The situation of foreign trade in recent years is not optimistic. From the 2008 financial crisis to the European debt crisis, and now to the shrink of global external demand, the pressure of the external environment is evident. The international market almost cannot digest the excess capacity of domestic manufacturing.
At present, most foreign trade export enterprises still maintain a simple structure of supply and demand. They do not have much core competitiveness and market advantages. Once the homogenization competition is serious, they will inevitably fall into the vicious competition of price and end up in bankruptcy.
It can be seen that, under the current situation, most companies are vulnerable. Maybe they get orders today, but customers will transfer the orders tomorrow. Perhaps they have a good profit today, but they will fall into a loss tomorrow. If people don’t know what will happen tomorrow, they will be more cautious. However, once the various links are strengthened, they will often cause resentment from many customers. But it is difficult to control the degree.
Here is an example. A businessman originally makes a 60-day forward payment. But he starts to tighten the payment method to his regular customers because he has met several defaults. He asks for payment to be changed into L/C or even wire transfer at sight. In this way, customers are easy to centrifuge. They will think that he doesn’t trust them and he destroys a long-standing good relationship.
But, if he doesn’t deal with it in this way, the risk will be almost entirely on his company. Once something goes wrong, it can be fatal.
We naturally wonder how we should deal with the current environment and how to deal with the increasingly fragile supply chain and capital chain.
Before answering these two questions, we should analyze the present situation of domestic export enterprises. Then, we sum up a suitable way for ourselves.
The Present Situation of Foreign Trade Factory
The general environment is unstable, resulting in the instability of orders from most foreign trade factories. If big orders come but the factories’ capacity was limited, they will be unable to complete on time. They have to delay the delivery, which also affects other customers’ orders. At last, there will be damage to their reputation. However, insufficient large orders will cause most of the factories’ capacity to be idle. The boss pays for the workers and bears the various operating costs and losses of the factory every day.
So, the business owner is caught in a dilemma. If he maintains small-scale and low-cost operations, future developments will be limited. But, if he increases the plant, equipment, and personnel, the expenses will rise sharply. Once an unexpected situation occurs, orders will be reduced and production capacity will be idle.
Therefore, the instability of production capacity, international situation and orders have become a major problem in the operation and development of foreign trade factories.
The Present Situation of Trading Company
Is that much better for trading companies? After all, trading companies cost much less than factories. But that’s not the case.
First of all, the trading company has an inherent weakness. It makes customers feel that middlemen have no advantage in price. In fact, it has a factory that cooperates for years and can get a lower price. But many new customers don’t know that. Therefore, when inquiring and looking for suppliers, customers will unconsciously give priority to the foreign trade factory.
Then, the big trading company is also facing high-cost pressure. It has a large team with a lot of employees. Its various management costs and operating expenses are quite high. Besides, the common problem of large companies is overstaffing. A simple quotation also requires a lot of approval from leaders. When salesmen give it to customers, they will often find that customers have placed orders to others. The feeling of powerlessness at that moment is often unspeakable.
Third, the cost pressure of the small trading company is lower. And its number of operating teams and managers is also small. It can be flexible in lowering prices to strive for opportunities. It can also do small orders to maintain and develop new customers. On the contrary, in the eyes of customers, the trust and accumulation of small companies are often insufficient. They will question whether it is qualified for the supply and whether it can control the delivery time. How can customers trust a company only with two or three people? What should they do if their deposits were taken away? Even if the multinational lawsuit wins, customers will lose a considerable amount of legal fees.
This is the status quo of trading companies. The trading company may look glamorous. But you can get your own understanding only when you engaged in it.
The Revelation from HK and Taiwan Trading Company
Obviously, these problems all exist. Whether they are internal or external, we have to face them. Escaping cannot solve the problem. And new challenges will continue to arise. The work itself is actually the process of dealing with problems. This road will not have an end, and we will only be on the road all the time.
Before discussing the way out, I want to study the train of thinking through the case of trade transformation of HK and Taiwan, South Korea and Singapore.
Over the years, everything has changed according to the changes of the times. Many things are irresistible and we have to adapt. China’s Hong Kong and Taiwan regions once boosted exports through the glorious manufacturing and stimulate rapid economic growth. However, due to the changes in labor costs and various resources, as well as the subsequent economic crisis, they have to complete the development of post-foreign trade era through transformation and industrial migration.
Case 4-1 Four Asian Tigers Trading Transition
Since the 1960s, the development of manufacturing industry and foreign trade exports in Asia have started in Hong Kong, Taiwan, Korea, and Singapore. They greatly promote export-oriented manufacturing industries, mainly including the labor-intensive industries like clothing, toys, electronic products, crafts. They were once amazed by the outside world as the “Asian Four Little Dragons” and became the wealthiest countries or regions in Asia.
