Reflections | My uncle’s factory finally closed down

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On June 6, 2016, amid the chaos caused by the hasty withdrawal of several major foreign-funded companies, another private manufacturing enterprise in Dongguan declared bankruptcy. A well-known internet user named “Hermit in the Deep Mountains” posted that “my uncle’s factory officially closed down after paying all its employees’ salaries.” Interestingly, internet user “Hermit in the Mountains” used his uncle’s factory as the subject in a highly controversial article that went viral on the internet last year, titled “The Manufacturing Industry Is Dead: Exploring China’s Path to Future Prosperity”. Unexpectedly, a little over a year later, my words came true: my uncle’s factory collapsed completely. 　　 Having struggled to survive multiple times, the factory has largely relied on orders for headphones from a Taiwanese client and WestJet to stay in business. When it was first started in 2006, the price per pair was 1.8 yuan; it’s still 1.8 yuan per pair now, but labor costs have tripled. Previously, the cost was 1.2; now, thanks to effective production management and control, the cost is only around 1.75 yuan per pair. If there are problems with the yield of a particular batch, losses will have to be incurred. Everyone says that the manufacturing industry needs to undergo transformation and upgrading, and this factory has also made attempts in this regard; everything that could be upgraded has been upgraded, and everything that required automation has now been fully automated. But for headphone production, there is always someone needed to feed materials into each molding machine; automated packaging cannot meet customer requirements, and packing and wrapping are also not feasible. In short, it remains a labor-intensive process. I was once enthusiastic about producing computer headphones, and I even registered three brands for this purpose; I produced a large quantity of these products and hired two salespeople to distribute them in computer stores across the country. In the end, it turned out to be unprofitable, as the competition was fierce, which led to a buildup of unsold products. The frequent occurrences of agents delaying payment or disappearing led him to give up this market in the end. With no other choice, the boss decided to take the risk of hiring a group of Vietnamese workers, paying them around 2,000 yuan per month (with 200 yuan going to the agency). This approach allowed the costs to be kept at around 1.6 yuan, ensuring a gross profit margin of about 8%. Unfortunately, the factory’s practice of hiring Vietnamese workers was discovered by the local authorities; the owner was detained in the police station for five days and fined 60,000, thereby eliminating any remaining hope for the factory to turn things around. I tried to discuss raising the price, but they just replied with one sentence: Do it if you want to; go to Guangxi and do it for 1.65 yuan, or go to Vietnam and do it for 1.3 yuan. I’m still placing orders for you out of respect for our many years of cooperation. In the end, last August, that order was not retained either; the Taiwanese moved their orders to Vietnam instead. With a 20% cost difference and a demand of 2–3 containers per month, the Taiwanese were able to save over 200,000 per month. In fact, the Taiwanese have already been cultivating suppliers in Vietnam; it’s just that in recent years, Vietnamese factories have failed to meet requirements in terms of product quality and delivery times, which is why not all orders were transferred there. Starting a business is difficult; in the end, one ends up helping others. After having a farewell meal with his employees and returning to the office, the boss cried, influenced by the alcohol. After all, it’s a factory that has been around for twelve years; no one can just give it up so easily. When the factory was opened, the owner was 35 years old; now that he is nearly 50, it’s no longer possible for him to make a comeback. In 2006, the boss started a business using 200,000 yuan that he had saved over ten years of working, investing it all in purchasing machinery and setting up two production lines. Starting in 2006, we received a few orders from outside clients and made some money, but the profits from those first two years were all invested in purchasing machinery and moving to a new factory, which allowed us to expand our workforce from around ten people to about 40. Subsequently, as orders increased, the factory was moved again, and the workforce grew from 40 people to around 90. At least before 2008, all the money earned was used to purchase machinery and equipment. In that period, I only bought a house in full and a car costing over 200,000 yuan. In 2008, amid the global financial crisis, we barely made any money; in 2009, we incurred losses. It was only in 2010 that the company started to turn a profit, but then China’s \"wage doubling plan\" was introduced; despite having many orders, there was actually no profit to be made. In 2011, I blindly returned to my hometown to set up a branch factory. Once the factory was built, when winter arrived, a serious problem arose: the weather was too cold, and the workers were unable to work properly (their fingers couldn’t move freely), which resulted in a large number of defective products. The factory had to close down as soon as winter started, and the total losses amounted to 700,000 yuan. During the years 2012 to 2014, not a single penny was invested again, and it was only then that some cash was finally saved up. Starting in 2015, the situation deteriorated rapidly, but expenses and revenues finally balanced out. We’ve lost money for half of this year; in fact, we’re on track to lose the profit earned in an entire previous year. Fortunately, the management made the tough decision to close the factory; if it had been delayed by another year, the owner would have returned to the situation that existed before liberation. Another private enterprise owner meets a