Strong yuan pushes makers to new markets

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Last updated: 12 Aug 2011

Manufacturers in labor-intensive industries are turning to Asia, Mexico, Brazil, Russia and the Middle East to shore up their profit margins. While not without challenges, the endeavor has yielded double-digit growth for many product lines.

 

Increasing trade protectionist measures, the yuan's appreciation and the still uncertain financial situation in the EU and the US have led many China companies to cultivate sales in new markets.


The EU has been imposing anti-dumping duties on China-made shoes since 2006. Other labor-intensive industries such as toys face similar duties from the EU and the US as well. While this was sufficient reason for a few suppliers to start exploring alternative destinations, the yuan's appreciation pushed more businesses to consider this step. Shoemakers, on average, run on 3 percent margins. The currency, meanwhile, has strengthened more than 2 percent since it was depegged from the dollar.

 

But exporting to new markets comes with its own problems. For one, suppliers are less familiar with the trade policies than they are with the EU and the US. Buyers from such countries also tend to place orders for basic or entry-level goods, which yield low profits. Moreover, growing exports to emerging destinations have resulted in several anti-dumping investigations against China-made products.


Even so, most businesses that increased their focus on new markets, regardless of product line, have seen positive results.

 

China customs statistics show Q1 to Q3 2010 exports to ASEAN-member countries, India, Russia and Brazil increased by an average 45 percent to nearly $100 billion, $30 billion, $21 billion and $18 billion, respectively. In the same period, shipments of footwear and parts to India, Indonesia and Thailand more than doubled. Sales of toys, games and sports equipment to Israel, Mexico, Thailand, Russia and the Philippines grew between 70 and 177 percent. Similarly, exports of screws, bolts and nuts to Brazil, Malaysia, Russia and India rose between 97 and 258 percent.


Cultivating new markets

 

Companies employ various measures to gain a foothold in emerging export destinations. One of the most common methods is to participate in trade shows attended by buyers from those countries. These include exhibitions held in the target markets, such as Global Sources China Sourcing Fairs in Mumbai and Dubai.


But the preferred option is to find a suitable partner in the target market. Wenzhou mskShoes Trade Co. Ltd, for instance, has been working with a trading company in Malaysia that is owned by investors from China. The trader regularly provides feedback to the manufacturer on the latest market trends.

 

Larger and more financially viable enterprises, on the other hand, set up sales offices or retail stores, or invest in a factory in the target country. Some even launch in-house lines there. "Compared with the EU and the US, brand building is easier in emerging markets," said Peter Chen, general manager of Coagent Electronic S&T Co. Ltd's overseas division. "To promote our brand and open local distribution channels, we organized two press releases and road shows in major cities in India in January and August 2010."


The supplier of car A/V and security systems is also targeting to expand its in-car electronics business to South America, Russia and Southeast Asia.

 

Kangnai Group Co. Ltd has opened 10 stores in Vietnam to sell its own line of shoes. It also invested in the construction of a footwear factory in one of Russia's economic and trade cooperation zones, with output earmarked for local distribution.


Products are customized to suit the requirements of consumers in emerging markets. Since customers there often look for entry-level items at low prices, Loctek Visual Technology Corp. designed simple TV mounts in classic structures for them.

 

Customs and language are considered as well. "The product design, packaging, pictures and text have to abide with the local religion," Shantou Hottoys Co. Ltd sales manager Jenny Huang said about models for export to the Middle East. Product guides and manuals are printed in English and Arabic.
 

 

Read the full report at Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through our e-magazines, trade shows and industry research.


Posted: 11 February 2011, last updated 12 August 2011

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