Chapter 13 Chapter 12 Debate on Industrial Upgrading Behind the Recovery of Luxury Goods
Highlights of this chapter: In the first quarter of 2009, the sales of first-line luxury brands in Guangzhou Friendship Store and La Perle Plaza unexpectedly increased by 20% against the market.Among them, the growth rate of brand-name watches worth more than 100,000 yuan or even hundreds of thousands of yuan exceeded 90%.Oddly, however, sales of mid- to low-priced luxury goods plummeted by 30% to 40%.I judge that a large number of manufacturing funds in traditional labor-intensive industries have entered the high-end luxury goods market.
In a province that was hit the hardest by the financial tsunami, its sales of luxury goods soared, and high-end watches even rose by 90%, while second- and third-tier brands plummeted. May I ask why? This is what I am very worried about. The funds in our manufacturing industry have flowed out of the real economy and entered the virtual economy. Why is the gross profit rate of teddy bears so low?Is it because it is a traditional labor-intensive industry? If we really come to this step of industrial transformation, the fate of the toy industry will repeat itself in high-tech and capital-intensive industries. Has China's economy recovered?As mentioned in the third chapter of this book, China's stock market, property market and auto market have all recovered, especially the auto market, which is simply incredible.Take the first half of 2009 as an example, the US car sales plummeted by 35%, while the Chinese car sales rose by 15%. This figure is really exciting.Still taking the first half of 2009 as an example, the property markets in Shanghai, Hangzhou, and Beijing picked up, while the start-up rate of new housing in the United States was still falling.You can see that the whole world is in this situation, everything is falling, only our situation is very good. In order to study this phenomenon, I will start with a very interesting highlight - luxury goods.First look at the big international brands, Louis Vuitton, Gucci, Dior and Saint Laurent.Let's take the first quarter of 2009 as an example. Louis Vuitton's turnover was 4 billion euros, down 7% year-on-year; Gucci's turnover fell by about 5%; Dior's sales fell by 8%;The world's four major brands are all plummeting.Louis Vuitton operates a wide range of products, including leather bags, leather shoes, wine, cosmetics, watches and jewelry.Among them, jewelry sales fell 41%, wine and spirits fell 22%, perfume and cosmetics fell 11%. In 2008, the global luxury goods market fell by 14%. They have never fallen like this, and this may be the first time in history.What about China?Beijing's Lufthansa Department Store saw sales growth of less than 15% in the first quarter of 2009, halving from the same period last year.The passenger flow of the four major shopping malls on Nanjing West Road in Shanghai (Jiuguang, Hang Lung, Westgate, and CITIC Pacific) has decreased by more than 40%. Among them, Westgate has fallen by 15%, and Jiuguang Department Store has increased by 7%, which is lower than the original expectation of 40%. Hang Lung also fell 21%. Now that the luxury goods of the four major brands have plummeted in the same market, what future does China's luxury market have?I found some data to share with readers.Since the financial tsunami in 2008, Guangdong has been the hardest-hit province in China.Especially in Dongguan, if you go to Dongguan, you will find that although there are not many closed factories, there are many closed factories. The situation in other cities such as Foshan and Shunde is slightly better.It stands to reason that the Shanghai and Beijing markets have plummeted like this, so in the hardest-hit Guangdong market, sales of luxury goods should also plummet. In January 2009, the consumption of luxury goods in China reached 3 billion US dollars.Take Guangdong Province, which was hit the hardest, as an example. In the first quarter of 2009, the sales of luxury brands in Guangzhou Friendship Store and La Perle Plaza went against the trend and increased by 20%.The whole world is plummeting, Beijing and Shanghai are also plummeting, and in Guangzhou, the most economically hit province, the sales of luxury goods have skyrocketed by 20%, can you imagine?Moreover, in the first quarter of this year, the number of diamond consumer card customers of Friendship Store over RMB 400,000 increased by 7%.In addition, in the first quarter, the growth rate of international first-line jewelry and watch brands in Guangzhou Friendship Store exceeded 15%, among which, the growth rate of famous brand watches worth more than 100,000 yuan or even hundreds of thousands of yuan exceeded 90%; in the second quarter, sales increased by 13% year-on-year. %, of which the jewelry category increased by 23% in June and 29% in May.However, it is strange that the sales of middle and low-end luxury goods have plummeted by 30% to 40%.In a province that was hit the hardest by the financial tsunami, its sales of luxury goods soared, and high-end watches even rose by 90%, while second- and third-tier brands plummeted. May I ask why? The price/performance ratio we discussed in previous chapters can explain this phenomenon.The main reason why first-line brands sell so hot in Guangzhou is that they sell at discounted prices, and some brands even get 10% to 50% off.The drop in price has made the cost-effectiveness of the first-tier brands higher than that of the second- and third-tier brands, which has caused a strange phenomenon that the first-tier brands have skyrocketed, while the second- and third-tier brands have plummeted. The automobile market is very interesting. Taking Guangzhou as an example, the sales volume of Mercedes-Benz S350 in March 2009 increased by 20% compared with February, and increased by 30% compared with the same period last year; the sales