tragic end. Looking at his entrepreneurial journey, it can be seen as a reflection of the experiences of millions of private enterprise owners in China over the past three decades. The boss was one of those who failed the college entrance exams in the 1980s and 1990s; he joined the wave of people moving south to work in 1994 and was fortunate enough to get a job at a foreign-owned company. Starting as an ordinary worker with a monthly salary of 300 yuan, I eventually became a manufacturing department manager at an American company with a monthly salary of 18,000 dollars. The boss is highly skilled in the field of ready-made headphones and speakers; he has expertise with high-end brands like Bosch, as well as mid-to-low-end models such as HP multimedia speakers. Ten years ago, the boss started his own business with limited capital, so he first produced the most basic microphones and disposable headphones for use in aviation. We OEM for a U.S. company at 1.5 yuan per unit; even now, we still enjoy a 20% gross margin. It’s considered a high-quality order. However, this order is steady but not large in volume – one container per month is sufficient to meet the U.S. company’s needs for two months. Later, more foreign orders were brought in one after another, and the factory grew larger and larger. Since factories are typical labor-intensive enterprises, the production of earpiece components (the two small speakers on headphones) as well as finished headphones involves a significant amount of manual labor at every stage. At its peak, the factory employed around 140 people. In addition, there is a separate factory in Guangxi that produces the finished products for them; 90% of these products are supplied to them, and that factory also employs around 100 people on a year-round basis. In reality, the boss is supporting about 200 people all by himself. However, faced with the appreciation of the RMB externally while its value declined domestically, as well as low-cost competition from countries like Vietnam, the owner had no choice but to officially announce the closure. Fortunately, after paying the suppliers, employees’ salaries, and compensation, there is still 1.2 million yuan in unpaid invoices, and the boss hopes to recover two-thirds of that amount. After the factory closed down, the owner felt relieved – there were no landlords demanding rent, no suppliers demanding payment for goods, and no need to worry about paying salaries on the 15th of each month. ““How great these days are,” said the boss. Looking back at the past three decades, we gain some insights. The significance of reform and opening up lies not only in opening the country’s doors to foreign companies that were eager to tap into China’s market of a billion people as well as its extremely cheap labor force, but also in providing outstanding individuals, represented by private entrepreneurs, with the opportunity to showcase their talents. However, no one expected that while private entrepreneurs fought hard in the global market to make Chinese manufacturing renowned worldwide, a self-destructive policy of raising the value of the RMB while lowering its value domestically, along with an unprecedented real estate boom, led to their downfall at the hands of those within their own ranks. At least, the low-end manufacturing sector has completely come to a standstill. Entrepreneurs should integrate knowledge with action. I used to be a teacher and always thought that intellectuals were remarkable, while businessmen were looked down upon. Now I think businessmen are amazing; they can’t be trained in schools, nor can they be developed through **** training. Businessmen succeed solely through their understanding of the market, unique vision, and ability to strive hard. They are a scarce resource in China and around the world. Personally, I firmly believe that businessmen are the scientists and artists in the development of the social economy. Speaking of corporate strategy, I personally believe that strategies cannot be replicated; what truly cannot be replicated are works of art, just like the shape of our faces. Copying is easy to do, especially when it comes to corporate strategies. An entrepreneur must transform the products and services of his/her business into works of art—things that no one else can replicate or surpass. Only in this way can the business thrive and achieve long-term success. Another challenge for entrepreneurs is the integration of knowledge and action. It’s easy to acquire knowledge, but it’s very difficult to put what you know into practice and create something that others will like. Combining knowledge with action is something that entrepreneurs find extremely difficult to achieve. Therefore, I hope everyone will respect this scarce resource in society, which are our entrepreneurs. Four things that affect the economy: We’ve discussed many economic issues today. The economy goes through ups and downs; there are good times as well as bad ones. After thirty years of prosperity, it’s only natural for there to be difficult times. China’s policies over the first 30 years enabled rapid growth over that period, and I think it’s normal for there to be a slowdown now. In good economic times, companies that make money are not called entrepreneurs; only those who remain there even when the storms subside are true entrepreneurs. One should be able to make judgments about the future; when the economy is doing well, one must prepare for times when it is not ； When the economy is poor, and when it’s clear that the economy will remain poor, it’s important to seize opportunities. In times of economic hardship, there are different perspectives on the future, various ways of viewing what lies ahead. A friend once said that doing business always gets more difficult over time; the key lies in having good foresight. In fact, although it’s said that doing business is getting harder and harder, it was never easy in the past either; today it isn’t any easier—it’s always difficult. This requires being different from others. So I think there