Survey: China Suppliers Cautiously Optimistic About Export Growth

October 11, 2012 Posted by China Briefing Reading Time: 3 minutes

Oct. 11 – Suppliers in China are cautiously optimistic about July to December 2012 export revenue in view of the economic uncertainties in traditional export destinations and rising production costs. The former is pushing an increasing number of makers to pursue growth opportunities in emerging markets.

Nearly 60 percent of the 506 respondents to a survey conducted by Global Sources said export earnings in the second half of 2012 will be better compared with the same period in the previous year. Fifteen percent of makers are more conservative as they expect level overseas sales. Industry-wise, those offering consumer electronics, computer, security and telecom products, and electronic components are more optimistic than their counterparts in low-profit segments such as home products, and gifts and premiums. Smart, environment-friendly and enhanced electronic devices will lead exports.

Survey results reveal slow orders from the United States and Europe is the biggest challenge facing China suppliers, followed by rising production costs and price competition.

Although economic indicators such as the Purchasing Manager’s Index point to a slowdown in exports, the optimism in this survey suggests that some companies expect to benefit, perhaps anticipating consolidation in the export industry.

Overall, business strategies in the year ahead will be two-pronged, with initiatives focused on market expansion and client retention.

Fifty-five percent of suppliers will seek new customers in countries outside of the US and the EU, China’s traditional export destinations.

South America stands out among these emerging markets. Apart from a general rise in business because of expanding economies on the continent, many China suppliers are anticipating an increase in orders from Brazil as it prepares to host two major sporting events in coming years. Shipments there are expected to jump in the two or three months leading to the 2014 FIFA World Cup and again in 2016 for the Summer Olympics. This mirrors exports to the UK, which rose significantly prior to the 2012 Olympics even as orders from the rest of the EU dropped.

Many respondents will be more flexible with prices to keep their current customer base intact and prop up lagging exports to the EU and the US. Companies will boost production efficiency to keep manufacturing costs in check, consequently minimizing, if not eliminating, price increases. Better control over expenditure will also allow makers to protect margins, which have narrowed over the past several months.

Despite softening orders, the EU and the US will continue to be key destinations. Surveyed suppliers indicated that sales channels and customer groups in these mature locations are inherently more stable than in emerging markets.

Between the two, more suppliers have their sights on the US. Makers continuing to focus on the EU, however, have brighter growth projections. Nearly 18 percent of such suppliers expect revenue to rise by 21 to 30 percent in the next six months. Further, 7 percent predict the increase will exceed 50 percent. In contrast, only 3 percent of companies focusing on the US said export growth will reach this rate.

This survey was mostly conducted in China’s primary export centers of Guangdong, Zhejiang, Jiangsu and Fujian provinces.

The 506 suppliers interviewed came from various industries, including home products, electronics, hardware and DIY, gifts and premiums, garments and textiles and electronic components.

More than 50 percent of respondents have mid-size operations. Among these companies, the majority export between US$1 million and US$5 million annually. More than one-third of interviewees are small, posting export sales not exceeding US$1 million. A few tier 1 enterprises were also surveyed.

Nearly 60 percent of surveyed suppliers are confident export revenue in the second half of 2012 will improve from a year ago. For many of these makers, the growth will be moderate, ranging between 10 percent and 20 percent. Some, however, expect aggressive expansion efforts will have similarly strong results, placing growth at over 50 percent.

Survey: Export Revenue Forecasts

Increase: 59 percent
Decrease: 26 percent
Stay the same: 15 percent

To achieve growth targets, China suppliers will venture into new markets while strengthening business in the EU and the US. Companies will climb the value chain and release more upscale models to attract orders in both emerging and traditional destinations. Cost-curbing efforts will be undertaken to allow more flexibility in prices.

Survey: Growth Support Strategies

Focus on emerging markets: 55 percent
Offer more flexible prices/pricing terms: 50 percent
Improve production efficiency: 34 percent
Reduce production costs: 31 percent
Release more upscale models: 28 percent
Enter or strengthen domestic business: 25 percent
Shift to high-value/high-profit industries: 19 percent
Release more low-end/basic models: 16 percent
Other: 15 percent

This article was originally published by Global Sources and can be found here. Global Sources is a leading business-to-business media company that facilitates trade between buyers worldwide and suppliers in China and Asia, via online, magazines, trade shows and research.