Per reporter: Xia Bing Per editor: Chen Junjie
"Order return" is a hot topic in the textile industry in 2021 - some companies get large orders, expand factories and expand production; but some companies struggle to maintain, and profit margins fall to the lowest point. At the same time, the reporter also noted that in 2022, the uncertainties and unstable factors facing textile and garment foreign trade are increasing, especially the gradual recovery of overseas production capacity.
Yu Jianlin, an old textile man, is particularly sensitive to the wind and grass in the market, and in 2021, the profit margin of the company she heads is the lowest in more than 10 years since its establishment, "Overall, the domestic competition is that the 'cake' has become smaller, and there are more people to share." Yu Jianlin said.
Dongguan Meilun Weaving Co., Ltd., a veteran foundry, has integrated and optimized its 3 foundries, and finally shut down 2, retaining only 1 high value-added knitted products positioned in the high-end market, with complex production processes and high thresholds.
It's backflow, transfer, optimization, or exit. In the face of changes in the entire industrial chain, where will China's textile and garment industry go?
Dongguan Meilun Weaving Company Production Line Workshop Image Source: Provided by the interviewee
Is there still a "reflow" big order? Some companies are "cautiously optimistic"
In a series of interviews with the daily economic news to track the phenomenon of "order return" in 2021, many merchants told reporters that "orders do have a return", "the number of inquiries and goods has increased, and even some garment manufacturing companies have orders in 2022".
Tang Ke, head of the development division of Anhui Garment Import and Export Co., Ltd., the largest garment import and export company in Anhui Province, revealed in an interview with the Daily Economic News reporter a few days ago that the company received a large order worth more than 30 million US dollars in May 2021, which is to produce a batch of basic clothing for American knitted clothing customers who have cooperated with small orders in the past.
In 2021, due to the impact of the epidemic, the factories in Southeast Asia could not produce and deliver this batch of goods, and after the order was cancelled, the order was transferred from Indonesia and Vietnam, so the company also set up a "development division" to dock this order.
"From the intensive production in June last year to the start of sea shipments in October, we have completed about 80% of this order, and the remaining 20% will be shipped in April this year." Tang Ke told reporters that this order is relatively large, so the production company has developed some new factories on the basis of its own original factory to take orders.
Tang Ke introduced that compared with Vietnam, the Philippines and other countries, Chinese textile enterprises have obvious advantages in both design and equipment, and not only price advantages, Chinese companies cooperate with the completion of order services The cycle is shorter, and the domestic supply chain is relatively complete, while the industrial chain of Southeast Asian countries is not as complete as China, and many raw materials and fabrics are also purchased from China.
"For example, some batches of goods, China may have a machine to open, the workers are mature, skilled, a day to finish the work, but to Southeast Asian countries, they may need a week to finish, speed and efficiency, we can make customers more at ease, from Europe and the United States to sign a large single contract is based on the early inherent cooperation and mutual trust, only from overseas to domestic." Donk said.
Hu Wangcai, head of the polyester fabric production enterprise from Anhui, told reporters that the company's export products are mainly thinner polyester fabrics, and the customer is directly purchased by factories such as ZARA, and from the perspective of the growth of orders in the entire 2021, fabric exports have achieved 20% growth. "Even before the epidemic, this growth performance was good, and the return of overseas orders should also be an important factor."
Will the company receive these reflow orders again in 2022? Donk expressed "cautious optimism" about this.
"The competition is still very fierce, according to the fabric factories asked around our circle, they said that there are already a lot of fabrics sent to Southeast Asia, and the backflow phenomenon may not be as obvious as in 2021." At present, we and this customer are in the back-and-forth intention negotiation, the goal is to win another 50 million US dollars in this customer's order, and the cooperation is based on the foundation of the previous preparation. Donk said.
Is it difficult to benefit from order return? There were companies with the lowest profit margins in nearly a decade last year
The textile and garment export market is full of variables, and small and medium-sized textile and garment enterprises that have survived the epidemic may have a deeper understanding.
Since 2021, the price of raw materials in the upstream of clothing has risen all the way, and the difficulty of profitability has become the biggest issue facing small and medium-sized enterprises, and enterprises are facing the practical dilemma of "increasing income without increasing profits".
