Multiple pressures hit, how to make a difference?

As 2011 is almost halfway through, it is clear that the shadow of the financial crisis is fading away. The International Monetary Fund (IMF) recently released its semi-annual report "World Economic Outlook", in which the forecast for global economic growth is basically the same as the previous report. The IMF expects global gross domestic product (GDP) to grow 4.4% this year and 4.5% next year.

The IMF is optimistic that advanced economies will continue to recover from the financial crisis, while many emerging market economies are already growing above their pre-crisis trend lines. "The recovery has become more self-sustaining, the risk of a double-dip recession in advanced economies has subsided, and global economic activity appears to be on the verge of picking up again." increase in labor costs. The yuan has appreciated 2.3 percent against the dollar in the past six months, but has depreciated sharply against other major currencies as the dollar weakened.

This is exactly the problem that Chinese manufacturers and suppliers are facing today. Under such multiple pressures, what should they do? How do overseas buyers view the procurement challenges they face and their coping strategies? On March 17, Global Sources held a buyer's meeting at the Hyatt Hotel in Shanghai. Many heavyweight buyers from different countries and regions were hosted by Pei Kewei, President of Global Sources Corporate Affairs and publisher of "CEConline". , discussing these issues together.

No longer the factory of the world?

In March, Guangdong province, which accounts for the majority of China's manufacturing industry, raised its minimum wage by 18 percent, and governments across China have also raised minimum wages. From 2010 to 2011, in addition to the double-digit growth in labor costs in China, the cost input has also been soaring. For example, the price of cotton rose by more than 150% last year, which had a certain impact on the garment and textile industry.

China will "stabilize exports, expand imports, and reduce surplus" as the general direction of this year's foreign trade policy. It is certain that although exports are facing the pressure of slowing down, the general trend remains strong. This is mainly due to the continued recovery of the US and European economies. In the short term, the Fed's loose monetary policy shows no signs of changing, which is expected to continue to support the growth of China's external demand. But it is clear that the competitive position of Chinese companies as the factory of the world is changing subtly, and the days of labor-intensive, low-wage Chinese companies offering cheap exports may be over. In order to find new markets and gain greater initiative in the global supply chain, Chinese manufacturers and exporters are also looking for their next export through technological transformation and industrial upgrading. There is no doubt that China is still the factory of the world, but it is no longer a sweatshop.

Three factors could mitigate the potential impact of rising wages in China. First of all, the labor cost in China after the increase is still only a small part of the final price of products sold in Europe and the United States. As Cornell University economics professor Eswar Prasad points out, only 10-15 percent of the value of China's exports is actually created in China. "Lower value added means that even if China's labor costs climb significantly, it won't have much of an impact on the final price of manufactured goods."

Second, China's productivity levels are not stagnant. Significant productivity gains over the past 20 years have enabled Chinese companies to significantly raise wages for workers without significantly increasing final prices. China's exporters have moved up the value chain, with ports and roads comparable to those in developed countries, so exports have grown despite rapidly rising wages. Smriti Ranjan Bhowmik, Regional Manager of the Shanghai Representative Office of Pacific Commodities (Asia) Co., Ltd. said: "For us buyers in Australia, the problem is mainly due to geographical restrictions. If we source from Bangladesh or India, the delivery time is usually More than twice as much. If sourced from Shanghai, it only takes 14 days for the product to be shipped to Melbourne. Fast and short delivery is very important for the fashion industry, so although Bangladesh has lower procurement costs, most of our Products are still sourced from China.”

For buyers, shifting their sourcing focus to mainland China has both advantages and disadvantages. Umesh Mirchandani, operations manager of French clothing retail group Beaumanoy, believes that building a factory in mainland China has two advantages: the local government has introduced many incentive policies to attract such investment; in addition, workers live only 20 minutes away from the factory. , they are willing to come to work early every day, and they do not mind receiving lower wages because the living standard in the mainland is not as high as that in the coastal cities.

Umesh Mirchandani also said, "Although labor costs in mainland China are indeed lower, the closer you are to the mainland, the less convenient the transportation. The cost of manufacturing products in Yunnan or Jiangxi is very low, but if you want to ship the products to the port on time, you can It takes careful planning and anything can happen. It's really annoying to have to switch to higher-cost air freight because of delayed shipments, missed shipments, and the loss of cost savings."

