China's wire and cable industry is a typical capital-intensive and labor-intensive industry. Since the financial crisis in 2008, due to the increase of market uncertainties, wire and cable companies are facing tremendous pressures for survival, rising energy, materials, wages, logistics, low profits, slow returns, large amounts of capital, difficulties in recruiting, and loans. Difficult and difficult to innovate, the market competition environment and the regulatory environment are deteriorating. The profitable space of enterprises has been gradually compressed and the operational risks have been significantly increased. In particular, the string of capital risks has tightened.
Below, we understand the current overall operating conditions of the wire and cable industry.
Industry scale: In 2009, the scale of production and sales reached 731 billion yuan, which exceeded 800 billion yuan in 2010; Asset-liability ratio: an average of 60% to 80%, and some companies even exceeded 80%; Sales gross margin: The current gross margin of the cable industry is about 11 About %, minus manufacturing costs, personnel costs, financial costs, etc., many companies have a net profit of only 1% to 3%, in fact, a large number of companies have been on the verge of losses, in order not to lose, many companies crossed the moral bottom line, ignore Laws and regulations, to provide the market with fake and shoddy products; foreign goods: the cable industry in foreign goods in the machinery industry is in the highest position, is about 2 times the average level of the machinery industry, the increase in the size of foreign loans, bad debts are also growing, its The risk is also increasing; the capital turnover rate: In 2010, the average annual turnover of industrial enterprise funds was 2 times, and the capital operation speed slowed down significantly.
From the above data, it can be seen that the “money†of companies in the wire and cable industry is really worrying. What is the reason for this? There are several points in the overview:
First, raw materials occupy a lot of money. Wire and cable is a 'light heavy industry' industry, in the product cost structure, the proportion of raw materials, copper costs up to 60% to 70%, are using cash purchases. When the price of copper rose sharply, the cable companies purchased raw materials and their cash flow was slow. When the price of copper fell sharply, the enterprises did not have enough time to digest raw materials. The ex-factory prices dropped sharply. The 'scissors' and 'time difference' between the two squeezed the profits of the company. space. Since the beginning of this year, the price of copper has fluctuated at a high of 6 to 70,000 yuan. To avoid the risk of copper price volatility, many cable companies generally adopt hedging methods and require a large amount of copper deposits in the futures market.
Second, corporate financing channels are not smooth. As the country's monetary tightening, for large companies or listed companies, there is basically no difficulty in financing. However, for many SMEs, the problem of difficult loans has always hampered the development of the enterprise.
Third, capital costs rose too fast. Since last year, the bank deposit reserve ratio has been continuously raised 12 times, and loan interest rates have been raised four times in a row, a total increase of 1 percentage point.
4. Excessive use of acceptance bills. Due to the tightening of funds, many customers forced payments by way of acceptance bills, which are generally six months. The current acceptance bill discounted to a monthly rate of 6.2‰, and stripped some of the company’s profits in disguised form.
Fifth, the margin of the bank guarantee is occupied. In the contractual agreement, there are many items that companies need to issue a letter of guarantee, such as advance payment guarantees, bid bonds, performance guarantees, quality guarantees, etc., and a large amount of deposits must be paid.
Six, customers set a lot of payment thresholds. The main performance is:
1. Payment of advance payment: The customer is generally unwilling to pay the advance payment, and even before the payment of the advance payment, the supplier is required to provide the advance payment guarantee and delay the payment of the advance payment. Some contracts stipulate that the delivery period is 20 days, and the advance payment shall be paid within 30 days after receiving the advance payment letter from the supplier, because the prepayment guarantee is processed for at least one week and the customer pays the advance payment after more than 30 days until the cable is delivered. Afterwards, often the advance payment has not yet arrived.
2, to pay the payment: After the goods arrive, the customer should pay the supplier, but the customer also requires the supplier to provide the original invoice, certificate of conformity, warranty book and other materials again (the actual supplier has provided ), And then only to pay the purchase price; there are many installation companies or general contractors require the owners to pay after the payment to the supplier, these acts have delayed the payment of payment. Due to the customer's intentional delay, the period from shipment to payment of the cable generally reaches 3 to 4 months.
