Innovation is the name of the game

A model of a cruise liner impresses visitors to Dongguan Science and Technology Week in November. Manufacturers in the city are focusing more on innovation. Fang Guangming / for China Daily

Manufacturers in processing-trade city are finding they have to change the way they do business

Years of effort in upgrading business, especially working with overseas companies on innovation and technology, has greatly helped at least one company better tap the international market amid lower global demand for Chinese energy equipment.

"Only by improving products and continuing to innovate can traditional manufacturers avoid losses caused by low global demand and the stronger yuan," says Shen Jianshan, president of Camda New Energy Equipment Co.

The company, in the traditional manufacturing and trade city of Dongguan in the heart of the Pearl River Delta, started upgrading its business in 2005.

It has gone from just manufacturing diesel-powered generation equipment to making alternative-fuel products, after buying high-level foreign technology, Shen says.

"Over the past few years we have spent about 100 million yuan ($16.5 million; 12.1 million euros) on improving products. Now they easily meet the requirements of overseas buyers who require products with high-tech value."

Lower global demand for Chinese products, hobbled by rising domestic production and labor costs and the rising value of the yuan, has piled pressure on many Chinese exporters in the past few years.

A recent report issued by the Shenzhen Onetouch Business Service Co, an online foreign-trade outsourcing services provider, said the trade value of 2,000 small and medium-sized companies surveyed in the traditional manufacturing Pearl River Delta rose only 1.74 percent last year compared with 2012.

In contrast to the lower increase in trade for some small and medium-sized exporters, Camda New Energy Equipment Co's trade is expected to have been worth at least 120 million yuan last year, 20 percent higher than in 2012. It covers more than 50 countries and regions, Shen says.

"We have clinched overseas orders valued at 260 million yuan for this year," Shen says.

The company has opened 12 sales agencies in traditional overseas markets including Britain and Germany and booming Southeast Asia, Shen says.

"We are very confident about growth as there is strong growing demand overseas for energy-efficient and eco-friendly products, especially in emerging markets," Shen says.

Camda's stronger performance in tapping overseas markets over the past few years mirrors companies in Dongguan that have gone through the painstaking process of upgrading their products by investing more in technology and innovation to maintain growth.

The transformation of high-tech industries over the past few years, done in conjunction with domestic and international science and technology companies, has helped the city upgrade its traditional industries and increase its exporters' competitiveness, officials at the Dongguan Economy and Information Bureau say.

The city's industrial output and trade has held up since the global financial crisis in 2008, says Xian Zhou'en, director of the Dongguan Economy and Information Bureau.

The value of Dongguan's trade was $153 billion last year, 5.9 percent more than in the previous year, the Dongguan Foreign Trade and Economic Cooperation Bureau says.

The city's exports rose 6.8 percent to $90.86 billion last year. Exports of high-tech products from the city rose to $33.6 billion, an increase of a little more than 13 percent, representing an increased proportion of all exports, sources with the bureau say.

"A growing number of traditional manufacturers in Dongguan have also started to upgrade their businesses since 2008," Shen says. "They have become successful overseas."

Like Camda New Energy Equipment earlier, as many as 200 companies in Dongguan were making only diesel-powered generation equipment over the past decade, Shen says.

"But fewer than 20 such companies survived the global economic downturn. Those that did not quickly adopt an upgrading approach have dipped out of the international market because they are no longer competitive," Shen says.

Xian of the Dongguan Economy and Information Bureau attributes the increased trade to Dongguan's efforts to transform its economy from one with labor-intensive processing trade and manufacturing to one in which the focus is on advanced technology and innovation.

"We have not seen a big round of business closures since 2008 when the global economy downsized," Xian says. "Instead, a growing number of high-tech businesses have emerged in recent years, and many traditional exporters have transformed to ODM (original design manufacturing) and OBM (original brand manufacturing) companies, helping us better cope with the global economic downturn."

Dongguan used to rely heavily on the processing trade to keep up trade growth, because the city has been one of the world's key manufacturing bases over the past 20 years, thanks to a vast number of labor-intensive and processing trade businesses.

The city has now developed more than 4,000 high-tech businesses, with the value of high-tech goods produced worth 340 billion yuan in 2012, sources with the Dongguan Science and Technology Bureau say.

The city still has about 500,000 small and medium-sized manufacturers, mostly engaged in the processing trade, Xian says.

"They are facing a tough business situation because of increased production and labor costs and lower demand internationally. But a growing number have realized the importance of increasing investment innovation and upgrading technology."

For example, more than 200 processing trade companies in the city have opened research and development facilities, hoping to successfully transform into ODM and OBM manufacturers, Xian says.

According to a survey of the top 500 export-oriented companies in Dongguan, 31.6 percent plan to boost investment in technology research, and 32.1 percent will introduce and buy more advanced production facilities this year.

"Traditional businesses such as those making shoes, garments and toys are particularly urged to upgrade their products by using more innovation," Xian says.

Dongguan still has more than 10,000 processing trade businesses, which contributed about 70 percent of the city's total trade, the local foreign trade and economic cooperation authority says.

Last year the value of imports and exports in the processing trade was worth $112 billion, the authority says.

Dongguan's transformation in foreign trade has been in line with Guangdong province's plan to shift its economic growth model from simply relying on trade to more domestic consumption and investment.

The provincial authority expects its total trade to expand only 1 percent this year, a sign that experts say represents the province's determination to change its economic growth model.

"We have made a greater effort to transform and optimize the foreign trade structure in the past few years to ensure that trade grows in a stable way," Zhu Xiaodan, governor of Guangdong, told deputies to the local annual legislative conference, which ended on Jan 20 in Guangzhou, the provincial capital.

Exports of new and high-tech products, as well as the service trade, grew quickly last year, Zhu said.

Last year more than 7,500 companies in Guangdong previously in the processing trade had turned into ODM and OBM exporters, Guangdong Customs says.

Lin Jiang, a professor at Sun Yat-sen University, says: "Given the global trade situation, Dongguan should continue to upgrade its traditional manufacturing businesses to increase competitiveness in the global market."

By 2012 about 4,300 companies in Dongguan that had been engaged in processing with supplied materials had successfully become ODM and OBM manufacturers, the local trade and economic cooperation authority says.

"Companies in the processing trade should also make a greater effort to expand sales domestically," Lin says.

Over the past few years, the local government, apart from encouraging local companies to improve innovation and technology, also urged businesses in the processing trade to expand their presence in the domestic market.

Domestic sales of processing trade companies in Dongguan rose from 133.9 billion yuan in 2008 to more than 280 billion yuan last year, accounting for more than 30 percent of such companies' total sales, the local trade and economic cooperation bureau says.