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Three Burdens Push Wenzhou Shoes to Fall or Revive?

three burdens push wenzhou shoes to fall or revive

An over 20% rise in the labor cost, twice-a-week power generation by factories themselves at power peak times, and the doubling interest expense on bank loans have laid great burden on Wenzhou’s manufacturing industry, in which Wenzhou’s shoes-making industry is a big player. Recently, bad news regarding Wenzhou shoes makers have frequently mentioned by media. It seems that Wenzhou as the shoes-making capital of China is undergoing depression. Is Wenzhou able to meet these challenges?

Rise of different costs cuts down profit.

Zhejiang Fengyeniao Shoes Industry, a medium-sized shoes company among Wenzhou’s over 2,000 shoes makers, is specialized in the research and development, production and sales of women shoes with an annual output of 3 million pairs. Liu Xiaobiao, general manager of the company, started the company at 17 and is still no more than 30 years old. When talking about the development of his company, the frank young man said, “It is not easy to run a company under the present business environment.”

According to Liu, the labor cost has risen by more than 20% over the last year. As for the power supply, at the peak times, they have to generate power by themselves twice a week, which makes the power cost on each pair of shoes rise to 1.5 Yuan, while the average power cost is 1 Yuan at off-peak times. Given that the annual interest rate of bank loans has reached 12% and that they have to satisfy some additional requirements of banks, the interest expenses on bank loans have doubled compared with the last year.

The rising costs encountered by Fengyeniao Shoes Industry are a common problem for Wenzhou’s shoes makers. According to a special survey by Wenzhou Statistics Bureau in June this year, those small-and-medium-sized enterprises, especially small enterprises and high-energy-consumption enterprises are more affected by the measures to power supply restriction. Meanwhile, the 15% rise of diesel price adds to the cost of power generation by enterprises themselves. The increase of living costs and fewer immigrant workers looking for jobs as well as factories’ bigger appetite for workers make it hard for enterprises to recruit enough workers. In addition, about 16% of the surveyed enterprises think it difficult to get bank loans, directly resulting in the enterprises’ financing costs. What’s worse, the prices of raw materials continue to rise.

More changes in manufacturing layout
Faced with different burdens, some shoes makers in Wenzhou have taken respective countermeasures against the rise of various costs.

Juyi Group takes different measures to attract more workers. For example, 200 Yuan is given to their workers when they introduce a new worker, which helps to recruit 800 new workers. Meanwhile, salary is raised by as high as 30% for some workers this year. To cope with the rising costs, Juyi in recent three years has invested more than 20 million Yuan to upgrade their production line and technology so as to improve production efficiency and cut down production cost.

Aokang Shoes has also taken measures to improve the welfare benefits of their workers and lower energy consumption, such as salary rise and more free public services in the company etc. Besides those internal adjustments, some large-scale shoes makers have begun building manufacturing bases in the middle and west of China, reducing costs by shifting their production to other areas.

At the same time, some shoes manufacturers have also accelerated their pace of diversification in financing. Some leading shoes makers in Wenzhou including Aokang, Kangnai, Dongyi and Red Dragonfly etc have struggled for initial public offering this year so as to directly relieve their long-term demand for capital.

Shuffle of the shoes-making industry

Xie Rongfan, executive chairman of Wenzhou Shoes and Leather Industry Association, believes that Wenzhou’s shoes-making industry is shuffling, making the strong much stronger and the weak much weaker.

Pan Jianzhong, general manager of Juyi Group, said, Wenzhou will still be the leading area for shoes making in China in the 20 to 30 years to come, based on Wenzhou shoes-making industry’s strong advantages in scale and industrial chain over other areas of China.

According to “Implementation of Transformation and Upgrading of Wenzhou Shoes-Making Industrial Cluster” prepared by Wenzhou Municipal Government in June this year, the high added value of the shoes-making industry comes from design, sales channel and brand promotion etc. Wenzhou’s big shoes makers will turn to research and development as well as brand promotion, while those small-sized enterprises will have to be a part of the cluster development mode. As for the problem of Wenzhou shoes makers’ moving to other areas, the government will take measures to keep their headquarters, R&D and sales in Wenzhou.

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