GBA Brief

How Dongguan hopes to get closer to customers

Dongguan is no stranger to serving overseas markets. But the majority of the goods it makes are sold under someone else’s logo. It hopes that cross-border e-commerce will get its firms closer to consumers.

Dongguan’s factories have traditionally focused on two main types of contract manufacturing. Original equipment manufacturers, or OEMs, make parts and products that are sold by others, with the client providing the specifications. In original design manufacturing, or ODM, the specs come from the factory itself. The client has less say in how the product is designed and made.

In both cases the manufacturers have minimal contact with the final customer and they don’t develop consumer-facing brands of their own. As a result there are few well-known names on Dongguan’s company roster: BBK Electronics, one of its biggest businesses, ships millions of smartphones every year but they are sold under the brands of others.

The problem is that margins from selling own-brand products are at least a fifth higher, so Dongguan is missing out on higher profits. The city’s manufacturers now want to cut out more of their middleman clients and reach final customers themselves. And this is where cross-border e-commerce – online sales to customers in international markets – comes into the picture. 

Compared to almost Rmb800 billion in total exports from Dongguan last year, the sector is still in its infancy. Sales were Rmb37 billion in 2018, although that was more than double the year before. The plan is to grow them faster and Dongguan is one of 22 cities designated at national level as pilot zones for cross-border business. Local government hammered out its own master plan this summer for 20% growth a year to 2025 and the city aims to help half of its manufacturers tap into online consumers worldwide.

Local officials are setting up dedicated e-commerce parks that offer streamlined customs clearing and speedier logistics. They have organised trade shows overseas and set up funds to help local enterprises invest in warehousing and showrooms to support their sales activities. But to make the leap from contract manufacturing to consumer-facing operations, other key changes need to be made. Dongguan’s factories have not had to run marketing campaigns or manage inventories. To sell directly to customers overseas they need to keep closer tabs on market trends and adapt to shifts in consumer tastes. They have to make sales across different e-commerce platforms and arrange for deliveries and other customer services. 

Seeing the opportunity, e-commerce experts have been setting up offices to help the manufacturers master the learning curve. Reportedly there are now more than 10,000 cross-border firms doing that in Dongguan. Alibaba – which bought Kaola from NetEase in September in a bid to beef up its cross-border sales further – has just signed an agreement with the city’s bureau of commerce to promote the C2M (customer to manufacturer) model, focusing on brand building, IP protection and digitalisation. The Hangzhou-based giant is also building a huge warehouse in the Dongguan district of Shatian in expectation of more sales through its international sites, especially in 3C electronics and apparel. Other firms like, Pinduoduo and Yunji are coming to Dongguan as well, making it easier for factories to find partners for anything from running their e-shops to building brand awareness in new markets. Keep an eye on the figures for e-commerce exports for how well they are faring.