A dominant position in global exports has allowed more than 2,000
companies to establish themselves in cashmere manufacturing in China, but the
industry is seeking to shift from reliance on exports to greater emphasis on
domestic sales.
The Erdos Group, the top cashmere manufacturer in China, has reduced its
original export plan from 4.5 million garments to 2.5 million this year. It will
invest 800 million yuan (almost 118 million U.S. dollars) in the domestic market
over five years to set up 100 flagship shops.
Xinjiang Tianshan Wool Tex Stock Co., Ltd. for the first time combined its
international and domestic order fairs into one event and held it in Urumqi,
capital of Xinjiang Autonomous Region, hoping to boost domestic sales to equal
its exports.
The industry is shifting focus because of a paradox. It's ramped up
production capacity and dominates the world market, but it has a weak position
in negotiating prices with foreign dealers.
China supplies more than 75 percent of the world's cashmere and90 percent of
the high-quality goat cashmere, according to the China Chamber of Commerce for
Import and Export of Foodstuffs, Native Produce & Animal By-Products.
After more than 20 years of development, China's cashmere production and
manufacturing system can turn out 40 million items annually. Last year, it
exported 20.37 million cashmere garments, worth 623 million U.S. dollars.
The country has shifted from a major exporter of cashmere raw material to a
production base for finished products, Bian Zhenhu, vice-president of the
Chamber, told a summit of major cashmere makers in July.
But many entrepreneurs found that being dominant in resources as well as
manufacturing didn't translate into a strong position in the international
market.
The value of the expensive material, dubbed "soft gold," has not been
reflected in export prices. The average export price of a cashmere garment was
only 30.58 U.S. dollars in 2007. A stronger Chinese currency helped push the
average price up to 32.5 U.S. dollars in the early months of this year.
Erdos Group sold 4.6 million cashmere garments last year with export revenue
of 1.1 billion yuan -- but a profit of only 10 million yuan.
Compared with the global market, the domestic market is looking better to the
industry.
"The profit margin is less than 10 percent in the export-oriented processing
trade but could be kept at about 40 percent to 50 percent for domestic sales,"
said Chen Tao, chairman of Beijing Snow-Lotus Cashmere Co., Ltd.
"A simple calculation shows that a cashmere garment sold in the domestic
market would bring the manufacturer a profit four times larger than if
exported," said Chen.
However, analysts said the domestic market might not be large enough to take
up all the products that would once have been exported. And inflation has
undercut many consumers' willingness to buy expensive luxury goods.
Domestic sales of cashmere and wool sweaters rose only 4.3 percent during the
first four months of this year, while garment sales generally grew 15.2 percent.
The industry must shift from quantity to a strategic emphasis on higher
value-added and branding, and many companies have already done so, said Bian.
The industry would only achieve stable growth with strong brand
identities.