Growth and Opportunity Act, export-oriented enterprises like Huajian can export thousands of products, including garments and textiles, from sub-Saharan African countries to the US tax-free. In other words, “Made in China” still has its know-how, experience and customers, only the factories are moving to Africa where labour is cheaper and tariffs are low. Huajian, for example, has started labeling its products “Made In Ethiopia”.

 

The Chinese factory in Africa

It has just passed 8 am in the morning. The traffic from downtown Addis Ababa to the south east suburbs is busy but moving steadily. As the car approaches the suburbs the undercarriage begins to shake, trundling over the heavily potholed suburb streets, and the impatient honking of the old Lada taxis fills the air, as herds of cattle make their way across the road indifferent to the clamour of rumbling engines around them.

At the city’s extremities the scene suddenly changes, a landscape of lush green replacing the jagged city skyline. A highway, built by the Chinese, from Addis Ababa to Adama starts from an off-ramp, then runs straight out into an open field. An old scratched poster, with blurry “Sino-Ethiopia friendship” in Chinese characters written on it, is stuck onto a pole next to the off-ramp.

After a 40 km drive, the Dukem “Oriental Industrial Park”, hosting more than 20 Chinese enterprises, comes into view. Inside one of the factory sheds, lines of workers are cutting, stitching, gluing and lasting for the making of women’s shoes. Hanging above the workers are the slogans printed in red banners on the walls. Written in Chinese, English and Amharic, on one of the walls some slogans read “Punctuality is Integrity”, “Early Arrival is Waste” and ”Late Arrival is Delay”.

This factory is owned by the Dongguan Huajian Group. Since its establishment in Ethiopia in 2012, it has employed over 4,000 people, of which more than 90% are local hires. Every year, about 2,400,000 pairs of shoes, including brands like Naturalizer, Nine West, and GUESS, labeled “Made In Ethiopia”, are shipped to the US market, bringing profits to the Chinese company and US$20 million foreign exchange earnings to Ethiopia.

Compared to other light manufacturing work, the skills required for shoe-making are relatively high. At Huajian, an average footwear maker needs an educational background of 10th grade (equivalent to junior high third year or senior high first year in China), while some garment factories only ask for 6th grade graduates (equivalent to primary school final year in China). But more importantly, to work in manufacturing, employees must be able to repeatedly execute the same actions over a long period of time, which required them to have sufficient physical strength as well as fast hands.

“We had them tested, and some couldn’t pass the test. Our instructors showed them what to do and asked them to follow, some failed,” says Song Yiping, deputy manager of the Huajian shoe factory. “For light manufacturing, coordination between hands and feet is important. The same logic applies when some people cannot drive a car because of poor coordination.”

However, the factory requires more than coordination from the workers. After lunch, workers assemble in front of their production lines. Team leaders dressed in red stand in front of each group as workers quickly line up.

“Eyes Right! Eyes Front!” The team leader calls out the command in Chinese and the workers follow, slapping the sides of their pants while turning their heads.

“March! One, two, one … one, two, one … One! Two! Three! Four!”

“One! Two! Three! Four!” The workers march on the spot on the command. A slogan reads, “100 percent understanding, 100 percent cooperation, 100 percent obedience, 100 percent execution” on a wall behind them.

Ten minutes later, as the chanting fades, production resumes. The same training is carried out twice a day. In addition to lining up and assembly, sometimes workers are asked to sing the factory song in Chinese.

“Marching is an exercise for motion coordination, team building and obedience. What we do here is team work, everyone must be focused and act as a team.” Song Yiping explains that the content of the exercises is sometimes production-related, and if someone makes a mistake at work or doesn’t attain the required output goals, the team leaders will criticise and punish them. “The assembly and the singing of the factory song are different forms of corporate cultural education that is meant to make the workers like the and love the company. This is to implant the right spirit and culture in the workers.”

However, Song thinks that calling the management at Huajian “military-styled” might be exaggerating. “We’re not as strict,” he says, and this has always been Huajian’s management style, whether in China or overseas. Yet he admits that Chinese manufacturers have their own management culture, which is different from other companies. “Chinese factories demand more in corporate cultural building. “If there is no rule, no management, then there is no guarantee of efficiency and how could a company survive?”

Of course, the Chinese managers deal with each local worker on his or her own merits. As junior workers march and chant, the 25-year-old Demis Degef is chatting delightfully with his Ethiopian colleagues.

“I used to wear green uniforms like they do, and I went through the same exercises every day,” Demis says in fluent Chinese. He was a college graduate in clinical nursing when he was hired. Two month after that, he was promoted from a trainee to junior manager.

