Businesses counting on potential of huge local consumer base as foreign demand dries up
By Tracy Quek 28 February 2009 DONGGUAN: - At a time when many exporters in China’s southern manufacturing belt are downsizing, Mr. Chan Kok Kwong is building a bigger business.
The 49-year-old Singaporean is pouring 40 million yuan (S$9 million) into Locasa, his furniture manufacturing company in Guangdong province’s Dongguan city.
In fact, he has opened a new factory and will launch a new product line he plans to sell in at least 100 franchise stores - not overseas, but across China - over the next two years.
With foreign demand on the wane and what Chinese leaders have warned will be the country’s toughest year after three decades of boom, Guangdong manufacturers told The Straits Times they were moving from selling overseas to selling at home.
‘China has a vast consumer base and, relative to elsewhere, its economy is holding up better,’ said Mr. Chan, whose company prospered over the past 12 years by selling upmarket home furnishings to retailers in the United States and Europe.
He said the credit crisis has crippled the economies of the US, Europe and Japan - the three largest consumers of Chinese-made goods.
The crunch for Locasa came last September at Dongguan’s annual furniture fair. Only half the usual crowd of overseas buyers showed up.
In the past, the fair supplied enough orders to keep the company busy for a year. This time, the orders added up to less than four months’ work.
But Mr. Chan was not discouraged. ‘We’re here so we can adapt more quickly than if we were to try to enter distant markets such as Africa,’ he said.
The move to China’s own market cuts across industries, said Professor Christopher Tang of the Anderson School of Management at the University of California, Los Angeles (UCLA).
To refocus on China, for example, the world’s fourth-largest PC maker, the Beijing-based Lenovo, replaced its American chief executive on Feb 5 and changed its top management structure.
‘China or, in general, the Asian market, is the future engine of growth for many companies,’ said Professor Hau Lee of Stanford University’s Graduate School of Business.
‘Compared to the West, it’s still small but the growth rate is significant. The size of the middle class is certainly where the potential lies.’
Experts warn that consumer spending is likely to fall significantly over the next two years as unemployment grows and wage increases slow down, both in China’s cities and rural areas.
Beijing-based finance expert Michael Pettis said: ‘Longer-term focusing on domestic consumers makes sense but, in the next two years, that market is not likely to grow.’
Yet manufacturers remain optimistic.
Despite the downturn, ‘there will be businesses that figure out what Chinese consumers want that will make money even in this environment’, said Ms. Calla Weimer, a visiting scholar at UCLA’s Center for Chinese Studies.
Mr. Chan has done just that. He beefed up his in-house design team and hired an industry veteran to oversee his foray into the Chinese market. Then he went to Indonesia to set up a factory producing furniture parts made from two of the archipelago’s exotic woods. He describes his new collection as ‘Chinese-style furniture with a hint of European flavour’.
The gamble appears to be paying off. Large Chinese furniture retailers are interested, said Mr. Chan.
Other businesses said that they, too, were retooling their business strategies and tweaking their product lines.
Mr. Cheng Yingang, general manager of Meng Qiren Fashion, is also finding strength in numbers. He set up an alliance for sweater and woollen garment makers based in Dongguan’s Da Lang town last October after orders fell drastically for everyone.
‘We’re all in the same boat. As a group, we attract big customers directly and cut out the middlemen, thus saving costs for consumers,’ said Mr. Cheng. ‘At the same time, more of us stand a better chance of getting into big supermarkets and malls.’
So far, his alliance has attracted about 300 of the town’s 3,000 sweater-making firms. Two large department stores, one from Shanghai and the other from Wuhan, have signed agreements to work with the alliance, Mr. Cheng said.
More firms are also venturing into their home market now because of government incentives aimed at boosting domestic consumption, said Prof Tang, who specialises in business administration.
The government is beefing up social welfare programmes as well so that ordinary Chinese feel less compelled to save for a rainy day.
But a foray into China’s domestic market is not without its difficulties. Firms will have to deal with price-sensitive consumers, cut-throat competition, and fragmented distribution and sales channels.
Outdated logistics networks could complicate the transportation of goods and poor intellectual property enforcement is yet another big obstacle to brand building, said experts.
Mr. Guo Qi, 62, knows all about such problems. The Guangzhou-based maker of ceramics and fine porcelain tableware wants to boost his domestic business, but is struggling to compete against lower-priced alternatives.
‘Chinese consumers don’t care about quality. They look only at the price,’ said Mr. Guo, who took over the ceramics business from his in-laws in 1994.
Still, he is not giving up: ‘It’s tough, but we’re determined not to let our hard work go to waste. We’ll fight this downturn with everything we’ve got.’
