Trading as a Propellant Force

    Since processing-on-demand still drives the greater part of local operations, commerce and trade are propelling industrial upgrading. In fact, some local enterprises like Metersbonwe and Semir have had successful experiences adopting an effective "virtual operation" mode; they make full use of market resources by outsourcing low added value operations while concentrating on high value-added links. Senmir outsourced manufacturing and marketing, devoting itself wholeheartedly to product design and brand management. In 2008 it was rewarded with a sales revenue of over RMB 5.8 billion, a steep growth from its RMB 1.7 billion in 2005.

    Fapai is one of the largest garment manufacturers in Wenzhou. Hit badly by the financial crisis, its international business plummeted by 30 percent. Assessing the situation, Fapai restructured as a "brands shop," initiating alliances with established local brands for joint ventures. The result is Uepai, a garment and accessories brand controlled by eight Wenzhou enterprises and supplied by roughly 100 manufacturers in the area. Though not formally in business yet, the new company has been approached by foreign investors offering to introduce it into the European market.

    Meanwhile, the municipal government of Wenzhou has proposed the establishment of 100 shopping centers that specialize in Wenzhou brands around the country within two years. However, Chairman Zheng Chen'ai advises regular garment makers to stay away from areas where they have no know-how. "Brand management is very different from garment manufacturing and processing." He cautions that virtual operations put a strain on the supply chain, procurement system, and IT support functions, and require large inputs that are beyond the means and capabilities of small and medium-sized enterprises. His advice is for regular garment enterprises to concentrate on what they are good at, and leverage their competitiveness in that area. "Garment manufacturers should make garments their bread and butter."

    "The downhill trend has been curbed," assures Mr. Zheng, displaying first quarter 2009 statistics that show Wenzhou's textile, garment, footwear and headgear enterprises reported a total output value of RMB 4.783 billion, an increase of 2.04 percent over the same period last year. The export of garments and accessories raked in US $238 million, an increase of 0.20 percent.