Three measures for export enterprises to face the appreciation of RMB

As of April this year, the renminbi has risen by more than 16% against the US dollar in the 32 months. On April 10, it broke through the 7 yuan mark and entered the "6 era". Many experts predict that the appreciation of the RMB in 2008 is expected to reach 10%.

The higher the renminbi rises, the more painful the fall for exporters. Since the exports of products produced by Chinese companies are mostly settled in US dollars, after the appreciation of the RMB, the products produced with the same RMB can only be exchanged for less and less US dollars in the international market. It is no wonder that some foreign trade enterprise veterans sighed: "For every 1 cent of RMB appreciation, the company loses several BMWs."

Optimistic people believe that this is a good time for an industry reshuffle, under the tide of RMB appreciation. , those exporting companies that are weak in market competition will be completely out of the game. In order not to be "washed out", quite a number of export enterprises are seeking changes under pressure. From the initial discomfort and passive acceptance, to the current active prevention, they have cultivated a strong awareness and ability to hedge against exchange rate risks. For example, some companies create differentiated competitive advantages, some companies adjust business ratios according to the profitability of different markets, and some companies effectively control the hidden costs in business operations.

The following, Niu Weidong, Executive Deputy General Manager of International Marketing Division of Konka Group, Wan Weiliang, General Manager of Shenzhen Jinyidi Technology Co., Ltd., and Wu Jianhong, General Manager of Shenzhen Horide Industrial Development Co., Ltd., will share with you the export enterprises Valuable experience in effectively responding to RMB appreciation.

Konka: Creating Differential Advantages

Currently, the most talked about issue among export companies is the excessive appreciation of the RMB. As the person in charge of Konka's export business, how do you view this issue?

Niu Weidong: I think RMB appreciation is inevitable, which is determined by the overall economic situation, but rapid appreciation will bring great pressure to enterprises. Konka has already been psychologically prepared for the appreciation of the RMB, but it still did not expect it to be so fast. I think that in the current situation where the speed is too fast, companies can report this pressure to relevant departments and institutions, and at the same time, they must adjust their mentality, focus on reality, and consider how they should respond under the current situation.

On April 28, Konka released its performance report for the first quarter of this year, and its net profit increased by 79.24%. Konka said that this is mainly due to the increase in the market share of the company's high-end products and products with high gross profit margins. Is this a measure for Konka to deal with the appreciation of the RMB?

Niu Weidong: This is a method. Producing high-end products means taking a differentiated route. Because the RMB appreciates so fast, the profits of enterprises are getting thinner and thinner. If they compete with homogeneity, it will basically be a dead end. Only differentiated products will have great success. Strong profitability. For example, the mini668 series we launched at the Canton Fair this time has 5 colors and a very unique shape. The price is about 15% higher than other ordinary products. However, the customers who participated in the Canton Fair were very interested in this product, because there were no products that could compete with it in the entire exhibition hall. With such a product, our gross profit margin will be improved, and even if the RMB appreciates, it can help us get through a relatively long period of time.

In your opinion, where is this high gross margin market overseas?

Niu Weidong: In Africa and Latin America. Our allocation of resources in the global market is different every year. For example, last year we may focus on the US and European markets, this year we will mainly focus on the Latin American market and the African market, and next year we may focus on the Chinese market. This layout may also determine the difference in results. With so many countries or regions in the world, it is impossible for a company to penetrate its business from every angle. Every year we take a look at which regions need to focus on expansion this year, so that some regions have higher gross profit contribution than previous regions.

This year, the focus is on Africa and Latin America, because the competition in these regions is relatively less intense, and we will grow faster after entering. However, in some over-competitive markets such as the United States and Europe, no matter how much effort we spent in 2008, the contribution to gross profit margin was negligible, and at most we could only get an increase in sales revenue. With the appreciation of the renminbi, the growth of this sales revenue is not so optimistic if the product price does not increase.

How did Konka negotiate price increases with customers?

Niu Weidong: We work on a customer-by-customer basis. List all customers, start with simple customers with large orders, and then take a look at the development trend of the currency of the other party against the US dollar. If the domestic currency also appreciates, it is relatively easy to talk about. Therefore, customers are also divided into different categories, and our efforts are not the same for different customers.