volume of Mercedes-Benz CLK series also increased by 20% compared with the previous year. %.The price of BMW 730 rebounded by 50,000 yuan, and the price of Mercedes-Benz S350 rebounded by 30,000 yuan.Not only that, the interest-free loan originally provided by Mercedes-Benz for promotion was also canceled on March 31 this year. Why?Because the sales are so good, this is our luxury market in China. In April 2009, I went from Tsinghua University to the West Third Ring video recording site. It was very close and it was not a weekday, but there was a huge traffic jam. The taxi driver said that the weekend traffic jam in Beijing was very serious in the past two months.This is closely related to the surge in sales of luxury goods. Readers, please think about it, why is this?In fact, Duanni can be seen from some simple data. Beginning in November 2008, the financial crisis hit the real economy, and the global market demand plummeted, which led to a positive change in my country's export growth rate in November to -2.2%, and to -2.8% in December.Since 2009, exports have fallen at a rate of about 20%.In fact, I am not nervous about the decline in exports, because the demand in the world has dropped sharply due to the economic crisis, and the decline in our exports is inevitable.But what worries me the most is our plummeting imports. In January 2009, our imports plummeted by 43%, of which imports of raw materials other than crude oil fell by 50%, and imports of industrial equipment fell by 40%. Do you know what this means?Many people are saying that our imports fell by 43% in January and exports fell by 17%, so our trade surplus increased by 102%.This is nonsense, how can you look at the problem in this way?These are just superficial phenomena, we must see the essence through the phenomena.Please think about it, what does the sharp drop in imports mean?Many of our manufacturing companies simply import raw materials and machinery and equipment for rough processing.If imported raw materials have fallen by half, and imported machinery and equipment have also fallen by 40%, do you know what this means?Since the two major dilemmas (the deterioration of the investment and business environment and the problem of overcapacity) have not been resolved, these entrepreneurs in the manufacturing industry simply don't want to do it.After working day and night for so many years and making money so hard, at this time, I may think of my wife who has worked so hard for so many years and feel sorry for her.So I went to Guangzhou Friendship Store to buy a famous watch worth hundreds of thousands of yuan to express my gratitude to my wife, which caused the sales of luxury goods in Guangdong to skyrocket.What's behind this skyrocketing sales?This is what I am very concerned about. The funds in our manufacturing industry have flowed out of the real economy and entered the virtual economy. In fact, if these funds enter the stock market or the real estate market, it is okay, and there is still the possibility of circulation.For example, if you buy stocks and invest 100 yuan today, it will rise to 200 yuan tomorrow, and the money you earn after selling can be invested in the production industry in the future.The same goes for buying a property. Today I spent 100 million yuan to buy 10 buildings, and when the price rises to 200 million yuan, I sell them and the proceeds can be reinvested.But what is the result of you buying luxury goods?You bought a diamond for 1 million yuan now, can you still sell it in the future?You buy luxury goods without even thinking about selling it, because there is basically no secondary market for such high-end goods.Therefore, these funds will be trapped forever, and it will never be possible to flow back to the real economy.Unlike stocks and buildings, which have a good secondary market, if you make a fortune, you will always have the opportunity to invest in the real economy in the future.Of course, it is impossible for entrepreneurs to invest a lot of money to buy luxury goods, but the growth of luxury goods sales against the market is already known. Is this what we call recovery?Behind this warming phenomenon, the essential problem is very worrying.In these provinces where foreign trade is the mainstay, every entrepreneur is very tormented in his heart. Why should they give up the industry they have been working on for a lifetime?Because of the difficult situation right now?Can't you just grit your teeth and get through it?They don't want to bite the bullet.Before we criticize these entrepreneurs, we should analyze their feelings. Isn't it painful for them to make this decision?What should they do next?If they don't sell the factory, what do you think they can do?Taking Guangdong Province as an example, most enterprises are traditional labor-intensive industries, such as making cups and teddy bears. The current profit margins of these industries are very low, and if it is not negative work, it is close to zero.What do you think they can do?Where is their future? These enterprises are under great pressure and face many problems, such as the six major shocks discussed in the first chapter, including exchange rate, cost, the "Labor Contract Law", export tax rebates, macro-control and the investment and business environment caused by the increase in taxes and fees Deterioration, coupled with excess capacity caused by the financial tsunami and so on.At present, our government's countermeasure is to upgrade these enterprises. Krugman, the Nobel laureate in economics, came to China to make a similar appeal, saying that the future of China's traditional labor-intensive industries is industrial upgrading.Therefore, for these manufacturers who simply import raw materials and machinery and equipment, export after rough processing, the only option is to upgrade the industry and invest capital in high-productivity