Twenty years ago, the first glass fiber reinforced plastic fishing rod in China was made in Weihai, Shandong province, the largest fishing tackle manufacturing base in China. The “Made in China” gear has since taken the lead in the international fishing tackle market. Currently, fishing tackle manufactured or processed in China accounts for 80% of the total global output, with an output value of almost RMB10 billion (US$1.3 billion). A decade ago, Chen Liang, who knew nothing about fishing at the time, became a member of Weihai-based Guangwei Group, a firm set up by his father, Chen Guangwei. Guangwei slowly grew by relying heavily on overseas OEM (Original Equipment Manufacture) fishing tackle orders. Now, ten years saw Chen Liang become a fishing enthusiast and Guangwei Group, the largest fishing tackle manufacturer in the world.
But being No. 1 isn’t easy. “We were just like a farmhand working for a landlord in the past times,” says Chen, “We would work hard for a whole year, but live from hand to mouth.” In 2005, sales at Guangwei Group reached almost RMB1.2 million (US$153 million), but 70% of that was from OEM products made for foreign dealers. Guangwei remained in their shadows.
Fishing tackle manufacturing is a labor-intensive industry. Especially in the low-end market, its access threshold is very low. “Anyone can make fishing tackle as long as he has a furnace,” notes Chen. Fishing tackle made in China must use its price advantage as a stepping-stone into the global market, even for market leaders like Guangwei. But the advantage is so fragile that some enterprises go bankrupt every time the price of raw materials in international market rises. So, given the ups and downs of the market, Chen Liang has been searching for other powerful weapons besides price advantage. He’s looking for a way to hook a bigger fish in the global fishing tackle market.
From Good at “Making” to Good at “Selling”
Get up at 5:00 a.m., put goods on shelves at 7:00 a.m., welcome customers at 9:00 a.m., and close the shop at 21:00 p.m.: that’s Chen Liang’s daily life in 1997 at the Johshuya fishing tackle chain shop in Beijing. Johshuya is a chain store brand that Guangwei Group imported from Japan, which for the time being, is the first fishing tackle industry chain store in China. The imports have triggered criticisms from those with protectionist industry sentiments. But the criticism has helped Chen learn how to operate a direct-sales fishing tackle store, and develop a keen sense of distinguishing the kinds of products in demand.
In 1996, Chen returned from Japan to what he called the “giant workshop”, Guangwei Group. Chen now still vividly remembers an eye-catching banner on the wall which read “over US$10 million in sales”. The company was like a machine in full gear. Since the late 1980s, by virtue of cheap labor, mainland China has gradually become the largest global manufacturing and processing base for fishing tackle. Enterprises with large production capabilities can make huge profits as long as they get a substantial number of orders, even if the prices are only half of the same products on the international market.
Because of low technology, domestic fishing products traditionally concentrated on medium or low-end products, with no dominant market leading brand. For a long time, all fishing tackle makers, including Guangwei, have been processing products in accordance with orders from clients.
In order to expand its market and fulfill sale goals, Guangwei has never turned away any clients, regardless of their sizes. Therefore, it has held a large number of clients. However, with over 200 dealers in the domestic market, Guangwei only realized a mere RMB8 million (US$1 million) sales income. Many clients mean lots of orders, which often put Guangwei under considerable pressure to meet order deadlines.
What made Chen Liang feel a little unease was that he had no say in the production; instead, dealers decided what to produce. The more demands led to periodic adjustments to the production line, which resulted in losing efficiency and rising costs. Having a large number of clients didn’t bring Guangwei the business increase expected. Despite the fact that sometimes all the dealers in a particular region were Guangwei’s clients, the sales volumes still remained low. Occasional price wars among dealers have also been cutting Guangwei’s profit margins.
After lots of analysis, Chen Liang came to believe that the root of the problem was who the products were being sold to-not whether the manufacturing capability of Guangwei could meet clients’ demands. “Since you cannot monopolize the market, the best choice is to unite some clients to compete with other rivals,” concluded Chen, “No one would like to cooperate with Guangwei if Guangwei keeps such a long list of clients.” So, Chen Liang decided to readjust the sales channels, cutting the number of dealers and selecting key clients according to market share objectives. As a result, the number of the dealers in the overseas market dropped by almost 80, while the domestic number was plunged to 16 from more than 200.
For key clients, Guangwei not only offered a favorable price, but also comprehensive services. Chen Liang promised to provide “zero stock” service so as to cut the clients’ cost. Sometimes, in order to get the jump on rivals to launch products, Guangwei would even deliver products by air. Although the profit margin was not as high, the client would not be lost and the cooperation would be reinforced.
After learning whom the products should be sold to, Chen began to consider what kinds of products should be sold. Direct-sales stores would help change Guangwei’s image of being only a “processing workshop”. Johshuya was the information center of Guangwei, where it could learn about consumer demands as well as market feedback, and produce accordingly. In this way, it is Guangwei, not its dealers, to have the final say.
The direct-sales store was also a means to strike a balance between Guangwei and its dealers. Since Guangwei’s products could be sold through its own sales channels, it gained the upper hand in dealing with the dealers. Chen has always insisted that where there is a Guangwei dealer, there will be no direct-sales store, in order to avoid competing with his own dealers in the same region. But if a dealer ended the cooperative relationship with Guangwei, Johshuya would be allowed to move into that local market.
The changes in sales channels have enabled Guangwei to grow significantly. From 1996 to 2000, Guangwei’s sales grew by 87% annually, and in 2000, with a sales income of RMB600 million (US$76.6 million), Guangwei became the world’s largest fishing tackle manufacturer. In the domestic market, Guangwei altered its traditional form of “consignment”. Guangwei is now no longer a big workshop knowing nothing about the market demands. “It knows what products should be sold and who the target customer is,” says Chen happily.
