Where Is The Chinese Manufacturing Road That Has Lost Its Cost Advantage?

According to the world clothing and shoe net, the growing awareness of health promotion

Market development

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As the most competitive two sports brand, it is even more profitable.

Yuyuan group (00551), a manufacturer of Nike and Adi, also got a slice of it.

Yuyuan group recently released its unaudited interim results, with a bold dividend of about HK $6 billion 400 million.

Such a big hand ignited market enthusiasm. The first trading day after the announcement, Yu Yuan directly opened 6% higher, setting a record high of HK $34.85.

But the huge dividends from the foundries are largely due to cost control.

An important measure of cost control is to gradually shift the production line from China to Vietnam, Indonesia and Kampuchea with lower labor costs.

This has created a test for China: producers must seek maximum long-term benefits for shareholders, and they will live in low cost. In the past, Yuyuan has made good achievements by sharing the industry and China's demographic dividend.

Now, with the increase of China's cost, Yuyuan and other OEM enterprises have chosen to pfer their capacity to Vietnam. Where are the Chinese manufacturing roads that lose their cost advantages?

Retail can not be OEM: ADI Nike factory trench dividend payout 6 billion 400 million

Yuyuan group is an international brand sports shoes and casual wear shoes foundry giant, the group's footwear brand customers include Nike, Adidas, Reebok, ASICS, NewBalance and so on.

In 2008, Yuyuan split its retail business into Baosheng International (03813) independent listing.

However, Baosheng is regarded as Affiliated Companies of Yuyuan, and its financial data is still reflected in Yuen yuan's consolidated statement.

Recently, Yuyuan group and Baosheng have released unaudited interim results, and manufacturing and retail subsidiaries have performed differently.

In the first half of 2017, Yuyuan group's operating income was $4 billion 448 million, an increase of 3.91% over the same period last year, and net profit attributable to shareholders of the parent company was $259 million, an increase of 3.95% over the same period last year.

However, Baosheng international, a retail subsidiary, has declined due to rising labor costs and rents.

In the first half of 2017, Baosheng Group's operating income was $1 billion 405 million, an increase of 14.5% over the same period last year. Net profit attributable to shareholders of the parent company was $44 million, down 19.6% from the same period last year.

The increase in net profit came mainly from the strong foundry business, which made Yuyuan group have the backbone to pay dividends.

According to the plan: the interim dividend will be HK $0.4, with a special dividend of HK $3.5, with a total dividend of about HK $6 billion 400 million (about US $824 million), which exceeds the total cash dividends in the past 3 years.

In fact, Yu Yuan's dividends in the past were not low.

Since its listing in 1992, the company's revenue has increased steadily. In the past 2000-2016 years, the compound growth rate of operating income was 11%, and the net profit compound growth rate was 6%.

With the steady growth of performance, the group has a steady dividend every year, and the dividend payout rate has basically maintained over 40% in the past 10 years.

ADI Nike accounted for nearly 40% of China's market share and maintained rapid growth.

Yuyuan group's continuous rise in performance is closely related to the growth of Adidas, Nike and other brands.

From the global market perspective, in 2014, the world's top five sports shoes brands were Nike (including Converse), Adidas (including TMaG, Reebok), VF group (including Vans, TheNorthFace, Reef, Timberland), Asics (Arthur) and NewBalance, accounting for 74.6% of total sales, of which Nike and Adidas accounted for 57.9%.

From the domestic market, the top eight brands of China's sports industry are Nike, Adidas, Anta, NewBalance, Lining, XTEP, 31st degree and PEAK.

In 2016, eight major brands had a market share of 69.7%.

Among them, Nike and Adidas are the two most competitive sports brands in the Chinese market, occupying close to 40%, and are still developing at a high speed.

In the 2017 fiscal year (June 2016 -2017 May), Nike's operating income was $34 billion 400 million, an increase of 6% over the previous year, of which the Greater China region achieved 3 billion 785 million US dollars in revenue, an increase of 23% over the same period last year.

In fiscal year 2014-2017, the average annual compound revenue growth rate was 7%.

In 2016, Adidas's operating income was 19 billion 291 million euros (about 20 billion 319 million U.S. dollars), an increase of 14.05% over the same period, of which, the Greater China region achieved 3 billion 10 million euros in revenue, an increase of 22% over the same period last year.

In 2013-2016 years, the average annual compound revenue growth rate was 10%.

"Thigh" is also a good business.

Among the Hong Kong shares of clothing and footwear stocks, the top three in terms of market value are Shenzhou International, Anta sports and Yuyuan group.

In addition to Yuyuan, Shenzhou International is also a super supplier behind the giant. It is a garment manufacturer for Nike, Adidas, UNIQLO and PUMA.

In 2016, Shenzhou realized a total revenue of 15 billion 120 million yuan, an increase of 19.5% over the previous year, and a net profit of 2 billion 950 million yuan, an increase of 25.2% over the same period last year.

In the past 2013-2016 years, the compound growth rate of revenue was 15%, and the net growth rate of net profit to parent was 18%.

Transfer to Southeast Asia under cost pressure: your Nike shoes are from Vietnam.

As a member of the sports shoes industry chain, Yu Yuan used to share the bonus of brand growth such as ADI, Nike and so on. In the future, the growth momentum of the group will still be dependent on the upstream brand.

However, as a foundry enterprise, the bargaining power of branding is not high. If we want to maintain or further improve profitability, we need to reduce costs as much as possible and expand the scale effect in the production process.

However, in the 2011-2014 year, due to the increase in labor costs and production costs, the gross profit margin of the company continued to slump, and net profit continued to decline.

