International Herald Tribune
DONGGUAN, China: This city in southern China is known for factories, not flair. But it is flair that might save this manufacturing hub. At least, that is what David Hsieh is hoping.
At a time when factories are closing and laborers are leaving town, Hsieh, a shoe designer from London, is moving in. He recently opened a boutique design studio in Dongguan. His company, DHD London, works with manufacturers to develop and brand high-end footwear. He also designs his own collection of pink calfskin loafers, patent-leather moccasins and basic black pumps inspired by anything from art and architecture to Chinese history.
The key to success, he says, is creativity. "Cheap price is no longer a weapon."
Hsieh is part of an urgent push to free the southern Chinese shoe industry - and southern China as a whole - from its reliance on low-value exports. Facing rising costs and slumping demand, a growing number of shoemakers are moving upmarket.
By investing in design and developing their own brands, they hope to widen their profit margins and expand into new markets. But redefining "made in China" may prove difficult.
Once a symbol of Chinese manufacturing might, the area's industry is in crisis. Since the opening of the Chinese economy in the late 1970s, the Pearl River Delta region of Guangdong Province, home to Dongguan, has lured shoe manufacturers - mostly from Taiwan and Hong Kong - with the promise of cheap land, lax regulations and a seemingly endless supply of low-cost workers.
Today, China is the world's leading producer, exporting 10 billion pairs of shoes a year, about a quarter of which are made in Dongguan.
But the days of cheap land and labor are waning. And so, it seems, are the days of ultracheap, Chinese-made shoes.
Tommy Fong, president of the Hong Kong Footwear Association, an industry group that represents 400 manufacturers in the region, said this has been the worst time in 25 years.
"It took 30 years for us to build this industry," he said. "But we can kill this industry in six months."
Shoemakers say the problem is simple: costs are up and demand is down - significantly. With thousands of factories sprawled across the delta, the supply of cheap land has vanished. A new Chinese labor law, meanwhile, increased labor costs by introducing a minimum wage, limiting overtime and mandating one month's severance pay for every year worked.
To keep costs down, manufacturers are moving north and west to poorer Chinese provinces, or south to Vietnam, Bangladesh or Indonesia.
The strength of the yuan against major currencies has made Chinese exports less competitive globally. Meanwhile, the financial crisis has drastically curtailed demand for shoes. Factory owners said that orders in the last quarter were down 10 percent to 30 percent from the previous year, and forecasts for 2009 looked even worse.
The combined effect is devastating. Fong estimates that 1,000 shoe factories in southern China have closed since January 2008. Thousands of migrant laborers have packed their bags and left Guangdong. The dusty streets of the factory areas of Dongguan are largely empty.
"I knew it was going to be very tough coming up, but I didn't expect it to drop so suddenly and so quickly," said William Wong, managing director of Goddess, a slipper company.
Wong, who employs about 500 people at his factory in Guangdong, said he expected a 30 percent to 50 percent drop in sales for 2009. This, he said, would almost certainly mean job cuts.
To survive the squeeze, he plans to move away from price competition. By focusing on design and branding, Wong said he hoped to widen his profit margins and expand the company's presence in China.
Though he exports 90 percent of its stock, Wong said he wanted to sell as much as 50 percent to mainland Chinese customers in coming years. His company started a shoe retail Web site, findshu.com, focused on selling high-end shoes to brand-conscious mainlanders.
Fong, of the footwear association, has a similar plan for his shoe company, Peninsula. He has hired his own design team and says he has confidence in the spending power of fashion-savvy Chinese consumers.
He exports 95 percent of his shoes, but wants to eventually sell 25 percent to 30 percent in mainland China. "I can't put all the eggs in one place," he said.
But there is no guarantee that mainland Chinese will buy shoes at anywhere near the rate of Americans - or that they will buy more shoes at all.
According to Stanley Chu, organizer of one of the largest Guangdong shoe exhibitions, Americans buy an average of seven pairs of shoes a year. People in mainland China, meanwhile, buy fewer than two pairs a year. And this was before the global economic crisis started slowing growth in China.
Though China has grown richer during the past 30 years, consumer spending, which makes up just 35 percent of gross domestic product, has been dropping as a percentage of the economy since the 1980s. With the economy slowing and the social safety net in tatters, the Chinese may not be in the market for shoes.
Still, in Dongguan, many prefer to take a long view. Chu called this a "transition period" for southern China. Companies that rely on cheap land and labor will close, he said, but stronger, more environmentally responsible companies will emerge.
"Sustainable growth is not possible on the current path," Chu said. "We have to slow down."