(Yicai Global) Dec. 18 -- When I shook hands with Cui Wanyi, I could feel his hand covered with calluses. It was a workman’s hand. If I did not hear his story, I could not possibly know that the man in front of me was born in the 1990s. He looked much calmer and more modest and earnest than his peers.
“I studied mechanical automation in college following my parents’ advice. They wanted me to become a worker at a company or factory after graduation. For them, that is the best job, but I didn’t like it,” he said.
Cui came to Yiwu, East China’s Zhejiang province, right after his graduation in 2012, bringing with him nothing but his trolley case. “I worked as a sales rep at a Toyota dealership in Yiwu, and sold automatic doors at a building material firm, and then opened a breakfast restaurant. Cutlets stuffed with preserved vegetables were the only food served in the restaurant.” Back then, Cui thought that Yiwu was a ‘gold mine’ of business opportunities, and anyone can build a fortune as long as he works hard enough.
As it turned out, the ‘gold mine’ had a bigger surprise for him. At first, he bought 10 to 15 kilograms of preserved vegetables from the Yiwu food market, weighed and packed them, and sold them on Taobao.com. Today, he is the principal of Yiwu Maizhi Trade. The company has 10 employees, with yearly sales of over CNY1 million (USD151,100). “More than 95 percent of preserved vegetables sold on Taobao are from us,” Cui says proudly.
Who said the business in Yiwu is not as good as before? It is still the best place for entrepreneurs.
Unlike Cui, Ye Yongwei had a much smoother journey in Yiwu. Ye made a fortune by selling slippers on Taobao when he was still a student at a local vocational school of business. He started the business as a sophomore and soon became a millionaire. His classmates called him the “king of slippers.” Later on, he opened flagship stores for “Mengna” and several other local brands, and became an online distributor of Pure Fiji, a top body care brand from Fiji.
Fiji’s ambassador to China met with him, and the ‘king of slippers’ became a ‘bridge of friendship’ between China and the Pacific island. After graduation, Ye worked as a business counselor at the school. He is also the founder of an e-commerce course called ‘Yuan Zi Dan,’ which literally means ‘atomic bomb’. He wants to devote most of his time to e-commerce training in future.
Lou Qin has a PhD degree from a US university. His story is very different. He just wanted to be close to his parents and make them happy, which is why he returned to China, he said. His company, Yiwu Science Polymer Materials, is located in the fifth building of Zhejiang 1,000 Talents (Yiwu) Industry Park on Xuefeng West Road, Yiwu. On display in his bright and spacious office are numerous artificial leather and fabric samples, finished Beverly Hills Polo Club shirts, Meiguiyouyue handbags and trolley cases.
Lou previously worked as a senior research and development scientist at a leading US semiconductor firm. Instead of finding a research job in Beijing or Shanghai, he came to Yiwu after returning to China. He decided to start his own artificial leather business. “The gross margin of artificial leather products is very small in Yiwu, but a lot of people are still in this business, meaning that the demand is huge.
“Traditionally artificial leather is treated with oleoresin, which emits large amounts of volatile organic compounds (VOC), and the raw materials are highly combustible and may even explode when they are exposed to static electricity, so most of the products cannot pass environmental and work safety tests. I am trying to solve the problem by replacing oleoresin with waterborne resin. It is a substance that doesn’t produce any VOC in the drying process and is safe to transport and store. I am a specialist in polymer materials. By combining advanced techniques in China and the west, I can make the best of both worlds, and create artificial products that meet the special raw material requirements. That’s it.”
He tested nearly 2,000 formulas in one year and eventually developed a complete waterborne resin leather production system and related application processes. His firm has filed for a number of patents for the invention.
Waterborne resin has not been widely applied in the artificial leather industry. It is mainly because the material is very expensive, and the production efficiency is 70 percent lower relative to oleoresin. In the latter’s case, the organic solvents used have low boiling points and are highly volatile, so the leather surfacing machine can work at a very fast speed. The production output can be as high as 50 meters per minute. By contrast, the production speed with waterborne resin is only about 15 meters a minute. That is why the market for waterborne resin has been very small, especially considering the low gross margin in the market. All major factories now rely on scale and production volume to stay afloat.