high-tech and capital-intensive industries. For example, the gross profit margin of the toy industry in Guangdong Province is close to zero.What should I do?I thought of mobile phones. Mobile phones are not high-tech, but the phone card inside the phone is high-tech. There is a golden metal piece on the phone card, called an integrated circuit, which is made of chips, and chips are high-tech.If we don't make toys and invest heavily in chips, this is our hope for the future, because the gross profit margin of chips is very high, at least above 40%.Therefore, many of our experts and scholars have called for the transformation of China's traditional labor-intensive industries.So let me ask you, you put the only choice in front of an entrepreneur in our traditional labor-intensive industry, do you know what he will do?He would rather buy luxury goods than invest in high technology.Why is that?Do you think the future of these labor-intensive industries is high-tech or capital-intensive?On the surface, the gross profit margin of chips is 40%, which is much higher than that of toys such as Barbie dolls and teddy bears.But have you ever wondered why the gross profit rate of teddy bears is low?Is it because it is a traditional labor-intensive industry?If you look at it that way, the thinking is too simple. Let's look at another story. Mattel recently opened a Barbie store in Shanghai, displaying 1,800 color-by-color dolls.After our factory produces Barbie dolls and sells them to Mattel for 1 dollar, Mattel then sells these Barbie dolls to China not for 1 dollar, but for at least 10 dollars or even tens of dollars. These added values are How did you create it?It is created through the six major links it masters, including product design, raw material procurement, warehousing and transportation, order processing, and wholesale and retail.Mattel's gross profit margin in 2007 also exceeded 40%, which is the same as that of chips. We look down on these traditional labor-intensive industries, thinking that its gross profit margin is low.In fact, the low gross profit margin is not because it is a traditional labor-intensive industry. If you do not do manufacturing, but do the six major links of Mattel, your gross profit margin can reach 40%.For so many years, our entire economic development model has been based on manufacturing, and we still think we are a big manufacturing country.The profits of the big manufacturing countries are all sucked up by companies like Mattel that control the six major links, because Mattel controls the pricing power of Chinese toys by virtue of the six major links.This is the real reason for the low gross profit margin of the toy manufacturing industry. Since Mattel controls the pricing power, it can decide the price at will and give you any amount you want, and you can only accept it, because the price is determined by it.For example, your cost is 9.99 yuan, and it gives you an order of 10 yuan. Do you want to do it?You can only do it, and you can only earn 1 cent. If you don’t do it, there is nothing you can do, because it controls the pricing power, and as a result, it sucks up all your profits.This is why the United States puts its manufacturing links in China, because they control the six links that create the most value and are the most profitable.This is the plight of our export manufacturing industries in Guangdong, Zhejiang, and Jiangsu. Our original manufacturing industry development positioning was wrong. This is the reason for the low gross profit margin of our traditional labor-intensive industries. If you don’t recognize this fact and must transform, then what do you transform?Do you still make chips after transformation, or do you still make "1"?Let me tell you, tomorrow's chip is today's toy.In the future, the Americans will definitely control the six major links of the chip and completely absorb the profits of our chips, so tomorrow's chips will inevitably repeat the mistakes of today's toys.The choice before us entrepreneurs is a very strange choice, a choice that only looks at superficial phenomena, because industrial upgrading itself simply makes a superficial comparison between the profit margin of toys and the profit margin of chips, and this Superficial comparisons will drive many scholars to simply conclude that China should abandon these industries and directly enter high-tech or capital-intensive industries.Moreover, this choice has been extremely exaggerated by scholars headed by Krugman.In fact, I have basically read all the papers Krugman published in the United States. He did have achievements in macroeconomics, otherwise he would not have won the Nobel Prize, but he did not dabble in industrial economics. His transformation Theory fails me.If we really come to this step of industrial transformation, the fate of the toy industry will repeat itself in high-tech and capital-intensive industries.This is the reason why luxury sales are on fire, and what we have in front of entrepreneurs is a choice to repeat the same mistakes.I don't want to criticize entrepreneurs for their helplessness, and use funds that should have been invested in traditional labor-intensive industries to speculate in real estate, stocks, cars, and luxury goods. I can only express my understanding. In addition, if our transformation is indeed successful, we will also face two inevitable tragedies. The first tragedy.If we want to transform, do you know how many toy factories we need to replace a chip factory? 