Archives February 2015

Amway sales dip in largest market

An outlet of Amway Corp in Yichang, Hubei province. The company’s revenues fell 8 precent to $10.8 billion in 2014.

Amway Corp, the world’s largest direct sales company, announced its revenues fell 8 percent to $10.8 billion in 2014 due to a dip in Chinese mainland sales and fluctuations in currency exchange rates.

A survey by China Knowledge Economy’s Direct Selling magazine found that Amway’s revenue in the Chinese mainland decreased from 29.3 billion yuan ($4.72 billion) in 2013 to 28.7 billion yuan last year, but the Chinese mainland still remained the company’s biggest market.

It is the first decline for the Amway in the Chinese mainland after growth rates hit 27 percent over the previous five years and 45 percent for the decade, according to company reports.

“Sales in 2014 reflect the significant efforts by Amway business owners and employees who continue to do well around the world despite challenging operating environments found in several nations that are major markets,” said Amway Chairman Steve Van Andel.

“We continue to see great strength globally as select markets hit record sales numbers and others show resilience that point to strong results in 2015,” he said.

Some of the company’s most-mature markets, including South Korea and Taiwan, registered strong growth in 2014. Sales in Brazil, Mexico, Argentina, Costa Rica, Guatemala, Chile, Panama, Italy and Spain saw double-digit growth, while markets influenced by political unrest and economic slowdowns?Russia, Thailand and Ukraine?showed resilience and produced solid results, according to the company.

Amway’s top 10 markets in 2014 were the Chinese mainland, South Korea, Japan, the United States, Thailand, Russia, Taiwan, India, Malaysia and Ukraine.

The company’s sales were concentrated in nutrition, beauty, durables and home care, with nutrition products continuing to lead the way, accounting for 43 percent of direct sales revenue.

Beauty products contributed 25 percent, followed by durable products at 19 percent and home care products at 8 percent.

Amway President Doug DeVos said the company is optimistic and well-positioned for growth in 2015 and beyond as it opens five new manufacturing facilities, many new Amway experience centers and improves the online experience.

According to Direct Selling magazine’s survey at the end of January, 49 companies had direct sales permits on the Chinese mainland and 46 were operational. Together they generated 159.91 billion yuan in total sales, a 24.3 percent increase over 2013.

The increase shows steady progress in the direct sales industry in the country, said the survey, as domestic companies catch up with foreign peers.

Following Amway, Malaysia-based Perfect China Co Ltd ranked No 2 in China with 28 percent growth in sales to 22.3 billion yuan last year. Herbal health product maker Infinitus China Co Ltd soared 37.5 percent on sales of 16.5 billion yuan. Revenues for skin care and nutrition product maker Nu Skin declined from 6.4 billion yuan in 2013 to 4.4 billion last year.

Property developers’ sales revenue slumps in Jan

Shanghai-listed property developer Gemdale Corp announced over the weekend its sales volume fell by 19.8 percent year-on-year in January, making it the latest of a long list of developers which reported declining sales performance in the first month of 2015.

Gemdale Corp said Friday in a statement posted on the Shanghai Stock Exchange that its transaction area fell by 8.6 percent in January from a year earlier, while sales revenue also decreased by 19.8 percent year-on-year.

The announcement came after statistics showed that the total sales revenue of China’s 10 leading property developers, including Vanke Co and Poly Real Estate Group Co, fell by 5 percent year-on-year in January and decreased by 58.4 percent from the previous month, according to a report from news portal caixin.com released on Thursday.

Vanke Co, the country’s second-biggest developer by sales, registered sales revenue of 23.2 billion yuan ($3.7 billion) in January, falling by 16.1 percent year-on-year.

The slump in transaction areas and sales revenue in January is due to strong purchases from consumers in December under preferential home prices, which reduced the demand for housing in January, Liu Yuan, a senior research director at real estate consultancy Centaline Group in Shanghai, told the Global Times on Sunday.

Most of China’s property developers experienced a hard time last year amid a slowing economy and offered price concessions in December in order to reduce the inventory pressure facing their companies, Liu said.

“According to our statistics, transaction areas in 40 major Chinese cities dropped nearly 30 percent in January from a month earlier, but the slump is temporary,” Liu said.