"The total orders of our four factories distributed in China are added together, and the actual increase last year is 40% higher than the initial conservative estimate, and 10% higher than the actual increase in the same period in 2020, mainly due to the development of new customer groups and the expansion of categories." Because we have a small moq, a fast delivery time in the operation process, and relatively high requirements for the supply chain, the company is a garment processing and production enterprise with high added value in the current domestic sports competition garment industry factory. Yu Jianlin, founder of Shanghai Meidu Textile Co., Ltd. (hereinafter referred to as Shanghai Meidu), told reporters.
Shanghai Meidu was founded in 2004, the company has 2 wholly-owned factories in the north and south, 1,000 employees, specializing in foreign trade weaving, knitting sportswear processing, to Europe and the United States in the high-end sports and event clothing manufacturing, export products are mainly the world's major seasons of team uniforms, such as player uniforms and fan uniforms, as well as professional outdoor off-road, outdoor leisure wear.
As an old weaver who has been in the textile circle for more than 20 years, the wind and grass in the market are particularly sensitive to Jianlin.
"The mainland is the most complete country in the world in the textile industry chain, and the textile and garment industry has strong competitiveness. Despite the advantages of the industrial structure, the survival challenges faced by enterprises in the past two years are still difficult. Yu Jianlin told reporters: "The business is getting more and more tired, the profit margin is constantly being eroded, coupled with the crazy rise in raw materials in 2021 that has never been seen since the industry, from the current performance of our accounting, the company's profit margin has reached the lowest year in more than 10 years since its establishment, which can be said to be close to 'no'." ”
Yu Jianlin said that the first is that raw materials and labor costs are rising. Domestic cotton, polyester, viscose and other textile raw materials commodity prices have appeared a strong trend since last year, the rise in raw materials apportioned to specific clothing about 50%-60%, labor costs rose by 10%-20%; post-processing shipments are air freight, air freight also rose sharply; in addition, there is pressure on the exchange rate fluctuations of the renminbi appreciation. Under such cost pressure, even if the order price of overseas customers has been moderately raised, "the profit is still a drop in the bucket".
"The return of orders has little impact on 'small and fine' factories like ours. The textile industry is a labor-intensive industry, the sensitivity to labor costs is very high, and the return of orders is mainly to bring opportunities to those foundries that can take orders in large quantities and have no added value, low-end mass production. However, even if some of the orders returned last year, it is an inevitable trend as the epidemic situation in Southeast Asian countries stabilizes, and this part of the orders gradually transfers to Southeast Asia. Then we have added a lot of additional workers for this part of the order, after the epidemic, the overseas supply chain production area adjustment, how to deal with the extra production capacity? In Jianlin's view, once the production capacity of Southeast Asian countries is restored, the domestic production cost advantage is reduced, and the order transfer and global supply chain reshaping are inevitable trends, so enterprises cannot blindly expand production capacity for some of the return orders that are added in front of them.
"From last year to this year, for us, the first consideration is to live, first earn less, do not earn, what we can do now is to improve our own capabilities and efficiency as much as possible, we still need to polish the technology, process and process to make up for the lack of technology." In terms of production capacity, we have visited Southeast Asia such as Vietnam, Myanmar and other places last year, and the epidemic situation is slightly more stable this year, and several of our founders have initial plans to set up factories overseas, the purpose of this is to allow enterprises to discover and find a better supply chain in time, serve customers well while being able to grasp more suitable profit points for us, so that enterprises have the ability to develop sustainably. Yu Jianlin said.
In the textile industry circle, in recent years, with the increase of domestic labor costs, there are indeed many foundries or brands that have relocated their factories to Southeast Asian countries such as Vietnam, Myanmar, Bangladesh, and Indonesia.
In Jianlin's view, Southeast Asia and India to Europe, the United States, Japan exports of ready-to-wear clothing can enjoy special tax exemption policies, compared to the profit can increase by more than 10%, in addition, labor and other factors also determine that the overall production cost will be lower than the domestic, individual products The combined cost will even be one-fifth of the domestic.
