Opportunity

To my surprise, however, nothing I saw indicated that the several garment enterprises I personally visited were suffering from the global economic downturn. The production lines in these enterprises operated at full speed. Were they special examples, or did they reflect the overall condition of the city’s clothing industry?

I put that question to Chairman Zheng. He explained that local clothing enterprises had taken diverse measures to confront the global financial crisis, which have already proven to be effective. “The decline of the clothing industry is under control,” Zheng asserted. “We’ve taken active measures to confront the crisis. To compensate their loss of overseas orders, some managed to win orders from domestic buyers. Having no bulk orders, some then set their sights on smaller orders. After all, it’s better than waiting for bankruptcy,” he adds. “But now, they realize that dealing with small orders is often more profitable, and less risky. Prior to April, my own company had already acquired manufacturing orders to be completed in May.”

Despite the global financial crisis, Wenzhou people find more opportunity than challenge. According to Chairman Zheng, most industrial insiders consider the crisis to be a good opportunity for industrial upgrade. The financial crisis, however, brought two opportunities: one arising from the government’s supportive policies, and the other from the market potential. In the past, the government attached insufficient importance to traditional industries like clothing, and banks are reluctant to offer loans to clothing enterprises. However, the labor-intensive clothing industry may offer a number of job opportunities. Thus, against the backdrop of a global economic downturn, the government began to pay more attention to the industry. “In order to encourage enterprises to move from coastal provinces to underdeveloped regions in central and western China, the policy known as ‘emptying the cage, removing the bird’ was often emphasized,” Chairman Zheng said. “But, Wenzhou is different from cities like Dongguan in Guangdong Province, because most enterprises in Wenzhou are privately owned, and it’s not easy for them to move to central and western regions. The policy, in fact, restrained us from further development. Things have greatly improved since the policy was altered.”

Wenzhou-made garments have won favor with foreign consumers for their good quality and affordable prices. IC

“The global financial crisis has severely impacted luxury and high-end consumption, but offered opportunity to consumer packaged goods. For example, Wenzhou-made shoes sell well in the United States, as do apparel products,” he added.

During my time in Wenzhou, I learned that after decades of development, the city has cultivated several large technologically-leading clothing enterprises, capable of offering world-class apparel products. Compared to traditional top-grade fashion producers like Italy, Wenzhou offers similar products at much lower prices. At present, the city’s clothing industry has taken measures to enhance marketing and branding management, and these have proven effective.

In recent years, most successful clothing enterprises in Wenzhou, such as like Metersbonwe and Semir, have practiced the so-called “virtual operation.” In this way, they focus on a core business with high value added while outsourcing low-value-added business to other enterprises and organizations. Thus, they enhance their core competitiveness and realize rapid expansion at a low cost. Taking Semir as an example: The company focuses on fashion design and branding management, while outsourcing its manufacturing and sales operations to other enterprises and organizations. This is the key to its rapid growth over the years. In 2005, its sales volume was only 1.7 billion yuan; that figure reached 2.5 billion yuan in 2006; 4.2 billion yuan in 2007; and 5.87 billion yuan in 2008.

Fapai Fashion Inc. is the largest Western-style suit manufacturer and one of the major clothing makers in Wenzhou. “We initiated the concept named ‘Brand Integrated Store.’ Fapai allied with local name-brand dress, footwear and glasses manufacturers to form a trading company and open large retail stores,” explained Wu Renshui, the company’s senior economist.

Fapai also took a hit from the global financial crisis, with its overseas business dropping by 30 percent. To confront the crisis, it established a company named Youyipai, focusing on both formal and casual clothes and dealing in footwear, cases, bags and accessories. The production will be outsourced to local OEM manufacturers. The company plans to invest 2 billion yuan and realize retail revenues of more than 10 billion yuan within five years. Youyipai will outsource its manufacturing and sales operations to other enterprises, including Fapai, and will focus on branding management and resource integration, so as to achieve win-win cooperation. Today, Youyipai has received from foreign companies letters of intent for future business in Europe.

Chairman Zheng explained that virtual operation was not applicable for all kinds of clothing enterprises. “Branding and manufacturing are absolutely different,” he said. “It’s just like that case that vegetable farmers are unlikely to do peddlers’ jobs well.” In fact, virtual operation requires practitioners to have complete and efficient supply chains, logistical systems and information technology resources, which are unaffordable for medium and small-sized enterprises. Today, there are a great number of middle and small-sized clothing manufacturers in Wenzhou. “More than 85 percent of the city’s clothing enterprises still focus on manufacturing, the very end of the industrial chain. Confined to such an industrial structure, Wenzhou’s garment industry is weak in face of the financial crisis.” For those medium and small-sized enterprises, what they need to do is to adjust their industrial structure and enhance their core competitiveness.

At the time of this writing, it is likely that Wenzhou’s garment industry will have weathered the worst of the global economic storm. In March 2009, Wenzhou exported garments and clothing accessories valued at $78.78 million, an increase of 32.26 percent over the same period last year, and that of 114 percent over February.