are no major problems with China’s economy today. Throughout Chinese history, we have gone through all kinds of problems; we have survived such difficult times – so what are we afraid of now? In my view, looking at today’s situation, the impact of the world economy on China is, objectively speaking, comprehensive. I think there are four things that have an impact, and these four things haven’t received sufficient attention. The moment when a crisis occurs in any situation isn’t actually a crisis; it’s the subsequent crises that truly constitute crises. First, the 2008 global financial crisis. I personally believe we failed to realize that the aftermath of the crisis would persist for four years. First, the first wave affected the United States, and the second wave affected Europe. We were not adequately prepared, and the impact of this financial crisis on the world was like an earthquake and tsunami – waves coming one after another, taking time to unfold. Second, no one believes that this Internet technology revolution will have a significant impact on the world economy. The impact of this technology on China and the world has only just begun. Third, the emergence of new energy sources as a result of the energy crisis, along with the series of changes it has brought about, have not received sufficient attention. Fourth, in China, the environmental problems resulting from our economic model and social development were something that no one had anticipated. China **actually warned everyone about the need for transformation and upgrading quite early on, but the results have not been that good yet. Taken together, these factors mean that the economy of this ** has been changing for three years now. It can be said that our economy has truly reached a stage where transformation and upgrading are necessary. It’s just that when the slogan of transformation and upgrading was introduced, no one expected it to bring so many problems; but everything comes at a cost, and that cost has to be borne by someone. Low-end manufacturing and low-quality manufacturing sectors will continue to decline. Regarding the real economy and the virtual economy, I believe that in the future: first, China’s manufacturing sector will keep declining. Second, China’s virtual economy is also in a difficult situation. In fact, the decline in China’s manufacturing sector is mainly due to the need for a decline in low-end and low-quality manufacturing activities; if China’s shoddy processing industries do not continue to decline, China will have no chance. This is a true era of business transformation; if you view it as an opportunity, it is one, but if you see it as a disaster, then it indeed is one. Crises and dangers—opportunities always lie within them. Truly great enterprises are surely born amidst dangers. Only by calming down and observing can you change yourself. I am full of optimism; with the right mental preparation, I’m not afraid and will defend my territory. However, looking at a 5- to 10-year horizon, the opportunities in the Chinese economy are immense; it is likely that no other country in the world can compare to China in this regard. I have always been an optimist, but optimism does not mean blind optimism; one needs to have a basis for it. But one thing is for sure: a good economic situation doesn’t necessarily mean things will be good for you ； Even if the economic situation is poor, it doesn’t necessarily mean things will be bad for you. In a poor economy, there are bad practices; in a good economy, there are good practices. It’s simply a matter of perspective. In the long run, we need to figure out what China’s potential sustainable economic model will be In the future, what China needs to improve is not its scale, but its quality. This is a question that everyone must think through carefully. Economic growth of 7%, 6% – what if it’s 5%? Among the four major economies – the United States, the European Union, Japan, and China – only China has an GDP growth rate of over 5%. China’s annual economic output is extremely large; there is enough money available. The question is whether this money is being used wisely Is it used correctly? Where is it supposed to be used? This is an important consideration for the future development of the Chinese economy. The domestic demand economy is the key for the future; at today’s rate of growth, China will have 500 million people with middle incomes in the next 10 to 15 years. What does 500 million mean? The United States currently has around 150 million people with middle incomes; our 500 million represent the equivalent of three times the number in the U.S. How did the U.S. economy grow? Domestic demand. What a huge opportunity it would be if China were to have an economy three times the size of the United States in the future. The problem is that if we follow yesterday’s approach, we might end up in an increasingly desperate situation. So I think the economic model needs to change. Let’s hold on for a few more years and seize the opportunities of the future. The path we follow today has been taken by Europe, Japan, and the United States. What China must face is the emergence of a large middle-income group; the future opportunities for China’s economy lie in a strong domestic demand. I have always considered the three drivers of the Chinese economy to be “two horses and one ox”. Exports are like carriages, investments are like carriages as well, but domestic demand is definitely like an ox cart. Over all these years, how should domestic demand and consumption be spent? Consumption, that is, getting people’s money to be spent – that is the skill of entrepreneurs and a manifestation of innovation. We need to use ideas to continuously unlock things driven by consumption and domestic demand, and this is surely the role of entrepreneurs. Please keep in mind that over the next 20 to 30 years, China must rely on consumption to drive its economy, and it is the entrepreneurs and the market that will be driving this consumption – this is an opportunity for all of us. Losers always