Treksta, the leading South Korean outdoor footwear brand, has started repatriating some of its production to its own country due to rising costs in China, and the shift should continue in the coming years on the back of free trade agreements (FTAs) recently signed between Korea and the U.S. and the EU. The new trend could benefit the entire Korean footwear industry.

Only a few years ago, the company behind the Treksta brand still made nearly 4 million pairs of footwear per year, most of them for brands such as Hanwag and Millet. The volume has shrunk to about 1.5 million pairs this year, nearly all of them under the Treksta brand. One-third of the production is now outsourced to partners in China and Indonesia and another third is done at Treksta's own factory in Tianjin, China. But most remarkably, the number of pairs made in Korea has increased again to about 0.5 million pairs coming out of Treksta's production plant in Busan, which is Korea's second-largest city and its footwear manufacturing center. Until last year, Treksta only made about 0.1 million pairs in Busan, mostly for military uses.

D.C. Kwon, chairman of Treksta and of the Korean Footwear Industries Association, said that several other companies have begun to shift their production back to Korea. So far, such moves have been mostly motivated by Chinese price hikes: The wages of Chinese factory workers remain about 2.5 times lower than those of their Korean counterparts, Kwon said, but the gap has been reduced to such an extent that it may be compensated by the advantages of Korean production. He estimated that productivity in China is 40 percent below the level now reached in Korea and that deliveries are one month faster in Korea than in China. Furthermore, the Chinese currency continues to appreciate more than the won against the U.S. dollar.

Another factor more specific to Treksta is that the company uses Korean components for its Treksta-branded footwear. This means that, for its production in China, it has to pay shipping costs for its components and then a duty of 13 percent to import the finished products from China into Korea. The domestic market still accounts for some 70 percent of Treksta's turnover.

The company estimates its own share of the Korean outdoor shoe market at about 30 percent, ahead of several other Korean brands including K2 (unrelated to the U.S. ski company), Kolon Sport and Black Yak.

The changes at Treksta mark an as-yet relatively small but interesting reversal of the large-scale migration that started more than two decades ago, when Korean companies began to open their own factories in Indonesia, and then in Vietnam and China (mostly in Qingdao and Dalian, in northern China, whereas Taiwanese shoemakers mostly set up factories in southern China). About 800 Korean shoe executives supervise these operations in Indonesia. However, the number of Korean executives in China is estimated to have declined to about 400, as more production has been moving to Indonesia – and back to Korea.

Trade agreements are most likely to further stimulate the shift back to Korea. Under the FTA with the EU, which came into effect in July 2011, EU import duties of 8 percent for Korean leather shoes and 17 percent for other types of shoes were reduced to zero.

The FTA between Korea and the U.S. came into effect last March, calling for U.S. import duties of up to 48 percent on Korean footwear to be reduced to zero, with a few exceptions mostly affecting safety footwear. To take advantage of the new trade pact, all of the Treksta footwear intended for the U.S. market should be made in Korea by 2015.

Treksta expects to reach a turnover of about $120 million this year, amounting to an increase of more than 10 percent. The brand's sales have been advancing steadily in the U.S. market and in Europe: Its largest European market is Scandinavia, where Kwon said that Sporthaus Moxter, its regional distributor, should reach deliveries of about 100,000 pairs in 2012.

The company is preparing to hit the market with a new concept for trail-running footwear called Sync. It combines two technologies that set Treksta apart: Nestfit, a design that is based on the shape of a worn-in shoe, for example with more space for the big toe; and the brand's Independent Suspension Technology (IST). Treksta has made significant marketing investments to promote Sync in more than 20 markets next year.

On the other hand, Treksta has lost a long-standing deal to distribute the Hi-Tec brand in Korea. The company said it achieved sales in the range of 100,000 pairs for Hi-Tec in the country, with which it previously had a wider sourcing partnership. Hi-Tec's distribution in Korea has switched to LS Networks, the licensee of Jack Wolfskin and several other sports and outdoor brands (as detailed in our previous issue).