Cut off low-end production lines and take the road of high added value
Compared with the embarrassing situation that Shanghai Mido's profits are on the verge of a critical point, a foundry from Dongguan, Guangdong Province, that specializes in undertaking international second-tier luxury brands (Zegna, Armani) and other clothing, their lives are slightly more relaxed. Because they have already smelled the crisis, they have launched a breakthrough battle from international OEM to domestic boutique domestic trade OEM in advance, and at present, there is still room for choice.
Yan Chao worked for Dongguan Meilun Weaving Co., Ltd., as the backbone of the factory's business, Yan Chao was transferred to manage the company's overall domestic processing business in the past two years.
This is an established foundry with a history of more than 30 years, and there were three large factories with thousands of people when the order volume was the highest. From the perspective of development path, the company has gone through the original passive FOUNDRY model of waiting for "feeding orders" when it was founded, and today's "export + domestic trade" two-legged two-legged high-quality manufacturing foundry model.
Yan Chao said that as early as before the outbreak of the epidemic, the old foundry, which was squeezed by the market's "inner volume" and had a smaller and smaller opportunity, had integrated and optimized its 3 foundries, and finally shut down 2 and only retained 1. It can process knitted apparel products for high-quality European and American luxury customers such as Zegna and Armani, and there is a large part of the production capacity to meet the needs of the company's export to domestic sales. Driven by the domestic demand market and superimposed on stable overseas customer orders, the company's operation in recent years has improved, and its revenue has increased steadily.
"From the company's development strategy, after the adjustment, the company optimized such as scarves, socks and other low-end product lines with low technical content and low profits, and now the factory has a research and development team, a design team, and the overall domestic fabric procurement can also be satisfied. Yan Chao said.
In Yan Chao's view, in recent years, with the rise of labor, the amount of orders has decreased, many small and medium-sized foundry enterprises around have fallen, and the reason why the company can survive is because the accumulated old customers are better; on the other hand, it is timely adjustment of positioning, mainly positioned in the high-end market, with a higher threshold.
"For example, our 'woolen 18-needle process', which is also the best process in the field of domestic knitting at present, is very challenging, and such a fine process cannot be produced by Southeast Asian countries for the time being." Yan Chao said that the problem of order return is not obvious in their company, because after the outbreak of the epidemic to the present, "these orders have not been transferred to Southeast Asia at all, our current orders have been scheduled until the autumn and winter of 2022, the factory has completed the production of this batch of goods ready to be sold to Italy in April and May, this batch of goods at sea two months later, is expected to arrive at the customer in June and July."
Yan Chao believes that at present, the company's adjusted strategy is very clear, not only can find suitable customers, but also have reasonable profit margins, and hopes that the company can also develop smoothly in the OEM model of domestic sales.
"The requirements of these luxury customers in Europe and the United States are very fine and high standards, they are also very fond of our kind of R & D and design production service providers, and our delivery is very timely, the price increase space is also very reasonable, it should be said that in the short term, Europe, America and Japan such customers are still inseparable from our foundries." It should be said that they are still dependent on the supply chain of China's garment industry. Yan Chao said.
In the interview, whether it is Yu Jianlin or Yan Chao, they are repeatedly emphasizing to reporters to achieve the "high value-added" product goal, which requires that in the actual operation of the company, on the one hand, continue to strengthen product research and development, improve product quality and customer recognition, continuously enhance comprehensive competitiveness, improve market share; on the other hand, we must also strengthen management, pay close attention to production standardization, and continuously improve human efficiency with refined management.
"Most of the subdivisions under textile manufacturing are labor-intensive industries, and the degree of automation and fine management has been low for a long time. Outstanding enterprises continue to invest in R&D and management improvement, and increase investment in automation, Internet of Things and other fields to improve production efficiency. Feng Chongguang, chief analyst of the textile and garment industry at CITIC Securities, told reporters that in recent years, with the trend of industrial migration to Southeast Asia, the number of textile and garment enterprises in the mainland has declined year by year, and small and medium-sized textile and garment enterprises have signs of gradually eliminating the clearance due to insufficient competitive strength and poor anti-risk ability, and the epidemic has accelerated the speed of industry concentration.