In addition, since the RMB has been appreciating, we have just raised the price, and the RMB may have risen again. At this time, it is impossible for us to continue to negotiate the price with the customer, because if it is always in this state, it will give customers the feeling It will be very bad, especially for customers who have cooperated for a long time. What we can do now is to prolong the price increase cycle as much as possible, and not to raise the price every once in a while, and then raise the price again after a period of time, which will hurt the cooperation with customers.

How many customers currently accept this price increase?

Niu Weidong: About 50%. There are customers who recognize our brand, quality and service, and they put themselves in our shoes. However, there are some customers who are not stable and are in a free state. At this time, more attention will be turned to some other suppliers. In the current market, he will definitely find a supplier with a price advantage over Konka, because there are still some domestic companies that focus on low-price competition.

Why do you think that 50% of customers can accept your price increase?

Niu Weidong: Because in addition to product value-added, we can also achieve service value-added. What we provide is a relatively comprehensive service, which not only provides high-quality products, but also includes a series of technical support and after-sales service. Customers have been cooperating with us for a long time, and their reliance on our full range of services has become stronger and stronger. Relatively speaking, other customers are less likely to replace us. And those companies that take low cost as their competitive advantage will only try to control the cost of materials and the expenditure of various expenses. What they can provide to customers may be a relatively low-cost machine.

Jinyidi: Allocating market ratio

Jinyidi basically only engages in export business. From the current point of view, how much impact will the appreciation of RMB have on your company's export business?

Wan Weiliang: The impact is huge. Now, if you earn a dollar abroad, it will be more than one yuan less than before. In addition, the yuan itself is still depreciating in China, so it is even worse. But if you always think about the loss of the company and do business with this mentality, I think it is a misunderstanding. Because the exchange rate cannot go back to the past, you have to think about business operations based on the present and even the future. For example, if it is 1:6.9 now, then you should consider the problem based on 1:6, that is to say, deal with the appreciation of the RMB with a more positive attitude. Of course, the reality is cruel. Whether you can consider it with this mentality depends on whether your products are competitive and whether you have pricing power.

How is Jinyidi's current competitiveness in the international market?

Wan Weiliang: We mainly produce electronic sphygmomanometers and do OEM for some big companies in the world, such as Seiko, Sharp, Panasonic and so on. The products are basically exported, and some domestic sales will also be made in the future. Our export performance is one of the best in China. On the one hand, there are relatively few manufacturers of electronic blood pressure monitors. On the other hand, we have independent intellectual property rights. At present, the core components of blood pressure monitors in China are all made by ourselves, only our family.

Does this mean that the company has pricing power and it will be easier to negotiate price increases with overseas customers?

Wan Weiliang: In fact, we have had a price adjustment mechanism since 2000, and a price increase clause is attached to the quotation, not just to deal with the appreciation of the RMB. Even so, there is still some difficulty in raising the price. If I don't propose a price adjustment today, the customer will agree to me tomorrow. Sometimes when we talk about it, the RMB appreciates again.

There are some customers who work well with us who will be more receptive to our price increase, and we have long been inclined to choose such customers. When we talk about raising prices, he listens to our reasons, and it doesn't do him any good that I go out of business, and he can't just find a random supplier to replace us. In addition, due to the long-term cooperation, both of us have a good run-in in terms of language communication and cultural differences. If we find another supplier, the cost of this run-in period will be very large, and it will not be enough. Must be able to run in well.

Has any customers directly stated that they do not accept price increases? How do you deal with this time?

Wan Weiliang: There are such customers, accounting for about 20% of our total customers. If he said at the beginning that he could not accept the price increase, I might not ask him again, and I would continue to make his orders, but I would gradually reduce his proportion. I didn't turn down orders from these types of customers in the first place because they would also bring us profit. But we will keep a certain distance from this kind of guests, and we plan to keep him away at any time. However, once we receive his order, we will still take it very seriously.

In other words, only short-term orders are accepted for this type of customers. What about other customers?

