Pearl River Delta Foundry's "Red Alert"

Pearl River Delta Foundry's "Red Alert" Industry observations are now facing more serious business conditions than during the 2008 financial crisis. The two major markets in Europe and America have serious debt problems. The industry is pessimistically expecting that it may take 3 to 4 years to recover.

"Order shortage" is causing OEM companies in the Pearl River Delta to feel unprecedented pressure.

“After shipping orders for Christmas in November and December of previous years, the factories were all in full swing to make molds for the preparation of new orders for the second year of production. However, new orders could hardly be seen this year. The addition of old orders also depends on European and American markets. Christmas sales.” Xue Xiaowei, director of Shenzhen Guanlan Baode Toys Factory, an international toy brand for the United States and Thailand, told the “China Business” reporter.

In the past, factories in the Pearl River Delta had to work for Christmas orders. However, this year, some orders did not get after the order was made. Because overseas demand decreased, the ordering party prefers to leave the product in the factory.

The statistics of foreign trade from January to November 2011 released by the Guangdong Branch of the Customs show that, since the second half of this year, the growth rate of import and export of processing trade in Guangdong has been decreasing month by month, and the increase in export of processing trade has dropped from 18.4% in June to November. The negative growth; the slowdown in the growth rate of major markets since the second half of the year, such as the increase in the import and export of the top three trading partners China Hong Kong, the United States and the European Union fell by 17.3%, 8.2% and 4.4% respectively compared with the first half. The second half of the year is the concentrated delivery of Christmas orders.

In the view of the industry, due to the shrinking orders in the European and American markets and the gradual loss of the low-cost advantages of China's manufacturing industry itself, a large number of low-end orders have been transferred, and the Pearl River Delta plant may face serious shortage of orders in the future. Companies will also face a round of reshuffle.

The sudden drop in orders for the apparel industry "The main problem for companies is that there are fewer orders." Li Peng, secretary general of the Asian Footwear Association, told reporters that the traditional manufacturing industries in the Pearl River Delta, such as clothing, are facing the problem of order shortage.

Hong Qihui, general manager of Dongguan Runtian Garment Co., Ltd. and Honorary President of the Hong Kong SMEs Association, said that in June and July of this year, they felt that there were not many orders, and after the Christmas orders were shipped in October, the factory’s orders were already insufficient. Production above. If some companies are underemployed, some small businesses fail because they have nothing to do. "There are orders to maintain at least the basic operations of the factory. There are no orders for the company to become desperate."

The various signs currently indicate that the order status next year is not optimistic. “In the past, the factory was able to add 3 to 4 new products every year, but this year we reported 4 new products to customers. Only one product received orders,” said Xue Xiaowei.

In previous years, after the Christmas orders were shipped, the factories in the Pearl River Delta intensified their molds for next year's orders, so that they could be put into production after the new year. However, this year's factory situation was that some factories did not have orders, and some factories got their orders. However, the preliminary preparations were postponed, because foreign buyers stopped the factory from doing preliminary mold-making work.

A large-scale trader from Hong Kong Li & Fung Group, a person who bought apparel for the US market, also complained to reporters. "At the end of November, orders received by us were significantly reduced, and the amount of each order was not as large as ever."

Wu Bocheng, general manager of China's Yiwu Commodity City Group, one of the procurement bases for Christmas gifts, also talked about, “The long list and large orders in the market have been greatly reduced. It used to be a list of tens of thousands of dollars, and now accounts for more than ten thousand dollars. 10%, 90% of the tens of thousands of dollars, were formerly six-month and one-year orders. Now there are only three months to six months of the list, which creates considerable difficulties for our production organization."

The contraction of orders has made domestic factories more cautious in quoting prices. “At present, it is impossible to increase the quotation in the absence of orders. We cannot transfer labor, raw materials and other costs to our customers. The profit margin of orders is continuously reduced,” said one industry insider.

Hong Qihui believes that the current situation facing enterprises is more serious than that of the 2008 financial crisis. “The last time the financial crisis broke out in the United States, and the U.S. government quickly took measures. In 2009, the market has recovered and orders have gradually recovered. But this time, the two major markets in Europe and America have serious debt problems, and the industry is pessimistically expected to have 3 ~4 years to recover."

Another non-negligible issue in order transfer at high cost is order transfer.

"Recently, the United States and Thailand have gone to the Latin American market to find a factory." Xue Xiaowei told reporters that this will inevitably lead to the transfer of toy orders. The United States and Thailand where the United States market is the world's largest demand for toys.

