China still toddler in technological progress

Factories are struggling to raise skills, quality, and learn innovation

China's foreign trade upgrading process could be viewed as an opportunity for local manufacturers.

However, without a creative mindset and actions in line with the market, some companies risk becoming obsolete.

After years of struggling to cast off labels as being cheap and copycats, Chinese manufacturers are still toddlers in the upgrading process.

Right now, they are reading a turning point in the process to produce higher value-added products, rather than waging price wars amid sluggish global demand.

"It's not easy for Chinese manufacturers to shed traditional thinking when it comes to industrial design. They're not used to market investigation, product R&D and marketing as a whole, but rather see it as individual parts," said Yu Yisheng, a production and industrial engineer at Stimulo, a Spanish product design and innovation agency.

Stimulo opened an office in Guangzhou, Guandong province, in 2008 after working with Chinese factories for about 10 years. Currently, it is working with five Chinese manufacturers.

"It's relatively easy for us to cooperate with medium-sized companies, because they're very aggressive in competing with industry leaders. In terms of promoting cross-department collaboration, their performance is better than those of big companies, which are willing to stick to their current teams and ideas as they are confident in their strengths," Yu said.

As headwinds, including weak demand and increasing costs for raw materials and labor, continue to ratchet up pressure on Chinese manufacturers, some producers are being forced to cut prices to grab more orders, while others are accelerating brand-building processes and improving their design and technology.

"To keep our factory in operation, we need to get many OEM orders. Prices are lower in South America compared with developed markets, but orders from that market are much bigger," said Qiu Daojing, sales manager of the international marketing department at Gotech Group Co Ltd, an electrical appliance company in Guangzhou.

Exports account for more than 80 percent of the company's sales, and because of the weaker European Union market, the company is now paying more attention to its South American clients.

In addition to moving to new markets, the company is also starting to diversify the colors and functions of its coffee machines. But the changes seem somewhat superficial so far.

To tackle such challenges, the Chinese government's support for the foreign trade upgrading process may help spur a transformation.

According to a report released by the Ministry of Commerce in October, China will continue to adopt policies and measures to stabilize growth of imports and exports, and accelerate the upgrading of structures, encouraging companies to boost innovation processes, improve the quality and level of their products, create global brands and build international marketing networks.

However, due to the lackluster global economy, some manufacturers are already feeling the pinch.

For instance, a major ceramics manufacturer in Guangdong province, Foshan Monalisa Industry Co Ltd, which is being confronted with a shrinking European market, is being forced to change its exports business.

"So far in 2013, our total exports declined 20 percent compared with the same period last year. I think it will take us two years to return to an equivalent of 500 million yuan ($81.53 million) in exports as we had before," said He Xianjin, the company's sales manager.

In March, Monalisa stopped receiving OEM - original equipment manufacturer - orders and started promoting its own brands.

"The profit margin of our own-brand products is more than tenfold that of the OEM orders, but managing a brand is much more complicated," said He.

Ningbo Fotile Kitchen Ware Co Ltd, an electrical appliance manufacturer, also switched all of its focus to its own-brand products after it was hit by the global financial crisis in 2008, although it already was exporting some own-brand products since 2000.

"Due to the declining orders from overseas markets, we realized that it was time for us to stop production of OEM orders and try to make something different," said Zhu Saijin, regional sales representative of the overseas division at Ningbo Fotile Kitchen Ware.

The kitchen appliance maker is now targeting the Southeast Asian and South Asian markets.

"We're gaining a competitive edge in the high-end sector because branded goods from developed countries are less present there. Meanwhile, getting into the European and US markets is not as easy, because they have higher standards there," Zhu said.

In order to add technological and aesthetic value into its products, the company started working with the US-based IDU Creative Services in 2008 to develop most of its products.

"In our engineering department, we're also hiring designers and engineers from Japan and South Korea," said Zhu.

Still, Zhu said that building a brand requires a lot of investment, and that they're very prudent when it comes to expanding R&D projects and production scale to avoid potential risks.

Industrial design experts said that Chinese producers have reason to be hopeful, because they have achieved a lot in the past years, although they're still faced with a tough path ahead.

"Chinese manufacturers are growing up. They're starting to follow their own minds, and are beginning to create more personal products," said Marco Marccioni, marketing and communication manager with Italy-based Mac Design Srl.

The company has been working with Chinese manufacturers since the 1980s. It opened a branch in Guangzhou, two years ago, to enable faster contacts with its Chinese clients.

"Each time, our engineers were flying from Italy to China. About 50 percent of our Chinese clients are those who want to sell or expand in the EU. China now accounts for 40 to 50 percent of our total global business," Marccioni said.

He added that Chinese clients still prefer following industry leaders and try to imitate the best products in the market. However, that foreign engineering and design firms are also being confronted with fierce competition from emerging local industrial designers, he added.