PRD Shoe Enterprises Cost Bottom: Guangzhou Labor Cost Approaching Taiwan Area

As the first shoemaker transferred from Taiwan to the Pearl River Delta, Wu Zhenchang, the honorary president of Guangzhou Association of Taiwanese businessmen and chairman of Chuangxin shoes industry Co., Ltd. still chose to stick to the Guangzhou camp. His shoe factory now has more than 4000 people and is considered to be stable in the sports shoe factory. However, Wu Zhenchang admitted in an interview with reporters recently that eighteen Wu Yi was almost exhausted and began to be somewhat confused about how to transform and upgrade in the future.

　 Rising labor costs

"For example, produce a pair of Gym shoes The import of 10 yuan of raw materials generally requires a tariff of 1 yuan, while Indonesia's import of raw materials is exempt from customs duties, and the cost of labor is also lower than that of the mainland. A pair of shoes in the two places only processing cost difference two yuan, therefore, buyers gradually part of the order to Southeast Asia transfer. The market demand of global shoe products has not decreased, but from the previous high-speed growth to micro growth, competition has obviously intensified. Since the financial crisis, labor costs in mainland China have risen rapidly, rising from 1000 yuan to 3000~4000 yuan in several years, and the cost of social security paid by enterprises has also risen and continuously eroded profits. Enterprises need to transform and upgrade. " Wu Zhenchang said. Wang Renguo, deputy general manager of Baoding, also talked about the situation of the shoe industry in Dongguan from the beginning of 2008. In 2014, the wages of workers increased by 200 yuan, and the average wage reached 3200 yuan. With the increase of labor and social security requirements, a factory increased by two to three million yuan a year.

At present, according to the latest adjusted social security in Guangzhou, enterprises bear part of the endowment insurance, work-related injury insurance, unemployment insurance, medical insurance, major medical insurance and childbearing risks respectively 14%, 1%, 1.2%, 8%, 0.26% and 0.85%, totaling 25.31%. The minimum wage in Guangzhou is 1550 yuan, but the minimum insurance payment standard is stipulated in the Guangzhou insurance policy. The company's payment is from 694.74 yuan. In Guangzhou, according to the wage of 2745 yuan, plus 5% housing provident fund, a company has to pay 832 yuan for employees' social security and provident fund. Wu Zhenchang told this reporter that this is equivalent to the cost of social security paid by employees in Taiwan for a salary of RMB 6000 yuan, 11.77% of the social security provided by Taiwan enterprises for employees and their families, and the company needs to produce at least 2% of the company's retirement reserve, but the total social insurance coverage is still much lower than that of the mainland. The monthly salary of skilled workers in the PRD is generally 3000~4000 yuan. Enterprises should pay 759~1012 yuan to pay social security for their employees, plus provident fund, which is higher than Kampuchea's workers and even Vietnamese workers. "Now the cost of labor in Guangzhou is approaching. Taiwan Area. However, the footwear industry in Taiwan has basically shifted away. Once the industry is transferred, it is very difficult to move back to Taiwan. At present, the cost of labour in the PRD is about 600~650 dollars, about 300 US dollars in Indonesia, while Vietnam is only about 250 dollars, and Kampuchea is cheaper, which is about 100 dollars. Wu Zhenchang said.

In recent years, because of the fast rising costs, not only small and medium-sized enterprises, but also some large export enterprises and domestic brand shoe enterprises can not escape the fate of profit decline. The reporter consulted the 9904.TW, the world's largest sports shoe maker, and found that the net interest rate of its important subsidiary, Yuyuan Industrial (00551.HK), was only 4.5% in 2013, due to the rising wage costs and the capacity transfer and adjustment of shoemaking operations. It dropped to below the normal boundary line of 5% of the shoe industry, which was established by convention, which was less than 5.8% in 2012. In 2014, Yuyuan Industrial self consolidated revenue was $8 billion 14 million, an increase of 5.7% over the 2013 US $7 billion 582 million. However, due to disputes with employees in the "five risks and one gold" dispute, which resulted in large-scale stoppage in April last year, Yuyuan industry decided to increase and adjust its social security and housing provident fund in the second quarter of last year, resulting in an increase in the consolidated business expenses in the first three quarters of 2014 compared with the same period last year. The net operating profit of the Yuyuan yuan was reduced by 1 billion 222 million yuan to NT $5 billion 360 million, compared with the previous three quarters.

