On the evening of October 25, the “Economy 30 Minutes” of CCTV-2 aired the special program of “Homemade Suitcases and Bag: Seeking Breakthrough in Domestic Market”, giving prominence to new changes in Dongguan’s foreign trade enterprises.
The report mentioned that Dongguan was called the World Factory. “Made in Dongguan” took up absolute market share in the international market from shows, sweaters, toys to suitcases and bags. However, foreign trade-oriented enterprises dealing with suitcases and bags faced particular difficulties in their existence since last year. They were overwhelmed by multiple adverse factors such as rising prices of raw materials, blocked logistics and shrinking overseas sales market.
Luckily, some OEM suitcase and bag enterprises have already accomplished transformation from OEM to building of independent brands, shifting from obscurity underneath the label to the spotlight. How can high-quality development of manufacturing industry be achieved? Dongguan gave answer to this question.
Return of orders from top international brands
Sitoy Handbag Co., Ltd. of Houjie Town is one of Dongguan’s largest OEM suitcase and bag factories. The company delt with OEM for over a dozen top international brands at the peak, accounting for 5% of the production of global luxury bags.
The company is currently producing a handbag for a French luxury brand in form of OEM. Craftmanship and detail on that production line are regarded as the lifeline, which is not merely for meeting the client’s demanding requirements. More importantly, the products manufactured here being exported also represent the capability and quality of “Made in China” to some extent.
Zhu Yongnian, General Manager of the company, couldn’t help sharing with the Production Manager about the good news he learned from the client he just met. “That was a big client before. They now look for us for cooperation again, because they have considerable growth of orders from China. Their shipment in China now accounts for 18% of their global sales.”
The client he mentioned is an American brand the company worked with in form of OEM since 2000. Just three years ago, the brand terminated cooperation with the company and shifted their production line to Southeast Asia. This time the two sides not only picked up cooperation, but they have increasing orders.
“Their manufacturing quality in Southeast Asia cannot meet with Chinese people’s expectation for quality. They now have to resume cooperation with big factories like us in China to process their orders in China,” said Zhu Yongnian. In 2020, the sales of the client in China accounted for nearly one fifth in their global sales, and this year their sales in China are on the rise.
Due to the large demand of China’s market, they have to resume cooperation with Sitoy Handbag. They also expressed that the products manufactured by Sitoy Handbag can also be directly delivered to the storefront in China. In this way, they can change the mode of previous cooperation: the manufactured bags have to be exported to Europe and America first before being imported into China.
“Many international brands now have their own logistics centers in China, which is a clear change in our domestic sale market.” Zhu Yongnian pointed to the containers about to be transported to Shanghai and said, “Manufacturing and selling in China will become a normal.”
Despite the current humming of the production lines of the factory, affected by relocation of clients’ production lines and the COVID-19 pandemic in 2020, this OEM factory had experienced reduction of the orders by half. In the second half of 2020, the COVID-19 pandemic sent global consumption into sluggishness. Nevertheless, luxury sales market in China showed a reverse situation with growing demand. Some of the brands fled before now have to return and look for cooperation.
There are also some subtle changes regarding the status of the two sides. “We were not given the right to negotiate the price when the European and American brands sought cooperation with us before. Now our status experienced some changes based on our need for each other, which ensured negotiation on an equal basis,” said Zhu Yongnian.
The 30-odd-year old OEM enterprise shifting to independent brand
Sitoy Handbag had embarked on the journey of dealing with OEM for international brands as early as in 1988. Zhu Yongnian was filled with a myriad of feelings when recalling the old days. “We had to deliver the products at the client’s demand. Moreover, we had to unconditionally inform our clients of all the techniques and technologies employed in the manufacturing process. As a result, our commercial secret could not be protected and we only enjoyed a pretty low profit margin.” Zhu Yongnian told the journalist that their maximum profit for their OEM of handbag of a top brand was merely 70 or 80 yuan or so, leaving them with no room for negotiation.
In recent years, with the rising costs of labor and raw materials, many small- and medium OEM enterprises in the neighboring areas were closed. The reason why they managed to survive owed to their large reserve of clients and their deployment of independent brands in advance.
Just opposite to the OEM workshop of Sitoy Handbag lies the production line of their independent brand. The journalist had found surprisingly that the productslooked totally different on the identical production line with identical technique.
According to the 2020 China Consumption Development Brand Report released by an e-commerce platform, 8 out of ten products in the shopping cart of the Chinese consumers are homemade products. In recent years, homemade products have won the heart of Chinese consumers. Focusing on marketing has also emerged as an important factor for enterprises to make breakthrough.
