The traditional model of global sourcing is predicated on low input costs. Indeed, to obtain the lowest possible production costs, sourcing companies have used their commercial muscle to commoditise the cost of raw materials, transportation, and people to bolster margins and maintain profitability. But, of course, this is nothing new. The garment industry has always been notoriously cheap when negotiating input costs.
If history tells us anything, labour costs have always been an essential concern for garment companies, brands, and retailers. In short, the cost of people matters at least as much, if not more, than the cost of raw materials like cotton, yarns, or fabrics.
In recent years, rising labour costs in major apparel manufacturing centres have become a significant challenge for brands and suppliers accustomed to low-cost labour. Today, labour costs more, and it’s hard to avoid.
As wages increase in traditionally low-cost countries like China, Bangladesh, Vietnam, and India, apparel brands face higher production costs. This shift reshapes global supply chains and forces brands to rethink their sourcing strategies, manufacturing locations, and business models.
While labour cost inflation presents a challenge, it also sparks innovation and improved efficiency, creating opportunities for more ethical and sustainable practices in the apparel industry.
For decades, the global apparel industry has relied on manufacturing in Asia, where low labour costs made it profitable to produce clothing at scale. According to the World Bank, China has long been the dominant player, producing approximately one-third of the world’s textiles and apparel. However, other countries, such as Bangladesh, India, and Vietnam, have also become key players, with Bangladesh being the second-largest garment exporter in the world, exporting over $40bn worth of garments in the fiscal year 2022-2023. Vietnam has also rapidly grown its textile and apparel sector, reaching exports of nearly $40bn in 2022.
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By GlobalDataNevertheless, the low-wage advantage these countries once offered is diminishing as labour costs rise. Governments in these regions gradually increase minimum wages to improve workers’ living conditions. At the same time, economic development and urbanisation contribute to higher wage expectations. Rising labour costs and other factors, such as supply chain disruptions, push apparel companies to reconsider their reliance on these centres.
How higher wages affect apparel sourcing decisions
To understand the impact of rising labour costs, it’s essential to examine the wage trends in major apparel-producing countries:
China has been the leading global apparel manufacturing hub for decades, and average manufacturing wages have steadily risen. According to the ILO, in 2010, the average monthly salary for a Chinese garment worker was approximately $200. By 2022, that figure had increased to over $800 monthly, reflecting economic growth and government efforts to address wage disparities. As a result, many brands have started moving production out of China to other lower-cost countries.
Bangladesh’s apparel sector has been crucial for its economy. However, wages have also increased recently due to pressure from labour groups and international organisations. In 2019, the minimum wage for garment workers was raised to about $95 per month, up from the previous monthly level of about $63. While wages remain low compared to global standards, this increase represents a substantial cost hike for manufacturers operating in the country. Bangladesh’s apparel exports grew despite these rising wages over recent years, as the country’s low costs still made it competitive globally. Even so, wage and working conditions remain contentious issues in Bangladesh, with strikes and protests affecting Bangladesh’s ability to export efficiently since 2023.
Vietnam’s minimum wage has also risen consistently. In 2022, the government implemented a 6% increase, bringing it to an average of $180 to $200 per month, depending on regional location. While still lower than wages in China, Vietnam’s rising labour costs are beginning to erode some of its competitive advantages.
India’s textile sector is another major contributor to global apparel production. However, wages have been rising here too. Between 2015 and 2022, India saw an average annual increase in labour costs of about 5%. By 2022, the average wage in the textile and garment sector stood at around $250 to $300 per month, depending on the region and skill level of the workers, says the ILO.
Moreover, these wage increases reflect broader economic trends in these countries, where rapid industrialisation has led to higher living costs, inflation, and greater demands for improved labour conditions. For apparel brands, this creates a complex situation. While they still benefit from lower costs than production in developed countries, the margins are shrinking, and they must adapt to these rising labour costs.
Impact of high labour costs for apparel brands
Rising labour costs in major apparel-producing countries have a significant impact. For brands that rely heavily on low-cost labour to maintain their profit margins, these increases can erode profitability or necessitate higher consumer prices. This challenge is compounded by the pressure to maintain low prices in the face of fast fashion’s dominant market position, where rapid turnaround and affordability are key selling points.
