Analysis Of The Dilemma Of The Footwear Industry In The Yangtze River Delta

"The whole situation of Jiangsu and Zhejiang's foreign trade enterprises is not exaggerated by the word" deterioration ".

Liu Qi, the boss of a modern leather goods factory in Linping Economic Development Zone, Hangzhou, said.

Although the days are good, corporate profits are being squeezed by the two fronts: the upstream is the soaring of raw materials and labor costs, and the downstream is the rapid increase of exchange rate and the shrinking of foreign orders under the subprime crisis.

Liu Qi's leather goods company has raised the price of products 3 times, 10% times each time, and relying on the advantages of foreign trade channels and production enterprises to cover costs and maintain profits.

"Before this time, it is the selling season of our leather goods enterprises, but now many colleagues say that orders are far from enough. In the second half of this year, the industry reshuffle will be even more tragic."

Encounter "bad factors" superposition

Liu Qi said that in the small and medium-sized manufacturing enterprises concentrated in Linping, in addition to the leather industry downturn, clothing, shoes and other industries, there are more than 300 enterprises.

Just next to the company, two manufacturing enterprises have just stopped production. "One of them is a two old couple. It's a pure production factory with bags, hundreds of people."

Liu Qi's friends in Hangzhou and Jinhua have an import and export company, a leather company and two clothing companies Wang Jun (alias), and its business is also similar to him.

Wang Jun said, because the small and medium-sized leather manufacturing enterprises are pouring too much, it is to give him a certain scale of enterprises to take the opportunity: more orders.

However, the soaring raw materials still made Wang Jun headache: "pig skin is now more than 100 yuan a piece, the first two years are only forty yuan; last year, the leather material has soared by 40%. At that time, most of the enterprises did not make money, but it was a deficit." fortunately, we accumulated a lot of leather materials last year before we passed the crisis.

Wang Jun said that the cost of raw materials accounted for 70%-90% of the cost of fur clothing.

In the Yangtze River Delta, the "cold winter" encountered by Wang Jun and Liu Qi is not a special case, and the plight of SMEs in Wenzhou is also widespread.

Zhou Dewen, President of Wenzhou SME Development Association, said that about 20% of the manufacturing enterprises here have been discontinued or halt production.

Wenzhou cigarette Association introduced that last year, some lighters enterprises closed down.

Wenzhou's spectacle production industry is in a situation of unprofitable and barely maintained.

Local business people told reporters that the average export price of sunglasses in the first quarter of this year was only $0.7713 per pair.

Behind the emotional experience of these Hangzhou and Wenzhou enterprises, the statistical data of Wenzhou central sub branch of the central bank carefully analyzed the reasons for the weakening of corporate profits.

One of the reasons is from the sales sector: the subprime crisis has led to a weakening of external demand.

In the first two months of this year, Wenzhou exported to the United States and the European Union increased by only 4.1% and 5.7%, down 60% and 66% respectively compared with the same period last year.

At the same time, the appreciation of RMB has reduced the profit margins of export enterprises to varying degrees.

The two reason comes from the cost area: the rapid rise of oil prices, precious metals and all kinds of industrial raw materials has led to overburdened production.

For example, the price of platinum (200,1.64,0.83%, bar) used by lighters has risen by 40%-50% since last year. The price of shoes, glue and leather products used in footwear production has also risen continuously. The new labor law has greatly increased the cost of labor intensive industries by more than 10%.

Sample of Zhejiang businessmen

Life does not deteriorate in a day.

In the last two years of deteriorating living environment, many enterprises began to prepare for "winter" early.

It is aimed at anticipation of a series of bottlenecks from raw materials to exchange rates, which can also lead to a relatively stable "winter".

The experience of these enterprises can be a sample of many enterprises facing the dilemma of sales and cost.

Wang Jun, who believes in "cost is king", said that we started looking for cheap leather materials everywhere last year. Since the cost of leather clothing is about 80% of raw material, Wang Jun's staff are not satisfied with collecting leather from Sichuan, Hebei, Henan and Zhejiang since last year.

They even went to India, Pakistan, Korea and other places to import relatively cheap leather, and even consider importing raw skins from Britain, New Zealand, Australia and other places. "Overall, the way of imports is cheaper than domestic 10%-20%.

Moreover, the imported leather material is settled in US dollars.

"If we do well, we can also make money from the appreciation of the renminbi."

Wang Jun said.

In addition to raw materials, the way to reduce labor costs is, in the view of enterprises, the relocation or diversion of factories.

In July this year, Wang Jun will open a branch factory in Russia, where the raw materials and labor are cheap.

In Hangzhou, Wenzhou and other places, many enterprises moved their factories to low-cost and cheaper labor development zones, and even moved to the Midwest.

In addition to reducing upstream costs, the common practice of many well managed manufacturers is to raise prices.

In response to exchange rate pressure, Wang Jun improved the way of settlement. Now most of them use TT (wire pfer) settlement method. This year, we also use letter of credit and DP (payment to pay) to settle accounts, and DA is less used.

Compared with the commonly used payment methods in international trade, such as LC (letter of credit), TT, DP and DA, TT is safer because the other party must pay a deposit.

In terms of settlement currencies, Liu Qi changed the way he used to settle in US dollars. This year, he settled in euros. This settlement is deeply envious of his peers. Wang commented: "everyone said that he had earned money, and the accelerated appreciation of the renminbi had little effect on him."