The transaction areas and sales revenue are both expected to rebound slightly this year following a raft of forecasted loosening measures such as a potential interest rate cut, which will help to reduce the financing costs of housing loans, Zhang Xu, an analyst with Homelink Real Estate Agency in Beijing, told the Global Times on Sunday.

Xiaomi aims to bite Apple on its turf

Xiaomi Corp will initially start small by selling products like smart wristbands and mobile power chargers when it opens an online store in the United States, the Beijing-based company said yesterday.

The store marks the first step for the start-up Chinese smartphone vendor to penetrate the US market, and key products like smartphones and tablets won’t be sold initially, said Xiaomi.

The new US online store, called Mi.com, will sell products such as bands, chargers and headphones, Xiaomi said at its first press conference in the US yesterday.

“We will bring more exciting software and hardware products to more consumers in overseas markets,” Lin Bin, Xiaomi’s president, said in a statement.

Xiaomi currently sells its products in China and seven other markets, including Singapore and India.

By the third quarter of last year, it ranked the No. 1 smartphone vendor in the Chinese market, the world’s biggest.

Xiaomi yesterday also said that a total of 100 million users globally are using its MIUI operating system.

Xiaomi expects to sell 100 million phones this year after it sold 61.1 million units last year, a 227 percent jump from 2013, beating its annual target of 60 million units.

In 2014, Xiaomi’s revenue surged 135 percent to 74.3 billion yuan (US$11.91 billion).

After the firm raised US$1.1 billion in December, privately-owned Xiaomi is said to be valued at US$45 billion.

Manufacturing sector reaches critical juncture

Closures, overseas investments illustrate plight facing local factories

Now is not a good time to be a Chinese factory owner. According to recent media reports, a growing number of local manufacturers are opening plants in the US as they seek to avoid the badge that comes with selling “Made in China” products.

Meanwhile, many other local factories are struggling with labor shortages, rising costs, overcapacity problems and thinning demand. In response to such pressures, low-end manufacturers are increasingly investing in Southeast Asia, where production costs are more competitive.

Both of these trends signal the need for change in China’s manufacturing sector. Over recent decades, Chinese factories have become synonymous with low-quality, low-value-added products. Local manufacturers need to shake off this image by moving up the production chain. And with China’s GDP slowdown weighing on the country’s industrial sector, the need to advance is more pressing than ever.

According to reports, several of China’s largest and historically most successful manufacturing enterprises have not been immune to the challenges brought by changing times. Silitech Technology Co, a major supplier for Nokia, has suspended production since November. At its peak, the Suzhou-based company had more than 10,000 employees, but has reportedly struggled since Nokia sold off its handset division to Microsoft last year.

In December, United Win Technology Co, also in Suzhou, Jiangsu Province, announced its closure due to a financial crisis. It had previously been a major supplier for Apple Inc and had also cooperated with Chinese smartphone brand Xiaomi. The company’s closure is said to have left more than 2,000 workers unemployed.

Similar shutdowns are also said to be plaguing many of China’s traditional manufacturing hubs – including Dongguan, Guangdong Province, and Wenzhou, Zhejiang Province.

Of course, not all of the worries facing factory bosses are bad. Improvements in Chinese labor laws have made workers more willing to fight for better pay and conditions. For instance, upwards of 2,000 workers at Yue Yuen, a shoe factory in Dongguan, reportedly protested recently in front of the company’s gate for greater social security benefits. Yue Yuen is an assembler and producer for a host of big-name global brands, including Reebok, New Balance, Puma and Timberland.

But while China’s manufacturing sector has been expanding at a rapid clip for decades, most local factories remain at the bottom of the technological food chain, where they subsist on rock-bottom unit pricing and outdated technologies. Without upgrades and reforms, producers will become even more marginalized. Those who cannot adapt will be weeded out by the market.

Chinese planners have suggested that the country’s path toward a “new normal” pattern of development will necessitate greater innovation in the manufacturing sector. In a report issued Tuesday, research firm IDC described the agonies facing Chinese factory owners, while also putting forward predictions for the year ahead. During 2015, analysts at IDC foresee – among other things – the rise of intelligent factories, cloud computing and industrial robots (the latter of which could soon put many low-skilled Chinese workers out of jobs).

