From The Failure Of Dongguan Shoe Enterprises To See The Hidden Troubles Of The World Factory

The root cause of the closure of some shoe factories in coastal areas is that the products of these shoe factories are completely competitive and have no pricing power.

The shoes of famous brands are no longer completely competitive products, but products with some monopolistic characteristics.

Once a product has monopoly property, it can have pricing power.

As the cost goes up, prices can rise, and customers will be able to buy them correctly.

To get pricing power, we must rely on creating our own world famous brand.

This is the biggest revelation to us from the failure of shoe factories in Dongguan.

Over the past two years, we have heard the negative news from Dongguan, a famous manufacturing base, and recently saw the news of the collapse of Dongguan thousand shoe factories.

It is said that many shoe factories there are ready to move out.

As a result, many people are worried and actively looking for countermeasures to revitalize the footwear industry in Dongguan.

Shoe factories generally attributed the failure to three reasons: appreciation of the renminbi, rising labor costs and the implementation of the labor contract law.

The appreciation of the renminbi is indeed one of the direct reasons for the closure of the factory, but the appreciation of the renminbi is against the US dollar, and has been devaluing against the euro.

Dongguan's shoes not only exported to the United States, but also exported to Europe, and exports to the United States should drop too much for Europe.

Besides, there is no way to deal with the risk of exchange rate changes. For example, changing the currency of settlement, using other currencies instead of the US dollar, and foreign exchange swap are all very effective means.

As for the increase in labor costs, it is also a companion of economic development in a country or region.

It is precisely by relying on the manufacturing base that Dongguan and many other places become richer and richer. As a result, the rising prices of land and rent are unavoidable, resulting in rising living costs. Therefore, the rise of labor costs is the inevitable result of industrial agglomeration.

At the same time, increasing the income of labourers is not only the inevitable requirement of laborers, but also the purpose of economic development.

As for the labor contract law, it is only standardizing the rights and interests that originally belonged to employees, and factories can not run the premise of infringing on the interests of employees.

Therefore, the implementation of the labor contract law is nothing but a fuse to expose the problem of shoe factories ahead of time.

All in all, these reasons add up to the explanation of why production costs have risen.

But rising costs do not necessarily lead to factory closures.

The cost of Nike shoes is also rising. Why not go bankrupt?

If these are not enough to explain the collapse of shoe factories, what is the real reason for the failure of shoe factories?

It is very simple that these shoe factories do not have the pricing power. When RMB appreciation and labor costs rise, and the labor contract law is implemented, shoe factories can not raise the price of products. Once the cost exceeds the price, bankruptcy is inevitable.

The inability to raise prices is determined by the intrinsic attributes of the footwear industry.

The footwear industry is a completely competitive market. In such a market, no enterprise has pricing power. The market price of shoes is the result of the joint action of all shoe factories and consumers all over the world, just as the price of grain is determined by all producers and consumers.

In this sense, there is no difference between shoemaking and food.

All shoe factories can only accept the market price and can not change the price.

Although Dongguan is known as the "world shoe capital", its output accounts for 1/10 of the world's total, but in terms of total volume, no shoe factory is large enough to affect the price of a single shoe factory, just as the world's largest farms are not enough to affect world food prices.

The core problem is that shoes in Dongguan are not Nike, not Adidas, but shoes that are too common to be produced. Every country can produce if it wants to.

Dongguan can produce, Vietnam, Israel, Mexico and so on.

In the absence of appreciation of the renminbi, when the labor cost is relatively low, Dongguan's shoes have advantages over other countries' shoes, that is, the price is cheaper.

But the price advantage is not sustainable.

South Korea was the first Asian country to export large quantities of shoes. Later, with the rising cost of labor, the price advantage was no longer. So, it began to shift to the Taiwan region of China. Now, Dongguan has become the center of shoemaking, but it is a repetition of such a shift. Many of Dongguan's shoe factory owners are from Taiwan.

It can be expected that the footwear industry in Dongguan will shift to countries with lower labor costs, such as Southeast Asia, Africa and so on.

This pfer is irreversible, because once the labor cost is raised, it will be difficult to decline again.

Therefore, the way out for the shoe industry in Dongguan is not going back to the original scale, which is almost impossible.

Instead, forging several world-class brand products, like Nike, on the basis of many years of manufacturing.

The quality of Nike shoes and Dongguan shoes is not very different, but the price is quite different.

The reason is that Nike has brand influence.

The shoes of famous brands are no longer completely competitive products, but products with some monopolistic characteristics.

Once a product has monopoly property, it can have pricing power.

As the cost goes up, prices can rise, and customers will be able to buy them correctly.

These years, "China is the world factory", "foreigners are using Chinese products", these words are often hung on the lips of many people.

But what we produce in foreigners is almost all kinds of shoes, clothes, and so on.

They themselves originally produced, but only because of technological progress and industrial upgrading, and moved to us.

For example, television was invented by the Americans. The United States was the first producer of television, and later pferred to Japan, then moved to China.

Because for the United States, the production of TV has no comparative advantage, and if these industries no longer have advantages are pferred, they will be able to concentrate their resources on their own, such as Internet and windows operating systems.

In contrast, the products we use in developed countries, such as Boeing aircraft, are mostly produced by ourselves.

Products like Internet need most money, not labor, but imagination and creativity.

You know, so far, no country has been relying solely on the production of completely competitive products to become an economic power. Instead, it has to rely on innovation and creativity to build its own world famous brand.

We already have the foundation of creating the world famous brand, the shoe making industry is like this, but it is not always possible to make a famous brand with a foundation. There are still many places where we need to work hard.

This is the biggest revelation to us from the failure of shoe factories in Dongguan.