OEM shoe companies may not be profitable

“Although Guangdong has been talking about 'changing cages and changing birds,' most companies have chosen to wait and see in the past few years.” Hong Qihui, Honorary President of the Hong Kong SME Federation, said that he did not expect a serious shortage of labor in Dongguan early this year. More and more new generations of migrant workers cannot tolerate duplication of work and life. The old employees of that year have returned to the Mainland to marry and have children and are reluctant to leave their hometowns. As a result, the factory can only be moved to their "doorway." Hong Qihui has a clothing manufacturing product OEM company in Dongguan, Guangdong. In April this year, he also chose to invest and build factories in Chenzhou, Hunan, to transfer some of his production capacity. Another reason for inward migration is that it is increasingly difficult to do business in Europe and the United States, and wages in the Mainland have generally risen. He believes that the main battlefield in the future must be the domestic market.

However, the cost of moving to Hunan cannot be reduced too much. Because the profits are too low, many of my friends close the factory and take money to invest in real estate. "There is basically no profit this year. Now the idea is to survive first." Hong Qihui said that he hopes that after the reshuffle, the number of foundry factories will be substantially reduced in one or two years, and they will have more pricing power.

Chen Xiaoming, chairman of Jiahe Footwear Group, is busy planning to invest and build factories in Jiangxi Province. As a foundry company, his factory has suffered losses almost every month since 2008. Compared to the coast, labor costs in the Mainland are not much cheaper.

How can the cost be reduced by the inward migration of coastal OEM companies? Liu Weidong, deputy secretary-general of the Shenzhen Leather Industry Association, said that at least 10% to 15% is very attractive to OEM companies. He pointed out that the "wages of salary increase" has nothing to do with the relocation of enterprises in the leather industry. As a traditional labor-intensive industry, the hard cost of the leather industry is very high, and it has started to move inwards and continues to this day.

According to estimates by Cui Shukai, the average cost of labor in coastal companies entering Xiyong Weidian Park can be reduced by about 30%. However, this is only the average cost of all companies. For OEM companies such as Foxconn and Quanta, the wage level and the Pearl River Delta and Yangtze River Delta regions are not significantly different.

“Our wages are no lower than those in Shenzhen Longhua.” Outside Foxconn's plant in Xiyong Microelectronics Park, Foxconn employee Xiao Zhang told the China Securities Journal reporter that here, the basic salary for general workers’ food and shelter is approximately 950 yuan/month, if not For food and accommodation, it is 1,450 yuan per month, and the total salary for overtime pay is less than 2,000 yuan per month, which is similar to Shenzhen Pugong.

For enterprises, compared with the labor force, the mainland has more advantages in terms of land and water and electricity prices. Taking Laoshan Industrial Park as an example, the average industrial electricity price is 0.6 yuan/kWh, the operating water price is 4.6 yuan/ton, and the industrial land price is 120,000 yuan/mu, which is about half of the average price in the Pearl River Delta region. However, if you consider the logistics costs, the overall cost of the company will not fall as much as you think.
“According to the different types of products, the overall cost reduction for our products is about 5% to 10%, and most of them are at the 5% level.” Sun Mingzheng said that although land and other costs have declined, raw materials are mostly from Japan, South Korea, and Germany. Imports and cargo ports are centered in Shanghai. After setting up a factory in Lushan, the cost of shipping from Shanghai to Chongqing will increase a lot.

If you simply consider the cost, Sun Mingzheng can set up the company to a more remote western region, but the cost is not the only factor. “Our products are changing very fast and we must cooperate with customers.” Sun Mingzheng said that a laptop computer is not sent to the terminal for sale within a month or two, and the price may drop. Taking into account the company's transportation costs and the convenience of service customers, we must focus on the layout of customers.

However, providing supporting services for Foxconn and other OEM companies is only part of the reason why Chuanwu Science and Technology has set up factories in Lushan. Changhong Electric in Sichuan Mianyang, the rising LED industry in Chongqing, and the automotive industry will all become the growth points for whale sci-tech. “We are expanding our production capacity rather than migrating.” Sun Mingzheng emphasized that the parent company, Whale Whale Technology, set up a factory in Suzhou 7 years ago and set up a factory in Ningbo four years ago. This year it set up a factory in Sheshan, and the original factory is still in the Yangtze River Delta. Operation.

According to Yang Shuo’s statistics, the enterprises in the coastal areas where Laoshan Industrial Park has settled are various, some expand production, some transfer some of the production capacity, and some migrate as a whole. In general, the expansion of the business accounted for more than some.

This phenomenon also exists in Xiyong Microelectronics Park. Cui Shuzheng said that in addition to the “hen-chicken-chick” model, the park also has its own “chicken” that has moved in. This type of company accounts for about 30%. Some of them want to come to Chongqing to expand their markets. Some of them get new orders in Chongqing and need to set up factories on the spot.

"The most important thing for enterprises is to look at the market, plus it has a cost accounting system. Once it is considered cost-effective, it will come over." Zhang Tingting, minister of Chongqing Industrial Service Park Service Department received a number of companies that came to visit Chongqing. She believes that The cost is only one of the factors that the company considers for inward migration. What's more important is the logistics radius for customer service and the degree of aggregation of upstream and downstream industries.

Wang Hao, dean of the Institute of Advanced Social Science at Sun Yat-sen University, believes that the promotion of land prices is the main factor in this round of industrial transfer. Although Guangdong has already proposed the upgrading of industries, the gap between the land prices in the Mainland and China is not particularly large, and the incentive for companies to move actively is not strong. After this round of financial crisis, land prices in the first-tier cities caused by excess liquidity have soared, which has squeezed out manufacturing companies with large land demand.

The most important thing for the company is the fancy market, plus it has a cost accounting system. Once it feels that it is not worthwhile, it will come.