Chinese manufacturers will have to pursue these and other technological innovations if they want to stay in business. Fortunately, China is rapidly emerging as a research powerhouse. In 2012, the country overtook the European Union in terms of research spending as a percentage of GDP, according to a report issued in 2014 by the Organization for Economic Co-operation and Development.

The need to transform through innovation and research is particularly great among manufacturers focused on the highly competitive consumer market. If given the choice, many Chinese will purchase Japanese or South Korean-made goods. Such products typically carry high-price tags but are widely seen as being of higher quality than Chinese-made equivalents.

Chinese manufacturers need to focus especially on technologies that will help them become more specialized. They must also build brand value through higher-grade products. Ultimately, companies will have to choose development models that conform to their own conditions. Finding the right path forward won’t be easy, but sitting still in changing times is a surefire way to fail.

Chinese phone makers welcome Qualcomm fine

Chinese cellphone makers on Wednesday expressed their support of a record anti-trust fine levied on U.S. chip maker Qualcomm.

The National Development and Reform Commission (NDRC) ruled Qualcomm had abused its market dominance and charged discriminatory fees in the Chinese market when licensing mobile chip technology. The company was ordered to pay 6.09 billion yuan (994 million U.S. dollars).

Telecom giant Huawei told Xinhua that the NDRC’s decision would benefit telecom product manufacturers and Chinese consumers, as well as improve intellectual property protection.

Huawei said the decision would create a fairer competitive environment and would prompt domestic research.

ZTE also welcomed the anti-trust ruling as it would have a significant effect on the global telecom industry.

The NDRC’s investigation began in November 2013. The watchdog said the fine would stop the company’s monopolistic practices, safeguard fair market competition and protect consumers’ interests.

It said Qualcomm improperly bundled unrelated licenses with baseband chip sales, forcing Chinese customers to pay for licenses they did not need.

San Diego-based Qualcomm said in a statement that it would honor the fine and modify its licensing practices.

China’s machinery sector continues to grow in 2014

China’s machinery industry continued to expand in 2014 but at a softer pace due to sluggish domestic demands and piling inventories, new data showed on Wednesday.

The added value of the sector increased 10 percent year on year in the last year, slightly down from 10.9 percent in 2013, data from the China Machinery Industry Federation (CMIF) said.

Chinese machinery enterprises posted combined revenues from main businesses at 22.2 trillion yuan (3.62 trillion U.S. dollars), up 9.4 percent from a year ago. The revenues grew 13.8 percent in 2013.

Chen Bin, executive vice president of the CMIF, said the industry, still plagued by overcapacity, will likely continue to slow as they are confronted with weakening demands and fierce competition at home.

Motorola Solutions Inc exploring sale

Walkie-talkie and radio systems maker Motorola Solutions Inc is looking into a possible sale, Bloomberg reported, citing people familiar with the matter.

Potential buyers could include private equity firms and defense contractors including Raytheon Co, Honeywell International Inc and General Dynamics Corp, Bloomberg reported, citing one of the sources.

The 87-year-old company is working with financial advisers as it looks for a buyer, Bloomberg cited the sources as saying.

The sale process has been going on for several months, though a deal isn’t on the immediate horizon, one of the sources told Bloomberg.

Motorola Solutions spokesman Kurt Ebenhoch declined to comment on rumors or speculation.

Yum! records 16% sales drop in China

US company considers regaining Chinese consumers as top priority after food supply scandal last year

Yum! Brands Inc, operator of big-name fast-food chains like KFC and Pizza Hut, has recorded a drop in its China unit sales in the fourth quarter ending December 27, 2014 due to a food supply scandal, which analysts Thursday said will continue to weaken Chinese consumers’ confidence in the following year.

The same-store sales in China, the US fast-food company’s No.1 market for profit, slid 16 percent year-on-year in the quarter, according to a full-year earning report released by Yum! on Wednesday US time.

The fall in the China division, however, was less severe when compared with the 19.4 percent dip projected by analysts surveyed by Consensus Metrix.

As for the whole year, the company posted a 8 percent drop in the operating profit of its China unit, in comparison with a 1 percent increase globally.

The losses for Yum! stood at $0.20 per share in the fourth quarter, or $86 million in total.

