Pushing Manufacturing Boundaries to Sustain Growth

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Liquidity and brand building are among the factors throttling the engines of recovery in the factory to the world.

China’s export production industry is showing steady signs of a rebound. But to ensure overseas sales remain on the upswing, companies have to overcome a few hurdles.

Maintaining sufficient capital is a major challenge especially among small and medium enterprises. This comes as a result of delayed payment of goods, and additional fees attached to settling anti-dumping and countervailing duties and meeting stricter standards such as FSC certification for wood.

Many SMEs resort to borrowing money to secure enough funds to fulfill their financial obligations until they get paid. But most commercial banks are wary of granting them loans since the majority are involved in highly labor-intensive industries and lack credit systems. They would have to spend five to eight times more in evaluating and managing the loan applications of SMEs than they would for larger businesses. Moreover, there are few financing guarantee companies relative to the number of factories petitioning for monetary assistance. As such, more than 95 percent of small and midsize operations lack adequate capital.

Fortunately, there are a growing number of small lending institutions willing to grant loans to SMEs, especially to the smaller ones. The Zhejiang Trade and Industry Bureau pegs the number of such businesses at 105 in the province alone. Together, these loan companies have been able to bestow 55.17 billion yuan ($8 billion) to tens of thousands of factories at an average annual interest rate of 13.8 percent in 2009.

Those that were able to receive financial assistance, meanwhile, acknowledge the benefits of having done so. Makers that would have defaulted on their buyers because of insufficient funds for material procurement were able to deliver orders on schedule as a result of the loan.

International brand building is another obstacle for export manufacturers, regardless of their size. Presently, only the really huge enterprises such as Midea, Gree and Haier have been able to export under OBM. Such businesses invested large sums of money to be able to generate enough brand awareness and acceptance in their export destinations. As a result, China suppliers now realize they need to work on positioning their products and company correctly for their target markets in addition to brand building.

Guangdong Weber Electric Appliances Co. Ltd, a big manufacturer of water heaters, is now focusing on cultivating developing countries for its OBM line. It has recently received an order from the Singapore Botanic Gardens for 1,024 Weber-branded electric water heaters. The transaction is for the high-end remote-controlled series XD45XB. The company has also formed a partnership with one of India’s largest home appliance importers and Chile’s biggest retailer to supply them with gas water heaters. Moldova, Botswana, Australia, the UK and Russia are export markets as well.

Even so, the majority of makers believe it will take a long time before they can export widely under OBM. The most crucial thing for many of them is to boost their ODM share of overseas shipments first.

Product upgrades

More importantly, suppliers are investing in measures to boost overall capability, which in turn will improve their competitiveness. While the majority of makers continue to focus on low-end and midrange products, a handful of large companies are developing upscale and high-tech models by improving QC, testing and R&D.

One of the largest massager makers in the country, Xiamen Comfort Science & Technology Group Co. Ltd, for example, claims all of its massagers meet CE, UL, ETL, REACH and RoHS requirements. This is deemed to be rare in the industry.

The supplier has an advanced testing facility with various types of equipment for carrying out salt spray, durability, EMS, intensity and life span tests.

Additionally, the company’s R&D team can launch more than 100 new designs every year.

Irico Group Electronics Co. Ltd, meanwhile, is setting up an OLED factory in Guangdong province’s Wusha Industrial Park in Shunde. Once operations commence, the plant is expected to have annual capacity reaching 12 million units. The facility will run following the 4th generation production line to keep up with the latest in OLED technology.

Irico has been cooperating with the Qinghua University for OLED and material development since 1997. It also works with Taiwan-based engineers for guidance on technology issues.

Publicly listed breathalyzer maker Henan Hanwei Electronics Co. Ltd develops sensors in-house and releases high-end units used by police. Such models are rarely manufactured in China.