HK was known for its exports of textiles and toys. These were labor-intensive industries that require a lot of labor. Later, the development of the economy led to an increase in various costs, including the wages of staff. This increase suppressed Hong Kong’s manufacturing industry. This forced them to change because there was no way out without reform.
However, reform and industrial upgrading were not easy. Thus, Hong Kong’s foreign trade exports have experienced many difficulties. On the one hand, HK has moved its factories to Guangdong since the 1980s. It still firmly occupies main international orders and customers through cost advantages. On the other hand, it works hard on the design and supply chain. The foreign trade industry has gradually transformed from manufacturing export to trade and service export. Then, it has narrowly completed the transformation.
Actually, this is not the best choice. HK moved the factory to the mainland for the labor cost advantage. The move did ease the recession in manufacturing. But it is not a real transformation. Mr. Lang Xianping has pointed out that HK actually lost the opportunity to transform to high-end manufacturing in the 1980s. The advantage of the mainland has allowed Hong Kong’s manufacturing industry to survive. However, without the moment of life and death, it lost valuable opportunities for transforming into high-end manufacturing.
But in any case, the transition to service-oriented trade is also a way out. Therefore, there are many Asian purchasing offices and even the Asia Pacific headquarters for foreign investors in HK. Many local trading companies have also begun to participate in overseas mergers and acquisitions, design and development, logistics management, link optimization, occupying many links in the industrial chain.
Other three tigers
The situation in Taiwan and South Korea is different from that in HK. Although Taiwan has mainly exported labor-intensive products, it began to transform into high value-added industries after a series of wage increases and cost crises. At that time, China’s Taiwan province vigorously developed the electronics industry and used the accumulated foreign exchange in the industry. Its industry finally successfully transformed into high-end manufacturing, playing an important role in the international supply chain. In the process of South Korea’s transformation, because of the relative shortage of domestic resources and technology accumulation, it chooses the way to pay equal attention to technology and design. This way makes “Made in Korea” gradually become a feature and fashion.
Singapore has chosen another way. It has a small territory and lack of resources. But its geographical location is extremely superior. It occupies the busiest channel in Southeast Asia, the Strait of Malacca. So when the cost advantage gradually lost, Singapore began to vigorously develop service-oriented trade. It attracts foreign investment to set up logistics, trade and other companies in Singapore through a series of preferential policies, radiating the entire Asia-Pacific region. It even once challenged Hong Kong’s position as an Asian financial center.
The reason why the Asian Tigers can survive in the 1998 Asian financial crisis was that they had successfully transformed before it. In this case, they maintained economic growth and continued trade.
Now the situation of foreign trade in the mainland is similar to that of HK in that year! The Pearl River Delta and Yangtze River Delta, where the trade in the mainland is most developed, have begun to experience shrinking exports and factory closures. The capital chain of the manufacturing industry is seriously strained. Once it loses the bank’s support, the export trade of the whole southeast and south China will be severely hit. At that time, HK businessmen chose to move the manufacturing industry to the north. Now many factories in the Yangtze River Delta and the Pearl River Delta also choose to move. They move to Henan and Hebei, where labor costs are lower, or to the Midwest to obtain a chance to breathe.
In this way, the continuous development of China’s economy has made the rise of various costs inevitable. At that time, the profit is lower, and the competition is more intense. Where can we move to? China is large enough to have uneven regional development, so manufacturing in developed areas can be temporarily migrated to relatively backward areas. But how long can the migration last? It’s too late to think about the transformation and start looking for a way out when the Midwest cannot maintain the meager profits.
Therefore, in my opinion, the situation now is not necessarily a bad thing. At least it allows us to calm down and think about the way out for the future.No one can tell you how to go in the future. You can only think, try, and work hard on your own. The problems we encounter today were encountered by our HK and Taiwan counterparts many years ago. But they all completed the transformation by continually trying.
Nowadays, why can’t our mainland traders try different development directions at this stage? The way of thinking determines the way out. As long as we move on, there will be new opportunities ahead. Every “impossible” may become “possible” if we keep trying.
The way of thinking determines the way out. The change of the environment, the industry, and the peers require active adaptation. There is no long-term effective model and method in the foreign trade industry. They must be varied from person and time. This requires us to open the line of thought and find the answer from ourselves. How to be better in international competition? How to make Chinese manufacturing continue to occupy an essential position in the international arena? All of these are what our generation needs to think and act on.
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