Chinese exporting has slowed, but leading manufacturers are implementing innovative logistics practices to regain their momentum.
Chinese exporters dominated the global manufacturing game for so long that it was easy to believe their domination would continue indefinitely.
But the evidence is increasingly clear: The world’s second-largest economy — an economy that boomed in recent decades thanks, in large measure, to exports — needs to change the way it does business as headwinds threaten future growth.
The country’s September 2016 exports were down 10 percent year over year, according to the latest Chinese customs report.
Much lower than the forecasted 3 percent decline, the trade report was just the latest signal that overcapacity and severe competition have caused the country’s export sector to hit a speed bump.
Several factors are contributing to the change in fortunes for China’s once-heralded exporters. Among the biggest:
Rising wages for Chinese factory workers mean the country’s manufacturers are no longer the world’s go-to source for cheap products.
Western companies that were once bullish outsourcers are questioning the long lead times and complex supply chains that come with the deal.
Many are now proponents of “near-shoring” and are returning at least some of their work to locations closer to their customer.
Global trade growth has turned negative. Foreign demand for Chinese-made products — in the United States and almost everywhere else — is slipping.
And the trend lines suggest cause for concern: September’s dismal export numbers showed that the turn away from China is happening as Western economies head into their year-end shopping season (September’s numbers also trailed those for July and August, when exports were down 4.4 percent and 2.8 percent, respectively, year over year).
But as the Chinese economy resets, the country’s leading export manufacturers — the ones likely to lead China’s second export wave — are not letting a good crisis go to waste.
They’re using the downturn to make fundamental changes to the way they do business and to raise their game. They’re innovating — and not just in terms of product development.
Taking a page from first-wave exporters who leveraged low-labor costs, they’re taking advantage of innovative logistics practices to differentiate themselves and compete more successfully
A recent study by UPS found that Chinese exporters who took such steps also significantly outperformed their peers in terms of profitability, productivity, market share and sales.
These exporters, the so-called Made in China 2.0 Leaders, are already being rewarded for their efforts. Here are some of their successful strategies:
They’re getting closer to customers, strengthening their knowledge and understanding of markets and building a deeper understanding of customers’ needs. It’s an approach that is helping to improve product quality in ways that matter to the market.
Chinese export manufacturers are also diversifying their channels and developing more diverse customer bases, selling to a mix of both B2B and B2C customers
Logistics plays an increasingly important role in helping businesses gain a competitive advantage, adding value to key business objectives.
They have a greater geographical footprint than less-successful exporters, selling to at least one market in Asia. They are also more focused on key markets in Asia and Europe such as Thailand, Hong Kong, France, Indonesia and the U.K.
They’re taking a more expansive view of logistics, growing sales, reducing costs and enhancing the overall customer experience.
Close to 90 percent of successful export manufacturers in China said that logistics helped reduce costs. More than nine in 10 respondents said it helped with sales growth, and almost everybody said it helped improve the end-customer experience.
They can identify and prepare for emerging trends that will have an impact on their business, including near-shoring and e-commerce.
Through these struggles, China’s export manufacturing sector is transforming. The Chinese manufacturers making the biggest changes today are not just looking to catch up. They’re determined to regain their momentum and their reputation.
The Channel Group comment pages host a variety of opinions from all sides of the debate on trade. The views expressed in this article are those of the author and are not necessarily shared by The Channel Group.
Reprinted with permission of Longitudes, the UPS blog devoted to the trends shaping the global economy.