Chinese business conglomerates are investing in overseas factories while small- and mid-sized businesses attempt to reach out to the foreign market, state-run China Business News reports. At the China Import and Export Fair that kicked off Oct. 15 in Guangdong, business seemed to be booming. The event is China’s largest international comprehensive trade fair.
Zhou Nan, vice-secretary general of the home appliance branch, China Chamber of Commerce for Import and Export of Machinery and Electronic Products, said 2013 was a good year for exported home appliances. This year however, due to various factors, the export rate is expected to dip to 5%, down from 8% then.
Raised sales tax and import duties in Indonesia, and modified international standards by the Saudi Standards, Metrology and Quality Organization, as well as the surplus of products from emerging markets have been some of the main factors dragging down export growth, said Zhou.
There has been some reshuffling in the global market this year – Stockholm-based Electrolux has acquired General Electronic’s home appliance department; Bosch bought Siemens’s home appliance sector in September; and US’s Whirlpool acquired Italy’s Indesit domestic appliance maker.
These acquisitions are expected to revive the flat performance of western brands in recent years. As to major Chinese home appliance brands, “companies like Haier and Hisense are gaining grounds in the international market, but they haven’t yet created a wholesome label image,” said Zhou.
“The home appliance market is steady,” said Liao Shixin, head of the Overseas Market Department at Chigo, a Guangdong-based air conditioner manufacturer. Chigo adapts its marketing messages according to the characteristics of each market and has maintained overall growth so far this year, said Liao.
China has exported about 41 million domestic air conditioners, down 7.9% from last year.
“The price of home appliances has dropped slightly in 2014. The raw material price has dropped, too, but the labor cost has become more higher,” said Pan Weidong, chair of Guangdong’s Xinbao Electrical Appliance.
Kazuhiro Tsuga, head of Panasonic, said that the company has established laundry machine-making plants in India and Vietnam the last couple of years. China, on the other hand, will switch from being “the world’s factory” to “the world’s biggest market” in Tsuga’s eyes.
One management level staff member in Guangdong’s Midea said in an interview that labor costs in China have gotten as high as that of Southern Europe and believes that the overall market will lead companies to establish factories elsewhere.
Another expert said that China used to have a great advantage with its cheap labor. Now with sluggish global market growth and lower labor costs in south and southeast Asian countries such as Vietnam, India, and Malaysia, Chinese manufacturers will be driven abroad looking for opportunities. “But it is very difficult to really know overseas markets without five to eight years of trial-and-error,” he said.
“China will not be replaces as the world’s factory in the short run, despite growing less advantageous,” said Chigo’s Liao. He said Chinese companies would enter overseas markets first, and then then set up factories there.
One general manager from a moderately-sized manufacturing business said that small- and mid-sized companies must form coalitions to develop abroad. “Ideally 20 to 30 companies should join forces and form industrial zones to strengthen power,” he said.