Ｇａｒｍｅｎｔ Ｉｎｄｕｓｔｒｙ Ｐｉｃｋｉｎｇ Ｕｐ

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THOUGH Wenzhous garment industry is not as reliant on exports as that of the Pearl River Delta, the cold winds of the global financial crisis are still felt keenly by local manufacturers, according to Zheng Chenai, chairman of the Wenzhou Fashion Association. He cited the extreme example of three closedowns within one day late last year in Ouhai District, a cluster of Western suit producers. Only few months later, in March, Wenzhou turned it around, with garment and accessory exports amounting to US $78.78 million, an increase of 32.26 percent over the same month last year and 114 percent over February 2009.

The garment industry is one of the largest in Wenzhou, and its manufacturers number more than 2,500, including 290 large ones. In 2008 its output value exceeded RMB 40 billion, and exports reached US $1.229 billion.

Low End, High End

“Most of the partial closedowns and bankruptcy cases were small operations, or medium-sized enterprises incapable of R & D and relying solely on purchase orders,” says Chairman Zheng.

According to Mr. Zheng, the slowdown actually started in 2003, and the current difficulties are more a result of the innate weaknesses and defects of the garment industry than the consequences of the financial crisis. For one thing, the citys development environment for its garment industry is not favorable, suffering as it does from chronic shortages of land resources, capital and policy support. For another, there is no large, specialized wholesale market within the city for its numerous small and medium-sized manufacturers, who lack their own marketing channels. Many of them must rely on garment wholesale markets in Zhejiangs Keqiao Town and Yiwu City.

Mr. Zheng pinpoints the weak competitiveness of these enterprises and an immature industrial structure as the key problems of the local garment industry. “Eighty-five percent of the local manufacturers are at the low end of the production chain and sustain operations by simple order processing, a low status that leaves them vulnerable to external economic forces.”

However, Cai Huantian, chairman of the associations foreign trade branch, showed us the other side of the coin. Wenzhous garment manufacturers are, in fact, skilled in processing high-end products. Many of the worlds best known brands, such as Versace and Armani, have their lines manufactured cost-effectively in Wenzhou without sacrificing their quality standards. “Wenzhou-made shoes and garments sell well in the United States,” he says.

A positive side to the economic slowdown is that the government hasadopted a more proactive policy to support the garment and other conventional industries.

In the past, garment businesses had great difficulty securing bank loans, but now the government has showed an increasing interest in easing access.The industry is a major source of jobs. Early this year, the State Council issued its adjustment and recovery plan for Chinas textile industry, proposing to coordinate the penetration of both international and domestic markets, boost technological upgrading, encourage the development of domestic brands, and optimize industrial structure. It also stepped up financial support and raised, once again, the export tax rebate for textiles and garments from 14 percent to 15 percent. It is estimated that the continuous rebate increase – from 11 percent in 2008 to current 15 percent – will result in an extra RMB 330 million for Wenzhous garment industry in 2009.

The local garment sector also considers the financial crisis an opportunity to advance, and has come up with several strategic responses. The first is the alliance strategy, which is directed not only at mergers and reorganizations, but also thealignment of R&D, marketing and other links in the supply chain, for the purpose of jointly developing the market. Individual enterprises are active in self-improvement too. Zhejiang First Dress MFG Co., Ltd., for instance, produces for export, so has been under great pressure from the financial crisis and the depreciation of the euro last year. To maintain its market share, it has established a new product development department targeting foreign markets, with the idea that the higher standards there will stimulate its managerial and technical know-how.

Trading as a Propellant Force

Since processing-on-demand still drives the greater part of local operations, commerce and trade are propelling industrial upgrading. In fact, some local enterprises like Metersbonwe and Semir have had successful experiences adopting an effective “virtual operation” mode; they make full use of market resources by outsourcing low added value operations while concentrating on high value-added links. Senmir outsourced manufacturing and marketing, devoting itself wholeheartedly to product design and brand management. In 2008 it was rewarded with a sales revenue of over RMB 5.8 billion, a steep growth from its RMB 1.7 billion in 2005.

Fapai is one of the largest garment manufacturers in Wenzhou. Hit badly by the financial crisis, its international business plummeted by 30 percent. Assessing the situation, Fapai restructured as a “brands shop,” initiating alliances with established local brands for joint ventures. The result is Uepai, a garment and accessories brand controlled by eight Wenzhou enterprises and supplied by roughly 100 manufacturers in the area. Though not formally in business yet, the new company has been approached by foreign investors offering to introduce it into the European market.

Meanwhile, the municipal government of Wenzhou has proposed the establishment of 100 shopping centers that specialize in Wenzhou brands around the country within two years. However, Chairman Zheng Chenai advises regular garment makers to stay away from areas where they have no know-how. “Brand management is very different from garment manufacturing and processing.” He cautions that virtual operations put a strain on the supply chain, procurement system, and IT support functions, and require large inputs that are beyond the means and capabilities of small and medium-sized enterprises. His advice is for regular garment enterprises to concentrate on what they are good at, and leverage their competitiveness in that area. “Garment manufacturers should make garments their bread and butter.”

“The downhill trend has been curbed,” assures Mr. Zheng, displaying first quarter 2009 statistics that show Wenzhous textile, garment, footwear and headgear enterprises reported a total output value of RMB 4.783 billion, an increase of 2.04 percent over the same period last year. The export of garments and accessories raked in US $238 million, an increase of 0.20 percent.

Link: Ten Specialized Markets

Qiaotou Button Market was founded in Yongjia County in February 1983. By the end of that year, nine more specialized markets had appeared: Liushi Hardware and Electrical Appliances Market in Yueqing, Hongqiao Farm Produce Market in Yueqing, Yishan Regenerated Textiles Market in Cangnan, Qianku Comprehensive Commodities Wholesale Market in Cangnan, Shuitou Rabbit Hair Market in Pingyang, Xiaojiang Plastic Woven Products Market in Pingyang, Xiaojiang Plastic and Leather Products Market in Ruian, and Shencheng Plastic Woven Bag Market and Elastic Cord Market in Tangxia, Ruian.

The local garment sector

also considers the financial crisis an opportunity to

advance, and has come

up with several strategic

responses.