Factories look inward to counter flagging exports
More mainland manufacturers are focusing on 'Sold in China' than 'Made in China' to counter slowing growth in exports.
Mainland exporters are starting to sell products to the huge but challenging domestic market to counter lukewarm export growth, research by Li & Fung and the Chinese Academy of Social Sciences has shown.
Clouds are gathering over economies in Europe and the United States, with a softening of trade resulting in mainland export growth slowing to 4.9 per cent year-on-year last month.
While many processing factories in Dongguan have collapsed due to rising land and labour costs, a handful are attempting to shift their focus and leverage to the growing power of domestic consumption.
Many processing factories are owned by Hong Kong or Taiwanese investors.
'The main challenges come with the establishment of sales networks for selling their goods domestically,' Chang Ka-mun, managing director of Li & Fung Development (China), said at a teleconference in Beijing.
Mainland retailers, which have extensive networks throughout the country, have much stronger bargaining power over manufacturers and thus levy high so-called slotting fees to ensure they display their goods.
To counter such logistical disadvantages, Taiwanese manufacturers in Dongguan last year formed T-Mark, a sales platform that provides product listing, sales and delivery.
The Taiwan Businessmen Association in Dongguan has established a number of retails chains in the city selling Taiwanese products such as food and daily necessities.
Meanwhile, five export-oriented home furnishing factories in Foshan have built a retail outlet under the 'Joyhere' brand in an attempt to expand their domestic sales.
One important advantage of T-Mark is the prompt payment to its suppliers. It promises to settle payment within one week, compared with the two to three months credit period offered by mainland retailers to the suppliers.
But the transformation of export-oriented manufacturing to the domestic market will mean a sea change in the operations of mainland manufacturers.
Foreign orders are typically larger, with product specifications provided by clients, while domestic orders are relatively small.
The shift will also mean a heavier tax burden for manufacturers. Factories engaged in export processing are exempted from tariffs on imported components and machinery.
The exporter also needs to get approval from the government to convert its status to sell into the domestic market. The change in registration will mean the factory is not audited by customs but will be overseen by many other government departments. The procedures are even more complicated if the company wants to sell its products to different provinces.