The company put down the underperformance to a food supply scandal erupted in 2014.

“Overall results in 2014 were disappointing as the Chinese supplier incident in July offset our strong first half of the year,” Greg Creed, Yum! Brands Inc’s CEO, was quoted in the report as saying.

After media reported on July 20 that one of Yum!’s suppliers, Shanghai Husi, was using expired meat, sales in China’s KFC and Pizza Hut chain restaurants suffered a massive blow.

The company, which quickly cut ties with the supplier as well as its parent OSI Group LLC, still saw same-store sales in China fall 14 percent year-on-year in the third quarter ending September 6. By contrast, the quarter ending roughly one month before the scandal tidings recorded a robust growth of 15 percent.

Greed said the company’s top priority now is to restore Chinese consumers’ confidence, anticipating “a strong second half of 2015” due to “the turnaround gains momentum, led by menu innovation across the year.”

New offerings would include premium coffee and revamped children’s dishes, according to media reports, citing Joey Wat, president of KFC China.

In late January, Beijing Morning Post reported that over 300 KFC stores in Beijing had started to sell coffee products.

Its major rival McDonald’s Corp is also reportedly trying to win back Chinese consumers via menu adjustment. McDonald’s on January 23 reported a 4.8 percent drop in fourth-quarter sales for the region including China and Japan amid the fallout from the Shanghai Husi scandal.

Despite the efforts, analysts holds a pessimistic attitude toward the recovery of Yum! as well as that of McDonald’s in the Chinese market.

“The food supply scandal severely dampened the faith for the US fast-food chain brand in China, where consumers are paying increasing attention to food quality along with the rising standard of life,” Yan Qiang, a partner and industry analyst with Beijing-based Hejun Consulting, told the Global Times Thursday.

Yan noted that a full recovery needs at least one more year.

It is not the first food scandal to have occurred to Yum! in China. Chinese media allegations that KFC used tainted chicken in 2012 already caused a national scare and some damage to Yum!’s reputation in the country.

Regardless of those food scandals, US fast-food chains are also confronting fierce competition from domestic fast-growing counterparts, Tian Guangli, an expert at Beijing-based consultancy Longce Think Tank, told the Global Times Thursday.

“Many new rising stars such as pancake brand Huang Tai Ji have a better understanding of how to draw and maintain consumers’ attention in this modern Internet era than traditional fast-food chain operators including Yum!,” said Tian.

Finance companies launch new funding program for female entrepreneurs

China’s first funding program aimed at providing finance exclusively to female entrepreneurs has been launched by a group of heavyweight finance organizations.

International Finance Corporation, Ant Financial Services Group, a subsidiary of Alibaba Group Holding Ltd, and Goldman Sachs Foundation will jointly run the program.

The funds to be offered – through loans from Ant Financial Services’ microcredit arm Ant Credit, with the backing of IFC and Goldman Sachs – are expected to benefit around 46,000 female entrepreneurs. The program has 500 million yuan ($80.13 million) available to it.

“The market opportunity for financial products designed specifically for female entrepreneurs is huge”, said Ji Min, deputy director of finance research institute of the People’s Bank of China, with few, if any, currently on the market.

Karin Finkelston, IFC’s vice-president for Asia Pacific, said women starting out tend to invest their business knowhow in different directions from their male counterparts, for instance into family-oriented fields, including children’s education and family healthcare, which often represent appealing prospects for financial companies.

On the flipside, however, research shows that women entrepreneurs have traditionally found it hard to get financed, and if they do, the amounts approved can be tiny, even as little as 10 percent of what they are seeking, said Finkelston.

She claims her own organization, however, is female-friendly when it comes to financial support, a philosophy shared with its partner in the new fund, Ant Financial Services, which already has a strong client base of female-led startups, many of which run their businesses on Alibaba’s online market platform.

Yu Shengfa, Ant Financial’s vice-president, said that just over half of the business owners using Alibaba’s online market platforms are female.

IFC provided 1 billion yuan in senior loan funding to Ant Credit in 2014 which it loaned, in turn, to 62,000 micro-, small and medium-sized enterprises across China.

Online-based Ant Credit’s role is to evaluate potential borrowers’ creditworthiness based on their transactional and behavioral data, without the need for deposits, it says, or using any assets as guarantees.