The outward migration of low-value-added industries is not a "bad thing"
According to the statistics of the General Administration of Customs, with the recovery of external demand and the return of some orders and other favorable factors, the national textile and apparel exports in 2021 will be 315.47 billion US dollars (this caliber does not include mattresses, sleeping bags and other bedding), an increase of 8.4% year-on-year, hitting a historic high. Among them, the annual export of clothing was 170.26 billion US dollars, an increase of 24% year-on-year.
The numbers are exciting, but the hidden crisis is always there.
Statistics show that China's garment exports have grown steadily since china's accession to the WTO, reaching a peak of 186.28 billion US dollars in 2014, with the rise in domestic production costs and the shift in international procurement trends, the export volume has gradually declined, and the export volume affected by the epidemic in 2020 has dropped to 141.31 billion US dollars, falling back to the level of 10 years ago. So, the return of orders in 2021 shows that the export advantages of China's textile and garment products are still there?
Zhou Liang, a partner at EY Consulting Services, said in an interview with the Daily Economic News that since June 2020, China's import and export trade has risen against the trend and has continuously refreshed the highest value in history. This is due to China's institutional advantages and correct response strategies during the epidemic, which will continue for a certain period of time.
Tang Dajie, a visiting researcher at Wuhan University, believes that the main reason for the return of orders in the textile industry is that China's epidemic prevention measures are appropriate and the industrial chain has not been broken. Countries with more developed overseas textile industries are not so "lucky". "The outward migration of the textile industry was originally a general trend, a natural law of flow from the cost highland to the cost depression. However, the epidemic has interrupted the transfer process and caused losses to all parties at home and abroad. After the epidemic is controlled, some low-end manufacturing industries such as the textile industry will continue to move outward, and there may be certain changes in strategy and layout. ”
Overall, the international industrial chain and supply chain layout are undergoing profound changes. Zhou Liang believes that in the future, the industry will generally show a diversified and regional layout, and the epidemic has further exacerbated the rise of trade protectionism, and the current prosperity may not be sustainable.
Experts have spoken of the boom in order returns being unsustainable and not unfounded.
The reporter noted that in 2022, the uncertain and unstable factors facing textile and garment foreign trade are increasing. On the one hand, the Opmi-Krong variant casts a shadow over global trade. On the other hand, the recovery momentum of international demand has slowed down, and the layout of international textile purchase orders is once again facing structural adjustment. Third, the difficulties encountered by foreign trade enterprises such as rising raw material prices, tight transportation capacity and rising freight rates, and labor costs have not been completely alleviated.
In the face of these risks and challenges, can the resilience and high-quality development of the textile industry withstand the test again in 2022?
In this regard, Zhou Liang said that the transfer of production capacity is not a bad thing, and the return of production capacity is not necessarily a good thing. The rising domestic costs of land, labor and environment require China to adjust its industrial structure, and the relocation of low-value-added labor-intensive industries is conducive to China's high-end factor dividends of talents and science and technology, and occupies the high-end links of the industrial value chain. Correspondingly, the return of garment manufacturing is because the raw materials and the market are outside, and it does not create too much value, but consumes a lot of social resources. It is worth noting that in September last year, the National Development and Reform Commission put forward a first-level warning of energy consumption exceeding the standard for traditional clothing provinces such as Guangdong and Jiangsu. "What is even more frightening is that if you return to the inertial thinking of the world's factories, it will prevent companies from investing in technological improvement and R&D innovation."
Zhou Wenke, manager of the production and research department of Zhongda Outai Co., Ltd., also believes that the current return of production capacity is temporary, and with the resumption of work and production in Southeast Asia, the order flow should gradually return to the pre-epidemic state. "The downward trend of China's garment exports is a general trend, domestic land, labor, energy consumption costs, etc. compared with Southeast Asia has been significantly at a disadvantage, homogeneous product competition has no advantage, export reduction is an inevitable long-term trend."
