China swaps sweatshops for smart tech in bid to reclaim lost ground
Manufacturers also acquiring established brands overseas in push to move up the value chain
A young woman walks into a booth and removes her outerwear. Six seconds later, a software programme linked to a scanner that plots 600 points displays her bust, waist and hip measurements on a computer screen.
Measuring – the first step in making a tailored dress – is done.
The scenario, played out at a factory run by Hong Kong company High Fashion Garments in Hangzhou, Zhejiang province, is the new face of “made in China”, where smart, small-batch production is replacing the old sweatshop approach of bulk manufacturing.
And it continues when the dresses are made, with two robots, about half the size of a human, zooming in and out, wearing different-sized clothes, as they simulate the changing room experience. The company hopes that all the attention paid to mapping out the time and space needed for the process to work smoothly will see it adopted across China.
Chinese manufacturers are adopting newer technology, acquiring established brands and connecting to bigger markets through cloud-based networks as the country embarks on a quest to secure a higher position in the global production chain.
“I’ve spent a third of my 30-year career in the garment business at this Hangzhou plant, watching it grow from an OEM [original equipment manufacturer] to a producer with its own brand and design capability,” said company director Hilda Leung. “The knack is technology and innovation, so that we can sell clothes at US$45 [a piece] on average nowadays compared with US$10 about six or seven years ago. The earlier you adopt a suitable technology, the higher the possibility to survive.”
Zhejiang province’s silk garment production chain – from silkworm farmers to the finished article – has been in existence for thousands of years, but it’s lost ground in recent decades. The manufacture of silk, one of China’s first exports, has declined due to changing luxury fashion tastes and the province’s silk exports fell 13.1 per cent year on year to US$373 million in the first five months of the year.
But High Fashion still faces competition from thousands of small silk apparel makers at home and abroad.
“The silk manufacturing sector is in a dangerous situation,” said executive director Well Lam Din-yu. “Demand is shrinking, while the industry on the mainland in general suffers from a lack of innovative fabrics, techniques or designs.”
To stand out from the competition, Lam said the company had upgraded its dyeing technologies, introduced smart plant management systems, invited input from Italian designers and improved sewing techniques to help make high-end tailored clothes.
Such efforts are creating hope that at least some traditional players can thrive and bring China’s vast manufacturing apparatus to the next level.
“Today, there surely is hype around Industry 4.0 among Chinese manufacturers, particularly private companies,” said Karel Eloot, a senior partner with McKinsey & Company, a consultancy. “The combination of an economic need for companies to act, combined with the government support definitely signals that China’s manufacturing sector is entering into a new phase.”
Also called the Fourth Industrial Revolution, Industry 4.0 can be described as smart, fully networked manufacturing that places a priority on using sophisticated technologies to help better integrate production, suppliers, business partners and customers.
In the case of High Fashion, the company still lacks a brand name that appeals directly to consumers.
Making and designing products for other brands remains the bread and butter for the 38-year-old company, contributing 91 per cent of revenue last year. Selling its own-branded scarfs and garments, its most profitable business, accounted for only 9 per cent.
About 100km away, League, a 20-year-old bag maker that produces 30 million bags a year, faced a similar brand awareness problem. But in a bold move in 2011 it addressed that by paying US$60 million to acquire Belgian brand Hedgren.
Pan Aifang, League’s general manager, smiles when remembering the acquisition, which also gave it a design team in Antwerp and allowed the company to bid farewell to its former reliance on cheap factory production.
“We had been longing for a brand for ages and the European economic crisis offered a golden opportunity,” Pan said. “We’ve had enough of those days when we earned so little by making goods for big brands.”
The company hasn’t abandoned its traditional business completely, but there are encouraging signs of future possibilities. After spending an additional 100 million yuan (HK$116 million) on expanding marketing and sales, Pan said sales of Hedgren-branded products had doubled from five years ago, to US$400 million.
Revenue from sales under the house name now equals that of its OEM business, and Pan said League was sniffing around for another overseas acquisition.
The search for established brands and technologies by Chinese manufacturers like League has become a force in the global market. Outbound investment in manufacturing business exceeded US$21 billion in the first eight months of this year, triple the level recorded in the same period last year, the Commerce Ministry said.
At a factory in Tonglu in suburban Hangzhou, where one of League’s four plants in China is located, improved automated production lines help ensure quality and efficiency, with more than 1,000 skilled workers sitting at sewing machines for 10 hours a day responsible for putting the finishing touches on bags.
“The monotonous and time-consuming processes are automated and quality results improved,” factory head Liu Chengguang said, straining to make himself heard over the hum of the machines. Straight lines on the back of a laptop bag, for instance, are now done automatically by machines thanks to devices co-designed by League and sewing machine suppliers.
While manual labour was still necessary, Liu said it was greatly reduced compared to the past, when “it took 12 workers to complete 150 processes to make a backpack.”
But it’s an open question whether China’s formidable manufacturing machine can reinvent itself, as Beijing hopes, by using new technologies, from 3D printing to Big Data.
China became the world’s No 1 manufacturer by value output in 2010, dethroning the United States, which had held the position for more than a century.
On one hand, an army of workshops in China’s export bases, from shoe factories to toy makers, are struggling for survival as the country is no longer a cheap place for production. On the other, a group of manufacturers are emerging to become global players, helped not only by a deep domestic market but also true innovation.
In a global index released by the World Intellectual Property Organisation, Cornell University and the INSEAD business school last month, China ranked among the world’s 25 most-innovative economies, along with the US, Britain, Switzerland, Sweden and Finland. It was the first time a middle-income country had made the top-25 list.
The new factory in Ningbo operated by CITIC Dicastal, the world’s biggest vehicle wheel maker with a total annual output of 35 million wheels, displays the muscle of a modern Chinese factory, with the floor is occupied by robots and automatic machinery melting, casting, moulding, heating and painting.
With an annual capacity of 2 million wheels a year, the Ningbo plant has only about 200 workers, working in three shifts around the clock, who mainly monitor computer screens and spot quality problems, free from the usual heat and dust associated with a metal factory.
Deputy general manager Shang Shouyan said the factory, which started production in 2013, was an example to “impress the world that our efficiency is remarkable”.
CITIC Dicastal, which provides wheels for almost every big car brand, was now investing in a cloud network connecting its 25 factories, as well as suppliers and clients, so that production at factories along the entire value chain could be “more intelligent”, said chief information officer Huang Xiaobing.
The company purchased a factory complex in Greenville, Michigan, for US$140 million in 2014 and is trying to turn it into a production base with an annual capacity of 3 million wheels. It bought German car parts supplier KSM Castings in 2011.
“We will be a truly global player with global market reach, global production bases and global research centres,” Huang said.
If a lot more Chinese firms like CITIC Dicastal expand around the world, they will definitely tilt the global production playing field.
“Many former Chinese manufacturers already started to develop their own brands 15 years ago and some have become real global innovators,” said Mark Greeven, an associate professor at Zhejiang University and a research fellow at the National Institute for Innovation Management.
“It’s a big market opportunity for foreign firms to offer their advanced technologies to Chinese companies. However, foreign companies should be aware that Chinese companies are catching up and becoming real innovators.”