“I was chosen because my English is good.” After his first year and a half in Dukem, Demis was sent to Huajian’s factory in Ganzhou and Dongguan for a year of training. In China he studied Chinese, and his salary increased from 2,000 Birr to around 6,000 Birr (about US$268). Throughout the interview, he stresses that language is not the only thing he has learned from the trip, but also the Chinese way of management and the “Huajian culture”.

“Hey, Shanghai.” Occasionally, one or two Chinese managers walk past Demis, greeting him by calling his Chinese name, which is also the same name of a the large Chinese metropolis that Demis has never seen. “Shanghai is China’s second capital, it means more growth, and more development. I also want to grow and advance myself further just like that,” Demis explains.

Now, Demis is the assistant to the manager in the factory, supervising the workshop as well as bridging communications when problems break out between staff from the two countries. Now back in Ethiopia for nearly three years, Demis receives almost 20,000 Birr (about US$900) a month, more than ten times what he started with.

As Demis chats, 29-year-old Kidane Ketema is walking back and forth along a production line where leather cutting is done for sandal making. From 7 am in the morning to 9 pm at night, he collects and repairs damaged goods in a yellow uniform designated for quality control personnel. Kidane gets 1,400 Birr (about US$63) a month, with three meals a day and his communal fee covered by the company. However, Kidane is still not able to save any money for himself – except 600 birr for rent; supporting his elderly parents and helping his girlfriend and son has cost almost all his earnings.

“It’s good to work here, except for the salary. Chinese people are very friendly, they teach you everything you need to learn.” Kidane hopes to find a job that pays better, but at the same time he understands that without a college degree, it’s unrealistic for him to land such a job. In his hometown, a town about 50 kilometers from Dukem, there are no jobs in manufacturing that he could possibly get. He is entering the fourth year of serving the company. In theory, he could get 300 Birr (about US$13) extra every month as a seniority bonus.

“I think I will stay for now,” he says.

Ethiopian workers are half or even less efficient than Chinese workers (Zhang Zizhu).

Ethiopian workers are “half or even less efficient than Chinese workers” (Zhang Zizhu).

 

Want to make money? Efficiency first

Kidane’s work is not “traditional” in a country where manufacturing output only counts for 4.6% of GDP. Ethiopia’s GDP grew at an average annual rate of 10.8% between 2004 and 2015, double the average GDP of sub-Saharan African countries. However, poor infrastructure and missing industrial chains greatly limit the development of the Ethiopian manufacturing sector, with the agriculture-driven economic structure remaining largely unchanged. According to a World Bank study in 2013, 77% of Ethiopia’s population is employed in the agricultural sector, compared with 4.7% employed in manufacturing.

Fasil Tadesse, president of the Ethiopian Textile and Garment Manufacturer’s Association, believes that the strict work ethics that the Chinese are bringing into Ethiopia are helping the country, where agricultural tradition is deeply rooted and an industrial culture still in it’s infancy.

“They (the Chinese) are focused on the job. They don’t choose the areas – whether it’s a hardship area or comfortable area, they’re always ready to work anywhere in any condition,” Fasil says. “The hard work you cannot believe”.

Efficient and hard-working are the genetic labels of Chinese enterprises in Africa, although it has not been easy for the Chinese enterprises to acclimatise as challenges often emerge from the innate elements in African culture and character. Some Chinese staff had direct experience of cultural clashes while working with local employees.

Chen Renhe moved to Ethiopia from Dongguan almost two years ago. As the head of the R&D department, he describes his experience working with Ethiopian employees as “difficult and tiring”. “The main problem here is communication. Another one is that the people of this country are relatively lazy and playful.”

Chen says that apart from planning and supervising production activities, fixing careless mistakes or putting out a fire when dangerous situations occur are also part of the job. “The Ethiopians said it themselves: they prefer more money and less work. This is different from what Chinese workers believe as they understand that they always earn more by working more. Ethiopians don’t have such concepts.” Given the same time and quality requirements, Ethiopian workers can only complete half or less than half of the workload of what Chinese workers can produce.

Besides low efficiency, poor infrastructure is another problem. In 2011 former Ethiopian Prime Minister Meles Zenawi went to Shenzhen for the University Games, and it was during that time that he invited Huajian Group Chairman Zhang Huarong to visit Ethiopia. “Back then Ethiopia was like China 30 years ago – very underdeveloped, lots of unemployed people and low living standards”, Zhang Huarong said.

