Chinese manufacturers learn to love labor lost
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Dongguan Yangchen Furniture Company, which used to solely make products under foreign brands, is nurturing its own "A Home" brand and tapping domestic markets with "Choice of A Home Comes From Love of Home" as its advertising slogan.
Chief executive Luo Langui said before September 2008 the company first noticed rising labor costs when they went up about 15 percent in a year.
"At that time, 90 percent of our sales was generated by exports, and we make a thin profit of about 5 percent under a U.S. brand," he said.
The company invested 2 million yuan in new equipment that allows one worker to do the work of 10 in the same time. Then it recruited designers and marketing staff to nurture the brand in domestic markets, said Luo.
"With our own brands, we generate more than 50 percent of profits from domestic market where we make five to six times more than we make for overseas brands," Luo said.
The firm opened more than 300 franchised stores nationwide in 2009. At an expo last week, Yangchen signed contracts with another 361 dealers, drawn by a new style based on a design from the Han and Tang dynasties, said Luo.
"Our products target the second and third-tier cities to avoid fierce competition in major cities, and we are growing very fast domestically. We hope in five years, it will be a world brand," Luo said.
He said Yangchen could afford to pay a relatively generous monthly wage of 2,000 yuan to each worker and 3,000 yuan for each designer.
Most of the big furniture makers had their own brands and 40 percent to 60 percent of sales came from the domestic market, said Luo.
HIGH-TECH SURVIVAL
Tan said his shoe company was also planning to buy automated equipment to raise productivity, thus becoming a potential customer of Dongguan COGSTEK Automation Technology Co., Ltd., whose surging sales and profits may offer a glimpse of how low-cost labor shortages are forcing surviving exporters to invest more in advanced equipments.
COGSTEK specializes in making "machine vision"-based automation equipment applying digital cameras, smart cameras and image processing software to perform quality and processing inspections instead of people.
"In the past three years, our sales have gone up more than 300 percent each year with a profit rate of 30 percent to 50 percent. Our customers range from electronics product makers to hiking shoe manufacturers," said Huang Guansheng, the company's sales manager.
In 2009, COGSTEK's turnover rose more than 400 percent and Huang attributed this to labor shortages that forced more manufacturers to turn to automation for help.
MASTERS OF INNOVATION
COGSTEK's birth also offers a glimpse of how the Chinese government is helping nurturing high-tech and innovative industries.
Founded in 2007 by two doctors of science from South China University of Technology, COGSTEK represents the fruit of government support. With the help of their supervisor, the pair got access to three innovation funds for SMEs, established by the central and local governments.
In total, COGSTEK got 2 million yuan in start-up funds from the Ministry of Science and Technology, the provincial government and the municipal government, and it enjoys other preferential treatment such as tax rebates.
In contrast with low-end manufacturers, COGSTEK has no staff shortages.
"We have about 30 employees and most have master's degrees. We pay them fairly well," said Huang.
High-tech firms like COGSTEK are becoming more common in the coastal regions, and they are growing fast on the back of increasing demand and government support, said Chen Naixing of the Chinese Academy of Social Sciences.
"The financial crisis has filtered out about 20 percent of the least efficient, so the remaining firms should be more able to adapt to rising labor costs," He said.
Chen saw a trend where labor-intensive manufacturers would have to either upgrade or move inland, which would be conducive to economic upgrading and the balanced development of different regions.
All the changes come at a time when China is pushing a campaign to restructure its economy away from low-value manufacturing.
China's leaders have repeatedly called for a refocusing of the economy from excessive reliance on low-end exports to improved management, innovation and domestic consumption.
