The world has changed in the past eight months. In the U.S., recession-minded consumers are tightening their belts. In China, tens of thousands of exporters are closing their factories. The uncertainty of the Chinese economy is in turn plaguing American business.
At the 2009 International Housewares Show, held March 22-24 in Chicago, exhibitors and experts offered clear information on the complex and still-developing trend.
The global crisis is affecting everyone, said Li Lixin, founder and owner of China's largest exporter of plastic housewares, Ningbo Lisi Group Co. Ltd.
Business is still holding up relatively well, Li said, as Lisi products are on the low- to middle-end scale in the U.S. market, which represents 70 percent of Lisi's global sales.
This is a difficult time, said Lisi General Manager Sally Jin, adding, the price point is very important . We are also speeding up the launch of new products. On the manufacturing front, she said the workforce has been steady.
China's labor cost has gained competitiveness since the recession, Li said. Millions of jobless migrant workers have solved the once-prominent labor shortage and driven down wages.
China's trade surplus with the U.S. hit the brakes in 2008. Exports dropped 70 percent from the Pearl River Delta region and 30 percent from the Yangtze River Delta, creating tremendous overcapacity and oversupply in China, said John Tomaszewski, vice president of Chicago-based NaviAsia Consulting Group.
It's a long shot to expect the Chinese domestic market to absorb the export overcapacity that has built up over the years hence, the wave of factory closings.
The [local] Chinese governments are very concerned with unemployment, so the enforcement of last year's new labor contract law is fairly lax, said Wang Jianjun. He is president of Weifang Hongyuan Plastic Products Co. Ltd., a 200 million-yuan ($29 million) business that extrudes film and makes plastic bags.
Compliance with the new labor law increases labor cost by about 15 percent, according to Meng Chun, general manager of Mates International Trading Co. Ltd. of Ningbo. All of the 200 workers in the company's two injection molding plants have health and retirement benefits, he said.
Meantime, automation has helped some Chinese factories become leaner. Shanghai Matey Plastics Products Co. Ltd. President Ge Xunguo said his plastic factory only has four managers and 50 workers, thanks to automation. Normally, a factory of similar capacity will need 200 workers, he said. Beijing has also introduced tax breaks for equipment purchases, aimed at facilitating the technology and efficiency upgrade of China's manufacturing industry.
The financial meltdown and economic crisis in the U.S. also changed some Chinese companies' way of doing businesses with American clients. As payment problems have risen, Chinese exporters have become more cautious and tightened up payment terms.
And Weifang Hongyuan is trying to take advantage of the change.
While others don't, we still offer very flexible payment options, said Edward Zhang, the firm's San Gabriel, Calif.–based U.S. sales manager. Having a presence in the U.S. certainly helps reduce the risk.
The company has been selling trash bags in the U.S. for eight years, mostly to restaurants and cleaning companies. Zhang is working to sell the products directly to retailers.
Lisi also is trying to boost direct sales to retailers. We are getting around importers and actively looking for retail customers, Jin said. The downside is that retailers don't hold much inventory and only order quarter by quarter.
During the boom times, Lisi diversified into other sectors including real estate. But its full attention now is back on plastics manufacturing, Jin said.
Our owner is committed to increasing investment on the plastic housewares business and bringing in more international design, Jin said.
While Lisi continues its export-exclusive business model, Mates is all set to begin domestic sales.
Meng said Mates is the sole supplier of the freshvac-brand food containers sold by U.S. specialty retailers. Since sales are down in the U.S., the $20 million company is leveraging the Chinese domestic market. We've already secured orders and payments, Meng said. Domestic sales will officially launch in June.