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OM in the News: China’s Underwear Cluster

April 27, 2016

In the Chinese town of Gurao, known as the “Town of Underwear,” there are thousands of factories, which churn out 350 million bras and 430 million pairs of underwear a year for sale in China and abroad. china clustersUnderwear accounts for 80% of Gurao’s industrial output. During the past 30 years of rapid economic growth, one-industry towns like Gurao sprang up along China’s seaboard, often in what were once paddyfields. With investment from abroad, and a huge influx of migrant labor from China’s interior, they fueled the country’s export boom. There are now more than 500 such towns, making products such as buttons, ties, plastic shoes, car tires, toys, Christmas decorations and toilets (see map).

“The clustering of similar firms in the same place creates a critical mass of good suppliers and workers with relevant skills,” reports The Economist (April 16, 2016). Niche towns in China produce 63% of the world’s shoes, 70% of its eye glasses and 90% of its lamps.

China’s consumer goods grabbed a huge share of global markets thanks to their low prices. But that advantage is fading. Since 2001 wages have risen by 12% a year. Thailand and Vietnam, where labor is cheaper and taxes lower, now make lingerie for global brands such as Victoria’s Secret and La Senza. China’s biggest underwear firm, Regina Miracle, will open 2 factories in Vietnam this year, its first outside China, and 2 more there by 2018. Cambodia and Myanmar are also joining the underwear fray.

Gurao still has advantages, such as excellent supply chains. Factories there make components for underwear: elastic waistbands, dyed textiles, lace and the foam used to upholster bras are all produced locally.

Classroom discussion questions:

  1. What are the advantages of clustering?
  2. Name several industry clusters in the U.S.
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