Living rules for foreign trade fabric companies

by Zhao Xinhua

Although March and April are traditional peak sales seasons， foreign trade fabric companies are still hardly optimistic.

High inventory of foreign apparel affects Chinas foreign trade companies

The overseas pandemic is still severe， and the serious loss of foreign apparel brands caused by the pandemic is still continuing.

According to data released in March by McKinsey & Company， by 2020-end， the textile and apparel industry has lost 20 to 25 percent of its sales， including 25 to 30 percent in Europe and 20 to 25 percent in the United States. The value of unsold garments in shops and warehouses is now estimated at between USD 168 billion to USD 192 billion （about 140 billion to 160 billion）， more than double the pre-pandemic figure.

As for Chinas foreign trade fabric companies， the demand for fabrics and grey cloth was reduced due to the poor management and continuous loss of foreign apparel brands. China Keqiao textile index shows that recently， the international market demand is weak， foreign trade marketing price and quantity fell together. Data shows that at the beginning of the year， the export value of textiles in Keqiao District of Shaoxing City fell monthon-month， and exports showed a downward trend. Among them， chemical fiber filament fabric foreign trade price index fell 9.23 percent； the foreign trade price index of daily home textile fabrics fell 15.83 percent from the previous month； the foreign trade price index of knitted and crocheted fabrics fell 21.35 percent from the previous month.

According to Spanish newspaper El Pais， the outbreak has hit the textile and apparel industry hard. The forced suspension of operations has led to a drop in revenues and forced many well-known brands in Europe and the U.S. to protect their liquidity by cancelling and postponing orders or delaying payments. “During the European quarantine， we extended payments to all our suppliers by 30 days，” said the head of a Spanish apparel company. It makes a big difference to them， but its a matter of our survival.”

In this regard， a person in charge of a Chinese fabric enterprise said that many foreign apparel brands have limited ability to withstand risks， and the company is not willing to take the risk of orders being delayed at any time， inventory and other risks to cooperate with them.

Adjust the strategy to tap the potential of the domestic market

Due to the timely shift to the domestic market， some Chinese fabric companies that used to focus on foreign trade have new opportunities for development.

Most of the polyester-cotton fabrics and cotton fabrics produced by Hubei Jinhengchang Textile Co.， Ltd. were exported overseas. In 2020， due to the impact of the pandemic， the export of traditional textile and apparel was greatly affected. Although Jinhengchang has gradually restored its production capacity since June 2020， the order situation is not ideal and the inventory pressure is increasing day by day. Ma Hang， the general manager of the company， said frankly： “The companys inventory reached its peak in October last year， there are more than 30 million yuan worth of inventory， the companys financial pressure is great.”

In order to recover funds as soon as possible and realize a virtuous cycle， Jinhengchang must adjust its sales strategy. “On the one hand， we improved product quality through technical upgrading， on the other hand， we increased domestic sales staff， closely focused on domestic garment factories， dyeing and printing facto- ries， embroidery factories to develop domestic customers， and did everything possible to expand the domestic market， finally achieved a balance between production and sales by the end of 2020.” Ma Hang said.

In the spring of 2020， Liu Qinghai， chairman of Foshan Mingzhou Textile Co.， Ltd.， received calls from foreign customers for several days， and was informed that orders were cancelled or shipments were postponed. In the meantime， about 90 percent of the employees of the enterprise had returned to work， all equipment in the workshop was shut down， and the warehouse was stocked with fabrics with an output value of about 60 million yuan.

In April 2020， Mingzhou Textile opened a production line for domestic sales and hired more than 40 new employees. In just half a year， this production line for Mingzhou Textile brought nearly 20 million yuan of output value.

As a key foreign trade enterprise in Baoji City， Baoji Dadi Textile Co.， Ltd. sells its products well in more than 40 countries such as the United States and South Korea. Affected by the pandemic， the companys foreign trade export orders dropped significantly. In order to achieve steady development， Dadi Textile changed its thinking and management mode and actively explored the domestic market. The general manager of the company， Liu Hongbing， led the sales staff to participate in the fabric and accessory exhibitions all over the country， and signed large sales orders on the spot through frequent communication with local merchants， which effectively alleviated the impact of the pandemic on the companys export.

In the opinion of many fabric companies， the “transfer from export to domestic market” at first is just to relieve the pressure brought about by the stagnation of foreign trade. However， companies gradually have confidence in the domestic market， and the transfer from export to domestic market has become the active choice of companies.

Solve the problems of domestic sales transformation and explore the development of wider markets

Today， the huge potential of the domestic market is being rapidly stimulated， which makes a number of fabric companies start domestic business more confident. However， the market “cake” shrinking， domestic market increasingly fierce competition also let many textile companies encountered Waterloo.

In the process of expanding the domestic market， Jinhengchang Textile and the peers to fight a “price war”. Ma Hang said that although lower product prices to stabilize the market， but profits fell. Especially in the highly competitive textile industry， there is little room for price cuts. “Our approach is to extend the industrial chain upwards. At present， the companys second phase factory building is accelerating construction and is expected to achieve trial production in October this year. At that time， the company will buy cotton raw materials from the domestic market and produce cotton yarn for spinning.” He said， “If we produce and sell ourselves， the cost of a ton of yarn can be reduced by 600 yuan. The cost of 1 meter cloth can be 0.1 yuan/meter lower than other companies， competitiveness is still very obvious.”

In order to get more domestic orders， Mingzhou Textile has carried out two major innovations： one is to meet the needs of the domestic market， and to differentiate from the production line of export products in the use of fibers， styles， product concepts， etc.； the second is to save more energy， environmental protection and more efficient production through process upgrading. “Take water as an example， the water consumption for dyeing a tank of cloth can be saved more than doubled compared to a traditional production line.”Liu Qinghai said.

In order to help foreign trade companies unblock their sales channels， supportive policies in various regions are constantly increasing. A series of measures to support the transfer of exports to domestic sales have been very helpful to the company， and it has provided a guarantee for the company to expand the domestic market and has strong operability.

This does not mean that fabric companies have to give up the foreign trade market. Zhao Jinping， director and researcher of the Foreign Economic Research Department of the Development Research Center of the State Council， suggested that while looking for domestic sales opportunities and expanding domestic sales， companies can use their own conditions to adjust market targets in the sales market， avoid high-risk areas and explore markets in areas with low risk of the pandemic such as ASEAN and Central Asia.