At the same time, the average selling price of footwear has been declining since 2014. In the first half of this year, the average selling price of footwear was 16.47 US dollars, which was 6% lower than the average selling price in 2014.

As the price of a pair of shoes is not high, if the price drops slightly, the company pressure will also increase.

As China's production costs increased and its upstream prices dropped, Yuyuan began to shift China's capacity to Vietnam.

Judging from the proportion of footwear production in the region, China dropped from 34% in 2013 to 17% in the first half of this year, and it was reduced by half. Vietnam increased from 34% in 2013 to 44% in the first half of this year, an increase of 10 percentage points.

With the pfer of the company's capacity and the control of related costs, the gross profit margin of the company began to pick up in 2014, and net interest rate began to pick up in 2015.

No matter how the macro policy is adjusted, how much the local government wants to increase the employment rate, but the enterprise is facing a cold reality: when the cost is rising, to maintain the level of profits, we must do everything possible to digest it.

Otherwise, the capital market will relentlessly suppress stock prices, and shareholders' wealth will be greatly reduced.

Return on capital, the tangible baton, is forcing manufacturers to shift their capacity to countries with lower overall cost.

Although China is still the fastest growing market for Nike and Adidas, according to the capacity distribution of the foundries, Chinese consumers are likely to wear more and more sports shoes from Vietnam, Indonesia and even Kampuchea.

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Challenge made in China: without brand, jobs will slip away any time.

In fact, more than Yuyuan group.

With the disappearance of demographic dividend, the stricter policy of environmental protection and more tax incentives from other countries, many labor-intensive industries have shown signs of migration to India and Vietnam. The high-end manufacturing industry has moved closer to the upstream of products and built factories in the United States and other places.

Since 2013, Shenzhou International has been expanding its fabric and garment production capacity in Kampuchea and Vietnam in order to enjoy cost and tax dividends.

At the end of July, President Trump announced that Foxconn will invest $10 billion to build a LCD factory in Wisconsin, which is another capacity pfer plan after Foxconn's march to India.

In the 90s of last century, thanks to the scarcity of resources and demographic dividend, Chinese manufacturing industry still made a lot of profits, though it had a low premium, but at the same time, it created a large number of jobs.

Today, the United States continues to promote the manufacturing backflow plan. Germany also proposes that industrial 4 is ready to fully revive the manufacturing industry, and modi starts the "made in India" program.

The competitive pressures faced by China's manufacturing industry are increasing.

The manufacturing sector is the most important sector to accommodate employment. The distribution of the capacity of the foundries is actually the result of the global allocation of resources by the brand.

In this sense, many jobs in China or India and Vietnam actually depend on the strategic planning of pnational corporations such as Nike and Adidas.

Nike and Adidas may not issue a notice requiring factories to shut down China's production bases and set up factories in Vietnam.

However, economic laws will force the foundries to do so.

Under the pressure of upstream brand, cost is always a problem for OEM enterprises.

If the OEM factory like Yuyuan group does not pfer the production line to Vietnam with lower cost, then Nike and Adidas will probably hand over the order to Yuyuan's competitors.

Through orders, multinational brands are controlling the flow of jobs around the world. Many jobs in China depend on such brands as Nike ADI.

After all, owning independent technology and brand is king.

China is not without its own brand, but many brands have not yet been really strong enough, they have begun to be arrogant, blind and diversified, and even devote energy and resources to real estate and other fields.

GREE air conditioner has been regarded as the model of Chinese manufacturing brand in the past more than 10 years. Its domestic market share ranks first, and it has been exported to many countries to become the famous A Bull Stock.

But unfortunately, since the retirement of Zhu Jianghong, the low-key founder of GREE, GREE Electric has also begun to diversify.

Zhu Jianghong published an autobiography entitled "my 24 years in charge of GREE" recently, which tells her the pioneering course of GREE from scratch.

Zhu Jianghong, who pays attention to technological innovation and low-key pragmatism, has refused many opportunities for blind diversification of real estate, refrigerators, televisions, photovoltaic and other industries during his time in charge of GREE electric. He focused on building core competitiveness in the air conditioning field and eventually becoming an oligopoly, laying a solid foundation for GREE's total market value of up to about 200000000000 today.

But after several years of Zhu Jianghong's retirement, GREE Electric is involved in the mobile phone industry in a high-profile manner. It has caused huge differences between minority shareholders and management because it wants to buy Zhuhai silver dragon to enter the new energy vehicle industry.

Is GREE really strong enough in the air conditioning and related industries? Do not need to concentrate on excellence, so that we can make a big difference?

Obviously not, although GREE has exported products to Europe and America, many products still remain in OEM stage, such as "Soleus Air" produced by customers.

And there is still much room for improvement in product quality.

In June 2013, a year after Zhu Jianghong left office, GREE Soleus, a US market partner, filed a complaint against GREE electric in California federal court for $150 million, on the grounds that GREE sold its easy fire dehumidifier.

In September of the same year, GREE announced that some of its dehumidifier products exported to the United States and Canada might overheat, smoke and fire, and recalled about 2 million 250 thousand dehumidifier products sold in the US and Canada between January 2005 and -2013, involving 12 brands including Soleus Air, Kenmore, Frigidaire and so on.

As a leader of national brand, GREE is still the same, not to mention other enterprises.

In this era of rapid updating of information, simply copying or stopping will only face the high dimensionality of international innovators, and follow others' footsteps, leaving no footprints for ever.

To get out of the way, we need to focus more on innovation rather than just print the head of the chairman on the product.

Jobs didn't use his head as iPhone's boot screen, so he could sell it all over the world.

No core technology, no refinement, and always be second class.

Such profits and jobs will come faster and faster.

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