3, the payment time agreement is not clear: If customers often require the completion of the project completion, power, installation and debugging after the payment, many major projects even require the project to complete the settlement and then settle the final payment, these payment links are companies can not grasp. In particular, for some long-cycle projects, the payment is required after the goods are fully paid. This kind of payment method undoubtedly increases the financial pressure of the supplier, allowing the supplier to advance a large amount of production funds. For example, government projects generally have no prepayments, and enterprises must schedule their shipments according to schedules. They must be delayed in payment after delivery, which greatly increases the financial pressure on companies. For some transportation projects, due to the long construction period, from the first supply to the end of the last supply, the lead time may be as long as one year. In special cases, the cycle is longer.
4, the payment of warranty money: equipment products generally have the warranty agreement, the cable is a material product, no warranty money, but most customers will require 5% to 20% of the warranty money. In the contract, the customer will require the completion acceptance of the project or the installation and commissioning of the project to be completed one to two years before the payment of the warranty money. There is no specific payment time, and it is normal for the warranty money to default for 2 to 3 years. Now, cable companies pay about 20% to 30% of the total foreign purchase price.
5. Payment problems in international trade: Many domestic trading companies proposed that 20% to 30% of the export contracts should go to the construction site on the foreign construction site for acceptance and repayment at the rate of 20% to 30%. The goods will only be paid 50% to 80% at the port. % of the purchase price, which is also the act of occupying funds from suppliers.
VII. The phenomenon of customer loyalty shop customers, cable companies have become a vulnerable group. In particular, there are many unfair terms in the contracts signed with large customers and long-term customers, which have reduced the profits of cable companies. After the signing of the sales contract, if the price of copper rises, the customer requests to continue the execution of the contract, which is entirely favorable to the customer; when the price continues to fall and exceeds a certain margin, some customers may find various reasons to postpone the request for goods, reduce orders, or fail to perform the contract. , Inflict inventory pressure on the company, making the funds "dead money." Cable companies participate in project bids and generally have a period of time from the quotation to the middle label. In the event that the price of copper falls, customers can request bids for the second quotation; in the event of a rise in copper prices, the customer can declare the enterprise winning the bid and require the contract to be signed; otherwise, Confiscated bid security.
8. The penalty for breach of contract in the contract clause is too severe. Many contracts are subject to heavy liquidated damages, such as delays in the delivery of technical data, delays in delivery, and other fines. Some fines may even amount to as much as one million yuan. For manufacturing enterprises, there are many uncertainties in production, transportation, etc., resulting in unintentional breach of contract is unavoidable, and it is obviously fair to assume too high a liability for breach of contract.
Nine, low bids disturbed the market order. In the bidding for cable projects, more than 80% use the 'lowest bid', even if it is a large company with the word 'country', the difference between the highest price and the lowest price is 30% to 40%, and the difference between the bid price and the price is more than 10 million yuan. There have been occurrences, even the highest prices are three times the lowest price of the Arabian Nights, and some companies reported that the low price of cable materials can not be bought.
X. The regulatory authorities 'have fined and controlled' to make the market more chaotic. The increasing supervision and inspection by the supervisory departments is conducive to purifying the market competition environment. However, many times, some regulatory departments have deviated from the original intention of supervision, relying only on fines to generate income, and there are no strict and uniform penalties. Therefore, the flexibility of implementation is very large. Punishments against illegal businesses that have consistently cut corners and materials are not properly punished. Because of the low cost of illegal activities, these enterprises can continue to behave arbitrarily; and some of the quality defects that occasionally occur in enterprises that are law-abiding are amplified by hundreds of thousands or millions. The fines have severely dampened the enthusiasm of these companies to abide by the law.
As we all know, China’s dependence on the manufacturing industry for fiscal and tax revenues is increasing year by year. However, the profits of manufacturing industries are extremely meagre. There is no future without money. The prospects for the development of many industries are not optimistic, and wire and cable companies are still struggling. Many times, we are faced with the dilemma of 'don't wait to die and be exhausted'. Why do we still adhere to our beliefs and support? Because we know very well that 'industry is not strong, the country is not rich', compared with the manufacturing power of the world, China's manufacturing industry still has a harder and more long way to go. Therefore, we are destined to be a struggling generation and shoulder the national industry. The important task of the revival is to use real business performance, reward employees, reward shareholders, return customers, and repay the society. We need the understanding and support of the government and society as a whole to jointly create a healthy, orderly, fair, and relaxed business environment so that we can calm down, do good things and do things well, create value for enterprises, and create wealth for the society!
