How To Deal With The Dilemma Of Exchange Rate War And Cost Increase For Small And Medium-Sized Shoe Enterprises?

October 29th,

Order or profit?

Not long ago, AOKANG footwear industry ranked the most valuable in 2010 with its brand value of 8 billion 2 million yuan.

"The profit of the original pair of shoes is 10 yuan, now because of exchange rate changes, each pair of shoes will earn 5 to 1 yuan less."

Fan Manru said that small and medium-sized shoe enterprises around AOKANG have partially failed in this round of appreciation of the renminbi.

The AOKANG shoe industry is also afraid of its own fate.

For the long term orders that are still in hand, "we adopt the way of negotiating with the clients to add Renminbi expectations to the contract."

Now, fan man's settlement in the US dollar has reduced the exchange rate quoted price to 6.5.

"Some new orders, if the profit is only enough to maintain the capital, or do not meet our expected profit, we will cancel the order with the customer."

Even so, since the exchange rate changes this year, AOKANG has only pushed out orders of 6~7 percentage points.

According to the statistics of Wenzhou Leather Industry Association, only 950 of the shoe making enterprises in Wenzhou do export trade, and the proportion of small and medium-sized enterprises is at least 50%.

These small and medium-sized enterprises usually take the family as the unit to produce, and the whole family and their relatives help in the company, and then hire a few cheap foreign workers.

A local shoemaking workshop owner, who did not want to be named, told reporters that "we are afraid to take over the large amount of foreign trade list and long-term contract companies."

Helpless words are full of uncertainty about the future. "Once revaluation increases, the larger the order we receive, the thinner the profit will be, and the loss will not escape."

However, the housing leak has been caught in the night rain. Now the reason why the shoe industry is pessimistic is not just the appreciation of the renminbi.

"Raw materials are all rising in price," the problem is always coming. Fan man said, "leather has risen by 15% this year, potion has increased by 10%, and the price of wrapping paper has risen by far more than 15%."

Fan Manru accounts for reporters: the cost of a pair of shoes is rising at 10%~15% and has not yet been added to the cost of manpower.

Not long ago, a shortage of labor forced AOKANG to raise the unit price of each pair of shoes by 10%.

These problems have been amplified in small and medium-sized enterprises.

"At present, the shoemaking industry has to choose between" protecting profits "and" protecting customers ". Once a large number of customers are lost, businesses will eventually go bankrupt, so more enterprises choose to sacrifice profits to keep customers.

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Profits squeezed out

Wang Qian, editor in chief of the first textile network, told reporters that "the net profit margin of the industry will drop by 1 percentage points per 1 percentage point appreciation," and the export profit margin of the shoe companies will be around 10%.

Xie Rongfang, Secretary General of Wenzhou Leather Industry Association, gave a data. "Footwear exports account for 25.18% of Wenzhou's total exports, accounting for 62.23% of footwear exports in 1~9 months in Zhejiang province."

So many shoe manufacturers are facing difficulties in exchange rate changes and rising costs. Where should they go?

Fan Manru told reporters, "now we specially invite a consulting company to strengthen AOKANG's internal control."

Nowadays, AOKANG shoes industry has even formulated "twenty-two military regulations" for the sake of maximizing the profit of the enterprise. It has changed to fine details of the double tube fluorescent lamps managed by the office to single tube fluorescent lamps, office paper double-sided use and so on.

"Profits must be squeezed out."

Fan man sighed helplessly.

As a labor-intensive industry, the profit of shoemaking industry has been relatively low.

In addition, at present, China's footwear industry has not completed the industrial upgrading. In the face of the rising price of raw materials, it can not pass the cost on to consumers through a substantial increase in prices.

Wang Qianjin said.

CIC consultants report that the main countries and regions of China's leather shoes export are the United States and the European Union.

Affected by the financial crisis in 2008, the consumption demand of developed countries such as Europe and the United States shrinks, and the number of China's leather shoes exports has decreased. In 2009, China's exports to the United States exported 1 billion 730 million pairs, down 10% from the same period last year, and exported 1 billion 340 million pairs to the EU, down 3.4% from the same period last year.

Li Xuerong, a senior researcher at CIC, pointed out that the appreciation of RMB has been a major factor affecting the profits of shoe companies, because foreign trade enterprises have to quote first order for each order, and the process of leather shoes orders usually takes two months. During this period, if the quotation fails to keep up with the speed of RMB appreciation, it will lose money.

"But in the long run, the appreciation of the renminbi is a trend of development, and the shoe companies of foreign trade will still face greater pressure."

Li Xuerong added.

Bitter pformation

With the appreciation of the renminbi expected to strengthen, a round of industry shuffling will come.

"RMB appreciation will further compress the profit margins of enterprises, which will result in the closure of some small and medium-sized enterprises in the industry, while the market share of large enterprises will increase, and the industry will face a reshuffle."

Li Xuerong pointed out.

Wang Qian also said, "for foreign customers, if China's products do not have price advantage, they will choose Vietnam and Indonesia and other countries and regions for procurement; and for domestic customers, a substantial increase in prices means losing the market."

While squeezing profits, labor shortage will also increase labor costs.

"We are also considering the completion of some orders to the mainland processing plants," Fan Manru told reporters. "Most of the workers from the mainland are now back home. There are surplus labor in Fujian, Jiangxi and other places. Part of the processing to the small factories in the mainland may be a cost saving way."

At the same time, the pformation period of many small and medium-sized Wenzhou shoe enterprises still struggling will come.

The 2009 China regional financial operation report released by the central bank pointed out that we must strictly control loans to industries with high energy consumption, high emission and overcapacity.

Most of the textile industry is small and medium-sized enterprises, with a small loan amount and a small proportion of financing. They are likely to encounter bigger obstacles on the road of refinancing and RE development.