Wan Weiliang: Like many export companies, we have only accepted short-term orders, which is the same for all objectively existing households. A client said to me: I will give you 500,000 a year, will you do it? I can only say: I'm sorry I can't do it for a year, I can only do one cabinet. Or just do it for a month. Try to short-term orders, mainly orders of 1-3 months, no more than half a year at most, although this will have a certain impact on the company's profits, but if you make long-term orders, the impact will be greater. We have customers who have turned to euro for pricing, but what will happen to the euro in the future, we cannot say 100% that the euro will never depreciate against the renminbi. So even if it is settled in euros, we still take short-term orders. In addition, we will be inclined in the market. Where the profit was not good in the past, our proportion will be less and less, but the proportion of the good profit will be larger and larger. In general, even if the RMB appreciates so quickly, our profits will still increase.

Holland: Controlling hidden costs

According to data, for every 1% appreciation of the RMB, the profit margin of export sales of electronic products will drop by 5%. And Horizon is a consumer electronics manufacturer that sells 90% of its products overseas. As a manager of the company, what do you think of this?

Wu Jianhong: RMB appreciation is an inevitable phenomenon, and we have no way to control it. However, the rapid appreciation of the renminbi will cause serious harm to every exporting enterprise, and some labor-intensive enterprises may be a disaster. Export enterprises must have a strong sense of risk control and prepare well in advance.

What preparatory work did Horizon do?

Wu Jianhong: insisting on asking customers to increase prices is a measure, and it is also a measure that many export companies are currently doing. In addition, we try not to accept long-term orders from customers, but after communicating with customers, we will convert the order cut into short-term orders, which can weaken the impact of exchange rate changes on the company, and can also speed up the return of funds. In addition, we will use a new standard to select customers. We have our own profit competition point. If the customer's order brings us a lower profit than this competition point, unless the customer is beneficial to the company's long-term development, otherwise We will not take orders. Of course, we need to constantly communicate with customers to let them know our actual difficulties.

Holland has one purpose: to add value to its customers. Do you think customers will still get the added value that your company provides when prices are raised?

Wu Jianhong: Of course, because the company's cost consists of two parts: implicit and explicit. After the price increase, it seems that the customer's explicit cost will be higher, but we have made important breakthroughs in service, product design and quality, and let the customer gain value by reducing the hidden cost of the customer. We try our best to design the products to be beautiful in appearance, simple in structure and complete in functions, so that the terminal customers have a strong desire to buy, and for customers, the value-added has been realized.

We will also increase the speed of delivery accordingly, speed is important to customers. If the delivery is not on time, it will miss the best selling season of the product, and the customer will lose.

How did the company improve delivery speed?

Wu Jianhong: We will conduct in-depth communication with suppliers, establish goals, and give them timely and necessary guidance, so that not only the cost and quality of products will be improved, but the delivery time will also be greatly shortened, forming a virtuous cycle. The company started to use the ERP system in 2005 to carry out scientific management of raw material procurement, manufacturing, quality inspection, shipping and delivery, etc., which is one of the reasons why we can shorten the delivery time.

In order to cope with the appreciation of the RMB, many companies are expanding their sales in the domestic market. What is Holland's consideration in this regard?

Wu Jianhong: We have been doing domestic sales since 2005. At that time, we adopted the traditional method of cooperating with Gome, creating our own brand and promoting it ourselves. Since last year, the company has made adjustments, focusing on cultivating its own domestic sales team and establishing channels. At present, we have integrated some well-known digital enterprises in China, and have begun to cooperate closely vertically to launch a series of consumer digital products such as encrypted hard disk enclosures, Bluetooth headsets, and Wi-Fi to the domestic market; Long-term strategic partnership and become the core supplier of its digital products department. We hope to make steady, orderly and fast-paced progress and increase the share of domestic sales to 40% within three years.

What do you think is the most important thing for a company like Horizon, which has been mainly engaged in export business for a long time, to expand domestic sales?

Wu Jianhong: The most important thing is to have an understanding of the Chinese market, including the habits of consumers and the characteristics of channels. The characteristics of each market are different. The Chinese market is huge. Although we grew up in China, there are many aspects that are still unclear. If you do domestic sales with the mentality and operation methods of doing export sales, the result will definitely fail.