Going with the flow
Updated: 2012-07-20 12:21
By Yao Jing and Liu Ce (China Daily)
Swimsuits from Huludao enjoy a 38.5 percent share of the domestic market and nearly 20 percent of the global market. Yao Jing / China Daily
Huludao swimsuit makers cobble up industry alliance to fuel innovation and promote brand in overseas markets
Li Haifeng hardly has any time to rest after a recent business trip to Brazil. The 40-year-old owner of Huludao Derong (Group) Garment Co Ltd, a swimsuit company in Huludao city, Liaoning province, knows that rest is the one luxury he cannot afford as "change is constant" in his line of business.
Though he is busy sewing up a deal to take over a Brazilian company, Li knows that he also needs to come up with new designs for the China International Swimwear Exhibition in Huludao from Aug 17, if he has to stay ahead of the competition.
But change is not something new for Li, considering that change was the very reason that prompted him to enter the business in 1998 with just 40,000 yuan (5,125 euros, $6,271). It was also a time of hardship for Li as the currency crisis in Russia had dwelt a killer blow to his leather export business.
Though his entry into the swimsuit business was purely a gamble, Li has not looked back. His business has grown manifold and he is also a leading luminary in the Huludao swimsuit industry.
Though the margins in the swimsuit business are just about adequate, Li feels that the industry has really not evolved. The wholesale price for a swimsuit made by most of the factories scattered in the 10, 415 square kilometer coastal city has remained stagnant at around 30 yuan to 40 yuan for the past 15 years, Li says.
Though the actual sale price in the European and the US markets is nearly 10 times the cost, the Chinese industry still does not have a name of its own, he says. "No brand, low price and no design is the impression about our industry even now. It is a different matter that we have evolved from the 40-odd factories that used to make mass-produced swimsuits, for places like Yabaolu, a Beijing market that caters mostly to Russian customers. Very few realize that we now have multiple sales channels and serve diverse markets in different countries."
Though family workshops still dominate swimsuit manufacturing in Huludao, Li says there is now more than ever a growing desire among companies to grow market share and move up the value chain with mergers and acquisitions in the overseas markets. "The focus now is more on creating a solid brand image for the swimsuit products from Huludao," Li says.
Li's Huludao Derong (Group) Garment Co Ltd reported a turnover of 86 million yuan last year, the best among all swimsuit makers in Huludao.
Swimsuits from Huludao enjoy a 38.5 percent share of the domestic market and nearly 20 percent of the global market. Products from Huludao are exported to over 25 countries and regions, including the United States, France, Germany, Italy, Russia and Southeast Asia. The city has 70 registered swimsuit brands and out of this nearly 30 are fully export-oriented brands, says Du Benwei, mayor of Huludao.
In 2010, the city was christened China's Famous Swimsuit City by the China National Garment Association and China National Textile and Apparel Council.
That was indeed a big achievement for a region that had got the city status only in 1989. Huludao, earlier known as the Jinxian county during the Qing Dynasty (1644-1911), formally changed to its present name in 1994.
Currently, the city is home to more than 400 swimsuit makers and 30 supplementary materials producers. There are roughly 50,000 people engaged in the swimsuit business in the city. The city's annual swimsuit output reached 150 million pieces last year with a total value of about 5 billion yuan ($780 million). Nearly 637 million yuan ($100 million) of the revenue came from exports, Du says.
"The local government is making great efforts to develop the swimsuit industry and upgrade the naturally sprouted and scattered business," Du says.
According to Du, the local government is keen to broaden its industrial structure and wants to move away from its traditional strengths in nonferrous metals, shipbuilding, oil and energy. "The swimsuit industry is the logical choice for the next round of development."
During the First China International Swimsuit Festival held in 2011, 24 supply and sales agreements valued at $170 million and 23 investment agreements worth $3.18 billion were inked. Local government officials are hopeful that more deals will be signed during the second exhibition that will commence Aug 17. "We want to sell and distribute our swimsuits in all major global markets and also want people from across the world to wear our swimsuits. This is the long-term goal for Huludao city," Du says.
The local government is also spending 100 million yuan to set up a Bikini Square in the city.
While companies in Huludao are looking to move up the ladder, other swimsuit making regions in China are finding that the transition is not that easy.
Huludao, Yiwu in Zhejiang province and Jinjiang in Fujian province are the three major swimsuit production bases in China.
"Huludao is now losing its inherent advantages like raw materials, including polyurethane, spandex and polyamide and the geographical strength of being near the major trading ports of China," says Yu Shuqin, president of the Xingcheng Swimsuit Industry Association.
