Why some U.S. brands find it tough to shift manufacturing outside of China

Dozens of workers at a shoe factory in southern China’s Dongguan city glue, sew and buff foam slippers and canvas shoes.

They punch every hole and lace every shoe by hand.

“Every lacing is [done] manually. There is no robot. I think the big brands tried and failed,” James Gau, whose company ShoeBot owns the factory, said. Sixty percent of his clients are from the U.S.

Shoe manufacturing is labor-intensive, according to Gau, especially when clients want their brand tags attached to the shoes, and to have them wrapped in tissue paper before boxing up.

Last week, President Donald Trump announced a new round of tariffs on foreign exports to the United States as part of a plan to bring more manufacturing back to the U.S. China was hit with an extra tariff of 34%, bringing total levies on Chinese exports to 54%.

China has been here before. During Trump’s first term, he hiked tariffs on things like Chinese solar panels, computers and footwear. So, many manufacturers expanded their operations. Under the ‘China plus one’ strategy, production takes place in China plus a neighboring nation such as Vietnam, Cambodia or Indonesia. That strategy did not always work out well and for a variety of reasons; China is still the best place to produce quality products at a scale and speed unmatched by other exporting countries.

In shoemaking, when local wages get too high, Gau said manufacturers like him and his cofounder must relocate. That has been the pattern ever since shoe manufacturing started out in the west.

“The footwear started from Europe and then America,” Gau said. He has been in the athletic and casual shoe industry, mostly in the shoemaking hub of Dongguan, since 1995 and has worked with big brands including Adidas, Crocs and Timberland.

By the 1960s, Gau said shoe factories had shifted to Japan and Brazil, then Korea and Taiwan. For the past three decades, the industry has been based largely in mainland China, until President Trump’s first term when he hiked tariffs on China. China hit back with tariffs on U.S. goods.

So, seven years ago, more companies started to look at relocating production to Southeast Asia.

“We actually looked at Vietnam,” cofounder Lena Phoenix of Colorado shoe brand Xero, said. Xero did not end up moving production to Vietnam because of the complexity of manufacturing their products. The company specializes in shoes meant to mimic the sensation of being barefoot.

“We make everything from casual sandals to technical hiking boots to professional quality basketball shoes, to lifestyle and kids footwear,” Phoenix said. “So, because we have such a wide range of styles requiring different technical capabilities, we use a number of different factories.”

Those factories are in China because that is where the skilled workforces are. Phoenix’s company is doing business with Gau’s ShoeBot.

The manufacturer works with small- and medium-sized brands. ShoeBot also makes shoes in Vietnam, though its operations there are small.

“Vietnam is already overloaded. It’s [got] limited capacity, limited labor force,” Gau said. “The larger brands already took over all the best resources.

He said Indonesia is also another shoe manufacturing hub and the situation is similar. Still, he said most raw materials and parts must be shipped from China.

One of ShoeBot’s clients is a Portland shoe start-up, Avoli, which makes volleyball shoes for women and girls. ShoeBot was an early investor in Avoli.

Cofounder Mark Oleson said Vietnam may be good for big brands but not for niche ones like his.

“Vietnam is where China was maybe 15 years ago,” Oleson, who has over two decades’ experience working with Adidas, Under Armour and Lululemon, said.

China has so-called industrial clusters, which means everything shoe-related, from raw materials to foam manufacturers, knitwear, lacing and embroidery groups are all within driving distance of Chinese shoe factories.

“It’s just set up to do it right,” Oleson said.

He said as a startup, footwear production is difficult because most manufacturers are not willing to pick up his small orders.

“The [first] barrier of entry is getting into a factory that is not going to kick you out,” Oleson said. “A reasonably large manufacturer is looking at 5,000-plus units per color.”

In contrast, Avoli wants only hundreds of pairs per color and ShoeBot was willing to do it by finding more cost-effective ways. Oleson gave an example of ShoeBot using a different way of integrating color by painting from the back side of the outsole or using small embroidery lines.

“It’s the little detailed pieces that actually change the look of the entire shoe without having to create a whole new model,” Oleson said.

He said Chinese factories are innovative. They find new materials, upgrade machines and cut down production times.

Manufacturing in China makes it easier to roll out and test different colors for new volleyball shoe styles.

“There’s nothing more satisfying than being at one of these tournaments and having our product on display and you hear those four words as [volleyball players] pass by, ‘Oh, those are cute,’” Avoli’s other cofounder, Rick Anguilla, said.

He has over two decades of experience in the shoe industry working for major brands like Nike and Under Armour. Anguilla said they’ve thought about manufacturing in the U.S. but decided the challenges were too great.

Phoenix of Xero shoes agrees.

“There isn’t an opportunity to move footwear manufacturing back to the United States,” she said. “It would take hundreds of millions of dollars of factory investment, training of a workforce that does not exist. It would take an enormous amount of time.”

When it was clear Trump would be the Republican party’s nominee for the 2024 election, Vietnam seemed like a more attractive option to Phoenix, despite its less skilled workforce.

Phoenix said her company had hoped to shift manufacturing there in phases. 

Since Trump increased tariffs on Vietnamese exports by 46% last week, she has been having second thoughts.

“One of the things that’s critical for us to know is whether or not these are in fact the final tariffs, given all of the changes that have come out of this administration, we are, to some extent, waiting for the dust to settle,” Phoenix said.

In these uncertain times, some manufacturers remain optimistic.

As an entrepreneur, Gau said he feels excited because the tough economic climate and uncertainty means larger players do not hold all the advantages.

“Everyone is considering or exploring what a new model should be. [This] puts a giant company [and a] small company like us on the same starting line,” Gau said.

He said small manufacturers like him are more agile and can help clients pivot quickly for whatever may come next.

Additional research by Charles Zhang