By the end of March 2014, Ant Credit had loaned 190 billion yuan for more than 700,000 small and micro-business.

Ding Qinyan, 26, an Ant Credit customer, started her online apparel store on taobao.com when she was still in college.

Her first online business loan was granted in 2013, for the deposit needed to join an online sales campaign.

Based on Ding’s sales records and credit history, the application was approved within a minute at an interest rate of 0.0005 percent per day.

Lenovo posts profit fall in fiscal Q3

Lenovo Group, the world’s biggest personal computer maker by shipments, posted on Tuesday a drop in its fiscal third quarter net income, a result caused in part by its completion of the acquisition of unprofitable handset maker Motorola Mobility.

In the quarter ending December 31, 2014, the company recorded a net income of $253 million, a 5 percent dip from $265 million a year earlier, while its revenue rose 31 percent year-on-year, reaching $14.1 billion, according to a financial report filed to the Hong Kong bourse on Tuesday.

The profit, though it fell from the same period in 2013, still beat Bloomberg analysts’ estimate of $182.4 million.

Lenovo attributed the profit fall mainly to two major acquisitions completed during the quarter. Its net income before non-cash acquisition-related accounting charges was $327 million, up 23 percent year-on-year, according to the filing.

In October 2014, the group closed its $2.91 billion purchase of Motorola Mobility from US tech giant Google Inc and a $2.1 billion takeover of International Business Machines Corp’s low-end server unit.

“They [the two recently acquired businesses] are definitely becoming our growth engines,” Yang Yuanqing, Lenovo’s CEO, was quoted as saying in a press release posted on the group website.

The group said it sold more than 10 million Motorola phones worldwide during the fiscal quarter, achieving record shipments.

However, Lenovo’s mobile business, including Motorola, recorded a pretax loss of $89 million during the three months through December, much more than the loss of $2 million over the same period in the previous year.

The increased losses in the mobile unit indicate that Motorola, targeting mid- and high-end customers, has yet to be able to offset the losses generated by Lenovo’s previous focus on the low-priced segment to snatch market share, said Zhang Yi, CEO of Guangzhou-based iiMedia Research.

“The mid- and high-end segments are a crucial turf for Chinese smartphone makers to raise their profit margin,” Zhang told the Global Times Tuesday.

Huawei appears to have already made a dent in the segments with its Ascend Mate series. Xiaomi Inc, famous for its low-budget phones, also jumped into the higher-level battlefields via its newly released flagship Mi Note, which the company claimed could be compared with Apple’s devices.

Against the backdrop, Motorola introduced three flagship smartphone models into the Chinese mainland market on January 26, to help Lenovo further woo mid- and high-end phone users.

Despite the efforts, Zhang is concerned that it may be hard for Motorola’s newly released smartphones to help Lenovo’s money-losing mobile unit return to profitability immediately.

The group should further enhance the brand value via effective marketing so as to undercut foreign rival Samsung in China’s fiercely competitive smartphone market, Zhang noted.

By contrast, Li Yi, secretary-general of the China Mobile Internet Industry Alliance, showed more confidence in Motorola’s future.

“I think that the Motorola brand will bring profit to Lenovo, given Lenovo’s mature distribution channel in China and Motorola’s powerful selling network abroad. Motorola’s patent portfolio can also facilitate the Chinese phone maker’s progress in the overseas market,” Li told the Global Times Tuesday.

The group expects Motorola to contribute over 40 percent of its smartphone shipments in the following fiscal year, the Wall Street Journal reported in early January, citing Liu Jun, president of Lenovo’s mobile business group.

Lenovo’s PC unit continued to be the main contributor to the company’s total revenue, although the proportion in the quarter fell slightly to 65 percent from 81 percent of the previous fiscal quarter, while mobile businesses’ share of the total revenue during the third quarter increased to 24 percent from 13 percent in second quarter.

As the world PC market is becoming more saturated, Lenovo is pumping up efforts to seek new potential growth in other segments such as smartphones, said Li.

Apart from launching new hardware devices, operations like gaming and clouding also appear to be areas Lenovo wants to bank on. In April 2014, Lenovo announced the launch of its gaming mobile app marketplace for Android smartphones.