R & D Based Migration Base Dongguan Shoe Enterprises Live And Die

"Our pformation and upgrading is relatively successful, and export is acceptable this year."

Zhang Huarong, chairman and chief executive of Huajian group, said to "First Financial Daily".

In from July 19th to 20th, Wen Jiabao, member of the Standing Committee of the Political Bureau of the CPC Central Committee and Premier of the State Council, came to Guangdong for investigation and research, and went to Guangzhou, Dongguan, Shenzhen and other places to understand the production, marketing and research and development situation. Huajian group's Dongguan Warburg Footwear Co., Ltd. was one of Wen Jiabao's inspection.

Zhang Huarong told Premier Wen: "I am a native of Jiangxi, benefiting from the good policies of the party's reform and opening up. I went to Dongguan to start business in 1996. Now our factory produces 16 million pairs of shoes annually and exports 260 million US dollars."

Like many shoe companies, Zhang Huarong has been facing pressure of cost pressure and the cold spell of the whole industry in this year, including many factories in Nancheng district and Houjie town of Dongguan. But with the advantages of shoe factory management technology, production skills, funds, R & D design capabilities, customer resources and risk pfer, the export situation has improved over the past two or three months.

Zhang Huarong invested about 50 million yuan in Dongguan last year to build a world shoe industry (Asia) headquarters base, positioning the base as R & D, trade, brand incubation, logistics Asia headquarters, developing new materials, new products and developing new markets. Now, the number of people working here has reached more than 2000 people, helping him create the dream of shoemaking kingdom.

At the same time, in Dongguan, the world's most important shoe making base and trading center, there are still a lot of small and medium-sized shoe enterprises in the brutal industry shuffle in the struggle for life and death.

The shoe industry "life and death" is located in Hetian street, Houjie Town, Dongguan.

Almost every household's storefront is used to trade in shoes materials, from shoe heels to leather, fabrics, shoes decorations, shoes glue and other materials. Everything here is not only supplied to the local footwear industry in Guangdong, but also exported to Southeast Asia and other countries or regions.

Now, some subtle changes have taken place behind the prosperous trading. Some shops have been closed and some notes have been posted.

Local people told reporters that rarely seen before this situation, once a shop pfer, someone will soon take over, generally will not be vacant, and now there is a close shop with the shoe business difficult to do this year has a lot to do.

It is the largest shoe material trading market in Dongguan, which is not far away from Hetian street.

Reporters saw from the scene that few customers came to purchase, and some shoe material owners were bored or even rubbing mahjong or drinking kungfu tea. They told reporters that this year's business was much worse than before.

Mr. Qiu, who sells shoes and accessories mainly, told us this reporter that the monthly sales can reach 7.8 million yuan, or about 30% exports, which has only a few tens of thousands of yuan a month this year, and the number of buyers at home and abroad has been significantly reduced. Because of the appreciation of the renminbi, the increase of raw materials and labor costs and so on, the comprehensive cost of the enterprise has increased by 8% to 10% this year. But at present, it can only raise 3% to 4%, and profits are greatly reduced.

Li Peng, Secretary General of the association of Asian footwear industry, told reporters that the wages of ordinary workers in the footwear industry in Dongguan this year were generally raised by 10%, about 1200 yuan per month, the price of raw materials of shoes increased by 20%, and the appreciation of the renminbi by 6.5%, coupled with the 2% reduction in export tax rebates and the adjustment of processing trade policies, which made many small and medium-sized shoe-making enterprises whose profits were only 5% to 8% unsustainable. They could only go bankrupt or go out of business when they could not pass up the cost to customers. The result of the association's field investigation was that there were about 200~300 enterprises in the more than 1000 shoe making enterprises in Dongguan.

The "shortage of migrant workers", "electricity shortage" and "oil shortage", plus anti-dumping, appreciation of the renminbi, rising labor costs, rising raw material prices and the adjustment of policies on export rebates, processing trade and so on, led by various factors, Guangdong, which accounts for 40% of the total export volume of footwear products, is experiencing the pains of pformation and upgrading, and many shoe enterprises have been eliminated.

Statistics from Guangzhou customs statistics show that in the first half of 2008, the export enterprises of footwear products in Guangdong province fell from 5811 in the same period last year to 3924 in the first half of this year. Among them, the decline of footwear export enterprises in the Pearl River Delta was even more obvious, from 5043 in the same period last year to 2617 in the first half of this year, a decrease of 2426, with a drop of 48.1%.

