Case study: how some factories are surviving the storm

In the following blog posts I outline how suppliers are reacting to the challenges of the current market place (lack of demand in US and EU, rising costs in China, increased competition, labor shortages…):

Reports of China’s death as a sourcing destination are
highly exaggerated.

Exclusive look at data from one of the largest Chinese supplier surveys ever conducted

Heavy hitters weigh in on future of China Sourcing

Labor Shortage in China

In a recent article entitled “surviving economic changes in industry” I was happy to see that many of the predictions I made in the blog posts above are coming true as Chinese suppliers are starting to rise above the old “throw another body at it” philosophy of manufacturing and finally thinking lean and getting creative to capture market share and be better suppliers for us buyers.

Here are some of the article highlights about a shoe company that has made some big changes recently:

In a factory in the city of Wenzhou, Zhejiang province, Luo Li, vice-general manager of shoemaker China Juyi Group, talked proudly about how new laser machines have helped to improve its productivity.

Before, she said, it took a skilled worker an hour to make hollow patterns on a shoe’s leather upper wrap. But with the laser machine, everything is done in two seconds.

By constantly improving its technology, Juyi managed to grow from a 20-strong workshop to a modern manufacturing base with 5,000 employees and annual exports of more than $100 million.

While many other local shoemakers have collapsed, Juyi has become bigger and stronger.

Beijing’s Plan?

The transformation of Wenzhou’s shoe industry is what Beijing has been advocating in recent years, and comes amid growing realization that the labor and resource-intensive growth pattern that drove China’s miraculous economic development over the past 30 years is no longer sustainable.

Labor costs, for one thing, have shot up significantly over the past few years, pushing up manufacturing costs.

The Ministry of Human Resources and Social Security said that the minimum wage increased by an average of 21.7 percent year-on-year in 21 provinces last year.

Raw material prices are also surging, as is the yuan’s exchange rate against the US dollar.

The combination of these factors drove many of the country’s low-end manufacturers to the brink of bankruptcy because their business model gives them a thin profit margin and little bargaining power over export prices.

Chinese manufacturers are in a pivotal period, said Luo, when many will die and some will come out much stronger. “And the way to survive is to stick to what you are good at and do it really well,” he added.

Wishing you successful China sourcing!

About the blogger

 

Mike Bellamy is an Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center (www.ChinaSourcingInfo.org).  He is also the author of, “The Essential Reference Guide to China Sourcing” (chinasourcinginfo.org/book) and founder of PassageMaker Sourcing Solutions (www.PSSchina.com)

1 Comment

  1. John Lockyer on August 22, 2012 at 10:15 am

    Mike, there is an error in the link to the China Daily article. it comes up as:
    http://http//europe.chinadaily.com.cn/business/2012-04/09/content_15004316.htm?bsh_bid=88518827

    (two ‘http’)

    This one works:
    http://europe.chinadaily.com.cn/business/2012-04/09/content_15004316.htm?bsh_bid=88518827

    Keep the content coming!

    Cheers, John



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