The Chinese Puzzle

by admin Posted on January 14, 2012

2011 was the worst garment-export year for China  in a decade.  As of the 10 months ending 31 November 2011, China’s U.S. market share as measured both in units and by value was down over 4% compared with the same period in 2010..

The question is why?

There are three schools of thought each with its own answer

The Living-in-Denial La-La Landers:  2011 has not been a bad year for China.  Exports in units may be down -3% but total value is still 8% above 2010.

This is not  a particularly sensible conclusion.  I certainly do not think those with factories in China find comfort in  an 8% increase when at the same time  their customers are leaving China, taking their orders elsewhere.  And, while its true that so long as U.S. garment imports  were rising, made-in-China garment exports continued to grow, the data shows that this situation is changing for the worse.  Garment imports to the EU are falling sharply while the U.S. appears to be following the same downward path — not good news for made-in-China suppliers.

The It-Serves-You-Right Critics : If Chinese garments are not doing well, the fault lies with the Chinese industry.  In this case higher costs, resulting in higher FOB prices have rendered the industry uncompetitive.

This is my personal favorite. It is short, to the point; and has the added benefit of  following natural justice.  Too bad  the data says More...

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Posted in China-Greater China, Customer Strategies, Factory Strategies, Garment Costs | Tagged , , , , , , | 3 Comments

Memo to the Global Garment Export Industry – Re: How Your Factory or Mill can Succeed in a Period of Industry Decline

by admin Posted on January 3, 2012

For the past fifty years, the garment factory existed solely to make the product.  The customer specified the quality, the delivery and the price.  Of these quality and delivery were both fixed.  If your factory was unable to meet your customer’s delivery or quality requirements you would not receive the order.  On the other hand, the factory that could provide higher quality and/or faster delivery received no advantage.  Price was the only area open to negotiation.  To be eligible at all, your factory had to meet the customer’s target price.  However, the factory that offered the lower price was by definition the better factory, just as the factory that offered the lowest price was the best factory and almost invariably received the order.

In the old model, factory marketing was totally passive with the customer or his agent approaching potential factory suppliers.  Those deemed reliable — able to ship a decent product on time at a reasonable price — received orders.  Business developed by attrition as customers discarded unreliable factories, distributing their orders among the remaining reliable factories.  Provided your factory shipped a decent product on time, at a competitive price you could count on greater future business.

That model no longer exists.  Today, the ability to ship a decent product on time, at a reasonable price is no longer an asset.  It is an entry level requirement which at best allows a factory to go to More...

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Posted in Customer Strategies, Factory Strategies | Tagged , , , , | 13 Comments

Supporting the EURO: The China Side

by admin Posted on December 19, 2011

Imagine you are a senior Chinese official; a member of the Politburo responsible for among other things, international finance.

The EU has come calling, begging bowl in hand, to persuade you to lend them money to keep the EURO afloat.  You  currently hold about $3.4 trillion in liquid foreign currency reserves.

Should you lend the EU your money?

There are three good reasons for the Chinese government to provide  support for the EURO

  1. The EU is your country’s  largest customer.  If the EURO tanks or the EU goes into recession, your export industry on which the country relies heavily will be badly hurt.
  1. You cannot use this money in China.  To repatriate the money you must first convert it from dollars, EURO and Yen, to RMB which would sharply revalue the RMB raising export prices, causing even greater damage to your export industry.
  1. You would like nothing more than to diversify your holdings away from the U.S. dollar.  It is really upsetting to use your country’s reserves to support your greatest competitor.  And, the only other currency large enough to deal in trillions is the EURO.

On the other hand, there are serious questions which should be asked and answered before committing your country’s hard earned reserves.

The EU is the world’s largest economy.  Why come begging to you, when the EU can certainly solve their EURO problems More...

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Posted in China-Greater China, Global Issues | Tagged , , , | 90 Comments

After The Deluge

by admin Posted on December 13, 2011

Last week, after 30 hours of deliberation, the political leaders of 26 of the 27 EU member countries voted for recession.  In the end they  decided to  sacrifice the short term well being of their citizens, in the expectation that in the long term the EU will recover,  emerging as a stronger and more cohesive entity

Certainly they will get half

Ø     The EU will have its Recession.

Unemployment will rise and gross domestic products within the EU will fall.

On the other hand

Ø     The EU will recover as a stronger more cohesive entity. 

That part is a bit more uncertain.  The Franco-German solution depends on a new EU treaty where member countries willingly surrender more of their independence and sovereignty  particularly with regard to fiscal policy such as taxation and national budgets.  Getting all 27 countries to agree as required under the current EU treaty is somewhat problematic, particularly since the UK has already vetoed the treaty sight unseen.

Furthermore there is some doubt just how long the market will wait for this new treaty which  probably will never see the light of day.  The EU will require about one year to achieve its goal, while based on experience of the recent past, the market More...

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Posted in Recesssion | Tagged , , , , , | 7 Comments