In Vietnam, The Ningbo Enterprise, Which Built 700 Million Factories For ADI, Has Recruited 32 Thousand Foreign Employees.

In October this year, Shenzhou International Group Holdings Limited, the largest vertically integrated knitting manufacturer in China (hereinafter referred to as Shenzhou International), issued a notice that the group will invest about $100 million to build a garment production facility specially designed for Adidas in Vietnam, and is expected to start production in 2021.


The announcement said that the Board believed that the construction of garment production facilities in Vietnam would diversify the production base of the group, ease the tension of the group's capacity and provide flexibility in the increasingly complex international trade situation. Therefore, the Board believes that the construction of new production facilities will be beneficial to its customers, groups and their shareholders as a whole.


Gao Xiang, an international analyst at state yuan, said that the deep cooperation between Shenzhou International and big clients can be reflected in that the expansion of capacity needed for large customers is not necessarily based on paper agreements, but based on long-term tacit understanding or communication. For example, Vietnam's newly built Adidas plant was built for Adidas after understanding and communication between the two sides, and determined the capacity expansion plan for the next few years. And because the fabric of the company is exclusively developed, the order is also exclusive. In most cases, it can be "one for the whole world", that is, the customer will not dismantle it to other suppliers.


In Gao Xiang's view, Shenzhou International is the first to match big customers with the market demand. In recent years, the high-end capacity resources are becoming scarce. Therefore, the supply chain and operation strategy of big customers are constantly being adjusted, and the streamlining and selection of their suppliers is also constantly upgrading. The number of Nike apparel suppliers declined from 430 in 2014 to 334 in 2018. The top five of the core apparel suppliers rose from 34% in 2014 to 49% in 2018, and the largest apparel supplier rose from 7% in 2014 to 10% in 2018. The number of ADIDAS suppliers dropped from 340 in 2014 to 289 in 2018, of which 82 of the strategic core factories reached 82 in 2018, and 84% of the strategic core factories worked for more than 10 years. Shenzhou International maintains that the apparel supplier, the first global supplier of four major customers, can see the company's ability to protect customer demand under this trend.


At the same time, Shenzhou International has also given customers confidence through its long quality assurance. For example, Adidas worried about the high proportion of Shenzhou in its supplier system in the early years, and the growth rate was very fast. In the past few years, after the replacement of the management team, the company has reassessed Shenzhou, so the supply of ADI has lagged behind Nike in the past few years. But after years of running in, the team's recognition of Shenzhou is very high, and it is considered that the high end production resources of the high quality supply chain are insufficient, and enterprises like Shenzhou need to be helped to solve them. Therefore, in this context, Shenzhou International has built a new Adidas factory in Vietnam.


Gao Xiang believes that in the face of the constant iteration and upgrading of the market, several major customers are in need in this respect. Shenzhou International orders are in short supply. Therefore, in the context of maintaining technological innovation and keeping the advanced nature, the biggest factor of the company's future growth is mainly the continuous improvement of self capacity, rather than the fear of declining orders. Shenzhou International New Vietnam's garment factory planning 6000 people (expected to start production in the two quarter of 2019), ADI factory planning 6000 people (is expected to start production in 2021), plus Kampuchea Phnom Penh garment factory planning in 1.7-1.8 million people (2021 is expected to start production), three factories are expected to increase by about 30 thousand people.


Gao Xiang pointed out that on the whole, Shenzhou International has the first mover advantage overseas, and has a relatively low threshold in terms of environmental protection and taxation, and has the advantage of scale. Thanks to the strong technical support and personnel support from Ningbo headquarters, it has been able to overcome the climbing period overseas. The difference between the basic cost and the production cost of the fabric factories is relatively small.


However, Gao Xiang also said that overseas opportunities and risks coexist. Today, Vietnam's overall trade environment is improving, including its CPTPP signed last year (comprehensive and progressive trans Pacific Partnership Agreement). Vietnam's textile and garment industry will have the opportunity to expand its market share in countries such as Canada, New Zealand and Australia. At the same time, it is also necessary to note that in recent years overseas labor costs have also risen rapidly, and resource prices and land prices, as well as the enthusiasm of government investment, are all being adjusted. Therefore, large-scale industrial transfer is very difficult. Shenzhou International can develop locally based on its own scale advantage, so the risk of small and medium-sized enterprises going overseas to invest and build factories is still relatively large.