In addition to making an article on the upstream and downstream, product innovation has become the choice of enterprises with R & D strength.

Zhou Xiaohu, assistant general manager of Wenzhou tiger cigarette lighter company, which owns the market share of the 80% lighters worldwide, told reporters that the company has attracted new customers from Mexico, Columbia and other emerging countries by developing new varieties.

Originally, in view of the relatively high altitude characteristics of these countries, the big tiger company developed a plateau cigarette lighter successfully, and successfully realized plateau windbreak and fire fighting. Only in the second half of last year, the price of the highland lighter which exported more than the ordinary lighters has been exported to about two million.

"Now the proportion of high-end products in the total sales volume has reached 20%-30%, and the products with high added value will occupy a higher proportion in the future."

Wang Jun's R & D is placed on new type development and leather products replacement, which brings higher export prices, while the latter brings savings of raw materials.

Lai Xiaoxuan, deputy general manager of Thompson leisure products company, told reporters that in the manufacturing industry "severe winter", in addition to the upstream and downstream savings, "in the long run, we must finally occupy the" smile curve "ends - brand and sales.

Thompson has established a sales company in the United States and launched its own brand.

This is a great advantage, because overseas middlemen can often get 20%-30% profits, and they can sell part of their middle value-added income by selling themselves.

Another aspect of the sales channel is to replace the shrinking overseas market with the increment of the domestic market.

Lai Xiaoxuan said that leisure products itself is a product of great demand elasticity. After the subprime crisis, the economic downturn led to a decrease in demand. As a result, the series of fishing tackle products has accounted for more than 90% of the market in some countries in Europe and America, so the impact is obvious.

The domestic leisure market is in the ascendant and has great potential. "What the enterprises lack now is that the domestic market has just started. Once the sales channel is laid successfully, it will have a huge profit source".

In Lai Xiaoxuan's view, the future of the manufacturing industry will suffer from "the profit is getting thinner and the factory is moving farther and farther away", so the company must go to the sales and service oriented mode.

Wang Jun is also very optimistic about the domestic market. His products are 100% of export products and their risks are increasing. So he has invited design teams and sales teams to specialize in the domestic market.

More and more enterprises also put their eyes on the domestic market.

What is the direction of breakout?

At present, the profits of the manufacturing enterprises in the Yangtze River Delta are becoming more and more serious, and even the industry is closed down.

Moving to the new area is a direction, and finding new comparative advantages, improving service and brand marketing is another way to get rid of the difficult situation.

Zhou Dewen said that in Wenzhou, the price of land has begun to plague the local manufacturing industry.

He said that the starting price of industrial land in Wenzhou has now reached 2 million 300 thousand yuan / mu, and the paction price even appeared 4 million yuan / mu.

Such a high land price, even if the company has been photographed, what products can be produced and how much profit margins can be paid?

From the point of view of manufacturing industry, the relative advantages of land endowment and labor cost in Hangzhou and Wenzhou have been lost, but these areas have always been flexible in the market mechanism and efficient in business operation, or even the best entrepreneur human capital. This part can be copied and played in other regions.

An industry insider said that from the first Taiwan IT manufacturing enterprise settled in Dongguan in 1987, the low cost of land, labor and other resources was one of the advantages of attracting foreign manufacturing industry in Dongguan. However, with the increase of local enterprises and the improvement of economic level, the cost of resources gradually increased. In this case, IT manufacturing industry began to shift to other regions.

More than 10 years later, Kunshan, located in the Yangtze River Delta, gathered 1621 Taiwan funded enterprises in 921 square kilometres of land, accounting for 1/10 of the total number of Taiwan funded enterprises in the country.

About 1/3 of these enterprises are IT enterprises, which cover almost all the accessories needed to produce computers and digital products.

For 7 consecutive years, third of the total exports of large and medium-sized cities in Dongguan were taken away by Suzhou in the first half of 2003, and the growth rate of foreign capital utilization was 10 percentage points slower than that of the whole country.

In fact, due to the rising cost of land and other costs, in 2002, Thompson moved from Hangzhou to Deqing, and the factory occupied a very large area.

Lai Xiaoxuan introduced that before the production of outdoor leisure products went through the industrial pfer route from Taiwan to the Pearl River Delta, and then to the Yangtze River Delta.

Next, it is likely that the industry and even more manufacturing will move to the lower middle east or Vietnam.

But in Lai Xiaoxuan's view, the relocation of factory buildings is also a "no return".

Because as long as we run factories, we always have to be sensitive to the prices of production materials, always in the "big business and small production" enterprises - control the scale of production, integrate market resources, ultimately control the laying of channels, and complete the brand building.

Lu Feng, Professor of Peking University China Economic Research Center, believes that the IT service outsourcing mode in Bangalore, India, Bangalore is worth paying attention to.

India does not necessarily have the overall advantage of manufacturing industry, but it has done the best in the field of service outsourcing. Many international top 500 enterprises have placed their backstage service systems, including call centers, in India.

At present, India has grown into a service outsourcing industry with an annual sales income of 30 billion US dollars, of which $23 billion is exported. It has undertaken 65% of the global software outsourcing market and 46% of other service outsourcing business, and has become the world's largest provider of service outsourcing.

People often call Europe and America "world board", China is called "world factory", while India is called "world office".

Under the weakening of comparative advantage of Zhejiang's manufacturing industry, it will be an inevitable choice to look for other advantages.