Wu Zhenchang said that the rise in labor costs leads to a decline in profits, which is bound to force shoe enterprises to upgrade. The Taiwanese footwear industry, which poured into the mainland in the 90s of last century, is generally faced with equipment upgrading. This requires a lot of investment and involves the development of the next five or ten years. Enterprises often consider taking a new place with more cost advantages to complete the transformation and upgrading, and maintain steady growth of orders through transferring to Southeast Asia or the mainland. Moreover, many Taiwanese businessmen are already old, and their children are often reluctant to invest in the shoe industry with high investment and low returns. This is one of the reasons for the reduction or closure of many Taiwanese funded shoe enterprises in recent years.

　 Difficulties in transformation and upgrading

In Wu Zhenchang's view, the difficulty of upgrading and upgrading shoes enterprises is constantly increasing. "In the face of labor shortage, we constantly introduce equipment to enhance automation, but the import of new equipment requires 10% of customs duties and 17% of value added tax. Therefore, it is suggested that the relevant departments should consider reducing or exempt the tax on the enterprises that have been upgrading or upgrading on the mainland. In addition, social security policies, especially those left behind by history, have caused us a lot of trouble.

Insiders told reporters that in the early days of social security promotion, foreign employees were generally reluctant to participate in insurance because of various reasons. However, with the constant adjustment of social security policies, more and more workers are now strongly demanding that social security be paid. According to the 20 letter of the Ministry of personnel and social order September 2013, after November 1, 2013, the way to pay back is five risks plus full late fees, but some workers have worked for more than 15 years. The conversion will take about three times the late fee plus the cost of social security itself, which is a great burden for enterprises.

At present, the shoe enterprises in the coastal areas are making money harder and harder. As wages rise rapidly, factories will shift to other areas, and the cost of closing the original factory will be more expensive with the extension of time. This is another reason why shoe factories have compressed their scale or closed factories in recent two years. "If there are 1000 workers in the factory who have worked for more than 10 years, the factories that closed in 2008 will need about 10 thousand yuan (ten months' monthly salary of about 1000 yuan) to compensate the employees. The total cost will be about 10 million yuan, and now the factory will be converted to a monthly salary of 3000 yuan. The same number will need 48 million yuan (compensation for 16 months, 3000 yuan per month). If it is closed two years later, it will need 72 million yuan (the average monthly compensation is $10 thousand per month). The industry insiders said.

Zhou Shijian, a senior researcher at the Sino US relations research center of Tsinghua University, described the processing trade with the reporter's interview. He thought that the historical task of the processing trade had been completed, and now it was out of date. The shoe industry only turned from the low end to the middle and high end, and extended the production chain and added value to adapt to the changes of the times.

However, the transformation and upgrading of shoe enterprises is not easy. A Dongguan shoe company official told reporters that these years have been exploring the transformation from foundry to independent brand, from design to a number of high-end shopping malls, but the export orders have been exacerbated, and the need to invest in building their own brands has been huge, resulting in the breakup of capital chain and forced to shut down factories for more than 20 years last year.

Wenzhou's private shoe industry based on domestic sales AOKANG International (603001.SH) last year's performance could not be too optimistic. In 2014 1~9, the company's operating income was 2 billion 97 million yuan, a slight increase of 0.55% over the same period last year, but the net profit attributable to shareholders of listed companies was 186 million yuan, a decrease of 27.98%. Therefore, the company began to enter the financial industry to seek new profit growth point.

In recent years, Wu Zhenchang has frequently visited Southeast Asia and other places. He has considered the transfer. He is still more inclined to stay in the mainland for transformation and upgrading. On the one hand, his factory in Panyu, Guangzhou, was bought by himself early in the morning. Land prices continued to rise, to a certain extent, to wash away the rising operating costs; on the other hand, his son had come to his shoe factory to assist in the operation. Over the past few years, Wu Zhenchang has been constantly improving the efficiency of automation production, improving design and selection of styles, reducing species and other ways to digest rapidly rising labor costs. However, many factories close or shifted around him. He was worried that the whole production supporting environment of shoes industry would be affected, and the unemployment of employees would be aggravated after the large-scale shift of shoes industry. He suggested that the relevant government departments should formulate a more reasonable purchasing policy for the problems left over by social security, and raise the export tax rebates of footwear products from 15% to 17%, so as to transform and upgrade certain profit margins for enterprises. In addition, additional taxes and taxes on educational attaching and urban construction should be considered to be terminated. After all, taxes on such names in other countries are quite rare.

This year, China's manufacturing and foreign trade situation is not optimistic. In January 2015, the purchasing managers' index PMI of China's manufacturing industry was 49.8%, down 0.3 percentage points from last month. After 28 months, it once again fell below the dividing line, indicating that the manufacturing industry has entered a recession. Over the same period, the total value of China's imports and exports was 2 trillion and 90 billion yuan, down 10.8% from the same period last year. Among them, exports were 1 trillion and 230 billion yuan, down 3.2%. How to break through in the "cold winter" is still a difficult problem for shoe manufacturers.