Merryn's Blog

The knickers bringing UK manufacturing home

As China's workers want higher salaries and better working conditions, manufacturing is returning to Britain. And leading the way is Mary Portas, with a new line in British-made underwear.

I went to listen to the FT's editor, Lionel Barber, speak last week. He's very good. He had about 30 minutes, but he still managed to take us through Europe (the euro will stay but the zone won't be intact); the UK (expect labour unrest as the real cuts come through); the US (it has "definitely turned"); China (fine for now thanks to its "vast internal market") but could turn nasty as the new middle class look for more democracy); Iran (no attack); and the shale gas revolution ("very big political conequences" as it cuts US dependency on the Middle East).

However, slipped in between all this was a mention of reshoring, a theme we've been looking at here at MoneyWeek over the last month or so. You can read our cover story on it from 10February (and see our consequent investment suggestions) here: China's had its day and manufacturing is coming home.

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In the piece, we noted that the decline of manufacturing in the West is not irreversible. China used to have an unbeatable price advantage over the West so much so that manufacturers were prepared to put up with quality and supply chain problems in order to get their goods made for a fraction of the price they'd have paid at home.

Technology firms were also prepared to part-pay for the right to manufacture cheaply by either sharing their technology or accepting that it might get nicked along the way. No more.

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Real wages are falling in the US, UK and much of Europe, while they are rising in China. Note this article in The New York Times written just after our cover story. When Chinese New Year rolls around every year, 100 million people head back to the countryside to see their families. Fifteen days later, they all come back to work.

Well, that's what used to happen anyway. This year, eventwo weeks after return-to-work day, "cities across China are still facing a serious labour shortfall". Shandgon province was still missing a third of its migrant workers, and Hubei reported 600,000 not returning.

It turns out that the supply of surplus labour from the countryside has finally run dry. Those still prepared to work in the cities want more to do so: they want more money and better working conditions; they want bonuses for turning up to work; and they want bonuses for introducing new workers. They are "savvy and secure enough to start being choosy", something that means they are "cheap no more".

At the same time, the financial crisis has made big companies much more aware than they once were of the vulnerabilities of the global supply chain. They've also noticed just how much of their intellectual property is being annexed by China, and just how fast.

They might have saved cash in the short term by off-shoring, but in doing so, they might also have sabotaged their own businesses in the longer term. They aren't keen to do that anymore. For a long time, we have all rather accepted that globalisation is unstoppable.

But perhaps, said Lionel, it is time to at least "rethink the terms". All this makes it a great time for Channel 4's great British knickers experiment. A new programme, Mary's Bottom Line, follows the fortunes of retail expert Mary Portas as she sets up an underwear factory in the UK just outside Manchester and makes it work.

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It is heartwarming stuff. As Colette Foster of Remarkable Television (who also made Superscrimpers, in which I made my not very successful debut as a presenter on Channel 4) tells it, she and Mary found an industry in collapse -but also one with huge potential.

They found a factory; they found a lace maker; they found hundreds of young people desperate to work; and they have so far secured orders for 30,000 pairs of knickers. The programme starts on 15 March at 9pm on Channel 4. I'll be watching and as soon as I can get to one of the shops stocking Mary's goods, I'll be buying too. (I'd buy online but Liberty's appears to be out.)

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