Old factories withdraw from China and move to Southeast Asia

外贸人

01

Yesterday I received a call from a student in Shenzhen. His company is mainly engaged in the manufacture of small household appliances. It is relatively traditional, but in fact, the business is not bad. Because it has certain technical and manufacturing capabilities, it has cultivated the market segment with the help of precise positioning and full-network marketing, gained new customers, and gradually abandoned the original OEM production model.

However, his tone was very bleak. He consulted me about some plans for the development of the company and even asked whether the business should be moved to Southeast Asia? I was very surprised. It was not doing well, why did he suddenly ask about this. After some understanding, I learned that there was a large-scale old factory near his factory that could not hold on. On the 18th, it officially laid off all employees and closed down.

Here I emphasize that it is not a debt bankruptcy, but a new factory in Indonesia, compensation and layoffs of Chinese employees, and the business has been transferred to other companies and overseas factories. This company is called Xin'an Electric, and its parent company is Hong Kong-based Xinmade. Friends who are engaged in the home appliance manufacturing industry in Shenzhen may have heard of it. At its peak, Xin'an Electric had more than 17,000 employees. The "disbandment" of such a well-established large company has indeed given a wake-up call to peers and entrepreneurs in related fields.

For this reason, we also went to deeply understand and think about the success and failure of Xin'an Electric.

02

Strictly speaking, Xin'an Electric is a foreign-funded enterprise, and its parent company is the Hong Kong Simatelex Group. This is a very old traditional manufacturing company, established in 1969, and from the beginning, the company has been positioned in the small household appliances industry until today.

Simatelex's rise has a very close relationship with the mainland. In 1979, due to reform and opening up, foreign-funded enterprises were allowed to set up companies and employ workers in the mainland. Simatelex was one of the first companies to seize this major opportunity. They made full use of the abundant and cheap labor resources in the mainland at that time, opened the first factory in the mainland in 1980, and then gradually transferred all manufacturing links to the mainland.

Xin'an Electric was also founded in Shenzhen in 1989. It mainly produces coffee machines, juicers, beer machines and other small appliances, and then exports them to the European and American markets, and sells them with Philips and other brand labels. Therefore, the business model of Xin'an Electric and its parent company Xinmade is very clear, which is OEM, OEM production.

What does it mean?

I am a well-known brand. I use my "core technology", such as R&D advantages, to design and develop new products. For example, brand advantages, I can control and manage sales channels. But I don't care about production. I don't even want production lines and factories. I hand them over to similar manufacturers for production through "contract ordering", which reduces the risk of heavy asset investment.

You only need to be responsible for my production. I will give you a large number of orders, buy out all the products at a low price, and then directly sell them with your own brand trademarks. This model is OEM, and its characteristics are: technology is outside, capital is outside, market is outside, and only production is inside. For brand owners, I reduce the investment risk of my own production. A good OEM can even help brand owners quickly win time to occupy the market, especially Chinese workers with excellent labor quality.

For OEMs, this is also a good way to accumulate original capital. Many of our manufacturing companies started as OEMs. But in fact, this is where the problem lies.

03

Why did Xin'an Electric fail and disband? They attributed it to the epidemic. Alas, the environment was bad and global orders shrank. I was helpless and everyone understood. But in my opinion, this is just the result, not the real reason. We went to the official website of the parent company Xinmade and saw that they still call themselves "a leading OEM manufacturer."

Indeed, Xin'an Electric, including Xinmade, once had a very glorious history. Xin'an Electric had more than 17,000 production workers at its peak, and it was around 10,000 for a long time. Judging from the scale of personnel alone, its annual revenue would not be less than 1 billion. It can be said that in the 34 years from 1989 to 2023, Xin'an Electric has no worries about orders most of the time.

Because it is OEM for famous brands like Philips and customizes products, as long as it is stable at the beginning, I believe these big brands will continue to give them orders for many years. The boss only needs to maintain a good relationship with the brand and deliver on time. How comfortable it is, I don't need to personally participate in the fierce market competition, I don't need to do research and development, and study how to do marketing.

However, it is this simple and repetitive business model that has made this company lie all the way to the end. Of course, have they made any remedies? They did, and their method was to open a new factory in Indonesia and use cheaper labor.

However, I believe that whether they move to Indonesia, Vietnam, or Cambodia, they cannot solve the fundamental growth problem of the company. Because although they have improved their production technology, changed the production location, and reduced the cost of workers, their business model and marketing path have not changed, and they still rely on OEM for brands.

Today, there is almost no technical threshold for the production and assembly of most small household appliances. Even if you have some technology, it is useless because there are too many new companies competing. If you don’t have your own voice and can’t promote yourself, you are very likely to be replaced by new companies.

For enterprises, my marketing channels, my insight into the market, and the combination with technology, my brand are the real foundation.

The OEM model is a good way to accumulate in the early stage, but it is also a trap, because such stable orders do not require any sales team, nor do they need to understand the market and consumers, let alone build a sales network and create their own brand. But today we really think about how fast the market has changed in 30 years?

30 years ago, I had the production capacity and formed an offline sales team, and I had customers;

20 years ago, as long as I dared to take risks, I could use centralized media to expand myself, just like when I was making Taitai oral liquid, it took only two months to turn an obscure product into a well-known brand across the country. In fact, it was just advertising on CCTV, and the total cost was only two or three million.

10 years ago, after the emergence of the Internet, there were portal searches and traditional e-commerce. As long as companies selected products, made store pages and websites, selected keywords, and made landing conversion pages, they could use the Internet to make sales and lead conversions, and they didn't need to change them for a year.

But what about today? The market is changing, consumer demand is changing, and marketing is changing. Whether it is offline sales, TV advertising, or guarding online stores and doing search rankings, traditional methods have gradually lost their effectiveness, or the cost has risen rapidly. Today, we have to examine and think about market changes, observe consumer preferences, understand where they are and what their needs are, and improve our own technology.

Then use a series of content to fully display your products and technologies on each platform, write your brand concept, convey your emotions and characteristics, target application scenarios to create surprises, and solve every pain point of customers.

We need high-quality content, including using today's AI to continuously produce high-quality content, display it on all platforms and multiple accounts, to actively win the attention and trust of customers, so that they can choose me for a long time. This is a foundation for the company's future sustainable operation and business model.

Xin'an Electric had the opportunity to gradually upgrade, grow step by step, jump out of the comfort zone of the original OEM model, make its own brand, stay in Shenzhen, and stay in China. Moreover, China is a huge market, especially for small appliances, but they eventually missed such an opportunity.

Therefore, the failure of a company will not be because of how big it is, how many people it has, or how glorious it was in the past. It only needs to make it develop a path dependence, especially the path dependence of marketing, which will form a frog in warm water, lying until it dies. The development of an enterprise is always a spiral rise, not a linear fixed rise.