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rted as offering lower labor costs than in China hinting a trend towards firms looking to produce in other lower cost countries. Exporters in Vietnam and Pakistan are able to enjoy labor costs as low as $0.37 an hour, in comparison to China where the labor costs can be as high as $1.08 an hour. It seems that China’s wage increase will not change either (Teschler, 2010). There has been much economic benefit from the increasing wages, however these labor costs pressure firms to look for supply elsewhere (Textile Outlook International, 2008). Chinese producers are looking for other means of production while seeking higher value, all while trying to influence the government to work in their favor (Yuen, 2010).

An issue that arises in the name of rising wags is the prospects of an appreciating RMB. If the RMB appreciate it will further increase wages. The Chinese government is pressured to set policies to facilitate worldwide competitiveness by stabilizing the monetary policy. Chinese domestic firms that specialize in cheap unskilled labor share this view because they believe its essential to retain competiveness regarding cheap labor (Lau, To, Zhang, & Chen, 2009). However, this goes against the idea of China’s desire to more market-oriented. It is questionable how long China can retain their government-regulated currency, while striving for market orientation.

Therefore, while there are indicators of a decreasing demand of cheap unskilled labor, workers could be forced to sophisticate, as seen in today’s market environment. The labor market is becoming more sophisticated in terms of skill. Every year there is more than one million Chinese university graduates entering the labor market while thousands are trained oversees to return to work in China indicating a high growth rate in human capital (?ukul, 2009).

The level of organization of labors has seemed to sophisticate as well. Chinese migrant workers have organized strikes within manufacturing industries to amplify their place within the political framework and the worldwide economy. Strikes tend to be concentrated within a certain factory, but have been about wage increases, improved working conditions, and unionization. These behaviors can be traced to China’s openness to foreign direct investment bringing different schools of thought other than the Chinese traditional Maoist or socialist labor practices, laws, and disputes. (Frazier. 2010)

7.2 Increasing Costs for Raw Material

Chinese firms are experiencing a higher cost in raw materials (China Research Intelligence, 2009). Figure D depicts elements of the clothing industry that are essential for competitiveness for firms that are mostly export-oriented. This is to say that since the raw materials are increasing this as the ability to affect the industry significantly, and inhibit competition between firms within China (Lau, To, Zhang, & Chen, 2009).

Figure D: External Factors Affecting Clothing Industry Competiveness (Chinese firm perspective)

Source: Lau, To, Zhang, & Chen, 2009

The rise of raw material costs becomes a problem in light of rising labor cost. This further damages Chinese firms who seek cost efficiency in both aspects hinting a shift from production of cheap basic garments.

7.3 Increasing Production Innovation

The foundation for the development of luxury goods