Despite low labor costs, Ethiopia was lagging behind China in every respect. With rich industrial experience gained in China, Zhang saw a business opportunity in Ethiopia and eventually decided to invest.

“We started our construction about a year ago, but the demolition was not completed until days before the construction commenced. This is too slow compared to the Chinese speed”. Zhang refers to Huajian’s US$1 billion investment, a light manufacturing park of 126 hectares. “Take water supply as an example. During previous years, we had no water and had to fetch it by ourselves as supply was not sufficient. Another issue is the work permit. We tried to relocate a number of Chinese managers to Ethiopia but they (the Ethiopian government) thought this was unreasonable. Solutions to all of these issues require negotiation and mutual understanding”.

As a comparison between Huajian’s operations in China and Africa, Zhang Huarong dropped a few numbers: in Dongguan, freight transportation only costs 1.5% of the output value, so that for exported goods to the value of US$100,000 the freight cost will come to US$1,500. In Ethiopia, the freight cost can be as much as 4.5-5% of the total output value due to poor infrastructure. With local supply chains for shoes manufacturing missing, the company has to import 60% of the raw materials except leather from China. Moreover, relocation costs for Chinese personnel and expenditure on factory operations demand additional spending.

“After all, the most important thing we need is to improve productivity in Africa. If 80% of the productivity in China can be achieved here, the profit margin can exceed 10%.” Zhang believes that the current productivity in Ethiopia is only close to 60% of what can be achieved in China. “However, profit margins here are still slightly higher than what we get in China. In China profit margins are only 2-3%, but in Ethiopia it is between 5% and 8%.”

“The (manufacturing) industry is having a difficult time in China,” says Song Yiping. In Ethiopia, a regular footwear worker’s starting salary is about US$40-50, while a Chinese worker in Huajian’s factory in Dongguan receives more than RMB3,000 (approximately US$430). High costs and fierce competition drive many Chinese manufacturers to retrenchment and relocation.

 

Vicious competition

Moving to Africa does not mean companies can elude strong competition.

With more manufacturing companies relocating to Africa, vicious competition is fermenting fast. “Competition between Taiwanese companies and Chinese companies is bad ,” says Song Yiping. “They compete for orders. As too many new factories come in, others suppress prices to survive. For instance, one company sells at US$10.05, another company finds out and sells at US$10. Some might go as low as US$9.5”.

The battle for a skilled workforce is just as intense. In order to maintain competitiveness, Huajian invests heavily in talent training, and utilises its own system for managing human resources.

“Some companies would ask a job seeker to clean the room and sweep the floor during an interview. The test is trickier for managers. For ordinary applicants, if you ask them to sweep, they will only sweep without paying attention to the dust on the table as well as the garbage. Such people are not intellectually impressive and can only be given basic-level jobs – because they don’t use their brains, only their hands. For example, after sweeping, where to put the broom, whether it’s put back properly, is also part of the test. There are people who will clean up dirt on the table even if they are only told to sweep the floor. These are the manager materials, ” Song Yiping says.

Competitors hope to duplicate Huajian’s success by copying its strict management style. Every month Huajian loses 5% of its employees who either leave for personal reasons or are lured away by better salaries offered by other companies. Moreover, needing bilingual staff that speak both Chinese and Amharic, some Chinese companies simply take away the trained talent employed by Huajian. A few years ago, Demis went for his training in China with a group of 56 Ethiopians. By the end of the training, only two out of 56 stayed to work for Huajian. Most of Demis’s peers left for other Chinese companies for manager roles which sometimes require translation skills.

“They were a group of college graduates and their brains spin fast so there was no surprise when they left for other companies for better offers,” Song Yiping recalls. “We paid for their air tickets, and covered their expenditures in China. In the end, our subsidies and spending on teachers and teaching materials were all in vain.” Since then management abolished all training programmes.

But Song Yiping believes that the main purpose of training has already been achieved, despite the termination of the programme. “The (Ethiopian) workers used to work very slow. Then they asked, how fast could Chinese workers be? So they went to China and saw with their own eyes. Obviously they could never beat the Chinese workers.”

Song Yiping called this “shock education”. “The training gave them an intuitive understanding about the productivity and quality achieved under Chinese speed and why Ethiopian workers couldn’t keep up with the Chinese. They just can’t catch up with our capacities regardless of the type of work they do. ”

As fierce competition continue, improvement of efficiency is the key to success. As workers’ salaries rise, the factory can only improve on management and customer service to gain an advantage. If production efficiency is low, and employees can’t deliver on time, in some cases, the factory will have to give out discounts to clients which will inevitably damage the company’s interests.

