Is The Cost Of Chinese Footwear Industry "Wrestling" To Profit Or To Survive?

On May 22nd, the annual Western China International Footwear Industry Fair was held in Bishan, Chongqing. Compared with previous years, this year's international footwear industry held a larger scale, higher grades and more popularity. However, it was found that the entrepreneurs' expressions were clearly divided into two groups: the entrepreneurs from the Midwest had a spring breeze, a smile and a relaxed atmosphere; the entrepreneurs in the East were frowning and worried.

"Under the global background of industrial pfer, today, the eastern region where manufacturing is over saturated is suffering from multiple problems such as rising cost of raw materials and labor, appreciation of the renminbi, processing trade and adjustment of export tax rebate policy."

Zhang Shuhua, director of the China Leather Association, said the worries of the Eastern shoe boss.

"Nowadays, enterprises talk about cost is no longer a question of how much profits are related, but whether they can continue to live."

A shoe manufacturer boss said in his heart that the shoe companies in the East are suffering from life and death.

Profit?

Life or death?

The word "cost revolution" is very popular in this year's shoe industry in Wenzhou.

When entering the headquarters of AOKANG group, China's largest private shoe making enterprise in the thousand stone Industrial Park in Wenzhou, North China, a banner was seen: 2008, the cost activity month was launched and hung above the entrance of the factory area.

"The overall cost of shoemaking this year has increased by 20% compared with last year, and the cost pressure of enterprises is getting bigger and larger under the situation that the retail price of leather shoes has not risen."

AOKANG shoe manufacturing Co., Ltd. production manager Fan Manru told reporters.

For this reason, AOKANG set up a cost team this year to set up a full-time post to further refine the cost control.

In the month of cost activities, the measures include quantifying the use of raw materials, integrating human resources and offices, and saving energy in living quarters.

In an interview with Ouhai industrial district, Wenzhou, China, the busy production scene at this time of the past year seemed rather cold and cheerless.

"In fact, enterprises do not have no mono to do, but they dare not answer them. Because of the instability of the RMB exchange rate and other factors, some 7 and August bills can not be answered. They can't afford to pay for the mess. They can only take some recent bills."

A 500 person shoemaking boss Wu told reporters the story.

"The overall cost of the enterprise has increased by about 26% over the past year. After the implementation of the new labor contract law, the wages of the employees only increased by about 2 million. Most of the other costs were raw materials, export tax rebates and RMB exchange rate. Now the enterprises are basically in the dilemma of capital preservation."

The rising cost makes the enterprise's ability to resist risks very weak. As long as there is a little accident, it is possible to be trapped in the situation of no return.

According to the investigation and investigation from the association, only about 1/3 of the small and medium-sized shoe enterprises in Ouhai district have closed down or run poorly, and 1/3's shoe enterprises have run their own businesses, while the other 1/3 has only a small profit.

"It's too fast for us to prepare. It's just like a disaster."

A shoe business owner who has been running shoes for more than 30 years and has strong feelings for shoemaking, is unwilling to face the old shoe industry.

The same situation, the Pearl River Delta seems to be more serious: according to the November 2007 statistics report of the Asian footwear industry association, there are five thousand or six thousand shoe factories in Guangdong, and more than 1000 large and medium-sized shoe factories have been closed, of which two or three small shoe factories in Huidong have failed in two or three months.

In addition to policy factors, the industry itself has also made it possible for enterprises to doomed their fate from that day.

At present, more than 70% of PRD enterprises still rely on the "low cost, low profit" processing trade mode, always living at the low end of the price chain, with a profit of only 5%- 10%.

Such labor-intensive enterprises do not have the core competitiveness. Once the low cost advantage is lost, they will directly face the choice of life and death.

Western cost potential

One side is full of joyful longings, while the other is painful struggles and hesitation.

The magic wand of cost will make the East and West shoe industry a spectacle of ice and fire.

Unlike the Eastern shoe companies, which are facing a life and death struggle, the machines in the western shoes of Bishan, Chongqing are roaring, showing a busy scene.

Every year, about 60000000 pairs of leather shoes are sold around the world.

According to Jiang Yuanwu, general manager of Chongqing AOKANG Real Estate Co., Ltd., from May 2003, the construction of China's western Shoes Capital Industrial Park was opened by AOKANG group.

The total area of 2600 mu of the park base, the first phase of the project 1000 mu, built the largest shoe material trading center in Western China, covering 137 acres of AOKANG Group production base - Chongqing red Firebird Shoes Co., Ltd., at present, the red Firebird men and women's leather shoes have won the national inspection free and Chongqing famous brand products.

The two phase covers an area of 1600 mu. On the basis of the first phase, a shoe trading center and a quality inspection center will be built. 50 shoe manufacturers, including the world's top 500 enterprises, Brazil and Cairo, will be completed and put into operation in 1 years.

The three phase project has completed the preliminary planning work, covering an area of 2500 mu, and will build a production and processing base for leather goods, leather making and shoe making brand enterprises, and introduce a number of well-known shoemaking enterprises.

Now, 5 years later, the first phase of the project has already been completed successfully.

The two phase of the project is in full swing.

Jiang Yuanwu, general manager of Chongqing AOKANG Real Estate Co., Ltd., in summing up the experience of building shoe market, pointed out that AOKANG group and Bishan County People's government had to practice in building western shoes, and found out a successful way of "interaction between East and West, cooperation and development, complementary advantages, joint efforts, enriching people and promoting industry and achieving win-win".

Because of the demonstration significance of the successful operation of the western shoes city, the western part Office of the State Council is fully affirmed, and is called the "interaction between East and West, cooperation and development".

At the same time, Chongqing is thoroughly implementing the general plan of "314" made by general secretary Hu Jintao for Chongqing and promoting the comprehensive reform of urban and rural units at the provincial level.

The desolate countryside now presents a prosperous urban landscape.

According to the relevant personage, it is estimated that by 2012, the shoe industrial park in Western China will basically complete the existing planning and construction. At that time, the output of footwear products in Western China shoes will exceed 100 million pairs, and the annual output value will exceed 10 billion yuan.

"The main reason for the successful operation of the footwear capital in Western China and the prosperity and development of the western footwear industry is due to the cost advantage in the West."

Wang Zhentao, President of AOKANG group, analyzed.

For the Chinese footwear industry, which relies solely on cost survival, the West has the absolute advantages of land, energy, pportation, labor and so on.

It is estimated that every pair of shoes produced in Bishan, Chongqing, can save 20% of the cost compared with the eastern coast.

At the same time, Chongqing has the advantages of unique port and low cost logistics advantage of the Yangtze River golden waterway.

Li Kun, director of Sichuan Jiahui logistics company, who has been engaged in export freight business from west to Shanghai for years, told reporters that the cost of export logistics of western enterprises accounts for about 20% of the total product cost, while the cost of waterway pportation is only half of that of the highway and 1/3 of the railway.

Good news has just come recently. The Chongqing Cun Tan bonded port area has been examined by the Customs General Administration of China. After the establishment of the bonded zone, the export products are no longer required to go to Shanghai for customs declaration, and directly from Chongqing.

In addition, the western region has developed animal husbandry, providing more than half of the country's cattle, sheep and pigs and other raw skin resources. For a long time, these pellets have been pported to the eastern coastal areas for long-distance leather processing and then exported to the eastern leather shoes manufacturers.

This "leather in the west, shoes in the East" situation does not meet the requirements of the rational allocation of resources in the market economy, for shoe-making enterprises, increased production costs.

"Moving east shoes to the west" can effectively reduce production costs.