Since the beginning of this year, domestic e-commerce platforms have generally sparked a price war. In an environment of declining consumption, low prices are more likely to attract consumers, but for businesses, it is a different scene.
Interface News reporters recently visited the steel office furniture industry belt located in Luoyang, Henan Province, and the heads of several factories undergoing e-commerce transformation gave their opinions.
One of the factories is currently operating on multiple domestic e-commerce platforms such as Taobao and Pinduoduo, as well as opening stores on cross-border e-commerce platforms such as Amazon. Due to the different competitive environments in different markets, they also feel many differences. The person in charge of this factory told Interface News that domestic e-commerce merchants mainly compete around “low prices”, and this competitive environment is based on the platform’s insufficient emphasis on protecting knowledge products.
The person in charge gave an example that after their factory store launched a newly developed product, a large number of imitations quickly appeared on the platform. These imitations can lower prices and also force their own products to lower prices.
“Everyone blindly promotes low prices, resulting in extremely compressed profit margins for businesses. Factories lack the ability to invest in innovation in brands and products, making it difficult to truly achieve brand transformation,” he said.
At present, with the decline of traditional foreign trade business, OEM factories in multiple fields such as clothing, furniture, and daily necessities in China are facing similar problems in the process of transitioning to e-commerce. Due to overcapacity, the platform’s operational strategy is more inclined towards pleasing consumers, and there is a hidden rule in the operation of merchants: you are unwilling to do it, some people are willing to do it. But behind this “either you or him” mentality, there are also some crises lurking, and in the long run, it will always be consumers who suffer.
The popularity of this awareness is directly related to the current situation of OEM factories, and the Luoyang Shuangbin Office Furniture Company visited by Interface News is a typical representative of it.
Previously, Shuangbin mainly engaged in traditional foreign trade business, outsourcing the production of steel office furniture. It has been very difficult to do business since a few years ago, factories do not have their own brands, product development capabilities are also average, and it is necessary to reach consumers through a three-level distributor network, making it difficult to directly grasp market and consumer information.
Around 2020, this factory decided to transform towards branding and e-commerce, but the question before them was whether to lower prices. After operating for a period of time, they realized that blindly offering low prices did not help the factory overcome its difficult situation, and in the end, it could lead to a vicious cycle of reducing product quality for the sake of low prices.
In the view of Zhao Liang, Secretary General of Zhengzhou E-commerce Association, OEM factories, whether transforming into domestic e-commerce or cross-border e-commerce, must adhere to differentiation and branding in order to ultimately bring value.
But OEM factories, which are already facing many difficulties, need a more favorable competitive environment to complete their value transformation.
In the difficult period of transformation, Shuangbin ultimately chose to break free from the dilemma of homogeneous competition and low price competition through branding and original product design and research and development. Yao Ting, Deputy General Manager of Shuangbin, said that in this process, the most important thing for merchants is to find a more inclusive market. There is no cross-border e-commerce platform like China that provides them with opportunities due to excessive internal competition.
Yao Ting told Interface News that before starting cross-border e-commerce in 2021, Shuangbin had never applied for a patent, but in recent years, it has applied for dozens of patents. Due to better protection of intellectual property rights, the factory has also collaborated with foreign designers this year, and the newly designed products are expected to arrive in the warehouse in July.
Another factory, Xingdu, is seeking differentiated competition based on its own characteristics and advantages. In the Luoyang steel furniture industry belt, most factories started with steel storage cabinets, and their products are similar. After the transformation, Xingdu mainly focuses on strong security steel furniture such as safes, trying to find a breakthrough point.
This transformation also requires a good competitive environment and sufficient profit margins. Before the transformation, many factories still adopted a production to sales model, where they sold whatever they produced without considering the true needs of customers. But after the transformation, they put more resources and energy into exploring user needs and redesigning products. If the price of a single roll is low, the factory basically has no ability to invest in these two aspects.
Mao Xiangnan, Deputy General Manager of Xingdu, said that betting on the safe has also been a bold attempt in recent years.
“Three to five years ago, consumers generally used to buy safes to store valuable items, but after joining Amazon, we learned from consumers that safes gradually became more focused on storage scenarios, so we conducted new product research and development.” Mao Xiangnan said.
The new product developed by Xingdu has received positive feedback from the market and currently has a significant advantage in Amazon’s related categories. In Mao Xiangnan’s view, the transformation of OEM factories cannot simply follow suit just because they see which product sells well in the market. It takes three to four months from product development to receiving user feedback and then to large-scale production, and sometimes the dividend period of a product just passes. The factory needs to improve its research and development capabilities to become that “gust of wind” and change the market situation.
Various attempts have also made positive progress in the transformation of the Luoyang steel furniture industry belt. According to Amazon’s data, the sales of Luoyang steel furniture industry belt on the platform have accounted for 80% of the national market share, breaking the stereotype that the industry belt is concentrated in the East and South China regions in public awareness.
“It’s not that our products don’t work, but we need a more suitable competitive environment. Only when the competitive environment becomes better can research and development have sustainability, vitality, and go further.” Hu Yunliang, Chairman of Kefeiya, told Interface News that although the path of independent innovation is difficult, it cannot stop.
Kefeiya has designed many good products before, but due to the small number of customers, the factory has encountered many problems in production efficiency and quality control. After joining the cross-border e-commerce platform last year, they resold many products designed five years ago and achieved very good results.
After opening up the market through original design products, the company also has a new direction: expanding steel office furniture from office scenes to home scenes. In the exhibition hall of the Kefeiya factory, Interface News reporters saw that the design style of its home scene products is more in line with the modern minimalist style that young people like, while emphasizing zero formaldehyde.
With the support of product design capabilities, these OEM factories are rapidly improving their market competitiveness. Interface News learned from Amazon that the proportion of brand owners and factories in Amazon is continuously increasing, especially among the top 100 sellers, where the proportion of factories is constantly increasing.
With sufficient profits, Kefeiya plans to invest more funds in infrastructure construction. According to Hu Yunliang’s plan, Kefeiya will also build a 100 acre intelligent factory that meets the standards suitable for young people’s lives and entertainment, attracting more high-end talents to the factory.
The heads of several factories visited by Interface News also expressed the hope that domestic e-commerce platforms can gradually move towards respecting and protecting the intellectual property rights of merchants. Only when merchants have greater profit margins can they have the ability to develop new products.