Economy

'Diversification' the new buzz word in industry

By Chen Limin (China Daily)
Updated: 2010-08-25 12:53

NINGBO, Zhejiang province - Diversification is the most quoted word in Ningbo these days. The bustling industrial town is abuzz with talk of finding prospective buyers and new products as companies struggle to stay ahead of peers in the fast-changing labor landscape.

Foreign trade manager Meng Yu's predicament best personifies the prevalent situation. Meng is busy these days finding new buyers, as the company she works at, fastener maker Ningbo Haixin Hardware Co Ltd, moves up the value chain with more high-end products.

Set up in 1983, Ningbo Haixin is now replacing its low-end products with high-end ones as profit margins have started shrinking rapidly amid rising raw material costs.

"We can hardly make money from these products as what we are doing is just simple processing," said Meng.

Low-end fasteners are sold at about 6,000 yuan ($882) per ton after processing, but raw materials alone cost around 4,000 yuan per ton. The price difference hardly covers other expenses like electricity, water, and labor.

Companies like Ningbo Haixin started facing the heat as more and more family workshops started coming up in smaller cities offering much lower prices, said Meng.

Zhejiang province is the largest maker of fasteners in China, and sales account for nearly half of the nation's total. Ningbo, along with Jiaxing and Wenzhou in Zhejiang province, are also among its top manufacturing bases.

But fastener makers are now facing increasing pressure to diversify product lines and upgrade manufacturing capabilities.

"Our tax rebate rate has fallen from 13 percent to 5 percent, and we are not sure if it will be reduced further," said Meng. In contrast, electricity and water rates are set to go up for high energy-consuming industries, if the usage exceeds certain levels.

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Faced with such a situation, Ningbo Haixin decided to diversify its manufacturing process. The company concluded it must reduce the number of low-end and middle-end fasteners it produces, accounting for nearly 60 percent of the total output.

Ningbo Haixin, which has two factories, is now building a new unit that will consist of standardized workshops. It is different from the existing units, which are usually filled with lampblack, and also utilize automated equipment, said Meng.

The new unit is expected to start operations by March next year, and the company will hire more experienced technicians apart from the existing workforce of over 500.

The company posted revenue of 300 million yuan last year.