OEMs strive to climb value chain by creating own brands

By Huang Ge Source:Global Times Published: 2016/12/7 18:08:39

Emphasizing ‘original’

In recent years, China's original equipment manufacturers (OEMs) have suffered slowing growth due to rising production costs. By upgrading their equipment and technology, a growing number of OEMs have begun to focus more on quality and creating their own brands to survive in the competitive global markets. However, many challenges remain because the quality of China's manufactured goods continues to lag behind those of the top global brands. Nonetheless, domestic companies have confidence in their prospects and plan to promote their products around the world through e-commerce platforms.

An employee works at a Zhejiang Ginza Cases and Bags Co plant in August. Photo: Courtesy of Zhejiang Ginza Cases and Bags Co

An employee works at a Zhejiang Ginza Cases and Bags Co plant in August. Photo: Courtesy of Zhejiang Ginza Cases and Bags Co

Born in a small town in East China's Shandong Province, garment producer Qingdao Xueda Group has worked as an original equipment manufacturer (OEM) for all of the nearly 41 years since it was founded in 1975.

The company, which employs about 4,500 people, manufactures products for global brands such as Uniqlo, MUJI and Puma, as well as some domestic brands like Shanghai -based Meters Bonwe.

"Our company has been making OEM products for Uniqlo for six years and for MUJI and Puma for more than a decade," said a senior Xueda employee, who declined to be identified.

"Given the shrinking profits and rising production costs, orders from Japanese companies have fallen in recent years," he told the Global Times on Monday, noting that their company has turned its attention to improving the quality of its products and developing its own brands.

In 2011, the garment maker launched its own underwear brand called Xueda and has since been stepping up efforts to grow in the domestic market, the employee said.

Because they already have labs, quality examination centers and production lines that meet the standards necessary to make products for well-known brands, domestic OEMs see an opportunity to develop their own brands so they don't have to rely exclusively on orders from other companies, industry insiders said.

Experts noted that China's manufacturing sector is going through a new phase of development, with an increasing number of producers shifting their focus from mass production to improving quality.

"But many challenges are still waiting for these firms, and it will take quite a long time for them to finally survive in the market," said Zhao Xiao, chief economist at the Beijing-based Cypress Leadership Institute.

Pursuing quality

Although China is the largest manufacturer in the world, the quality of many of its manufactured products lags behind that of some foreign countries and regions, experts said.

For instance, Chinese-made precision instruments and cars cannot compete with those produced by German manufacturers, Zhao said.

"But we do have advantages in labor-intensive sectors like textiles and garments," he said, noting that domestic OEMs in these sectors have faced shrinking profits in recent years due to rising production costs and land prices.

Before 2011, the profit margins on some OEM-produced garment could be as high as 18 percent, the above-mentioned Xueda employee said, but over the last five years that figure has dropped to 10 percent, and 15 percent at best.

Thus, foreign companies are now switching to OEMs elsewhere, such as in Cambodia and India, where labor costs are lower, the employee noted.

To survive in competitive global markets, Chinese enterprises are now going through a phase of transformation and upgrading to create their own brands, Zhao said.

"To them, quality matters more than quantity," Zhang noted.

Zhejiang Ginza Cases and Bags Co, a suitcase producer in East China's Zhejiang Province, started to develop its own brand in August 2011 after working as an OEM for about two decades.

The firm has been an OEM for global brands such as Samsonite, Swissgear and American Tourister.

"Our own suitcase brand Ginza is not only sold in China, but also exported to Japan," said Yu Guoping, director of the company's e-commerce business.

Yu told the Global Times on Tuesday that the company plans to further expand its own suitcase business to the European and Russian markets in 2017.

"According to consumers' feedback, our suitcases are cost-effective as we employ the same material, production line, quality examination center to produce our own brands as well as the international ones. Our suitcases cost only 300 yuan ($43.60) to 400 yuan while the global brands cost about 2,000 yuan," Yu said.

"However, the problem is that we are not famous and most consumers do not know us," he said, noting that the company is stepping up efforts to improve product quality and its reputation.

"We have invited Hua Shao, a famous Chinese host to be our spokesperson to let more people get to know our brand," Yu said.

Further improvement

Domestic companies are just taking the first step to highlight quality improvement in their production and there is still a long way for them to go, experts said.

E-commerce platforms provide a lot of opportunities for Chinese manufacturers to transform and upgrade, an industrial insider who preferred to remain anonymous told the Global Times on Tuesday.

In April 2015, China's largest e-commerce platform taobao.com, which is under Alibaba Group Holding, launched a specialized platform q.taobao.com for outstanding Chinese brands.

More than 10,000 Chinese companies have registered on the platform, whose daily sales have reached more than 50 million yuan, a PR representative of Alibaba told the Global Times on Tuesday.

The new platform aims to encourage Chinese manufacturers develop their own brands and encourage traditional manufacturing firms to use e-commerce platforms to help them innovate, the PR representative said.

"The Internet is a good channel to promote domestic brands overseas, but the online platform still needs to be combined with offline activities," said the insider, who noted that new companies should be vetted during the registration process to keep unqualified companies off the platform.

The companies and industry insiders who spoke with the Global Times argue that China's manufacturing industry has yet to attain a high level of development.

However, they have all expressed their confidence in its prospects as more and more manufacturers strive to improve the quality of their products.

They also said they will be devoted to enhancing their innovation and product design capabilities to forge their own brands on the domestic market.

"There is still a large scope to improve the quality of Chinese-made products as the domestic market plays a key role in selecting qualified products," said Zhao, the economist at the Cypress Leadership Institute. 

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