Below, we understand the current overall operating conditions of the wire and cable industry.
Industry scale: In 2009, the scale of production and sales reached 731 billion yuan, which exceeded 800 billion yuan in 2010; Asset-liability ratio: an average of 60% to 80%, and some companies even exceeded 80%; Sales gross margin: The current gross margin of the cable industry is about 11 About %, minus manufacturing costs, personnel costs, financial costs, etc., many companies have a net profit of only 1% to 3%, in fact, a large number of companies have been on the verge of losses, in order not to lose, many companies crossed the moral bottom line, ignore Laws and regulations, to provide the market with fake and shoddy products; foreign goods: the cable industry in foreign goods in the machinery industry is in the highest position, is about 2 times the average level of the machinery industry, the increase in the size of foreign loans, bad debts are also growing, its The risk is also increasing; the capital turnover rate: In 2010, the average annual turnover of industrial enterprise funds was 2 times, and the capital operation speed slowed down significantly.
From the above data, it can be seen that the “money†of companies in the wire and cable industry is really worrying. What is the reason for this? There are several points in the overview:
First, raw materials occupy a lot of money. Wire and cable is a 'light heavy industry' industry, in the product cost structure, the proportion of raw materials, copper costs up to 60% to 70%, are using cash purchases. When the price of copper rose sharply, the cable companies purchased raw materials and their cash flow was slow. When the price of copper fell sharply, the enterprises did not have enough time to digest raw materials. The ex-factory prices dropped sharply. The 'scissors' and 'time difference' between the two squeezed the profits of the company. space. Since the beginning of this year, the price of copper has fluctuated at a high of 6 to 70,000 yuan. To avoid the risk of copper price volatility, many cable companies generally adopt hedging methods and require a large amount of copper deposits in the futures market.
Second, corporate financing channels are not smooth. As the country's monetary tightening, for large companies or listed companies, there is basically no difficulty in financing. However, for many SMEs, the problem of difficult loans has always hampered the development of the enterprise.
Third, capital costs rose too fast. Since last year, the bank deposit reserve ratio has been continuously raised 12 times, and loan interest rates have been raised four times in a row, a total increase of 1 percentage point.
4. Excessive use of acceptance bills. Due to the tightening of funds, many customers forced payments by way of acceptance bills, which are generally six months. The current acceptance bill discounted to a monthly rate of 6.2‰, and stripped some of the company’s profits in disguised form.
Fifth, the margin of the bank guarantee is occupied. In the contractual agreement, there are many items that companies need to issue a letter of guarantee, such as advance payment guarantees, bid bonds, performance guarantees, quality guarantees, etc., and a large amount of deposits must be paid.
Six, customers set a lot of payment thresholds. The main performance is:
1. Payment of advance payment: The customer is generally unwilling to pay the advance payment, and even before the payment of the advance payment, the supplier is required to provide the advance payment guarantee and delay the payment of the advance payment. Some contracts stipulate that the delivery period is 20 days, and the advance payment shall be paid within 30 days after receiving the advance payment letter from the supplier, because the prepayment guarantee is processed for at least one week and the customer pays the advance payment after more than 30 days until the cable is delivered. Afterwards, often the advance payment has not yet arrived.
2, to pay the payment: After the goods arrive, the customer should pay the supplier, but the customer also requires the supplier to provide the original invoice, certificate of conformity, warranty book and other materials again (the actual supplier has provided ), And then only to pay the purchase price; there are many installation companies or general contractors require the owners to pay after the payment to the supplier, these acts have delayed the payment of payment. Due to the customer's intentional delay, the period from shipment to payment of the cable generally reaches 3 to 4 months.