Lack of teamwork and scattered small units are also restraining the development of the industry. Although some of the brands are registered in Europe and US, they do not have the required market experience or knowledge to pose a stiff challenge to Western brands, Yu says.
"Things have really not changed much, even though most of the companies are now run by the second-generation entrepreneurs," she says.
Xingcheng, which is part of Huludao, was one of the beneficiaries of the labor shortage that hit South China in 2006. The city gained a lot of swimsuit export orders and was able to make handsome profits, thanks to its steady labor pool. But higher wage bills and a fast-depleting workforce are problems that are slowly having an impact on the industry.
"Companies have to pay double wages, as very few young women are willing to settle for the boring factory routine. They are keen on finding jobs in other industries or pursing university education. Most of the women workers are above 40 and there are very few in the age group of 18-35," Yu says.
Mayor Du Benwei, who came to Huludao in March 2011, says the government decided to upgrade the industry with policy support, as it was one of the six industrial clusters in the Liaoning province.
To take the industry to the next level, Li and eight other swimsuit makers, who together account for more than 50 percent of the total industry output, set up the Tiancheng Swimming Industry Service Co Ltd in 2011 with an investment of 50 million yuan. The company will play the role of a public service platform featuring technology promotion, quality inspection, training, promotion, modern logistics and creativity. It will also act as an innovator of industrial technologies.
"It is time for us to do this. We are tired of being dependent on expensive raw materials and layers of middlemen," Li says.
Wang Hongguang, the general manager of Xingcheng Yilang Swimming Wear Co Ltd, with an experience of more than 20 years in the industry, says she decided to join the platform without any hesitation.
Like all second-generation entrepreneurs, Wang inherited her business from her father, but has since moved on to have her own manufacturing facilities. Operating separately from her brother, Wang has a 7,000 sq m workshop and more than 10 sets of machines.
"We received 1.3 million swimsuit orders from 10 customers mainly from Europe this year. However, we can make only 1 million swimsuits," Wang says.
Unlike other industries, the swimsuit industry was not affected by the economic crisis. Rather export has grown from $50 million in 2008 to over $100 million now. According to Yu, the penchant for customers to frequently change their swimming gear and the large number of South China swimsuit makers that exited the business has helped companies in Huludao.
"But we earn a profit of just 10 yuan from each swimsuit," Wang says.
Though the number of orders is growing, Wang says she has to reduce customers to keep up with the load. She says it is easier for workers to execute repeat orders, while another option to reduce risks is to accept orders from big companies.
Recently, Wang bought a new 10,000 sq m workshop not far away from the present one to further improve the company's productivity.
But the export company with an annual income of 40 million yuan has also made the significant move up the ladder by becoming the co-owner of a swimsuit brand, Bonishi, in Italy and France.
"The nine owners will jointly produce for the brand. I think the profit from the brand will be largely improved compared with the original equipment manufacturing," Wang says.
Unlike Wang, Zhang Cun, another second-generation entrepreneur took over his father's company, EC Garment Manufacture Co Ltd, when it was on the verge of collapse seven years ago. He is now looking to strike an independent path with his own brands.
"Labor costs are rising in China, and we will lose the advantage of cheap manufacture in the near future," Zhang says. He registered a brand, Balneaire, in Paris in 2009. It is now sold in France, Italy and Spain.
"I am just testing the market, but I know I have to do this no matter how difficult it is," Zhang says.
Fortunately, he has scented some success as the brand now accounts for 5 percent of the company's total income of 30 million yuan.
Most of the swimsuits are first sold in European countries, as it is easier to make inroads due to the common culture and similar market characteristics, he says. His swimsuit is sold for $10 in the wholesale market. In order to better position the brand, he also regulates the lowest retail price at 25 euros.
"I don't know how long it will take to nurture the brand, but I am prepared to go through the tough road," he says.
Apart from developing the industry platform, Li is also looking to further expand his business in the overseas markets.
Li's company spent $5 million to buy the US-based Ingear Corporation, a supplier of swimsuits, holiday clothing, and leisure clothing, along with Huludao Stava Sportswear Co Ltd, in 2009. In order to increase the product occupancy rate in Eastern Europe and Russia, the company completed the acquisition of Russian firm Gilitskiy Igor Corporate, mainly engaged in research and development, distribution and retail of garments, in 2010.
"We are also trying to attract international buyers and distributors by joining Mode City, one of the world's largest intimates, swimwear and wellbeing trade show, being held in Paris," Li says.
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(China Daily 07/20/2012 page16)