China’s industrial evolution, who will survive?

Everyone knows something is going on in the Chinese industrial landscape these days. Have you noticed changes during your last trips to visit international fairs or in your day to day work with Chinese suppliers? In a couple of decades, China’s manufacturing capabilities and philosophy evolved. From imitation and low prices to innovation and tech pioneering, sourcing in China is an ever changing activity. Let’s explore the changes that the country undergoes.

Shanghai View from the Bund

The birth of a manufacturing giant

From 1979 to 2009 China experienced an unparalleled economic boom. Over time the entire world turned towards China and Hong Kong for cheap manufactured goods in order to develop their local retail chains or wholesale companies.

These extremely prosperous years for the Chinese economy have led to an explosion in the number of manufacturing factories. South of China, especially the Guangdong province was referred to as the workshop of the world. During these golden years, overall demand combined with cheap labor and low raw material costs have helped factories to develop following very unorganised models. Anyone with a little starting capital could buy a couple of machines, hire cheap workers from the provinces and start an industrial business.

After 2008-2009, as the global economy became more fragile, the situation started to change. International buyers lowered their order volumes while also having higher expectations in terms of product quality and social compliance.

Who doesn’t accept change dies

As the economic situation was worsening in North America and Europe, fragility slowly found its way up the entire supply chain. For Chinese manufacturers, the first effects were mainly requests from western clients to reduce the order quantities. For those who didn’t work directly for international clients, the problems were the same but with a couple of months of delay as stocks have been used as the first buffer.

Chinese manufacturers that had managed over time to impose high MOQ (Minimum Order Quantities) to their clients had to understand that buyers wouldn’t necessarily keep ordering tens of thousands of units but would now be looking for thousands.

In the following years labor costs have more than doubled in certain Chinese provinces like Guangdong, raw material costs quickly came back to the highest point reached just before 2008. With these 2 new parameters, the game was starting to change and running an industrial business wasn’t as easy as it used to be.

Misunderstanding of the situation and very vague knowledge of business management led many business to reduce their selling prices rather than optimizing their factories’ productivity in order to stay in business. This strategy has caused many bankruptcies as for many companies, reducing selling prices resulted in working with reduced profits. As soon as the number of clients started to fall or that a major client failed to pay, many weren’t able to cope with what had started to become high burn rates.

Added value is the key

Innovation, or lack thereof, is another explanation for the fragility of many industrial business in China.

While walking around the main Chinese markets and exhibitions, who hasn’t experienced the feeling of being surrounded by vendors who all propose the same products and designs. In this context, it’s no surprise that the only way to make a sale is by setting your prices lower than your neighbours. This extremely competitive situation was mainly created by the lack of added value and innovation. In other words, as soon as a design or object was emerging as a trend, all the surrounding factories would start copying the design, diluting the market with very similar, low quality products.

Consumers expectations are rising

In this same context, consumer priorities in the main markets changed. End consumers have now become more sensitive to product quality, safety and the conditions under which the consumer goods are manufactured. Nevertheless buyers / importers or wholesalers aren’t always ready to pay more for such.

Quality management systems like ISO 9001 and Social Compliance Initiatives like BSCI or UNICEF charter relating to childhood have now become the rule to work with all major retailers around the globe. Any factory that doesn’t comply with such standards has no chances to develop a sustainable export business.

Certifications Owned by Willtech Gift

This situation has added an extra burden for Chinese manufacturers. They now have to respect an ever increasing number of regulations and certifications in order to attract foreign buyers but without always increasing prices in order to stay competitive compared to western manufacturing costs.

China is no longer just a copycat.

All these elements have a negative impact on the competitiveness of low price manufactures. Innovation and quality are becoming increasingly important for both buyers and final customers. Nowadays, China is finally starting to get ahead of the curve. The country is incentivizing its companies to innovate and peel off the label of cheap and low quality manufacturer it once had. Companies are developing their own design studios, allowing them to be more flexible in what they can offer. Cities like Shenzhen are at the forefront of this revolution, with the tech sector pioneering the way for other industries.

Over the past few years at Willtech Gift, we have noticed that this situation is changing and that industrial players have adapted to each new challenges. We have also noticed year after year that manufacturing quality, design and innovation are taking over on low prices. As creativity and product development has always been part of Willtech Gift and the Pylones Group’s DNA, over the past years we have reinforced our design studio and R&D team with creative designers and experienced engineers to take the lead on Novelty Stationery and Decorated Objects markets. Our strategy is to target a balance between a fair price for our clients that allows us to not make compromises in terms of quality and processes. We prefer to favour a best price approach when developing our latest collection rather than a low price strategy.

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