In fact, as early as a few years ago, the strategy of foreign buyers was to stop putting eggs in a basket. China is not the only country to buy. They started to train suppliers in Bangladesh and Cambodia. Today, this trend of order transfer has become very clear.

“Before we had some suppliers in China, but due to the fact that domestic labor costs and raw material prices have risen so much in recent years, our entire business has been transferred to countries such as Bangladesh, the Philippines and Indonesia this year, and almost all orders in the US market It is like this.” According to the Lifeng Group apparel purchasers mentioned above, his department is mainly supplied by Wal-Mart and other supermarkets in the United States, with emphasis on medium-sized products.

"In Bangladesh, a garment can be processed at a price of 1.3 dollars, and at least 2 dollars in the country." He said that the cost advantage of domestic factories is gradually losing. However, currently high-tech orders in toys and other industries still remain in China, and factories in Southeast Asia and other places cannot replace China.

On December 8th, at the 3rd (2011) World Footwear Industry Development Forum held in Houjie, Dongguan, the China Leather Association made a report on “The Development Trends of the World Footwear Industry and Chinese Footwear Industry in the Next Five Years”. , China's labor costs for shoemaking came after India and Vietnam, and the pressure of competition was high.

"Average 35% of the cost of a product is labor costs. If this cost increases by 20%, the company's overall cost will increase by about 7%, that is, profits will fall by 7%. In recent years, the annual labor cost is 20% to 30%. Rising, and the Pearl River Delta has a shortage of labor, companies can only look for people by raising their wages.” Hong Qihui said that the factory's labor costs are now under pressure.

In some countries, the labor cost of shoemaking is compared with the annual output of shoes. Labor cost China’s share of China’s 13 billion doubles, 1.3-1.5 U.S. dollars per hour, India, two billion U.S. dollars, 0.65 U.S. dollars per hour, Brazil, 900 million U.S. dollars, 4.35 U.S. dollars per hour, Vietnam, 800 million U.S. dollars, 0.48 U.S. dollars per hour. Source: China The logic of the "leftovers as kings" of the Leather Association has been continuously raised by the government and industry under the condition that the survival crisis of the foundry in the Pearl River Delta has been aggravated.

"Now there has not been a large-scale collapse. Everyone is supporting. Now there is a sentence in the industry that is left as the king. Whoever can leave it may have an opportunity." Li Peng said that the topic of transformation and upgrading has been discussed for five or six years. However, the company has not changed much. One of the ways in which transformation is to be done is to make the domestic market. Many domestic shoe-making enterprises have tried, but most of them have failed. Some companies still pay tuition fees, and there are very few cases of success in the transition from manufacturing to branding. The secretary general of his association could not lift it.

Xue Xiaowei also admitted that at present, everyone's idea is to maintain the status quo, and then take a step forward. "Now we can't see where we are. We only know that this place (Shenzhen) should not stay long." Before that, there were 1,800 to 2,000 toy companies in Shenzhen, but now there are only about 400.

As for domestic sales, he believes that it is time to maintain the status quo instead of burning money. “A lot of companies had burned money before but most of them failed. And it takes a long time to transform domestic sales. Most companies may not be able to afford that time.”

For the Hong Kong Li & Fung Group, which has a strong financial strength, it is also difficult to transfer domestic sales. In the light of the shrinking external market, in January 2011, Li & Fung established Li & Fung Asia and plans to transfer from export to domestic sales to enter the Asia Pacific region and the Chinese market. However, Hong Kong Li & Fung Group's Feng Guojing recently stated at the forum on the integration of domestic and foreign trade and distribution channels in Guangzhou that at present, many Hong Kong-funded enterprises are willing to do domestic sales and are willing to pay taxes, but due to complicated calculations. There are deviations between the SMEs’ ​​domestic sales taxation and customs statistics, and SMEs are often considered to have been punished for deliberate tax evasion. To avoid fines, they prefer to export the goods to Hong Kong before they are shipped back to the Mainland by Hong Kong. It will increase logistics costs and reduce logistics efficiency. Take toy as an example. China is now the largest toy producer. 90% of the world's toys are produced in China. However, due to various reasons, Li & Fung can not directly buy products in the Toy R Us market opened in the Mainland and must be exported to Hong Kong. Imports, this part of the cost of the total cost of 15%.

