Is China's Manufacturing Industry Falling Apart? Where To Go?

Five years ago, there was a sensational news.

Before 2010, China was Nike The largest production base, but since then Vietnam has replaced the position of China. In 2001, China produced 40% of Nike's shoes, while Vietnam only produced 13%; in 2005, China's share dropped to 36%, Vietnam rose to 26%; in 2009, the two countries tied for 36% share; in 2010, Vietnam rose to 37%, eventually surpassing China's 34%.

This seems to depict a China. manufacturing industry The clear trajectory of falling.

To understand the inherent logic of this trajectory, we must get rid of the fog and dig out the behind the scenes OEM tycoons. This enterprise is called. Baocheng The group is the largest shoe manufacturer in the world. Last year, it made 317 million pairs of shoes. One pair of 5 pairs of sneakers in the world was shipped out in Baocheng factory. Excluding Zhai products, the vast majority of Nike, Adidas, CONVERSE and new hundred Lun are all from here.

Now Baocheng has 410 thousand employees and is distributed in three major factories in China, Vietnam and Indonesia. In terms of output share, the proportion of China in 2015 was the smallest in the three largest factories, leaving only about half of Vietnam.

Baocheng once was reluctant to leave China.

In 1969, the business was born in a small town in Lukang, Taiwan. At the very beginning, it was only a small workshop for producing slippers and slippers. In the decades he has been growing, he has been facing fierce competition from his peers and the impact of the shoemaking industry in South Korea.

Finally, it can stand out, and is closely related to Baocheng boss Cai Qirui's decision. In the middle of 1980s, NT and won began to appreciate at the same time, forcing the shoemaking industry to leave. At that time, because South Korea did not establish diplomatic relations with China, the Korean enterprises could only go to Indonesia to develop, while Cai Qirui chose to enter the mainland in the west, and set up a modern scale chemical plant with thousands of people in Zhuhai and Dongguan.

This decision has made Baocheng's labor costs drop sharply, and orders are flying like snowflakes. And his main competitor, who was unable to adapt to the Indonesian culture and management, was eventually tossed to death.

For the sake of Baocheng, the mainland is the geomantic omen of the family, and is unwilling to leave until it is forced to do so.

But Baocheng still left, with his order of tens of billions of dollars per year, to go to Southeast Asia.

There are two reasons why Bao Cheng finally made up his mind to leave. The first is the cost of transportation. China's inland area does not depend on the sea. The cost of land transportation is much higher if the land is transported by the land. The value of the unit of the shoe is very low, and the factory price of a pair of goods is tens of dollars. If the cost of logistics is high, the business will not be able to continue.

The second is the labor cost. The footwear industry is very sensitive to salary expenditure. Let's look at the economic comparison between China and Southeast Asia. By 2015, the per capita GDP of China's coastal areas had reached US $10 thousand. Even in the central and western regions, it was generally rising to 5 thousand to 6 thousand US dollars, while in Southeast Asia, only 2 thousand dollars in the same period, about 1/3 of China's inland.

Such a huge gap in per capita GDP is decisive for the cost of wages, coupled with the high cost of transportation. Baocheng has no way to resist it, and can only follow the trend. Their fourth production bases have been built in Burma, where the per capita GDP is only $1 thousand, which is half as low as that of Vietnam.

In the same year, He Baocheng, a Taiwanese businessman in the mainland, had a man named Terry Gou who often ran to factories in his hometown to visit and study.

Baocheng's vertical industry chain integration technology is excellent, and there are more than 100 enterprises in the upstream suppliers of its shoes materials. However, the computer automation management system he introduced earlier has made the response between the parts suppliers very timely, and the inventory preparation time has been greatly reduced, which has raised the turnover efficiency of the funds.

On the other hand, Baocheng developed from a simple OEM model to the ODM mode of "OEM + design", which made Terry Gou an eye opener. He copied these experiences to his electronics factory and soon became a big Mac in IT manufacturing field.

In 2002, Terry Gou's Foxconn jumped to the top of China's export manufacturing industry.

Baocheng left, but Foxconn chose to stay. His factory moved west all the way from Shenzhen to Chongqing, Chengdu, Wuhan, Zhengzhou, Taiyuan and Heze, and almost every central and western province can find Foxconn's factory. In 2015, Foxconn had 1 million 200 thousand employees in China, with an export volume of US $120 billion, accounting for 1/20 of China's total exports.

This is a very alarming figure. Why did Foxconn go away? Foxconn didn't go. IT manufacturing industry is also a labor-intensive industry, but several key characteristics make them and the shoe industry go their separate ways.

First, the value of the IT industry is relatively higher. The factory price of a pair of shoes is usually only tens of dollars, but at least a few hundred dollars for a mobile phone. This enables them to bear the cost of land transportation costs. If it is a luxury like Iphone, it is also necessary to transport them by air. That is why the production of Iphone is arranged in Zhengzhou, which is an important inland transportation center.

Second, the progress of industrial robot technology has made IT manufacturing industry a beneficiary, and the proportion of remuneration cost in total cost has begun to decrease. The accuracy of robot technology in the past is not enough, so it can only be applied to heavy industries such as automobiles. But in recent years, with the improvement of sensor technology and software technology, many kinds of jobs on the electronic assembly line can be completed by robots. For example, the Foxconn factory in Kunshan has reduced the number of workers by half in the past five years.

The third point is that the technological innovation of shoes is slow and the development space is limited. But with the rapid progress of IT technology, you always have the opportunity to grab the draught. Foxconn's latest inland settlement is Guizhou, which will be built as a large data center. At the same time, a 6 generation LTPS (low temperature polysilicon) panel plant will be set up, with an investment of 25 billion yuan and a partner of HUAWEI. These businesses have not been tried before by Foxconn, and the profit margins are even higher. For emerging businesses, the market size is much more important than the cost reduction.

Although it has been rumoured to leave China, Foxconn has not really stepped out.

Up to now, more than 80% of Foxconn's factories are located in the inland areas of China. Although the wage costs have been rising, the technological progress and the upgrading of the industry have left Foxconn with the backing.

This spring, Foxconn acquired SHARP, a century old shop, with the aim of acquiring its advanced screen manufacturing technology. SHARP is one of the screen providers of Apple iPhone. After the completion of the acquisition, SHARP's Japanese factories will be laid off, and screen manufacturing technology will be introduced to China, to Zhengzhou or to factories in Guizhou, all of which are under planning.

The shift of China's manufacturing industry to Southeast Asia is only the lowest end of the textile and footwear industry, and the industry with higher technological content and better profit margins is continuing to move westward in an orderly manner. For example, the high generation panel industry, including the AMOLED screen and the LTPS screen, will have 6 production lines built in 2015, and the capacity in 2016 will expand by 210%, such as the Chengdu plant of BOE, the Wuhan plant of Huaxing optoelectronics, the Wuhan and Xiamen plants of Shenzhen Tianma, the Zhengzhou and Guizhou plants of Foxconn, and will be put into operation in the next one or two years.

This wave of investment is one of the signs of upgrading China's manufacturing industry. They invest in technology and the future. After all, it has the largest single market in the world, social stability and talent concentration, far from being comparable to that in Southeast Asia.