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Dongguan’s factories embracing R&D, e-commerce, automation, brand building
By Chen Qingqing in Dongguan Source:Global Times Published: 2016-2-29 20:08:01
On a recent visit to Dongguan, South China's Guangdong Province, the Global Times looked into how the manufacturing hub is transforming. Recent media reports said that the export-driven city has suffered waves of factory shutdowns, which has hurt local economic growth. However, city officials said labor-intensive industries are adjusting to the "economic new normal" of falling trade volumes and rising labor costs. Some have turned to e-commerce; others have resorted to robots to improve efficiency and reduce labor costs. However, they all have one common objective: to prevent the "world's factory" from closing.
A vibrant shade of orange paint covers three buildings that were once the worker dormitories of a Microsoft Nokia mobile phone factory in Nancheng district in Dongguan, South China's Guangdong Province.
The 20,016-square-meter plot now goes by a new name: Poly Electronic Business Park, which offers e-commerce training and services to 120 enterprises, including the makers of handbags, luggage and furniture.
Zhang Xilin, 54, CEO of Guangdong Lianying Furniture Co, said he has been a traditional manufacturer for 15 years. Recently, he decided to get his furniture business online.
"Demand has been sluggish and orders have been falling since 2012, so I felt that it was urgent to find a way out," he told the Global Times on Thursday.
Both rising labor costs and sluggish sales have weighed on the export-driven city in recent years, said Liu Xuezhi, Shanghai-based industry analyst at Bank of Communications.
"Much of the country's low-cost and low-skilled manufacturing has been relocating to Southeast Asia to take advantage of lower labor costs," he said, noting that the remaining factories are struggling to survive.
As a major manufacturing hub in the Pearl River Delta, Dongguan has seen increased factory shutdowns since 2014, which raised concerns about its leading position in the region's manufacturing industry, according to media reports in 2015.
However, local authorities denied that the city has experienced "waves" of factory shutdowns or capital flight.
Although 268 large enterprises - those with annual revenue above 20 million yuan ($3 million) - closed or went bankrupt in 2015 due to the country's economic slowdown, the number of shutdowns is limited and more new investments are coming in, Xu Jianhua, Dongguan's Party chief, said at a press conference in the city on Thursday.
In response, local authorities set up a special fund of about 2 billion yuan in 2015 to help upgrade and transform traditional manufacturers, according to a document the local government sent to the Global Times on Thursday.
It also urged manufacturers to become more innovative and tech-driven, and allocated about 2 billion yuan to a "science and tech fund" and 1 billion to a "talent fund" every year.
'Their own path'
In 2012, Lianying Furniture, whose customers were based in Dongguan, suffered several consecutive drops in revenue due to sluggish demand for factory and school dorm room furniture.
"By the end of 2012, my company generated less than 10 million yuan [in annual revenues] and was on the edge of bankruptcy," Zhang said.
The company took action. It set up a separate office to work on its own website and develop business-to-business (B2B) services. It signed partnership agreements with companies not only in China, but also in other countries, such as Malaysia and South Korea. By 2015, Lianying Furniture's revenue hit 30 million yuan, and it expects to reach 100 million yuan in 2016.
"On average, we receive six to 10 enquiries every day, and sometimes more than 20," Zhang told the Global Times on Thursday, noting that the current number of online orders has exceeded the number offline orders in the past.
Some companies "can expand their marketing channels and build up their own brands to gain a competitiveness edge," Liu, the analyst, told the Global Times on Sunday.
In the past, traditional manufacturers didn't know much about their customers' needs and expectations, but the Internet has helped them learn more, Ma Nan, expert from China Investment Consulting, told the Global Times on Sunday.
Companies that put more time and energy into research and development (R&D) and marketing will generate more profits, said Luo Liangcha, general manager of Dongguan JD Leather Goods Co.
"About 20 percent of our cost is in R&D, with the goal of coming up with original designs and strengthening our own brand," he said.
The company used to be an original equipment manufacturer (OEM) for foreign brands such as Michael Kors and Tommy Hilfiger. Two years ago, it created its own brand after gaining experience in the industry.
While many OEM and original design manufacturers have moved out of the city, those who stay "should focus on their own path," Luo said.
Bringing in the robots
In Dongguan today, it's hard to find a factory floor that looks like a scene from a movie, with thousands of workers busily assembling parts of a watch or a mobile phone shell.
Instead, one might see hundreds of industrial robots scattered at different lines, adapted to the fast rhythm of production.
Faced with rising labor cost, the local government has come up with a series of policies to "replace workers with machines," especially in labor-intensive production lines, according to the local government's document.
From September 2014 to December 2015, about 45,621 automated machines have been installed in about 1,262 projects for a total investment of 10.38 billion yuan, the document noted.
At one of the factories of Janus Precision Components, a Dongguan-based OEM for electronics companies like Samsung that has installed hundreds of robots and automated machines at its factories in the past year, workers were busy testing those machines on Thursday afternoon.
The installation of 180 industrial robots has replaced around 100 workers, according to the company.
"We've noticed that the demand for automation services has been growing rapidly in the Pearl River Delta in recent years, especially in the 3C industry [computer, communication and consumer]," said Cheng Yong, who is in charge of providing automation solutions and services to the factory.
However, adding industrial robots require technological breakthroughs in the near future to lower spending on imported machines.
"Those robots, for now, can only do repetitive and simple work," he said, noting that human workers are still needed for delicate and complicated tasks.
