Footwear industry observers expect companies to take a hard look at the economics of producing a bigger
fraction of athletic shoes in Asian-Pacific and Latin American countries where trainable supplies of lowwage
labor are readily available. Compensation levels for Asian-Pacific and Latin American workers
currently run about 20% of annual compensation levels in Europe-Africa and North America. However,
worker productivity levels at different plants can vary substantially because of the overall experience of the
work force, the use of different incentive compensation plans, the degree of emphasis placed on best
practices training, and the use of up-graded footwear-making equipment. All workers worldwide are paid
1.5 times their regular base wage for working overtime (more than 40 hours per week).
But locating most of the company’s production in Asia-Pacific and/or Latin America has two potentially
significant disadvantages. Tariffs have to be paid on footwear exported from Asia-Pacific plants to markets
in Latin America ($6 per pair) and Europe-Africa ($4 per pair); likewise, tariffs have to be paid on footwear
exports from Latin American plants to markets in Europe-Africa ($4 per pair) and the Asia-Pacific ($8 per
pair)—it’s uncertain whether tariffs in future years will rise or fall and by how much. Also, all companies
are subject to unfavorable year-to-year exchange rate fluctuations in shipping footwear from one region to
another (as discussed below). One way to guard against adverse changes in tariffs and exchange rates is
to maintain a production base in each of the four geographic regions and rely upon those plants to satisfy
demand for the company’s branded footwear in their respective region. It remains to be seen how
companies will weigh the pros and cons of locating plant capacity in one region versus another