What Is The Next Step For The Hong Kong Funded Enterprises In The Pearl River Delta?
To reduce costs, 37.3% of Hong Kong enterprises in the Pearl River Delta have planned to move all or part of their production away from the PRD.
How to go next?
Lin Guangde is trying to find answers to the following factors: the continued appreciation of the renminbi, the reduction of export tax rebates, the adjustment of processing trade policies, the rapid rise in labor costs and the subprime mortgage crisis in the United States. Behind him, there are many other Hong Kong funded enterprises who are investing in factories in the Pearl River Delta as well.
As the chief executive of Hongkong limited, he has been engaged in processing trade for nearly 20 years in the mainland of China. In the past 11 years, Lin Guangde has tried to pform from OEM (OEM) to ODM (commissioned design and production) to OBM (private brand marketing), which has almost condensed the whole historical process of Hong Kong enterprises in the mainland.
The golden age is gone forever.
Lin Guangde set up factories from Hongkong to Guangdong in the early 80s of last century. This is the peak period for the large-scale pfer of Hongkong's manufacturing industry to the mainland of China. Affected by the sharp rise in production costs, tens of thousands of labor-intensive enterprises in Hongkong gradually moved factories to the Pearl River Delta and other regions. "Three to one subsidy" enterprises springing up everywhere in the Pearl River Delta.
In Lin Guangde's memory, until the 90s of last century, it was the golden age of processing trade. In the Pearl River Delta region, OEM (OEM) was used by European and American customers in terms of land, natural resources and labor force, when orders were surging in and profits were good, making money easy at this time.
"Although the former shop and the factory" have made great contributions to the Pearl River Delta economy, this mode is relatively backward. The deeper problem is that the upgrading of Hongkong's manufacturing industry has not been completed. The vast majority of the Hong Kong enterprises pferred to the Pearl River Delta are still labor-intensive export processing plants, and lack of independent innovation and private brands. Li Luoli, vice president of the China Economic Restructuring Research Association, told reporters that "the mode of" Post shop and factory "has condoned Hongkong's manufacturing to stay at the" hotbed "of low value-added processing to a certain extent, which has delayed industrial upgrading. The other three countries and regions in the Asian economic "four dragons" have world-class enterprises in the manufacturing sector, and Hongkong is almost blank in this respect.
According to the data of Hongkong Federation of industry in 2007, Hong Kong businessmen have invested 57500 factories in various forms in the Pearl River Delta region, 15.5% of them belong to general trade, 34% of them are raw materials processing, 47.4% belong to raw materials processing, and 3.1% belong to other ways. Factories engaged in processing trade still account for more than 80% of the total.
However, the golden age of processing trade has gone for ever. Especially in the past two or three years, the comparative advantages and cost advantages of the PRD are almost exhausted. Labor intensive industries have been pushed into cruel "shuffling" by various factors. According to statistics from Guangzhou customs, there were 2428 footwear export enterprises in the Pearl River Delta region in the first half of May this year, a sharp decrease of 2331 over the same period last year. Nearly half of the PRD footwear export enterprises have no export performance this year. In addition, clothing, toys and other industries also have a number of enterprises have failed.
Liang Bai, director of the Hongkong Special Administrative Region Government's Guangdong Economic and Trade Office, told an interview with our reporter that, influenced by five factors, such as RMB appreciation, new labor laws and regulations, processing trade and other macro control policies, raw material prices and rising environmental costs, according to the preliminary reflection of some businessmen in Hong Kong, the comprehensive cost has increased by 45% this year. Guangdong's more than 50 thousand manufacturing enterprises are facing pressure of cost, and the situation of different enterprises is different. It is estimated that about 20% of Hong Kong investors invested in Guangdong will not be able to sustain higher costs.
The results of last year's investigation by Hongkong's TDC show that in order to reduce costs, 37.3% of the enterprises in the Pearl River Delta have planned to move all or part of their production away from the PRD, mainly to move to Guangdong's two wings and Guangdong's Pan PRD region. But in the long run, most of the Hong Kong enterprises agree to pformation and upgrading. 53.1% of Hong Kong enterprises choose to develop higher quality products to upgrade their enterprises, 43.1% say they improve product design and enhance innovation, 35% consider developing their own brands.
Transformation of "borrowing cards"
There is a popular saying in the industry: 100 companies can make processing plants, and 100 may succeed, but only 100 of the 100 enterprises are successful in brand and distribution. For processing plants, turning to brand and domestic sales is completely different.
The famous "smile curve" theory tells enterprises that only when we grasp the early stage R & D design and later brand marketing and services can we occupy high profits, while the labor-intensive intermediate production link is the most unprofitable part of the whole value chain, and it can easily be replaced by a lower cost advantage by peers.
Many processing enterprises have increased their export costs and increased international trade frictions. They have the desire to rush to the high value-added sectors at the two ends of the supply chain, but the vast majority still adopt the mode of "100% export" and dare not set foot in the domestic market.