"Replacing some of low-skilled workers is just the first step," said Ma, the expert. He noted that industry upgrade and transformation should also include provisions for improving the labor structure, such as reeducating workers to help them work with the machines.
"[For factories in Dongguan], there's still a long way to go," Cheng said.
Newspaper headline: Manufacturing innovation
A vibrant shade of orange paint covers three buildings that were once the worker dormitories of a Microsoft Nokia mobile phone factory in Nancheng district in Dongguan, South China's Guangdong Province.
The 20,016-square-meter plot now goes by a new name: Poly Electronic Business Park, which offers e-commerce training and services to 120 enterprises, including the makers of handbags, luggage and furniture.
Zhang Xilin, 54, CEO of Guangdong Lianying Furniture Co, said he has been a traditional manufacturer for 15 years. Recently, he decided to get his furniture business online.
"Demand has been sluggish and orders have been falling since 2012, so I felt that it was urgent to find a way out," he told the Global Times on Thursday.
Both rising labor costs and sluggish sales have weighed on the export-driven city in recent years, said Liu Xuezhi, Shanghai-based industry analyst at Bank of Communications.
"Much of the country's low-cost and low-skilled manufacturing has been relocating to Southeast Asia to take advantage of lower labor costs," he said, noting that the remaining factories are struggling to survive.
As a major manufacturing hub in the Pearl River Delta, Dongguan has seen increased factory shutdowns since 2014, which raised concerns about its leading position in the region's manufacturing industry, according to media reports in 2015.
However, local authorities denied that the city has experienced "waves" of factory shutdowns or capital flight.
Although 268 large enterprises - those with annual revenue above 20 million yuan ($3 million) - closed or went bankrupt in 2015 due to the country's economic slowdown, the number of shutdowns is limited and more new investments are coming in, Xu Jianhua, Dongguan's Party chief, said at a press conference in the city on Thursday.
In response, local authorities set up a special fund of about 2 billion yuan in 2015 to help upgrade and transform traditional manufacturers, according to a document the local government sent to the Global Times on Thursday.
It also urged manufacturers to become more innovative and tech-driven, and allocated about 2 billion yuan to a "science and tech fund" and 1 billion to a "talent fund" every year.
'Their own path'
In 2012, Lianying Furniture, whose customers were based in Dongguan, suffered several consecutive drops in revenue due to sluggish demand for factory and school dorm room furniture.
"By the end of 2012, my company generated less than 10 million yuan [in annual revenues] and was on the edge of bankruptcy," Zhang said.
The company took action. It set up a separate office to work on its own website and develop business-to-business (B2B) services. It signed partnership agreements with companies not only in China, but also in other countries, such as Malaysia and South Korea. By 2015, Lianying Furniture's revenue hit 30 million yuan, and it expects to reach 100 million yuan in 2016.
"On average, we receive six to 10 enquiries every day, and sometimes more than 20," Zhang told the Global Times on Thursday, noting that the current number of online orders has exceeded the number offline orders in the past.
Some companies "can expand their marketing channels and build up their own brands to gain a competitiveness edge," Liu, the analyst, told the Global Times on Sunday.
In the past, traditional manufacturers didn't know much about their customers' needs and expectations, but the Internet has helped them learn more, Ma Nan, expert from China Investment Consulting, told the Global Times on Sunday.
Companies that put more time and energy into research and development (R&D) and marketing will generate more profits, said Luo Liangcha, general manager of Dongguan JD Leather Goods Co.
"About 20 percent of our cost is in R&D, with the goal of coming up with original designs and strengthening our own brand," he said.
The company used to be an original equipment manufacturer (OEM) for foreign brands such as Michael Kors and Tommy Hilfiger. Two years ago, it created its own brand after gaining experience in the industry.
While many OEM and original design manufacturers have moved out of the city, those who stay "should focus on their own path," Luo said.
Bringing in the robots
In Dongguan today, it's hard to find a factory floor that looks like a scene from a movie, with thousands of workers busily assembling parts of a watch or a mobile phone shell.
Instead, one might see hundreds of industrial robots scattered at different lines, adapted to the fast rhythm of production.
Faced with rising labor cost, the local government has come up with a series of policies to "replace workers with machines," especially in labor-intensive production lines, according to the local government's document.
From September 2014 to December 2015, about 45,621 automated machines have been installed in about 1,262 projects for a total investment of 10.38 billion yuan, the document noted.
At one of the factories of Janus Precision Components, a Dongguan-based OEM for electronics companies like Samsung that has installed hundreds of robots and automated machines at its factories in the past year, workers were busy testing those machines on Thursday afternoon.
The installation of 180 industrial robots has replaced around 100 workers, according to the company.
"We've noticed that the demand for automation services has been growing rapidly in the Pearl River Delta in recent years, especially in the 3C industry [computer, communication and consumer]," said Cheng Yong, who is in charge of providing automation solutions and services to the factory.
However, adding industrial robots require technological breakthroughs in the near future to lower spending on imported machines.
"Those robots, for now, can only do repetitive and simple work," he said, noting that human workers are still needed for delicate and complicated tasks.
"Replacing some of low-skilled workers is just the first step," said Ma, the expert. He noted that industry upgrade and transformation should also include provisions for improving the labor structure, such as reeducating workers to help them work with the machines.
"[For factories in Dongguan], there's still a long way to go," Cheng said.
Newspaper headline: Manufacturing innovation
Posted in: Insight