Business
Coastal factories seek high-end market
By Zhao Yanrong (China Daily)
Updated: 2010-11-19 10:59
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YIWU, Zhejiang - Manufacturers from the Chinese coastal city of Yiwu, the world's biggest producer of household items and small products, are looking to attract the high-end market by improving quality and output.
A five-day 16th China Yiwu International Commodities Fair last month drew more than 18,000 business people from about 44 countries and regions, including about 10 percent from American and European countries.
And in the first eight months of this year, Yiwu manufacturers exported products worth more than 1.8 billion yuan ($270 million), almost 38 percent more than in the same period of last year.
But they are looking for more - and from better quality buyers, too.
He Anzheng, who has been running a craft candle business in Yiwu for the past five years, said that when he started, his clients were from only Africa and Russia.
When clients from the Middle East began to come on board, they and the Africans would usually ask for really low prices, he said, helping his business to grow rapidly.
"Most European companies turned down my products, because of the low quality and poor design," he said.
With more local factories entering the candle business, He's profit margin became smaller.
"If I ask 4 yuan for a craft candle, others might ask 3.90 yuan," he said. "Price is often the first consideration for those customers."
In the second year of his business, he began improving quality rather than compete on price. He also encouraged his staff to create more designs to meet higher international requirements.
"We made the glass candle holders much thicker, with various colors, and some were upgraded to include an opaque finish, which is highly regarded and sought after," he said.
Even then, only 20 percent of his products are being shipped to Europe, even though his company sells more than 200 shipping containers of craft candles overseas every year.
"Most European and American customers still believe our products are ugly with poor quality, so we have to do much better to attract them back," he said.
He also found another way to increase profits while improving quality. When an African client, for example, wants to pay lower prices, he would ship the products in plain packages instead of the more fancy ones, which may include a transparent cover.
Yao Xianming, deputy director of the foreign trade and economic cooperation bureau in Yiwu, said entering the high-end international markets and building a brand should be the way to go for the city's manufacturers.
"The markets in Yiwu started with simple products of daily necessities 20 years ago, but with years of development and competition, the quality of products has been in general improved greatly," Yao said.
However, many businesses are still competing for orders from low-end clients with lower prices, which has restricted their business development, Yao said.
The bureau said the average wage in Yiwu rose to 2,000 yuan a month this year, a 200-yuan increase, while average profit margins among the manufacturers are no more than 5 percent.
Over the past three years, Yao said, many international brands, such as Nike and Gucci, have pulled out from Yiwu in favor of Vietnam, due to increases in wages and the cost of raw materials.
"A higher level of international clients can help companies in Yiwu improve their products and upgrade the entire market to a new level," Yao said.
"For companies that have entered the high-end market, we are encouraging them to promote their own brands."
MengNa Hosiery, from Yiwu, has been making socks and hosiery for US companies such as GoldToe and Puma for more than seven years. The company ships more than 1,000 containers to the US and Europe every year.
"Thanks to our business partners, we survived the financial crisis two years ago," said Dong Cuiqing, manager of the international trading department in MengNa.
The crisis created about 20 percent overall losses for the socks and hosiery business in Yiwu, but MengNa's European and US clients shared half of their losses by offering better prices.
However, the company and Yiwu in general are facing manufacturers from other countries, such as Turkey and Pakistan, where manufacturing costs are often lower.
"Building our own brands rather than being the big brands' OEM (original equipment manufacturer) is the future of the company," Yao said.
MengNa started its US office in New York four years ago, after much market research. The company is planning to open an office in Italy shortly.
Recently, the Yiwu government launched economic policies to encourage companies to develop their own brands.
For example, companies that win awards such as the Chinese Well-Known Trademark or China Top Brand Product will be awarded up to 1 million yuan by the local government.
"We have confidence in our products, whose quality is as good as the international brands," said Wang Jichang, deputy director of the economic development bureau in Yiwu.
"We will try everything to help the market complete the transformation as soon as possible."
In addition, the local government has arranged for about 270 companies to attend almost 50 exhibitions overseas to promote own brands this year.
Most of the exhibitions were in the US or European countries.
China Daily