"Doing domestic trade and doing foreign trade are two different worlds. When doing foreign trade, someone else gives you an order. According to the order, the product will be shipped to the dock to complete the task. But when doing domestic trade, first of all there is no order, first investment It's not easy to make a product. It's not easy to make a product. We must invest money in product design. After doing a good job, we must do branding. Then we must develop and manage a sales channel. If we don’t sell it, we can’t do it well. After that, the risk of plagiarism without the protection of intellectual property is also faced, said Zhang Jiamin, general manager of Li & Fung Group Research Center.

Jiang Yuxiang, chief consultant of Beijing Xi En Enterprise Management Consulting Co., Ltd. believes that although the government has been promoting the transformation and upgrading of manufacturing companies, our current environment is not suitable for the development of SMEs. The government should innovate in the system, such as innovation in the financial system, allowing private capital to intervene; innovation in the tax system, such as reducing the tax pressure of innovative companies, etc.; more importantly, it is necessary to protect intellectual property rights, and now China's Shanzhai phenomenon is too serious.

Reporter's Notes>>

Where does the manufacturing industry go?

Going to the cooperation of the industrial chain, instead of becoming a parasite of the industrial chain;

In a certain part of the industry chain, it is specialized and the ultimate;

The self-built network can be used as a domestic market for cooperation with domestic companies.

Wen/Xu Chunmei will come sooner or later.

With the superposition of multiple factors such as rising labor costs, rising raw material prices, and rising ***, the low-cost era of manufacturing in China has gradually drifted further. Many foreign buyers have no plans to endure the high cost of China's manufacturing industry and gradually transfer orders to Southeast Asia. At this time, it hit the situation of shrinking orders due to the shrinking demand in the European and American markets. The days of the Chinese factories were even more sad, and it was inevitable that new outlets would be sought.

According to Jiang Xixiang, chief consultant of Beijing Xi En Enterprise Management Consulting Co., Ltd., “China's SMEs face two basic choices today: one is that it will become a companion product in economic fluctuations, and the so-called companion product is a good economic cycle. When they grow up, they die when the economic cycle is not good. Second, they choose to become a member of professionalism, that is, they become partners and cooperators in the global industrial chain, rather than purely foundry workers."

At present, the issue of China's manufacturing industry exposure is that when the economic cycle is not good, those companies that rely on heaven to eat will not be able to live. However, this also gives Chinese manufacturing companies an opportunity to rethink their own way out. This approach should be a move toward the industrial chain rather than a paradox of becoming an industrial chain.

The so-called parasitism is that companies reduce themselves to a simple product maker, and they can only survive when the economic cycle is good and there are external orders. Therefore, at present, China's SMEs must diversify a group of industrial chain collaborators, form cooperation with large companies at home and abroad in the industry chain, and achieve professionalism and exclusivity in a certain part of the industry chain. For example, many years ago Foxconn took Passed the road: Foxconn worked with Motorola, Nokia, Samsung, and then the company step by step to grow.

Zhang Jiamin, general manager of Hong Kong Li & Fung Group Research Center, a large-scale trader, said that when the financial crisis hit, many enterprises in the Pearl River Delta region had closed down, and many enterprises would fail in the future, but those that were competitive and did not fail would close down. Business orders are concentrated and business is better. “So currently Chinese manufacturing companies should study the smile curve. It tells us to improve our competitiveness, including upstream R&D, design, and downstream product promotion capabilities, channel control capabilities, etc., and then on this basis and the surrounding Companies cooperate with each other and even deploy global resources."

At present, most of China's manufacturing companies are concentrated in the manufacturing process in the middle of the smile curve, which has the lowest added value. Therefore, this requires the bosses of manufacturing companies to change their thinking, not to confine themselves to the manufacturing system, but to move toward cooperation and service in the industry chain.

In addition, China's domestic sales market is very large and it also gives OEM companies a very good export. With overseas orders shrinking, turning to the domestic market is a major trend, including Li & Fung Group also began to shift to the mainland market. However, the current situation is that the foundry enterprises have encountered difficulties in converting to domestic sales, and most companies are still in the stage of paying tuition fees. However, Jiang Yuxiang believes that this is an inevitable stage in the process of corporate transformation. The success rate of the self-built network for OEMs in the domestic market is indeed very low, but it can be done in a way that cooperates with domestic companies, such as becoming a domestic passenger and other domestic e-commerce. Platform partners, gradually open the domestic market.

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