In one of my articles titled the Vacuum Cleaner Industry Amid the Trade War, how
possible the vacuum production in China will be shifted to Southeast Asia has
been mentioned.
Despite aggressive objections of the industry representatives iRobot, Bissell and
Sharkninja at the 301 hearing , the vacuum cleaner industry will
be taxed at 10% by the United States. The industry transfer seems to come true.
LEXY noted it may build a plant overseas to tackle hidden risks of the trade war as
mentioned in its 2018 semi-annual report. Years ago, LEXY considered a site at Romania
but it ended up with nothing definite. According to the latest information, it
is making an investigation in Vietnam and trying to engage the downstream
manufacturers in this tour;
Latest hearsays include:
TTI, Bissell and Shark are all in contact with overseas manufacturing bases;
LEXY, Ningbo Dechang, Fujia, TEK are also probing into the transfer stuff;
Some downstream suppliers are still hesitant to be part of the transfer;
At present, partial transfer—20%
to 30% as said, seems to be inevitable in this line. If so, listed LEXY will
likely lead the trend to build a plant in Southeast Asia.
Currently there are following vacuum manufacturing bases outside
China:
Germany: Brands including Miele and SEBO have manufacturing plants in Germany
France: Rowenta also has some assembly plants in France
Turkey: Turkey is the base of a string of large European companies, such as Acelik, the
largest TV factory in Europe
Eastern Europe (Romania, Hungary): Brands including Electrolux and Miele have factories
in Romania and Hungary. LEXY once planned to set up a factory in Romania.
Vietnam: Vietnam is the main base for Korean companies, brands such as LG and Samsung develop local factories and supply chains
Malaysia, Singapore: Malaysia and Singapore are Dyson’s main manufacturing bases. The
problem is that these contract makers of Dyson have signed exclusive agreements.
Mexico: Bissell and Panasonic once had a factory in Mexico, closer to the United States
Brazil: Electrolux once occupied a large share of the local small appliance market,
relying on its production base in Brazil.
Vietnam and Malaysia seem the best targets of this transfer given labor costs,
transportation costs, and production efficiency of these bases.
As far as I am concerned, a heap of problems will await the players in case of a transfer:
1. How much more direct freight charges from China to Vietnam and Vietnam to the
US will be produced? As the whole machine of a cabinet needs to be disassembled
as two cabinets of parts, the transportation cost will climb.
2. How much more purchase price of local parts will be generated given the lack of
the supply chain?
3. What is the cost on local management and staffing?
4. How efficient are the local workers? Can they meet the needs of North American
customers?
5. Are there adequate local skilled workers?
6. Is the US tariff policy stable? What if the Trump administration reduces or
even cancels the tariff after these runners take pains to transfer to Southeast
Asia?
This list of problems could go on. At least six months or a year
is needed to solve them, and during this period Sino-US relations may change.
If the vacuum cleaner industry really transfers to Southeast Asia, Chunguan(CGH)
Technology will benefit most as a new listed player. This vacuum hose producer
based in Jinhua set up the GGH plant in Malaysia in 2015, to exclusively
provide Dyson with hoses and accessories.
As can be seen from its prospectus, the goods supplied to Dyson in 2016 were worth
54.63 million.
Chunguan(CGH) Technology started with the vacuum cleaner hose business, now it begins to vigorously
develop other vacuum cleaner accessories. The prospectus showed that a large
part of the funds raised will be used for the vacuum parts production project.
Once the vacuum giants transfer to Southeast Asia, Chunguan(CGH) Technology will
gain the majority of the transferred accessory orders by virtue of edges in its
Malaysia factory and years of partnership with its clients.