Inside the factory of Sitoy Handbag, e-commerce livestreaming studio was directly set up on the assembly line of the factory, allowing customers to witness the whole manufacturing process of the product. This is a secret for gaining data traffic the livestreaming team of the company has recently explored. “To conduct livestreaming, the core lies in natural traffic which involves a messaging logic and an important indicator: retention rate (the time a user stays in the livestreaming studio).” He Yong is the person in charge of the company’s e-commerce livestreaming. Every time after the livestreaming, he would review with the online streamer. “At first, we were not familiar and only had sales of hundreds of yuan. Now we could steadily accomplish sales of hundreds of thousand yuan a day. This is attributed to our efforts to explore, review and summary of data, which is hard won,” said He Yong.
Sitoy Handbag has run its independent brand for over ten years, but its sales gradually recovered only in the past two years. He Yong also admitted that it was not easy to find the sales code for independent brand. Though with identical material and identical technique, the price of products of independent brand is merely one tenth of the famous brand for lack of brand awareness. With the emerging of e-commerce livestreaming, enterprises started to cultivate their own streamers to save marketing costs. At present, the proportion of the company’s OEM and sales of independent brand have changed from 8:2 to 7:3 now.
Aside from constant exploration of marketing mode, efforts also need to be made in product design to seize the pulse of the market. One ordinary weekend, when Zhu Yongnian returned from a meeting with the marketing departemnt, he immediately convened a meeting with colleagues of the production department. “The bag is the latest design of the marketing department with high market acceptance. Let’s try our best to develop the sample,” Zhu Yongnian told the team.
The team was originally set up for OEM brand, but the OEM brand needs upgrade once every quarter and the independent brand once every week. Therefore, the team has shifted their emphasis to the design of their independent brand.
Strong domestic demand + China-chic + fresh opportunities presented by e-commerce for Dongguan’s breakthrough in domestic market
As Zhu Yongnian and his sales team were considering launching the latest products next week, another company in Houjie Town is also working hard for their independent brand.
Zhou Xiangju is the President of Dongguan Shunqi Handbags Industry Co., Ltd. She posed a difficult problem to the designer with the requirement of the client. The client customized a bag with her and demanded that the raw materials and hardware needed to align with the top international brand with the delivery being arranged within 30 days. Such a demand would be a challenge to any suitcase and bag enterprise, but Zhou Xiangju accepted the challenge. That’s because she had an experience of 28 years dealing with OEM for international bag brand.
Zhou Xiangju’s independent brand started 9 years ago. With her experience, Zhou Xiangju was particularly sensitive about any movement in the market. “We were considerably affected by the COVID-19 pandemic. For us, raw materials and logistics costs, risks are prevalent. We realize that we have to insist on our independent brand. Transformation is a must-taken path for owner of every OEM enterprise,” said Zhou Xiangju.
Zhou Xiangju now has put all her mind in the independent brand. She has opened a high-level customized bag studio in the factory. Designers working in the studio require an experience of at least ten years. “The bag uses basically the same materials and techniques as the luxury brand, but a bag of a luxury brand would be sold at a price of at least one hundred thousand yuan. We sell at a price of only 20,000 yuan or so. The price gap is ten times,” said Zhou Xiangju.
Despite so, many counterparts still can’t understand Zhou Xiangju’s intention of engaging in independent brand high-level customized products. “Many people believe that it is unrealistic to deal with independent brand in China, but I think we should implement the idea for there is actual demand in the market.” Zhou Xiangju told the journalist that with improvement of China’s purchasing power, many overseas brands are adjusting their marketing strategies in China. Sensing the business opportunity, Zhou Xiangju shifted her attention to expansion of domestic market.
Currently, young people as the mainstream consumer group are the first to be attracted by new China-chic products. To win the heart of young people, Zhou Xiangju also planned to launch light luxury products within the price range of 1,000 to 2,000 yuan, imbuing products with strong “Chinese style”. From her perspective, the robust rise of China-chic is supported by improvement of purchasing power and quality of life. Apart from efforts made in product quality, design and promotion, the revitalization of Chinese brands is also attributed to the embrace of Chinese culture.
In the meantime, member enterprises of Dongguan Houjie Suitcase and Bag Association are gathering in a conference room of Houjie Town government to discuss the development plan for the next stage. These enterprises have been dealing with foreign trade orders for a long time in the past with relatively small size. It appeared more urgent for these small enterprises to transform with the leading OEM enterprises regaining foreign trade orders and simultaneously dealing with independent brand.
“We are actively building platforms to drive the development of the industry. We hope they can weather difficulties through a series of measures and insist on independent brand, independent R&D and independent sales. They are encouraged to insist on this direction.” People in charge from Houjie Town expressed so at the conference.
Though there are bound to be some setbacks along the way of transformation, enterprises dealing with foreign trade of suitcases and bags are faced with historical opportunities: the proposal of the new development pattern centering on internal circulation with the domestic and international markets promoting each other, the formation of domestic market, rise of new China-chic activities, and popularity of online consumption, etc.
