Updated: 2012-03-09 08:38
By Zhong Nan and Li Wenfang (China Daily)
Lianhing has changed its main product from knitted underwear to polyester swimming suits and sports wear to find new markets overseas. [Photo by Zhong Nan / China Daily]
Garment makers in Dongguan chart new strategies to stay afloat as US, European OEM orders dry up
Growing uncertainties in the traditional export markets of Europe and the United States are prompting garment makers in Dongguan to move up the value chain with high-end products and devise new strategies to expand their market. Situated in South China's Guangdong province, Dongguan has for long been synonymous with garments and huge export capacities.
Last year, Dongguan's 511 manufacturers exported $4.6 billion (3.5 million euros) worth of garment products and fashion accessories to overseas markets, up 18.4 percent from a year earlier. Nearly 65 percent of the goods went to destinations like the United States, the European Union and the Middle East, according to data compiled by the Dongguan foreign trade and economic cooperation bureau. Though the export figures look stable, many garment makers are now worried as the long-term prospects are not exactly that rosy, considering the precarious financial situation in these markets.
Chen Guanfu, president of Sanflag Fashion (Dongguan) Co Ltd, says it is time for his 1,500-worker company to realign the available resources and readjust capacity to new growth areas like the domestic market and online shopping business.
Chen says the number of foreign orders from the US and Europe has decreased since July last year. Though many Dongguan factories are now less dependent on the foreign market than earlier, exports are still the mainstay as OEM (original equipment manufacturing) accounts for most of the business.
Sanflag is one of the two suppliers in Dongguan that manufactures garments for Swedish brand Hennes & Mauritz AB (H&M). The company produced 800,000 H&M sweaters last year and was lucky to get an order for the same quantity this year.
The total value of its exports was 230 million yuan ($36.5 million, 27.6 million euros) last year. Two-thirds of its products were ordered by international brands from Germany, Sweden and the United Kingdom.
Unlike the contracts for heavy industries, manufacturers rely largely on circulating capital to complete the orders. The biggest concern for Dongguan's garment exporters is that foreign companies place orders through a commonly recognized credit system and make the payment only after the goods are delivered. The real concern for many Chinese factories is that they stand to incur heavy financial losses if the foreign buyers do not pay.
Sanflag lost 4 million yuan from such a deal with a London fashion company in 2010. "We have realigned our material and labor resources, and readjusted the capacity to avoid financial risks caused by economic uncertainties from outside China," Chen says.
"We are still proactive about the foreign market and we would like to seek more business opportunities in markets that are closer to us."
With an eye on the domestic market, the company launched a brand called Cifuca in 2010 for high-end knitwear, coats and sweaters along with a chain of 21 stores. The strategy seems to be working as the company realized sales of about 60 million yuan from the domestic market in 2011.
"Though it is still a far cry from the amount realized through exports, it at least shows our determination to develop the domestic market before it is too late," Chen says.
Part of the reason why companies from Dongguan have not been able to make much headway in the domestic market lies in their predominant export focus, experts say.
The domestic market is dominated by factories in Zhejiang, Jiangsu and Fujian which have consolidated their presence further by diversifying their marketing strategies, product selection and efficient goods delivery in the different regional markets throughout China.
"It is not so easy for the garment enterprises in Dongguan to evolve new strategies and tactics to make inroads in the domestic market," says Ye Lijuan, general manager of Dongguan Lianhing garment factory, which is also known as Sky Max Garment Ltd in Hong Kong.