1 comment:
China firms turn to home market
Businesses counting on potential of huge local consumer base as foreign demand dries up
By Tracy Quek
28 February 2009
DONGGUAN: - At a time when many exporters in China’s southern manufacturing belt are downsizing, Mr. Chan Kok Kwong is building a bigger business.
The 49-year-old Singaporean is pouring 40 million yuan (S$9 million) into Locasa, his furniture manufacturing company in Guangdong province’s Dongguan city.
In fact, he has opened a new factory and will launch a new product line he plans to sell in at least 100 franchise stores - not overseas, but across China - over the next two years.
With foreign demand on the wane and what Chinese leaders have warned will be the country’s toughest year after three decades of boom, Guangdong manufacturers told The Straits Times they were moving from selling overseas to selling at home.
‘China has a vast consumer base and, relative to elsewhere, its economy is holding up better,’ said Mr. Chan, whose company prospered over the past 12 years by selling upmarket home furnishings to retailers in the United States and Europe.
He said the credit crisis has crippled the economies of the US, Europe and Japan - the three largest consumers of Chinese-made goods.
The crunch for Locasa came last September at Dongguan’s annual furniture fair. Only half the usual crowd of overseas buyers showed up.
In the past, the fair supplied enough orders to keep the company busy for a year. This time, the orders added up to less than four months’ work.
But Mr. Chan was not discouraged. ‘We’re here so we can adapt more quickly than if we were to try to enter distant markets such as Africa,’ he said.
The move to China’s own market cuts across industries, said Professor Christopher Tang of the Anderson School of Management at the University of California, Los Angeles (UCLA).
To refocus on China, for example, the world’s fourth-largest PC maker, the Beijing-based Lenovo, replaced its American chief executive on Feb 5 and changed its top management structure.
‘China or, in general, the Asian market, is the future engine of growth for many companies,’ said Professor Hau Lee of Stanford University’s Graduate School of Business.
‘Compared to the West, it’s still small but the growth rate is significant. The size of the middle class is certainly where the potential lies.’
Experts warn that consumer spending is likely to fall significantly over the next two years as unemployment grows and wage increases slow down, both in China’s cities and rural areas.
Beijing-based finance expert Michael Pettis said: ‘Longer-term focusing on domestic consumers makes sense but, in the next two years, that market is not likely to grow.’
Yet manufacturers remain optimistic.
Despite the downturn, ‘there will be businesses that figure out what Chinese consumers want that will make money even in this environment’, said Ms. Calla Weimer, a visiting scholar at UCLA’s Center for Chinese Studies.
Mr. Chan has done just that. He beefed up his in-house design team and hired an industry veteran to oversee his foray into the Chinese market. Then he went to Indonesia to set up a factory producing furniture parts made from two of the archipelago’s exotic woods. He describes his new collection as ‘Chinese-style furniture with a hint of European flavour’.
The gamble appears to be paying off. Large Chinese furniture retailers are interested, said Mr. Chan.
Other businesses said that they, too, were retooling their business strategies and tweaking their product lines.
Mr. Cheng Yingang, general manager of Meng Qiren Fashion, is also finding strength in numbers. He set up an alliance for sweater and woollen garment makers based in Dongguan’s Da Lang town last October after orders fell drastically for everyone.
‘We’re all in the same boat. As a group, we attract big customers directly and cut out the middlemen, thus saving costs for consumers,’ said Mr. Cheng. ‘At the same time, more of us stand a better chance of getting into big supermarkets and malls.’
So far, his alliance has attracted about 300 of the town’s 3,000 sweater-making firms. Two large department stores, one from Shanghai and the other from Wuhan, have signed agreements to work with the alliance, Mr. Cheng said.
More firms are also venturing into their home market now because of government incentives aimed at boosting domestic consumption, said Prof Tang, who specialises in business administration.
The government is beefing up social welfare programmes as well so that ordinary Chinese feel less compelled to save for a rainy day.
But a foray into China’s domestic market is not without its difficulties. Firms will have to deal with price-sensitive consumers, cut-throat competition, and fragmented distribution and sales channels.
Outdated logistics networks could complicate the transportation of goods and poor intellectual property enforcement is yet another big obstacle to brand building, said experts.
Mr. Guo Qi, 62, knows all about such problems. The Guangzhou-based maker of ceramics and fine porcelain tableware wants to boost his domestic business, but is struggling to compete against lower-priced alternatives.
‘Chinese consumers don’t care about quality. They look only at the price,’ said Mr. Guo, who took over the ceramics business from his in-laws in 1994.
Still, he is not giving up: ‘It’s tough, but we’re determined not to let our hard work go to waste. We’ll fight this downturn with everything we’ve got.’
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