China Climbs Guitar Value Chain: OEM player to focus on premium market, ramp-up own brands
Updated 13:40, 25-May-2019
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Three-quarters of the world's guitars come from China. Of this, Zheng'an County in Guizhou province makes up about a fifth of the nation's output. But it's not just about quantity going forward. Guitar makers there are determined to carve out a name for themselves on the global stage. CGTN's Wei Lynn Tang explores.
Driving into Zheng'an in China's southwestern Guizhou province, no points for guessing what breathes soul into the county, which is home to one third of China's guitar exports.
The largest producer in this industrial park, Zunyi Shenqu, makes guitars for 6 of the 10 global brands.
90 percent of its sales are now geared towards original equipment manufacturing, or OEM. Its own brand only accounts for less than 10 percent of sales. But this is about to change.
ZHENG CHUANJIU, CHAIRMAN ZUNYI SHENQU MUSICAL INSTRUMENTS MANUFACTURING "It's been two years since we started our own brand of guitars. In the next 5 years, we plan to have our independent brands contribute up to half of our production volume, while reducing that of OEM orders. Targeting the medium to higher-end market - that's our plan."
WEI LYNN TANG ZHENG'AN COUNTY, GUIZHOU PROVINCE "For perspective, this company can make net profit margins of 10 to 15 percent from its original equipment manufacturing segment. But, by producing its own brands, net margins can double up to 30 and even 40 percent. And this increase in earnings can be ploughed back into researching and developing higher value products as well as compensating its staff workers."
This is why Zheng is unperturbed on labour costs, which have been increasing at about 10 percent per year.
That, and the 25 percent tariffs imposed on exports to the United States as a result of the ongoing trade dispute. Exports to the US make up 20 percent of the company's total sales.
ZHENG CHUANJIU, CHAIRMAN ZUNYI SHENQU MUSICAL INSTRUMENTS MANUFACTURING "If our US clients are willing to take on a bulk of this tariff, we will accept the order. If not, we won't as we can choose to take on other orders. As long as we continue to make quality goods, we will have a place in the market to operate."
In 2018, Zunyi Shenqu produced 600-thousand guitars and raked in 310 million yuan in revenue.
The company is optimistic about future demand, especially that from the local front.
ZHENG CHUANJIU, CHAIRMAN ZUNYI SHENQU MUSICAL INSTRUMENTS MANUFACTURING "In the past, it was about meeting one's basic needs like food and clothing, but now it's more on spiritual civilization. Many parents are willing to send their kids for music and dance classes, while many schools have guitar courses, enabling more to learn. Demand for our products exceeds our supply."
And Zheng'an County as a whole plans to ramp-up this supply.
MENG XI, DEPUTY SECRETARY PARTY WORKING COMMITTEE, ZHENG'AN ECONOMIC DEVELOPMENT ZONE "We plan to increase our guitar production from 6 million now to 20 million by 2035, accounting for two thirds of China's volume and half of global output. We must also attract world-renowned production masters to Zheng'an, to enhance our quality and image."
Meanwhile, the way forward for Zheng is clear: to continue upping the ante and to make a mark of its own on the global stage. WLT, CGTN, Zheng'an County in Guizhou province.