"The return of orders is not obvious at the raw material end. Mainly downstream textile links, the epidemic has limited the production capacity of Southeast Asia, while the domestic industrial chain is more complete, the digestion of products is stronger, the supply quality and cycle are easy to control, and the order transfer to China is normal. As a chemical fiber leader Shenghong Group, which already has a new high-end textile industry chain of "crude oil refining -PX/ethylene glycol-PTA-polyester-chemical fiber", the relevant person of the company introduced in an interview with reporters that since the domestic epidemic was effectively controlled in the second quarter of 2020, domestic demand has recovered rapidly, basically about 90% of the production capacity is given priority to domestic downstream supply, "exports are at a disadvantage in terms of shipping costs, account periods, etc., coupled with the completion of the domestic industrial chain, Most of our peers will put meeting domestic demand first."
How to break the game big but not strong?
So, how can China's textile and garment industry change and get rid of the low value-added development model in the future? How to break the situation of big but not strong? How to get rid of the embarrassing situation of falling profit margins?
"The competitive advantage of China's garment industry is reflected in the integrity and depth of the industrial chain, and gradually extends to high-end differentiation." The disadvantage is that the production cost caused by the increase in factor costs, coupled with the control of energy consumption under the double carbon target, is the bottleneck of the low-end textile and garment industry in the future; in addition, the aging of the population and the change of employment concept, the increase in labor costs caused by labor tension are irreversible. Zhou Wenke believes that the future lasting development must not rely solely on reflux, only the development of original design, to create clothing, fabrics, yarn brand, from differentiation and branding to improve the added value of the industry.
Zhou Liang said that before the lack of brands in the downstream of the domestic textile and garment industry, the lack of core technology in the upstream, the overall spindle-shaped structure, large but not strong. Since the "13th Five-Year Plan", the research and development of upstream materials such as carbon fiber has continued to make breakthroughs, downstream Chinese brands have continued to rise, and the midstream high-pollution and low-value-added industries have either been transferred, or automated and digital upgraded, and the overall industrial competitiveness has been greatly improved. "China's advantages lie in a huge consumer market, a complete industrial system and a huge engineer dividend."
Under the epidemic situation in 2022, it is foreseeable that the external environment facing the garment industry is becoming more complex and severe, and various uncertainties will have a certain impact on the sustained recovery of domestic and foreign market demand, if the mainland wants to continue to maintain the international competitiveness of the textile and garment industry, then the upgrading of the industrial chain has become the most important direction.
"China is the world's largest textile producer and export power, the central position of China's textile and garment industry is formed over the years of development, embodied in technology, quality, quality, brand, talent, industrial chain, supply chain, technology chain, innovation chain, value chain and other aspects." Professor Hong Tao, chief expert of the Institute of Modern Economic Management of Zhejiang Yuexiu Foreign Chinese University, told reporters that at present, China's garment exports are also being transformed and upgraded from a big country to a strong country, and garment exports have completed the transformation from quantity to quality improvement, and have good results.
On how to change and get rid of the low-value-added development model of domestic textile and garment processing and production in the past, Hong Tao proposed that through digitalization and "network chain" development, the process of reducing costs and increasing efficiency and enhancing competitiveness can be solved. He believes that with the normalization of epidemic prevention and control, the overall profit margin of the mainland textile and garment industry will be further improved.
"China has the conditions and ability to grasp the pricing power of the international textile and garment industry and the value distribution power of the industrial chain." Zhou Liang said that in the future, the upstream should adhere to scientific and technological innovation, persistently carry out positive research and development, and impact the peak of materials through the accumulation of time; the downstream should shape the brand, innovate the business model, and the midstream should carry out scale and digital transformation.
During the interview, a number of experts pointed out to reporters that although at present, the United States, the European Union, and Japan are dependent on China's garment industry, this does not mean that they cannot find a replacement. At present, the development of the epidemic is still uncertain, and textile and garment foreign trade enterprises should be more rational and cautious in taking orders. In the future, only by continuously digging new profit models, developing new technologies, and green, low-carbon and sustainable development, these comprehensive measures can make the textile and garment industry have more international discourse.
"High added value is reflected in technology, quality, quality, brand, talent, industrial chain, supply chain, technology chain, innovation chain, value chain and other aspects, the current digital transformation is the top priority, enterprises should accelerate the digital transformation to complete the industrial upgrading of the textile and apparel industry at present." Hong Tao said.
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