Chinese firms lower output to survive market crunch

By Meng Na and Wang Pan, Xinhua,

Foshan (China) : Thousands of workers in south China’s Guangdong Real Faith Enterprises Group Co. have been living a more relaxed life lately, working strictly 40 hours a week.

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That is not because they have suddenly become lazy. It is because the board chairman, Liang Fengyi, has cut overtime amid slumping orders. It is part of a three-pronged survival strategy, which also includes conserving cash and restructuring.

“In the past, workers seldom put in only 40 hours a week. They always worked extra time, as there were too many orders, and I had to pay more wages for their extra work,” said Liang.

During the past several months, the company’s orders have dropped 30 percent because of the global financial crisis.

“So I had to find solutions to survive. In normal times, the workload for managers and workers at my company was quite heavy, since we had to do our utmost to compete with our rivals. Now we can have some leisure.”

It might not have been exactly the kind of leisure the company would have liked, but it is one of those things Chinese companies are doing to survive the global market downturn.

Guangdong Real Faith is a private company in the Nanhai District, in Guangdong province, China’s economic powerhouse. It makes a variety of products, ranging from electronics to metal products and lamps.

Liang’s decision made life easier for workers and lowered costs. But she has more confidence in the value of conserving cash and avoiding debt.

“In fact, my company spent more than a year developing high-quality LED lamps and originally planned large-scale production in the second half of 2008,” Liang said.

An LED lamp uses light-emitting diodes (LEDs) as the source of light, rather than the electrical filaments used in arc lamps such as fluorescent lamps. LED lamps have a huge domestic market and foreign potential, as they are energy-saving and environment-friendly.

“But I have to be careful and curb my wishes to expand production at such a tricky time,” Liang said.

“To avoid the risks of financial turmoil, private enterprises should ensure a safe capital chain,” she explained.

Liang’s strategy is typical of private companies in the Pearl River Delta. Experts said domestic private enterprises are less affected by global financial and market conditions than overseas-funded ones, because they are more likely to expand using internal funds rather than loans.

The third important strategy for Liang’s company is anticipating market changes and modernizing its industrial structure ahead of time.

“In 2006, I decided to exit from the footwear and furniture industries, because we did not have our own brands. We just produced on behalf of other companies and profit margins kept shrinking. I expected that I would start losing money if I didn’t change the company set-up,” Liang said.

Real Faith has since shifted focus to developing and producing its own high-tech products.

“At the time I closed my footwear and furniture factories, these two facilities still generated annual profits of up to 100 million yuan. To close them was a painful decision,” Liang said.

“But I feel vindicated. I was able to restructure my company in advance of the financial crisis. My products have become more competitive and my company has a safe capital chain,” Liang said. “I am fully confident that my company will survive the financial crisis.”