Labour represents a significant portion of the total production cost, and rising wages directly translate into increased expenses for brands. These cost increases are particularly problematic in fast fashion, where companies rely on high-volume, low-margin sales. In 2022, the average apparel production cost in China increased by 5% year-on-year, while in Bangladesh, production costs rose by approximately 7% due to rising wages and material costs, according to the ILO.
Many brands have started shifting production to lower-wage countries to mitigate rising costs. Countries like Cambodia, Ethiopia, and Myanmar have become attractive alternatives, with monthly wages as low as $60 to $100 in some regions, reports the ILO. However, these relocations are not without challenges, as developing countries often need more infrastructure, workforce expertise, and political stability to meet the demands of global fashion brands at scale. Additionally, consumers and advocacy groups are increasingly concerned about poor labour conditions in these countries.
Rising labour costs are accelerating the trend toward automation in apparel manufacturing. Some brands invest in automated sewing technologies and robotics to reduce their dependence on human labour. However, automation in garment production remains challenging due to the complex, delicate nature of fabric, which is difficult for machines to handle compared to materials used in other industries.
The pressure on suppliers to absorb rising labour costs without passing them on to brands leads to ethical concerns about workers’ treatment. In countries like Bangladesh, suppliers are often caught between rising wages and brands’ demands to keep prices low. This can lead to factories cutting corners, such as extending working hours without proper compensation or skimping on workplace safety measures, which poses significant risks to worker welfare.
Unquestionably, some apparel brands must pass on rising production costs to consumers. As wages rise and production costs increase, some brands have no choice but to raise retail prices to maintain profitability. This is particularly true for smaller, independent brands that need more financial resources to absorb higher costs. The result is often price inflation, which could dampen demand, particularly in the price-sensitive fast fashion market.
Regional shifts and new manufacturing locations
As labour costs rise in traditional manufacturing centres, apparel brands are exploring alternative production locations. Some of the countries emerging as new apparel manufacturing locations include:
Ethiopia has gained attention as a low-cost alternative for apparel manufacturing. With labour costs significantly lower than those in Asia (approximately $60 per month in 2022), the country has attracted investments from major brands. However, concerns about infrastructure, labour rights, and the political situation in Ethiopia have made it a challenging environment for long-term investment.
Cambodia and Myanmar have become essential players in the global apparel industry, offering low wages to attract brands. According to the World Bank, Cambodia’s garment sector employs over 800,000 people. While wages have risen, they are still relatively low, at around $200 monthly. Myanmar’s wages are even lower, but the country’s political instability following the military coup in 2021 has raised concerns about its reliability as a manufacturing hub.
Countries like Egypt, Tunisia, and Morocco have seen a resurgence in textile manufacturing due to their proximity to European markets. Labour costs are higher than in Asia or Sub-Saharan Africa. Still, these regions offer shorter lead times and lower transportation costs, making them appealing for European brands seeking to minimise the risks of long supply chains.
The path forward: adaptation and innovation
Many apparel brands are exploring new business models, sourcing strategies, and technologies to adapt to rising labour costs. The key to navigating this shift lies in innovation and flexibility. Some strategies include:
Rather than relying on one country or region for manufacturing, brands diversify their supply chains to spread risk and reduce dependency on any given labour market. This can help mitigate the impact of rising labour costs in a specific region.
As labour costs rise, some brands invest in more sustainable production practices, such as reducing waste, improving energy efficiency, and adopting circular economy models. These investments can offset rising wages by reducing other production costs and aligning with consumers’ increasing demand for sustainability.
Instead of chasing low-cost, high-volume production, some brands are shifting toward producing fewer, higher-quality garments that can be sold at a premium. This aligns with the slow fashion movement, prioritising durability, ethical production, and long-term value.
What now?
Rising labour costs in major apparel manufacturing force brands to rethink their strategies. While increased wages improve workers’ livelihoods and promote more ethical labour practices, they also present challenges for an industry built on low-cost production.
For apparel brands, adapting to these changes requires a mix of innovation, diversification, and a commitment to sustainability. As the industry continues to evolve, brands that can balance cost efficiency with ethical practices will be best positioned to succeed in the changing landscape of global apparel manufacturing.
