Adidas And Other Cost Driven Foreign Investors "Run Away"

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The Adidas factory in Suzhou, the industrial park, is roaring, and the female workers in the workshop are busy on the assembly line.

Since the news that the only factory in Suzhou, the Suzhou factory is about to close in July, has been confirmed, it has been reported that many domestic factories for more than 10 years, such as Adidas production sportswear and T - shirts, have recently been informed - this year from October to April next year, it will be solved and terminated.

The Adidas public relations officer confirmed to the reporter,

The factory will be closed later this year, with information that the date is scheduled for October 31st.

But for Adidas's manufacturing business in China, Adidas public relations official said, "China is still an important purchasing market for Adidas, and Adidas still has a cooperative relationship with more than 300 generations of factories in China, far more than any other regional market."

More than one foreign businessman has made the same choice with Adidas.

At the end of last year, the Danone yoghurt Shanghai factory was shut down.

In February, best buy, the largest electronics retailer in the United States, announced the closure of its 9 domestic stores.

In May, Japanese electric supplier Lotte co operated with Baidu B2C cool days announced closure.

In June, NOKIA announced that it would close down two regional sales offices in Chengdu and Shanghai and lay off staff.

In July, Adidas said it would close its only plant in China.

Such changes are quietly being carried out in many "made in China" High-yielding areas.

In Shenzhen, a lot of factories have set up "rental" signboards. The dormitory has lost the noise of the past, and the smoky factory buildings seem to disappear, and the sight of the migrant workers can not be seen.

According to the Ministry of commerce data, foreign direct investment FDI (external direct investment) has only a 0.05% increase in May since November last year, while other months are negative. In June, FDI fell by 6.87% compared to the same period last year.

Yang Zhuang, Dean of international MBA at Peking University and professor of management at Peking University's National Development Institute, also began to pay attention to this phenomenon.

He said, "foreign companies operate in any country because of the advantages of this country. The key lies in the environment of the country. The attractiveness of the Chinese market for multinational companies is declining, and the pfer of some businesses by multinational companies is normal."

The reporters found that most of the foreign businessmen who reduced their manufacturing operations in China were cost driven investment enterprises.

Adidas's overseas business model is the standard cost driven type - the early production base was located in Europe, then fought in Japan, followed by South Korea and Taiwan, and then came to mainland China. Now, with the rising cost of labor in China, some people have speculated or will move to Burma, Kampuchea and other countries.

Adidas global CEO Herbert Haina, earlier in an interview with German media, said that "because the wage standard set by the Chinese government has become too high, Adidas hopes to withdraw from China partially and move to cheaper labor areas."

Adidas's public relations official told reporters emphatically that "closing the Suzhou factory is because it will enable us to have a unified procurement structure, which is conducive to scale effect and reduce complexity, rather than migrate to any other place."

Although Adidas does not recognize the closure of factories in China because of its labor costs, it can hardly be persuasive enough to talk about wages alone.

With the increase in consumer prices of housing, daily necessities and services, China's wage rise in recent years is a "compensatory rise".

Nomura's estimation of labor productivity in China's industrial enterprises shows that in the 1994~2008 years, the annual productivity of labour productivity increased by 20.8%, while that of manufacturing industry increased by only 13.2%.

At the same time, China is no longer "refuse to accept", and it is more critical to deal with foreign investment.

Chen Zhenxin, director of the office of the Ningbo bonded area, once said that because of limited land resources, they will also have some restrictions in the planning and development industry, and will choose in new projects, and tend to be highly skilled and highly competitive industries.

At one time, China was a paradise for foreign investment. Cheap labor force, superior investment environment and potential large market attracted thousands of foreign investment.

The Chinese government has offered preferential policies for attracting foreign investment, including tax preferences, site preferences, partners, etc.

Yang Zhuang research found that "the Chinese government's policy toward foreign enterprises has changed dramatically, and Chinese enterprises and foreign enterprises have gradually enjoyed the same policies, and many of the preferential policies have gone."

For cost driven enterprises, China has not only lost the low threshold benefits, but also found that Chinese enterprises are becoming stronger.

