For business leaders attending a “small and medium-sized enterprise summit” in Guangzhou last weekend, it was very much a tale of two business models, the traditional “made in China” model and the newer more innovative “create in China” model.
While the traditional labour intensive, low cost, export-orientated factories are suffering because of the global economic downturn, manufacturers with higher added value are sounding increasingly optimistic.
These manufacturers are riding the tide of innovation, energy saving and environmental protection, and are aiming to lead the evolution from “made in China” to “create in China.” Although their export orders have been affected by the economic uncertainties, the situation is still generally positive.
An Anhui-based electronic components manufacturer, for example, said it is investing 900 million yuan in new research and development and production centers employing 1,000 workers and technicians. It generated 320 million yuan in revenue last year from clients like Huawei, Eriksson, Alcatel-Lucent and Bosch, and that figure is expected to increase this year.
A ten-year-old Guangzhou-based auto parts supplier meanwhile is on the cutting edge of “remanufacturing,” recycling used car parts (mainly steering mechanisms) in order to save energy and protect the environment. The regional manager of this 200 employee facility said they always invested in and created new technology, and he was confident the factory would continue to prosper because it could not only retain existing clients but regularly acquired new customers as well.
A sales manager at a Jiangsu auto parts company that supplies components to Honda, Yamaha and Suzuki plants in China said he wasn’t worried about the recent anti-Japanese protests and calls for a boycott of Japanese products because his customers were all Sino-Japanese joint-ventures. Joint-venture cars have distinct badges that make them easily distinguishable from those imported from Japan and are generally not being targeted in the current boycott. Although revenue had declined due to the recent economic downturn, demand from domestic clients remained strong, he said.
Meanwhile, Zhu Qingguo, deputy chairman of Zhejiang Chamber of Commerce in Guangdong, looked a worried man at the SME summit. He estimated that only one quarter of his member SMEs were profitable. Three quarters are either making a loss or just about breaking even, he said.
SMEs in Zhejiang have been particularly hard hit by the recent economic slowdown. Their once highly acclaimed small, flexible cost, competitive family workshops have been challenged by currency appreciation, weak demand and rising raw material and labour costs. A hardware manufacturer, for example, said that while in the past only three factories might bid for one order, now about ten factories are bidding for the same order.
And as The Observer reported from Zhejiang’s “Sock City” Datang early this month, whole towns that grew rich in the early 2000s exporting low cost consumer products are now under threat. “I'm very worried. This year is much worse than 2008-9,” said Xu Leili, the owner of a major sock manufacturer in Datang who has already seen several of his rivals go under.
The fate of China’s SMEs will undoubtedly have an impact on China’s labour market because as Liu Yuting, the head of the Ministry of Finance’s enterprise department, noted at the Guangzhou summit, SMEs create over 80 percent of the jobs in China’s cities. If China can successfully manage the transition to “create in China,” there is reason to be optimistic. If it sticks with “made in China” there may be trouble ahead.