In addition, from the profitability of Shenzhou International's overseas factories, we need to see the following aspects:


1, in terms of gross margin, the fabric factories are basically the same as those in China. After the efficiency of garment factories, the gross profit rate will be higher than that in China, but at the same time, Shenzhou International will also give customers a certain discount on price. However, in the short and medium term, the increase of net interest rate will be greater than gross margin because of the relatively long period of tax preference overseas. At present, the cost advantage of overseas has been gradually reflected, because the investment in early stage is large, and the utilization rate of capacity is not full, so the efficiency also needs to climb.


2, the tax side, Shenzhou International Textile Factory located in Vietnam began to pay taxes in 2020, the garment factory began to pay taxes in 2021, but enjoy half a year discount of 9 years, about 5% of the level, combined with the proportion of overseas capacity (clothing 30% of overseas production capacity, fabric 40% capacity overseas, basically in Vietnam), combined look at the overall tax rate will have a little impact, but not too big.


In the long run, Gao Xiang analysis shows that the overseas cost of Shenzhou International has also started to rise. It is not expected that the future will always be more advantageous overseas, because after all, China has strong infrastructure facilities, complete industrial chain, convenient logistics and even support from industries such as IT, and so on. China's advantages also partly make up for the cost disadvantage. So in the future, when the cost advantage of overseas is narrowed down with China, the advantages of other aspects of China will probably be more obvious.


Wang Xueheng, a researcher at Guoxin Securities, who recently visited Shenzhou International Vietnam factory, also said that the Shenzhou International Vietnam project is climbing. It is expected that the next 3 years will continue to grow rapidly.


1, mature factories: at present, there are about 12 thousand workers in Vietnam's mature garment factories, which account for about 15.6% of the total capacity of the company. In 2019, the factory (the WorldCom garment factory) maintained more than 20% growth, while the new project (Derry garment factory) has started recruiting and putting into production.


2, climbing factory: at present, the dresley garment factory has recruited 3000 employees, and is expected to reach 32 thousand production capacity per day by the end of this year. It is expected to reach 15/20 capacity per day by the end of next year and the end of next year.


3. Under construction plant: Vietnam new project, the Adidas special factory announced by the company recently, is built in the WorldCom factory area. It plans to recruit 6000 employees. The first is expected to be completed by the end of 2020. After 2021 Spring Festival, recruitment will be phased in, and 2-3 years will be achieved.


According to Shenzhou International Plan and the rhythm of climbing productivity efficiency in the past, Wang Xueheng predicted that its capacity growth in Vietnam will grow rapidly in the next three years, increasing by 44%, 45.9%, 42% and 26.5% in the 2019-2022 years, respectively.


As early as August 2019, Shenzhou International Management Group mentioned that Vietnam's new garment factory (design capacity of 8000 workers) has been put into operation in mid 2019, and the new garment factory in Kampuchea (design capacity of 18 thousand workers) is expected to be put into operation in mid 2020. After the completion of these three new factories, the total number of employed workers is 32 thousand, and plans to employ 4000, 6000, 8000, 7000 and 7000 persons in 2019, 2020, 2021, 2022 and 2023 respectively.


According to the insiders, Shenzhou International has a more balanced target audience. In the first half of this year, Shenzhou International accounted for more than 30% of its revenue from Nike and 20% from Adidas. In addition, management has said that the share of the customer's capacity should be tilted from Nike to Adidas. Therefore, the establishment of Adidas specialized factory is more reasonable.


By the middle of 2019, Shenzhou International's production base in mainland China, Vietnam and Kampuchea had 38 thousand, 12 thousand and 11 thousand employees respectively. The new factory will help increase the share of overseas capacity and help companies adapt to the uncertainty of international trade.


According to public information, Shenzhou International is China's largest vertical integrated garment manufacturing leading enterprise, mainly to provide quality knitwear and clothing for customers by means of subcontracting. The main customers of the company are international famous brand clothing retailers. The top four customers are Nike, Adidas, Uniqlo and Puma respectively. The sales market covers mainland China, the European Union, the United States and Japan.