Regarding the criticism against Chinese factories for exploiting cheap labour in Africa, Song Yiping dismisses this entirely. He says that it is market dynamics that drives labour-intensive industries to low-cost locations. On the contrary, some retailers only send low-end orders to Africa as a consequence of having little confidence in the quality of African labor.

“Many foreign media treat Chinese companies very negatively, as if we were robbing Africa or simply exploiting cheap labor. But who benefits the most from this? The Americans. They pay so little for products with excellent quality, how are the Chinese going to survive?

“China was a powerful force decentralising Africa, but things are changing now”, says Henok Assefa, managing partner of Precise Consulting, an investment advisory company that provides business advice to potential foreign investors in Ethiopia. He believes that from the 1990s to early 2000s, China achieved an economic scale and competitiveness in light manufacturing unseen before in history and most African countries could not imagine competing with them. However, as the current Ethiopian government is investing heavily in the light manufacturing industry while China is undergoing industrial structural adjustments, a “bad-bad” situation might become “win-win”.

“China is the powerhouse of light manufacturing right now. No-one has the knowledge and experience, and most importantly, the market access. These companies in China now are looking to relocate, I mean you are just moving locations, right?”

In Ethiopia, a regular footwear worker's starting salary is about US$40-50 (Zhang Zizhu).

In Ethiopia, a regular footwear worker’s starting salary is about US$40-50 (Zhang Zizhu).

 

Hidden worries behind rapid industrialisation?

Today in Ethiopia, Chinese capital is rapidly changing the outlook of the country. In the city of Addis Ababa, the expansion project of the airport terminal, the first urban light rail in Africa, and hundreds of “Li Fan” taxis newly put into service, are all made in China. In October 2016, the electrified railway connecting Addis Ababa to Djibouti started operating, opening a corridor for freight transport from Djibouti to the East African interior.

Not only from China, international capital is also pouring into Ethiopia’s market. In Hawassa, a city to the south of Addis Ababa, an industrial park covering 1.3 million square meters is almost ready to be delivered. Headed by the US apparel giant PVH Group, a group of textile and garment suppliers from China, India, Taiwan, Sri Lanka and other countries will soon occupy the 37 factory sheds inside the park, aiming to improve local supply chains and reduce the production cycle. In the future, it will be no surprise if designer brands like Tommy Hilfiger and Calvin Klein are stamped with the “Made in Ethiopia” label.

PVH used to produce shirts and ties under the brand Donald J. Trump Signature Collection, but in 2015 the company has already cut ties with the collection in response to a series of controversies sparked by Donald Trump, the US Republican presidential candidate at the time.

Ethiopia plans to build more than 10 industrial parks like Hawassa by 2019. In order to attract foreign enterprises from labor-intensive industries, the government set up the Industrial Parks Development Corporation in 2014 to oversee an industrial park development plan on 100,000 hectares of land between 2016 and 2025, which will be leased out to investors at low concessional prices.

However, as the government-led economy is rapidly growing, social unrest begins to emerge. At the 2016 Rio Olympics, Ethiopia’s marathon silver medalist Feyisa Lilesa put up his wrists in an “X” above his head when crossing the finishing line – a protest gesture that brought the world’s attention to Ethiopia’s ongoing disturbances. As the largest ethnic group in Ethiopia, the Oromos has long been dissatisfied with being governed by the Tigrayans, an ethnic minority that dominates the current government, and fear that their lands will be taken for factories and industrial development projects. From November 2015 to October 2016, more than 500 people have been killed in protests, with more being arrested by government forces. In October 2016 the town of Bishoftu in Oromia State witnessed a stampede during a traditional festive celebration. Soon after the event, the ruling party declared a six-month state of emergency.

During the ongoing conflict, some foreign companies have been attacked. Al Jazeera reported that some company executives were considering pulling out their investments from Ethiopia. When contacted, a representative from Huajian was reluctant to comment on the current political situation and stressed that the company still has faith in the Ethiopian government.

“I think time will tell in a real sense,” says Henok Assefa, “because it is fairly hard to politically point to what is really making people mad right now. On the face of it, land issues do come up strongly, specially around Addis Ababa, as issues for farmers being relocated for industrial and commercial construction and not being compensated well enough. That comes up verbally. But to what extend that it is the issue and not other things, I am not really sure about”.

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One Comment

  1. This whole thing makes me sick. We are Ethiopians we are not Trump’s family slaves. Makes me sick even reading this.

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