From the hardships of manufacturing across the business, Lin Guangde has a deeper understanding after his personal experience. In 1997, when Hongkong returned to the motherland, he considered it an opportunity to expand domestic sales, and successfully obtained the right to produce and sell children's shoes in the mainland of China from the United States, and for the first time introduced the Mickey Mouse children's shoes into the mainland retail market for the first time. It became one of the earliest Hong Kong businessmen who made use of patent authorization tools to extend the brand design and retail business to Disney from the manufacturing industry.
"Every year, we will pay Disney's authorized fee of US $300 thousand, and we will pay a certain percentage of the cost according to the sale. At that time, I thought I had many years of processing experience in the mainland of China, and had the advantage of quality and technology, plus the brand effect of Mickey Mouse, it was sure to quickly open the domestic market. Lin Guangde said.
It can backfire. When Lin Guangde first touched the consumer for the first time, he turned a deaf ear to it. The products that were first put into the domestic market were completely annihilated, and the cost of production and development plus the payment of Disney's rights and interests would cost millions of dollars. The reason is simple: market differences. Previously, it was mainly OEM for European and American clients. European and American customers required the bottom and heel of children's shoes to be hard, which was considered to be beneficial to protect children's feet. Lin Guangde produced according to his previous experience. I didn't expect the consumption concept in the mainland of China to be quite different. I think the soft soles and heels make the children more comfortable.
The problem is still coming, because Disney has too many authorized varieties and is short of design approval. After the design is submitted to Disney, general approval will take three weeks, and even spend a month in the peak season, which will have some impact on the production and marketing process. In addition, Lin Guangde also found that Disney had previously been authorized to authorize children's shoes in the mainland of China, and only 3 licensed children's shoes were found. Because of the rapid growth of Disney's authorized business, the competition of Disney products in China is fierce, and some infringing products are at low price, which brings trouble to the authorized operators.
"International brand licensing can help manufacturers quickly open the domestic market, but at the same time there are potential business risks. At that time, every time at Disney's regular meeting, Chinese enterprises complained a lot, like a complaint meeting. In the past few years, we have not made any money in this business, but in the long run, it is helpful for us to move from purely subcontracting to the business sector and upgrading the level of design and understanding of the brand management system, so as to pave the way for other international brand licensing and self created brands. Lin Guangde said.
Charles Riotto, chairman of the International Licensing Association (LIMA), told our reporter that mainland China's consumers' brand awareness is getting stronger and stronger, and the manufacturers' concept is changing. At present, the Chinese authorized market is beginning to enter a good time. For the labor-intensive OEM enterprises such as toys and clothing, obtaining international brand authorization is a shortcut to brand operation.
Groping for "fairy tales"
At the height of the peak, there were more than 10 factories in the mainland of Guangde. Only two plants were left. He outsourced most of his orders to others' processing plants and turned to R & D and distribution channels.
In recent years, Lin Guangde has visited Vietnam and other Southeast Asian countries in order to reduce production costs. However, he thought that Vietnam failed to pass the production package and gave up the idea of relocation. In 2005, some of its production was pferred from the eastern coastal area to Sichuan. Although the labor cost was reduced by 1/3, the pportation cost increased by 3 times, and the production facilities were not perfect, which made a loss of about 5000000 yuan in two or three years.
On the contrary, the situation in Dongguan factory is not satisfactory this year. As the main reason is to produce high added value children's shoes, the price of products can be raised smoothly and the export orders have not been reduced, and the earlier expansion of the domestic brand market has also led to export sales. Overseas buyers are looking for the design and brand effect of these enterprises. These make Lin Guangde more confident in improving the design and building brand.
In 2002, Disney increased the license fee by 50%, and for other reasons, Lin Guangde gave up the renewal. After that, he authorized Hello Kitty, Transformers and other brands through exhibition and Hongkong authorized agency. While constantly cooperating with other international brands, Lin Guangde began to try to build its own brand, an Lang fairy tale.
"Attracting consumers is not only the shoes themselves, but also the lovely designs of Hello Kitty cats. In recent years, our domestic sales are growing rapidly. At present, millions of sales are sold. This year, we expect to make up about 40% of the total sales, but the domestic sales are basically authorized products. As for the independent brand, it is still in the exploratory stage, and it will take some time for consumers to accept it. " Lin long Lang, business director of ANN long fairy world (Hongkong) Co., Ltd.
With regard to the next expansion of the brand of "an Lang Fairy", and how to find a more suitable business model, Lin Guangde is constantly seeking new international brand cooperation through exhibitions or authorized agency in Hongkong. It can absorb nutrients from different brands of business models. At the same time, it will cooperate with Hong Kong Polytech University and other scientific research institutions to develop nano technology to enhance the added value of children's shoes. Despite the long and high risk of creating a long road, Lin Guangde is still confident about this.
Hongkong is very well-developed, and has gathered a number of professional service talents with international vision in design, brand, finance, law and authorization. This is backed up, and the increasingly large market in the mainland is regarded as a stage. This time, when the storm of the fast rising cost is encountered again, he is prepared to end the nomadic life that has been constantly moving to low labor areas, and to camp and create a child of his own.
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