• 2006-10-16

    industry dirty-little-secrets

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    http://www.blogbus.com/danecao-logs/3592962.html

    Now that I've been officially working for a generator manufacturer here in Shenzhen for a few days,after a couple of training sessions,as an insider,I now have a clearer picture of this industry and have also accumulated a number of tip-offs that offer you a rarfied glimpse into an industry you barely know much about.

    Here goes:

    Tip-off 1,this industry is blessed with fat margin of profits.They buy brand-name engines which is the core for any generator(because they often procure them from Joint ventures set up by world-famous engine producers here in China,such as Dongfeng-Cummins in Hubei province,they can get them at a "localized" price which is much lower than that in many other countries) ,reassemble,repolish,repackage them in their own assembly yard,affix their own brand,and then resell them at a much higher price.The profit margin is rarely seen in China manufacturing sector.The owner of the factory I work in is a primary school drop-out and he came to Shenzhen at the still tender age of 14.He now have a factory of his own manufacturing generators which have a turnover of over 100,000,000 RMB a year.He is only in his late 20s.See my point?Absolutely low-tech,definitely high-margin.

    Tip-off 2: The competition with this industry is deadly cutthroat.This tip-off is directly connected with,or shall we say,caused by the first tip-off.Apparently the competition could easily reach fever pitch if the barrier to entry is extremely low,which is exactly the case for this industry.You don't have to have your own R&D team and allocate a big chunk of your profit to research,all you need to do is to buy at competitive price and market at competitive price and see if the margin is fat enough for you.Such a fool-proof business opportunity soon attracts attention and renders a once lucrative industry overcrowded.

    The immediate consequences of this overcrowding is that the law of "survival of the fittest" soon kicks in.The infirm,the new comer,the lame would all be crowded out of the market by their mega rivals.These industry giants in turn grab the bigger market share and maintain their grip on the securer prospect of permanently enjoying fat profit margin.

    As an interesting anecdote,my boss once lamented that he would not dare to vigorously conduct too aggressive a publicity campaign,which is urgently needed for a "brand is all" industry,for fear that bigger competitors would turn predatory and destroy his business.He said he chose begrudgingly to lie low and wait.

    Tip-off 3: Brand loyalty is very powerful in this industry.This is an industry where once you bought a product of one brand,if there's no big configuration flaw,you would stick with the brand for the rest of your purchasing mission.This is the factor responsible for the strange cycle seen in this industry- if you secure more orders,you will secure yet more in the future;If you fail to secure any order at the beginning,unfortunately this adverse situation will most likely hold for longer time.

    The reason for this is obvious:Generators are among big-ticket items.Even the smallest one costs thousands of dollars.And the most possible buyers are from countries which have not a normally functioning power provision system,which is to say,most of them are poor or third-world countries,such as Bangladesh,India,and Nigeria etc.They buy from China for only one reason: affordability.For them the best deal shall have the best value for money.Before they place any order,They have to be absolutely sure that the products they buy is the best products from the most reliable suppliers.In other words,they can't afford to allow themselves too many choices.That's too much risk,They'd rather stick with the brand they once did business with and know these brands are at least reliable,if their products are not the best.Their economic constraint effectively diminishes their power to SHOP AROUND.Better safe than sorry is their guiding purchase policy.

    You have to understand them.

    Above are the tip-offs I've accumulated so far about the generator industry.This is by no means an exhaustive list of the whole industry dirty-little-secrets.If only it could inform and guide as it is intended,I will be greatly satisfied.

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  • no problem.
  • OH,so we've been cheated all along.very helpful expose,Dane.very helpful