In the first half of this year, Guangdong exported 1 billion 630 million pairs of footwear products, down 15.8% from the same period last year (the same below), of which 560 million pairs of shoes exported to the United States decreased by 7.5% in the first largest market.

According to the prediction report from the European and American footwear retailers Association, the consumption of footwear industry in Europe and the United States will drop by 10% in 2008, due to the US sub prime mortgage crisis, EU anti-dumping and global inflation.

Li Peng believes that the export volume of Guangdong shoe products is declining. Apart from the gradual loss of cost advantage, it is also related to the main export markets of Guangdong footwear products. More than 80% of Guangdong's shoe factory orders are mainly European and American markets, and the decline of the European and American markets has a direct impact on the survival and development of most shoe factories in Guangdong.

Despite the sharp decrease in Guangdong footwear export enterprises in the first half of this year, exports still maintained an increase of 4 billion 960 million yuan, an increase of 9.2% and an average export price of 3 US dollars / double, an increase of 29.6%.

Guangzhou customs analyst pointed out the reasons: the Pearl River Delta footwear exports to the larger enterprises concentrated, for example, in 1~5 months of this year, the export volume exceeded 100 million US dollars in 4 enterprises, an increase of 2 over the same period last year; the export volume of more than 10 million U. s.dollars has 62 enterprises, an increase of 7 over the same period last year, 62 enterprises 1~5 months exports 1~5 U. S. dollars, a substantial increase in 16.5%, exports accounted for the same period of the Pearl River Delta footwear exports.

In spite of the changes in the external trade environment and the rising cost of exports, Huajian group, though in the first quarter of this year, also encountered orders which were not ideal, the situation quickly improved, even better than expected.

Taking into account the export market slump and cost increase this year, Zhang Huarong originally planned to expand production scale no longer as usual this year, and plans to adopt a gradual increase in prices to deal with the appreciation of the renminbi. Plans to raise prices between 3% and 4% in the first and second quarters, 3% to 4% in the third and fourth quarters, and 8% increase in the whole year.

After experiencing this brutal industry shuffle, Zhang Huarong realized that all efforts made in the past few years for pformation and upgrading have played a role in the crucial moment.

On the one hand, continuously increasing the added value of products, on the other hand, it also reduces the operation cost through gradient pfer.

Realizing that Dongguan's cost advantage will be gradually lost, Huajian group began to try to adjust the layout of production as early as the end of 2001, and first invested in Jiangxi to build Ganzhou Huajian international shoe city, thus breaking some of the production and moving to break the single production pattern in Dongguan.

Jiangxi's production base has played a great role in reducing costs and coping with the shortage of migrant workers in the Pearl River Delta.

Zhang Huarong told the first financial daily that although the whole production of shoes industry in Ganzhou is not perfect, the raw materials are mainly purchased in Dongguan, but because Ganzhou is next to Guangdong, the Guangdong Jiangxi expressway is closer to the distance between the two places. Freight pport can be completed within a day, plus Ganzhou workers' monthly wages are about 300 yuan cheaper than Dongguan, and relatively stable, and the cost of hydropower is also much lower.

Now, more than 10 thousand workers in Huajian group's factories in Ganzhou and Dongguan have pferred large quantities of low shoe orders to Jiangxi, with an annual capacity of 8 million pairs in Ganzhou, which is close to Dongguan's output.

However, Huajian group still keeps high quality shoes with high added value in Dongguan.

Wu Zhenchang, chairman of Guangzhou Panyu Chuangxin shoes industry Co., Ltd., who has exported over 100 million US dollars, also said in an interview with our reporter that although the cost pressure increased this year, the orders for processing and production had not decreased, and the export volume continued to grow. Nike and other key customers increased the order price accordingly.

Large processing plants have advantages in terms of production scale, product quality and market risk resistance, and their bargaining power is relatively strong.

"Although the small and medium-sized shoe enterprises in the Pearl River Delta have encountered difficulties in the reshuffle of the cruel industry, the order has not been pferred to other countries or regions in large scale. Enterprises can extend or create new living space by increasing production level, expanding the domestic market and moving shoe factories to various industrial parks in the mainland."

Huang Huahua, governor of Guangzhou Province, said that during 2008 ~2012, Guangdong will bring about 40000000000 yuan of funds to promote "double pfer". These incentives will help the processing trade enterprises to lighten the burden, reduce production costs, better tide over difficulties, and accelerate pformation and upgrading in 2008, said Mr. Huang Huahua, governor of Guangdong province.

Incentives include reducing the electricity and water charges that businesses need to pay, minimizing factory burdens, and rewarding factories that migrate to inland areas of Guangdong.