Makers prepare for possible price competition, labor shortage and rising material costs.
Facing decreasing exports, China suppliers of sunglasses are adjusting business strategies to address prevalent industry challenges and boost sales.
In 2009, overall shipment volume declined more than 10 percent YoY to reach just over 800 million pairs, according to customs data. The value of outbound orders fell 10 percent, amounting to $714 million.
With these reductions, heightened price competition is imminent as makers decrease quotes to attract more buyers. This is especially difficult for businesses focusing on the low end, the majority of which are pushed into working with marginal profits to retain existing clients and skilled employees.
Manufacturers also struggle with the labor shortage, as many have not yet recovered fully from last year's mass layoffs. After downsizing operations in early 2009, companies lacked the needed manpower once orders started to pour in. The situation was compounded by the recent Chinese New Year break as rural workers went back home for the holiday, lessening the number of available personnel.
For this reason, suppliers are being cautious when undertaking orders as lead time is still affected in certain cases. To keep the labor force stable and minimize the effect on production, factories give bonuses to employees who stay and report back promptly to the plants. Moreover, those who recruit their relatives can receive additional incentives.
Makers are dealing with rising material costs as well. Apart from the depreciation of the US dollar and increasing crude oil rates, previous measures to counter the economic slump are now affecting spending for manufacturing inputs. During the financial crisis, component providers maintained lower supply stocks and smaller groups of personnel to minimize losses. Consequently, similar to the labor situation, resource producers were caught unprepared when demand surged. Many were forced to pay overtime or hire more employees to process requirements, heightening the increments in operating costs.
As a result, sunglasses factories saw overall manufacturing expenses rise 5 percent. Rates soared 10 percent if the materials and components were imported.
Nevertheless, companies have managed to keep quotes relatively stable in past months. One reason for this is businesses often shoulder the added costs despite lower profit margins to attract clients and ensure viability.
Moreover, makers procure materials all at once rather than by batch to monitor the supply chain and avoid paying future rate adjustments.
Alternatively, when sensing price increases, some factories inform buyers of the latest cost fluctuation to help justify any needed augmentations and ease transactions.
To stimulate sales, plants are tapping domestic and emerging destinations after orders to the US and the EU shrank 15 to 70 percent overall in 2009. Efforts center on South America, the Middle East, non-EU countries and Southeast Asia, where the average annual growth rate is at least 5 percent.
The main challenge in entering developing markets, however, is the unfamiliarity with import and export policies. To cope with this, suppliers hire trade staff who know the locations or are proficient in the native languages. To keep abreast of local trends and provide better customer service, makers attend international trade shows or set up sales branches in target countries, including Brazil, Russia, Iran and Turkey. This way, businesses can communicate with clients easily.
In addition, some tier 1 companies boost competitiveness and profitability by assessing buyers beforehand, gauging whether customers will provide reasonable profit margins or pay promptly. Those procuring OBM designs are also preferred.
Through this process, sunglasses suppliers utilize their manufacturing and R&D capability efficiently.
Clients benefit as well, receiving specialized products and services.
Further, suppliers said there are some opportunities stemming from recent challenges. For instance, factories are more likely to gain favorable policies or subsidies from the government. Moreover, the situation is weeding out companies that are unable to cope, resulting in a more concentrated industry.