blame others. Even if things are not going well for everyone, it’s not the case that everybody is struggling; in fact, not many people are doing well these days. Many problems aren’t scary once you see through them; what’s scary is not being able to see through them. What is panic? Panic means you don’t know the future; all you know is that it’s an opportunity. I believe that with our capabilities, with the quality of our employees today, and with my commitment to staying the course for the future through the investments I’m making now, most people may not be able to do it, but we certainly can ； While the vast majority of people can’t do it, we can. If you think about this issue in that way and see through it, then what is there to fear? Today, the virtual economy and the real economy must not be set against each other. Both China’s real economy and its virtual economy are still in their infancy, at a preliminary stage; we still have a long way to go. Just remember, during these thirty years of development, we have not encountered any crises. Over the past few hundred years in Europe and the United States, countless companies have failed only to be rebuilt again. So, I think China has been very lucky to experience 30 years of stable and rapid development. The next thirty years are the time for you to show what you’re capable of; in other words, the perseverance, skills, and teamwork skills you’ve developed over the first thirty years can truly come into play at this stage. I’ve also seen that the real becomes virtual, and the virtual becomes real; those who fail always blame others. Successful people always blame themselves. Those who blame themselves will succeed, but those who blame others achieve nothing. I’ve seen countless people: all the successful ones examine themselves, while all the unsuccessful ones blame others. So we also need to examine ourselves, constantly reflecting and introspecting ； When others succeed, appreciate them ； Even if others fail, don’t think they are stupid. I tell everyone that the mistake made by almost all companies is that 90% of people repeat 99% of the same mistakes. In fact, there aren’t that many stupid people in the world; the differences between people are not that great. It’s just a matter of whether you’re willing to reflect, whether you know how to appreciate things, and whether you can persevere. Good companies are all born in bad times. Whether we dare to take risks, whether we dare to face challenges, and whether we dare to change things that seemed familiar to us yesterday – these are the questions we need to consider today. In business competition, the focus shifts from \"strengthening oneself\" to \"benefiting others.\" Every technological revolution has created countless jobs. This technological revolution is no exception; it merely requires high-level jobs. Therefore, I also believe that economic transformation must proceed from low-end to high-end manufacturing, and that manufacturing needs to be integrated with the service sector; it is the service sector that represents the future, as any form of manufacturing is essentially a form of service industry. In the service and manufacturing sectors, it’s not just about costs; it also comes down to innovation capabilities, talent, and organization. Competition between enterprises ultimately boils down to competition for talent, competition among leadership teams, and competition in terms of innovation capabilities. So what I want to tell everyone is that, whether you like it or not, the rules of the game in this world have changed as of now. Previously it was about IT; now it’s about DT. IT focuses on one’s own informatization, which is a basic requirement. But with the advent of DT, it’s not a technological change but rather a change in mindset. It can make your employees stronger, your partners stronger, your customers stronger – and even your competitors stronger. Sometimes people wonder what it means for an opponent to be stronger The stronger your opponent, the stronger you become. Whenever you face an opponent, you should regard it as a blessing, because today someone has finally given me the chance to practice. But by no means go to extreme measures; if you kill him, you might not survive yourself. Therefore, in the course of business competition, please keep in mind that DT digital technology utilizes methods beyond IT technology to help others become stronger. Companies in the future will become increasingly transparent, and they will also need to know how to share. On the basis of transparency and sharing, companies must take responsibility and cultivate numerous innovative talents – this is what will determine success in the future. I would like to share my perspective: shifting from a self-focused mindset to one of altruism is a quality that companies in the 21st century must possess. This is the new type of company that will emerge in this century. Believe it or not, I’m saying this today; wait 30 years and then look back. Never give bribes, lest you regret it for life. For young people, there is no better era than this one. In this era, there’s no need to rely on one’s parents’ connections, no need for **, and no need for bank loans; what matters is your genuine knowledge and skills, as well as how hard you work. I hope that Zhejiang businessmen will never engage in any bribery; if any of our members do so, they will be removed. Our next generation should not have to bear this cost anymore, nor struggle for such things. I hope everyone will stick to the bottom line; we can do fewer deals. But the relationship between the government and enterprises still needs to be maintained, though those kinds of things should not be done. We rely on our true skills; it’s about sleeping on the floor, it’s about diligence, it’s about constantly changing ourselves and embracing change. For things that others dislike, let’s stop and think about them. Failure in competition often stems from not being able to see, underestimating, failing to understand, or failing to keep up. Source: Internet