For Zhu Jian, general manager of a stainless steel cookware maker in Shanghai, the Covid-19 pandemic allowed the contract manufacturer to reset its export-dependent business model.
The company counts Europe as its primary market and serves as one of the largest manufacturing partners for global kitchenware brands, including WMF and Rosle. But it is increasingly betting on China's growing domestic market to diversify its business.
"The pandemic had a significant impact on us," said Zhu. "In the beginning many ports were shut down, affecting our sales significantly. But beginning in May, as pandemic cases started decreasing in China, demand suddenly increased."
Multinational companies have long relied on original equipment manufacturers ("OEMs"), also known as contract manufacturers, in China to produce everything from apparel to iPhones. But the coronavirus pandemic has underscored the urgency for these factories to build their own brands and win over Chinese consumers, who are increasingly willing to try out lesser-known brands that are of similar quality and offer more value for money.
China became known as "the world's factory" as the country's low labor costs attracted companies to shift their manufacturing operations or outsource production entirely to OEMs. In recent years, policymakers have been encouraging domestic demand as the world's second-largest economy transitions away from an economic model that relies heavily on foreign direct investment and exports.
"The pandemic could lead to a prolonged downturn in the global economy," said Tang Jianwei, a researcher at the Financial Research Center of the Bank of Communications. "For the world's largest exporter China, the downward pressure on exports will drag on."
For export-oriented manufacturers like Zhu's stainless steel cookware company to crack the domestic market requires them to understand consumer preferences. It is a big hurdle because previously these factories manufactured to specifications laid down by their brand customers.
Zhu's company created Cizzle, a homegrown brand, in collaboration with Pinduoduo, the e-commerce platform that pioneered the consumer-to-manufacturer ("C2M") business model. C2M flips the traditional manufacturing-retail model on its head by aggregating consumer preferences and allowing this real-time feedback to shape production.
Pinduoduo has been able to drive the C2M model because its emphasis on interactivity and social connections can more accurately pinpoint consumer trends and predict demand among different groups of users.
According to Zhu, Cizzle made several adjustments to make its products more attractive to the local demand based on suggestions Pinduoduo provided.
For example, due to the cooking style in China, Cizzle began making multi-purpose pans with heat-proof handles. By September, Cizzle's annual sales had recovered and by October, it had more sales than the previous year.
"Since we started working with Pinduoduo, our sales have really benefited," said Zhu. "For example, when we participated in one of their special events, we made 3,000 sales after 2 minutes of promotion -- this is a level we won't be able to achieve on other platforms."
Pinduoduo launched the New Brand initiative at the end of 2018 to help China's contract manufacturers build their own brands by making use of the e-commerce company's market insights and access to consumers. To date, Pinduoduo has worked with more than 1,500 companies and generated 460 million cumulative orders.
Cizzle is not alone in seeing success with its made-to-demand products on Pinduoduo.
Zhejiang Sanhe Kitchenware, another large cookware producer for brands like Germany's Zwilling J.A. Henckels and WMF, France's Le Creuset, Italy's Bialetti and Tescoma, is one of the first batch of companies to sign up for Pinduoduo's New Brand initiative back in late 2018. The company also sells under its own brand, Sanho, and manufactures more than 25 million pots and pans a year.
While export sales still account for most of its business, the company has been working to build up its domestic sales for several years. Domestic sales for Sanhe usually contributed 30% to total sales before the coronavirus but have doubled since the second half of February, as demand for cookware surged with more people eating at home.
For many export-dependent manufacturers in China, embracing C2M has come at an opportune time because Covid-19 has made domestic consumers more receptive to value-for-money brands.
Despite being the first major economy to recover from the coronavirus-inflicted slowdown, consumers are still conscious about their spending. They are increasingly open to buying value-for-money goods from high-quality manufacturers instead of paying a hefty premium for a brand name, many of which are white-label goods produced by the very same manufacturers.
In May, Pinduoduo launched a campaign that featured items made by Chinese manufacturers. Handcrafted Zhangqiu iron woks, Joyoung blenders, and Midea multi-function rice cookers were among more than 100,000 items offered at attractive prices on Pinduoduo to promote domestic manufacturing and boost consumption in China.
For Zhu, the homegrown Cizzle brand's success has helped diversify the business for the company and helped it become more resilient to external shocks.
"We continue to simultaneously develop our domestic and international markets," said Zhu. "The market in China is relatively stable, and demand is gradually rising, so it will be the main focus moving forward."