"The competitiveness of Chinese enterprises has greatly improved in the past 10~15 years, making multinational enterprises in China face enormous challenges."

Yang Zhuang said that in some areas, the rapid improvement of the quality of Chinese products has made Chinese consumers less fond of foreign products. In the field of computers, products such as Lenovo, HUAWEI and other enterprises have already been able to compete with the world's top products.

It is also a matter for many companies to decide to reduce the Chinese market. After all, the Chinese market is only a branch of pnational corporations.

"After the financial crisis in 2008, many foreign enterprises were hit, involving capital, scale, cost and profits, and they encountered great difficulties."

Yang Zhuang said.

Another reason for closing factories and layoffs is that China's market and enterprises are changing at high speed, and multinational companies have made adjustments to the Chinese market.

To be sure, multinationals will never abandon China's market with 1 billion 300 million consumers.

Danone officials confirmed to reporters that Danone shut down the news of the Shanghai plant, but said it was not to close the factory, nor to reduce its business in China, but to use it elsewhere.

Closing the factory is only a business adjustment. Danone's four core businesses have maintained two digit growth in China.

Reporters in Danone's annual report found that the capacity of Danone's drinking water and beverage business is expanding.

At the end of February this year, Danone plans to invest 500 million yuan to build factories to produce drinks and drinking water in Qionglai, Sichuan province. After 2013, it will produce 250 thousand tons of beverage annually.

In addition, Danone's new "pulsation" new investment line, which invested 90 million yuan in Hebei, has also been put into operation, and its annual output is expected to reach 80 thousand tons.

Guangdong Zhongshan plant will also build two new "pulsating" production lines, and the output of each production line will reach 100 million litres / year after commissioning.

In terms of fresh dairy products, Danone focuses on building a strong brand with high added value and concentrating its efforts on key cities.

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According to Hao Ming, a staff member of Adidas factory in Suzhou, the company is planning to open Adidas logistics center in 2014, which will save part of the labor cost.

Perhaps Adidas is reducing the rising labor costs in another way.

Yang Zhuang research found that TNCs' headquarters adjustment in China usually adopts two strategies: one is to bullish on China and increase investment in China, and regard China as the most critical point in the foreign investment strategy, so as to make up for the loss of profits in other markets.

Samsung, Mercedes Benz and BMW are the representatives of such companies.

In April, the Korean Samsung Corp decided to launch the Samsung Electronic flash chip project in the inland city of Xi'an. The total investment of 30 billion yuan will soon become the largest foreign investment project in the central and western regions after the reform and opening up.

"Most of the second strategies occur in non high-tech manufacturing industries. These industries are not highly developed or highly competitive industries. When they are affected by domestic capital and environment, they will adopt a shrinking strategy and may pfer their business in China to other places."

Take the white appliance as an example, many electrical appliances industries in Japan have to close down because they can not stand the low price products in China.

Mode and China's competitive pressure is closely related to China's competitiveness as a competitor.

In the report on competitiveness of Chinese enterprises (2011) released by the research center of Chinese industry and enterprise competitiveness of the Chinese Academy of Social Sciences, it is pointed out that after more than 30 years of competition, China's industrial development has made remarkable achievements, pushing China to the status of the second largest economy in the world, and at the same time it has also paid a heavy price. The problem of "imbalance, uncoordination and unsustainability" is very prominent.

The source of industry and enterprise competitiveness is undergoing an important pformation.

"I have no culture, no skills, and where can I hire my 50 year old aunt?" in a group meeting, song aunt, who was once the best workman in the workshop, received the notice that the factory in Suzhou was about to close. Now she is about 50 years old, and she does not know what to do next in.

Workers like aunt song can change jobs. But how can China's enterprises face the end of "making dividends"?

Yang Zhuang believes that this is both an opportunity and a challenge, which will force China to change its future direction of development. China's manufacturing industry must be upgraded, from labor intensive to capital intensive, from the manufacturing capability of general merchandise to the manufacturing capability with great added value.

Western countries, which have led the world in steam, electrification, heavy chemical industry and information technology, are now running out of energy.

On the runway of the "new technological revolution", China should stand on the same starting line with the western countries.