3, the payment time agreement is not clear: If customers often require the completion of the project completion, power, installation and debugging after the payment, many major projects even require the project to complete the settlement and then settle the final payment, these payment links are companies can not grasp. In particular, for some long-cycle projects, the payment is required after the goods are fully paid. This kind of payment method undoubtedly increases the financial pressure of the supplier, allowing the supplier to advance a large amount of production funds. For example, government projects generally have no prepayments, and enterprises must schedule their shipments according to schedules. They must be delayed in payment after delivery, which greatly increases the financial pressure on companies. For some transportation projects, due to the long construction period, from the first supply to the end of the last supply, the lead time may be as long as one year. In special cases, the cycle is longer.
4, the payment of warranty money: equipment products generally have the warranty agreement, the cable is a material product, no warranty money, but most customers will require 5% to 20% of the warranty money. In the contract, the customer will require the completion acceptance of the project or the installation and commissioning of the project to be completed one to two years before the payment of the warranty money. There is no specific payment time, and it is normal for the warranty money to default for 2 to 3 years. Now, cable companies pay about 20% to 30% of the total foreign purchase price.
5. Payment problems in international trade: Many domestic trading companies proposed that 20% to 30% of the export contracts should go to the construction site on the foreign construction site for acceptance and repayment at the rate of 20% to 30%. The goods will only be paid 50% to 80% at the port. % of the purchase price, which is also the act of occupying funds from suppliers.
VII. The phenomenon of customer loyalty shop customers, cable companies have become a vulnerable group. In particular, there are many unfair terms in the contracts signed with large customers and long-term customers, which have reduced the profits of cable companies. After the signing of the sales contract, if the price of copper rises, the customer requests to continue the execution of the contract, which is entirely favorable to the customer; when the price continues to fall and exceeds a certain margin, some customers may find various reasons to postpone the request for goods, reduce orders, or fail to perform the contract. , Inflict inventory pressure on the company, making the funds "dead money." Cable companies participate in project bids and generally have a period of time from the quotation to the middle label. In the event that the price of copper falls, customers can request bids for the second quotation; in the event of a rise in copper prices, the customer can declare the enterprise winning the bid and require the contract to be signed; otherwise, Confiscated bid security.
8. The penalty for breach of contract in the contract clause is too severe. Many contracts are subject to heavy liquidated damages, such as delays in the delivery of technical data, delays in delivery, and other fines. Some fines may even amount to as much as one million yuan. For manufacturing enterprises, there are many uncertainties in production, transportation, etc., resulting in unintentional breach of contract is unavoidable, and it is obviously fair to assume too high a liability for breach of contract.
Nine, low bids disturbed the market order. In the bidding for cable projects, more than 80% use the 'lowest bid', even if it is a large company with the word 'country', the difference between the highest price and the lowest price is 30% to 40%, and the difference between the bid price and the price is more than 10 million yuan. There have been occurrences, even the highest prices are three times the lowest price of the Arabian Nights, and some companies reported that the low price of cable materials can not be bought.
X. The regulatory authorities 'have fined and controlled' to make the market more chaotic. The increasing supervision and inspection by the supervisory departments is conducive to purifying the market competition environment. However, many times, some regulatory departments have deviated from the original intention of supervision, relying only on fines to generate income, and there are no strict and uniform penalties. Therefore, the flexibility of implementation is very large. Punishments against illegal businesses that have consistently cut corners and materials are not properly punished. Because of the low cost of illegal activities, these enterprises can continue to behave arbitrarily; and some of the quality defects that occasionally occur in enterprises that are law-abiding are amplified by hundreds of thousands or millions. The fines have severely dampened the enthusiasm of these companies to abide by the law.
As we all know, China’s dependence on the manufacturing industry for fiscal and tax revenues is increasing year by year. However, the profits of manufacturing industries are extremely meagre. There is no future without money. The prospects for the development of many industries are not optimistic, and wire and cable companies are still struggling. Many times, we are faced with the dilemma of 'don't wait to die and be exhausted'. Why do we still adhere to our beliefs and support? Because we know very well that 'industry is not strong, the country is not rich', compared with the manufacturing power of the world, China's manufacturing industry still has a harder and more long way to go. Therefore, we are destined to be a struggling generation and shoulder the national industry. The important task of the revival is to use real business performance, reward employees, reward shareholders, return customers, and repay the society. We need the understanding and support of the government and society as a whole to jointly create a healthy, orderly, fair, and relaxed business environment so that we can calm down, do good things and do things well, create value for enterprises, and create wealth for the society!
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