“We have made some major changes to the structure of the drying module in surfacing machines, and our waterborne resin surfacing machine can work at a speed of 35 meters per minute, more than doubling the speed of existing systems.” His company is the only Beverly Hills Polo Club supplier in China. Some global fast moving consumer goods (FMCG) brands such as Zara and H&M have become its clients. The firm is currently in talks with Versace and several other leading luxury brands. Dr. Lou hopes that he will be able to introduce his patented technology to other companies in future for free. By spreading the technology, he can make some original contributions to the transformation and upgrade of traditional businesses and the environmental protection campaign in China.
Yiwu is a magnet for young entrepreneurs pursuing their dreams. “Most sellers don’t want to leave Yiwu. All the market resources and competitiveness that they accumulated over the years are here, and they have moved the resources to the cyberspace following the rise of the internet. The place offers a wealth of different types of products as well as fully developed logistics and service systems. This is something that can’t be replicated in other cities, so people still come to Yiwu to find suppliers,” said a market manager at the Yiwu International Trade City.
“It is hard to find such a good window [market] in other Chinese cities. Customer volume is huge here, and people come to Yiwu for one thing -- to buy stuff. The city has thousands of case and bag producers, and they are my clients. Even if my firm only produces fabrics, I have enough business as long as the factories get enough orders, and it saves me a fortune in marketing costs.”
Keeping Is Harder Than Winning
People’s perception of consumption and consumer spending patterns have changed over time. Businessmen in Yiwu are facing more challenges today. They need to adapt themselves to the internet and e-commerce, and learn how to brand and innovate products and analyze market data.
Inside a stall in the fifth section of the Yiwu International Trade City, people are wrapping up Montessori teaching aids. A board at the entrance reads ‘Meng An Ya,’ a brand angled at the domestic market created by Anya, a pseudonym, after taking over the business from her parents.
Montessori teaching aids were developed based on Montessori education, an educational approach invented for children by Italian educator Dr. Maria Montessori. “My father had been doing this business for over 10 years. In the past, most of the products were exported, but I took it over and realigned the sales channels with the domestic market.”
However, selling on the domestic market is not as easy as it looks. Montessori education first appeared in the west, and most of the products are available in English. Chinese versions have been created, but the number of these products is very limited. Selling the foreign education course on the domestic market requires that the teaching aids be adapted to the needs of Chinese consumers, and this is a gap in the market that needs to be filled.
“A few days ago, I attended a class taught by a Taiwanese professor who first brought Montessori education to the island. Montessori education has developed much faster in Taiwan than on the Chinese mainland.” Anya could not conceal her excitement and demonstrated for us what she learnt from the professor -- teaching children English words using three cards. The innovative method makes learning new words much easier for kids. “In addition to product quality and conformity, the actual results of Montessori education depend on how the teaching aids are used. Different teaching methods affect learning differently. The teachers also need to word instructions carefully to make them easy for children to understand.”
Anya, now an expert at Montessori education, got on her hobby-horse and kept talking about the Montessori’s education philosophy and key points that merit special attention in using the teaching aids. She is working on flash cards for Chinese characters. “[I] will send the language teaching aids to the professor once they’re done. We now partner with many nurseries, and ask the teachers for feedback. They use these tools on a daily basis and know what needs to be improved. Then we’ll continuously improve the products based on their feedback. It’s a virtuous circle. I can enhance my products, and the teachers can achieve better results with the tools.”
Apart from product development, Anya is actively promoting her business in the e-commerce market. She has set up stores on Taobao.com and Alibaba and plans to open a store on Amazon in future.
The first generation of Yiwu’s businessmen adopted a marketing strategy relying on production volume and low margins. Today, however, the ‘policy dividends’ have disappeared, and consumers have growing demand for high quality products, posing unprecedented challenges to local businesses.
