——Case Studies on SMEs in Ningbo and Wenzhou Cities

By Gong Sen & Wang Liejun, Research Department of Social Development of DRC

Research Report No 020, 2009

From November 7 to 10 and from November 28 to December 1, 2008, we conducted, through various channels, some surveys and made case studies on the operations, adjustments and labor law enforcement of some small and medium enterprises (SMEs) in the two cities of Ningbo and Wenzhou, Zhejiang Province over the past year when social and economic conditions experienced major changes. In Ningbo, we made surveys on five SMEs in a county-level city (see table 1 for detailed information about their production and operation). The five SMEs were distributed in the sectors of home supplies, plastic products, auto parts, safety equipment, motors and steel structures. Their annual business turnover ranged between 10~30 million yuan and their employment between a dozen to about 200 people. Two of these enterprises were labor-intensive, and four were export-oriented. In Wenzhou, we made surveys on six SMEs (see table 2 for detailed information about their production and operation) and held discussions with over 10 other enterprises. The six enterprises were distributed in the sectors of spectacles, footwear, clothes, parts for motorcycles and electric bicycles, and electrics. Their annual business turnover ranged between 10~70 million yuan and their employment between over 60 to 800 people. While five of them were labor-intensive, two were export-oriented. The following are our main findings and policy suggestions.

I. Most Enterprises Experienced Operational Downturn But Maintained Self-Rescue Ability and Methods

1. Most enterprises and especially export-oriented ones reported visible year-on-year slide in production and operation

Compared with the previous year, four of the five enterprises in Ningbo saw their sales or orders dropping visibly in 2008. The fall ranged between 20%~50%. While one enterprise producing export-oriented home supplies suffered a fall of over 50%, a workshop-type enterprise saw its toy orders being completely cancelled. In terms of employment, three enterprises cut by 20%~60%, and the other two reported no significant changes.

Table 1 Production and Operations of Surveyed Enterprises in Ningbo

	Enterprise1	Enterprise2	Enterprise3	Enterprise4	Enterprise5
Products & markets	Mosquito nets & cushions: Europe & America; energy-saving lights: beginning in 2007 and for domestic market	Toys & small construction tools: foreign market; road dividers: domestic market	Auto parts: 90% for foreign market; safe deposit boxes: 70% for foreign market	Construction steel structures: domestic market	Roller blinds & tube-shaped motors: Europe & America
Sales in 2008 (in 10,000 yuan)	1000~2000	About 500	10000	Over 3000	1000
Gross profit rate in 2008	About 8%	Tools: 8% Road dividers: 20%	30%~50%	10%	40%
Employees	About 65	13	About 220	Over 20	Over 30
Monthly wage (yuan)	1200~1300	1200~1300	1200~1300	1200~1300	920~1400
Ratio of labor cost	20%~30%	About 20%	8%	5%~6%	5%
Changes of sales or orders	Over -50%	Toys: cancelled; Others: increased	Auto parts: -40% Safe deposit boxes: drastically increased	No significant change	-20%
Changes of gross profit rate	-50%	-20%	No significant change	No significant change	-20%
Changes of employment	-60%	-20%	-30%	No significant change	No significant change

Note: Changes to orders, gross profit rate and employment are relative to their 2007 figures.

None of the six enterprises in Wenzhou expected a fall in their 2008 sales. But their performance in November 2008 indicates that half of these enterprises reported a 10% drop in their orders and none of them reported significant changes or increase. Three of them expected a slight drop in their annual gross profit rate, ranging between 2~4 percentage points. Three enterprises saw their employment decreased by 10~20%, with the other three reporting no changes.

Of the 11 surveyed enterprises in the two places, six were export-oriented. Compared with 2007, two saw their profit rates dropping by about 10 percentage points and two reported a 2~4 percentage point dip. Besides, these four enterprises also saw their orders being affected, though in different degrees.

Table 2 Production & Operations of Surveyed Enterprises in Wenzhou

	Enterprise6	Enterprise7	Enterprise8	Enterprise9	Enterprise10	Enterprise11
Products & markets	Spectacles: 50% for Europe,America&Japan; 30% for emerging markets; 20% for domestic market	Footwear: Europe,America& emerging markets	Direct, chain-based operation of private brand clothes: domestic market	Parts for motorcycles and electric bicycles: 30% for foreign market indirectly and 70% for domestic market	ACfrequency converterfor industrial equipment: domestic market	Private- brand women’s shoes: domestic market
Sales in 2008 (in 10,000 yuan)	About 7000	NA	NA	3000	3000	1000
Gross profit rate in 2008	Close to 10%	5%~8%	20%~30%	About 20%	20%~30%	Under 20%
Employees	Over 800	Over 100	5000~6000	200	Over 60	200~300
Monthly wage (yuan)	About 1200, plus welfare benefit	1300~1400	About 1400	1500~1600	About 2500, plus bonus	About 1500, plus bonus
Ratio of labor cost	20%~30%	20%	About 20%	About 15%	Not high	About 20%
Changes of sales or orders	Up 10% for whole year	No significant change	Slightly increased for whole year, but dropping since September	No significant change for whole year	Up 35% for whole year, but dropping since October	(Newly-built factory)
Changes of gross profit rate	-30%	-30%	Slightly dipped	Slightly increased	No significant change	To promote brand and control profit
Changes of employment	-12%	-20%	No significant change	No significant change	About -10%	No layoff for the year

Note: Changes to orders, gross profit rate and employment are relative to their 2007 figures, while NA means data are not available.

The conditions of the five domestic-oriented enterprises were fairly good. Enterprise 9 and Enterprise 11 reported increase in their production and operations, with the former posting a slight profit growth and being prepared to expand production and the latter posting a profit of over 10% since it began operation in the same year. Besides, Enterprise 4 saw its operation in the first 10 months being largely at the same level with the previous year. Although Enterprise 10 saw its sales beginning to be affected in October 2008 and declining 30% in November, its sales and profit by the end of November exceeded the levels of the previous year. Of the domestic-oriented enterprises, Enterprise 8 was the most-affected, with its sales beginning to drop in September 2008 and its gross profit rate being slightly lower than in the previous year. Of the 10 plus enterprises participating in discussions, one coal trading company failed to sell a single ton of coal in three months from September to November and the owner of one steel structure company was prepared to hide himself from the dunners at the end of the year.

2. Most enterprises are fully confident while some make complaints

Enterprise 9 was the most confident one. Its owner believed that at present, both the central authorities and the regional governments were paying high attention to the issue of economic downturn and that once attention was focused on some relevant issues, solutions were bound to be found and solutions would outnumber difficulties. He predicted that the auto parts sector would recover between March and June 2009. Similar to Enterprise 9, Enterprise 10 was also full of confidence. Its owner said one should consider why other people could make money, instead of complaining about the crisis. Enterprises 9 and 10 also showed their confidence with actions. Not long ago, they all bought new machines and equipment. Besides, Enterprise 9 also took advantage of the crisis and recruited lots of technical experts. Enterprise 6 also employed some key technical personnel from bankrupt enterprises.

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