Buyers believe that when a manufacturer relocates to the mainland, if it can put into practice the professional experience, way of thinking and business philosophy of the coastal areas, the business development should not be a problem.

Third, as wages in China rise, some production will move to low-wage countries, keeping global prices low. For example, some companies have shifted some production to Bangladesh, Vietnam, Indonesia and India.

However, outsourcing production to low-wage countries is not always easy. A representative of a large group company expressed his opinion on this. He said: For example, in the textile industry, although products can be manufactured in Vietnam or other countries, they lack the basic manufacturing conditions. There is no local spinning or beading, and all accessories must be sourced from China. Therefore, even though labor costs are lower in other countries, other aspects such as logistics and transportation costs are not advantageous. "I don't think China will lose its dominance in certain areas in the next few years."

Buyer's Choice

Referring to the impact of exchange rate fluctuations on international trade, buyers said that exchange rate fluctuations have an impact on trade The impact is obvious. In many cases, the purchase cost of buyers will be increased, but if the products and services provided by the supplier can well meet the needs of buyers, then the increase in the purchase cost within a certain range is acceptable.

Smriti Ranjan Bhowmik believes that the appreciation of the renminbi is a gradual process. Each company has its own way of coping, and appreciation will not have a particularly serious impact. At present, suppliers usually propose two solutions: one is to make a quotation by the supplier, this price is a value-preserving price, and it will not be changed until June or July; the second method is that the supplier pays Make a transparent quotation, but if the supplier's production cost increases while the buyer continues to place orders, such as the price of raw materials, the buyer needs to pay the difference. Which option is used depends on the specific product. If the product is sold sustainably, it is best to choose a transparent offer, and if it is a fad, you should choose a value-for-money product.

Mr. Zeng Jin, Department Store Purchasing Director of Ou Shang Ying Tenuo (Shanghai) International Trading Co., Ltd., said, "Currently, European companies face less pressure on RMB appreciation than American companies. We buy US dollars and pay US dollars to suppliers. If the exchange rate of the euro against the dollar remains strong, we will not be the first to bear the pressure of the appreciation of the renminbi."

When choosing suppliers, product quality is the most important point for buyers when choosing suppliers. On the premise that quality can be guaranteed, product price is also a factor that buyers must consider when choosing suppliers. Regarding the above two points, some buyers suggested that Chinese companies could further improve the cost performance of products and services by strengthening research and development, updating production equipment, and innovating models.

Buyers also say they actually prefer long-term, win-win relationships with suppliers rather than one or two short-term deals. In the case of long-term cooperation, buyers and suppliers can have a deeper connection and understanding of each other, which is conducive to suppliers to provide more considerate services and products. Representatives of important buyers solemnly pointed out that the two points of product quality and on-time delivery are very important. “Our data from last year shows that the performance of Chinese suppliers is not as good as in previous years, but in fact, other countries in Asia are even worse. Chinese suppliers are still very trustworthy, maybe buyers will be because of the credibility of the Chinese market. They are willing to accept a small price increase.”

In addition, there are buyers who want suppliers to increase their services, including research and development, transportation, etc. The buyer's representative said: "Our company's largest outdoor furniture division is negotiating with two or three of the largest suppliers to develop a warehousing plan that will make products in the off-season and stock us so that the goods can leave the port on time, Arrive on time. It is not easy, it needs to be done step by step.”

Smriti Ranjan Bhowmik said: “Every factory is facing increasing loss of labor. They cannot restore their original headcount and incur higher labor costs .We can pay to help them restore production efficiency. We are willing to send some technical consultants to help suppliers improve production efficiency. Your production efficiency is improved, the product price will be lower. We can share the additional profit brought by the production efficiency improvement . This is a good incentive and cooperation model, both us and the supplier will benefit from it. It is not a math problem, but a cooperation method."

Buyers also expressed their interest in finding new supplies Businessmen are also full of interest, especially when the services and products provided by some existing suppliers cannot meet their needs. It is foreseeable that a group of Chinese enterprises that can effectively grasp market trends and take the lead in launching new products and services will gain more and better opportunities in future international trade.