In response to the new market trends, Bao Shaohua created his own brown sugar brand ‘Bao Pang Zi’ in 2015. He runs the brand independently from the family business that his parents developed. While inheriting traditional techniques, Bao kept optimizing the products by studying dark sugar production from Taiwan and testing various new formulas. He managed to improve both the flavor and shape of brown sugar. ‘Bao Pang Zi,’ as he put it, is the pathfinder for the family business ‘Haotian.’ “It has a fully developed business model, and it would be very risky to change it. What I’m doing now is to test the water, and I’ll bring the new methods to Haotian if it works.”
Most brown sugar products produced in Yiwu cannot be sold in large supermarkets, because they do not have any quality system (QS) certificates. The situation has changed since the recent introduction of two industry standards dubbed ‘Yiwu Brown Sugar’ and ‘Yiwu Brown Sugar Processing Technical Specifications.’ The local specialty may reach the national market in future. Bao Pang Zi and Haotian will have more opportunities and a bigger market, but they will also face more challenges.
Chen Lili, 23, also inherited a family business from her parents. In her case, the transition toward e-commerce has been much easier. After majoring in business management, she took over the slipper business and successfully launched it on the internet, combining offline resources with online sales. “There’s a promotion campaign on Ping Duo Duo, an e-commerce marketplace. We marked down a pair of slippers and sold it on the site for 9.9 yuan. We’ve been selling about 8,000 pairs every day, and didn’t have the time to replenish the stock.” Integrating online and offline channels is a good way to reduce risks, she believes. “We got 100,000 orders on a single day during the Yiwu trade fair held in section number four this year. Sales at the company more than doubled in the summer thanks to the fruitful participation in the trade fair, patronage of regular customers and a booming e-commerce market.”
‘New policies to attract talents from all around the world’
Many cities in China have introduced incentives to attract qualified professionals. Yiwu has also adapted its human resources policies to drive market and business transformation and entrepreneur and innovation platform development. In June, the city rolled out some bold measures revolving around the creation of the best ecosystem for high-end professionals, in an effort to meet the needs of economic development and eliminate ‘weak links’ in local human resource supplies. “We’re determined to get the best people by hook or by crook,” said Zhu Deyou, deputy head at the local human resources and social security bureau.
Dr. Lou was surprised by the incentives that Yiwu offers to attract people. “My R&D center in the industry park is provided by the government for free, and we only pay the utility bills and property service fees. We can use all the facilities in the park, including those provided by the Lanzhou Institute of Chemical Physics, Chinese Academy of Sciences, which normally cost several millions of yuan. The government gave us ‘innovation vouchers,’ and we use them to reimburse the cost of using the equipment, so we don’t need to spend millions of yuan to buy these facilities.
“Furthermore, if a firm is recognized as an R&D center or as a small tech enterprise by the Yiwu government, it can apply for R&D subsidies and tax incentives ranging from tens of thousands of yuan to over a million yuan, depending on the size of the enterprise. Large projects can receive subsidies and incentives of a higher value on a case-by-case basis.”
The city introduced the Zhejiang ‘1,000 Talents’ Yiwu Industry Park program to create a platform for a diverse range of enterprises and innovative businesses. The park offers public laboratories and R&D platforms to facilitate entrepreneurial initiatives.
Yiwu also rolled out unprecedented policies to encourage university graduates to start up their own businesses. Preserved vegetables are a seasonal business, and Cui Wanyi needed to stockpile large quantities of raw materials in advance. After the government introduced preferential policies for college graduates, he applied for a startup loan in 2016 to replenish working capital. “I got a 30-year interest-free loan of 300,000 yuan in 15 days, and the money was paid directly into my bank account.” The government provides ‘one-stop’ service for eligible applicants seeking to set up their own businesses.
Apart from business incubation, Yiwu also offers a comprehensive range of favorable policies to attract qualified professionals from other parts of the country and the world. The aim is to free them from worries about housing, school admission for their children and employment for their spouses.
“We will bring high-end professionals from other parts of China and the world with the best environment, best services and best policies. Yiwu will act as a magnet for talents across the world,” Zhu Deyou noted, quoting remarks by the city’s party committee secretary Sheng Qiuping.