Shoe Business Dynamics: Transfer Vietnam To Indonesian Supplier To Produce Base " Turn It Into Zero "!

Although the trade war between China and the United States has eased, the previous tensions have forced global suppliers to shut down some factories in China and start building factories in other Southeast Asian countries. The global supply chain's long-term dependence on China is changing.

Due to the shortage of labor force in mainland China and the increase in manual prices, Nike Lululemon Eclat Textile Co., China's Taiwan supplier, closed all the Chinese factories in 2016 and transferred the business to Vietnam. But as the trade war intensified, he decided to gradually shift Vietnam's production business to other Southeast Asian countries such as Indonesia and Kampuchea, hoping to provide more flexible production services for customers through the establishment of multiple small production bases.

Mr. Hong Zhenhai, chairman of Ru Hong, said that at present, 50% of the group's production is completed in Vietnam, and its business structure is not flexible enough. To cope with the changing global political and economic trends, they will diversify their businesses to help customers diversify their risks. The flexibility of production business is the key to the company's future success. Due to political and economic reasons, it is difficult for customers to plan the supply chain demand and to be more conservative when placing orders, but the company's diversified production lines can help customers solve this problem.

In the next three years, he will not expand the scale of Vietnam's factories, but will invest 80 million dollars in various countries in Southeast Asia and establish 120 production lines. Later this year, the board will confirm the specific implementation of the plan. If it is still unable to solve the problem, he will consider investing in factories in India or Mexico.

After the release of the news, the share price of Ru hung rose 3.1% to 402 NTD in July 15th, the biggest increase in the past two months. In the same period, the Taiwan weighted stock index increased by 0.5%.

　　 Helen Chien, an analyst at investment bank, said that compared with its peers, he had a leading edge in the diversification of production areas and had great advantages in the supply chain, which is very beneficial to the long-term development of the company.

Xing Yalei, an analyst at Cathay Securities, ranked the stock rating of ROK hung as "Neutral". She said. A decentralized supply chain will reduce the impact of trade wars on the company's business. In the long run, this decision will also help companies save costs.

The reform strategy of Confucianism has achieved initial success. In 2018, the company's net profit rose 26% to NT $5 billion 305 million compared to the same period last year. From the beginning of this year to now, the share price of Ru Hong has increased by 13%.

Vietnam market tends to be saturated

Although the major manufacturers have invested and built factories in Vietnam in the past due to their geographical advantages, but as the United States increased tariffs on Vietnam's exports of steel, Vietnam's market was saturated, labor shortages and other phenomena appeared, the major companies began to suspend the expansion plan of Vietnam's factories.

Feng Yujun, chief executive of Li & Fung, the world's largest consumer goods supplier, said that Vietnam's manufacturing industry had long been saturated with Fung Spencer.

Because Vietnam's business is becoming more and more saturated, Nike, Adidas and Puma footwear manufacturers have increased the investment of Indonesia factories. In 2018, Baocheng produced 326 million pairs of shoes, 46% of which were produced in Vietnam. In the first quarter of 2019, Vietnam's production decreased to 43%, while the proportion of Indonesia's production increased from 41% last year to 41%.

　　 A spokesman for Baocheng said that land prices in Vietnam were also rising and there was no downward trend. In the long run, they think there is little room for development in Vietnam. Although Vietnam's business is saturated, they do not think that the transfer of business to other developing countries is the best solution. In order to ensure the competitiveness of the group, they will increase investment in plant automation technology.