1000 pieces.Because the investment in chips is very large, thousands of times that of toys. 1,000 toy factories can employ 1 million people, while a chip factory can only employ 20,000 people. Therefore, if our transformation is successful, we will immediately face 980,000 unemployment. The second tragedy.Japan is a country dominated by high-tech and capital-intensive industries. Japan's GDP fell by 12% in the fourth quarter of 2008 and by 15.2% in the first quarter of 2009.why?Very simple, high-tech and capital-intensive products are basically dispensable products, such as mobile phones, digital cameras, etc. When the economic environment is good, we buy more of these products, and when the economic environment is not good, we buy less.What really resist the pressure are the traditional labor-intensive industries that we look down on, such as underwear and quick-frozen dumplings.If we abandon these traditional industries and upgrade to high-tech and capital-intensive industries, we will immediately face the second tragedy, that is, the products are even less resistant to pressure. I believe readers must be very sad when they see this. In order not to make readers sad, I want to give readers a sense of optimism—that is, please rest assured that industrial transformation is unlikely to succeed. I don't need to talk too much about the truth, I just want to remind readers that only Western Europe, the United States, Japan and South Korea really have high-tech and capital-intensive industries, and basically no other countries have them.Do you know why?Take South Korea and Japan, which we are familiar with, as examples. These two countries are both disciplined and rule-abiding countries.The basis for the development of high technology is to first establish a set of rules-based system engineering.What is rule-based systems engineering? Readers, please think about it, is your company looking for talents or screws?Companies looking for talents do not have system engineering at all, and companies with system engineering must be looking for screws, not talents.We can all agree that the most important talent is the chef of the restaurant, without which the restaurant would not be possible.The level of most of our current enterprises is equivalent to that of a great chef.This person's chef cooks delicious dishes, but others can't. In order to keep the great chef, you have to give him equity.In fact, you are wrong. You should systematically engineer the chef's cooking process, so that you don't need the talent of the chef. What is system engineering?For example, when frying fish-flavored shredded pork, we divide the chef’s cooking process into 20 stages, that is, 20 rules.The first person chops green onion, the second person shreds the pork... The 18th person pours soy sauce, the 19th person turns the fire to 600°C, and the 20th person fry 3 times.If it doesn't taste good, adjust certain rules; if it doesn't taste good, adjust it again.After numerous adjustments, assuming that the 1001st time the system can fry dishes as delicious as the chef’s, under the requirements of this system, the size of chopped green onion must be 1.1 cm, and the size of shredded pork must be 1.3 cm. The rule of soy sauce must be 2 spoons of dark soy sauce... From now on, we will cook according to this system. Everyone strictly implements the requirements of each rule, and we must not innovate.This is called the establishment of systems engineering.Once the system engineering is established, you don't need the talent of the chef, but 20 screws that respect the rules, which can ensure that the taste of the dishes fried every time is exactly the same as that of the chef.This system engineering was carefully established by the Koreans in the 1980s, so they could give birth to the great Samsung. But we are different from Japan, South Korea and other countries. Not only do we not respect the rules, but we are also proud of breaking the rules.For example, if you are an entrepreneur visiting a certain place, the local leaders often use police cars to clear the way and run red lights all the way in order to show their importance.It seems that the leader attaches great importance to you, but do you know that everyone from the leader to you is breaking the rules?And you yourself are still very proud, and you brag to your wife when you get home, saying: "Look, you are married to the right person!" It's not that we don't follow the rules at all.This kind of nation that likes to break rules and likes to talk about "hidden rules" is very difficult to establish a system engineering based on rules, and it is difficult to succeed in industrial transformation without the foundation of system engineering. You may say that I am too absolute, we still have high-tech and capital-intensive companies, such as Huawei and Foxconn.So let me tell readers clearly that Huawei not only has system engineering, but also integrates the "6+1" industrial chain.Huawei's system was established with the help of IBM, and of course the fees are very high, several hundred million. The system engineering concept introduced to readers in this chapter is the foundation of the high-tech industry. As long as it is an excellent high-tech company, it must have this system.If industrial transformation is not an alternative direction due to the lack of system engineering, what is the future direction of our enterprise?Regardless of whether it is a high-tech, capital-intensive or traditional labor-intensive industry, the "6+1" industrial chain integration is very important.
In a province that was hit the hardest by the financial tsunami, its sales of luxury goods soared, and high-end watches even rose by 90%, while second- and third-tier brands plummeted. May I ask why? This is what I am very worried about. The funds in our manufacturing industry have flowed out of the real economy and entered the virtual economy. Why is the gross profit rate of teddy bears so low?Is it because it is a traditional labor-intensive industry? If we really come to this step of industrial transformation, the fate of the toy industry will repeat itself in high-tech and capital-intensive industries. Has China's economy recovered?As mentioned in the third chapter of this book, China's stock market, property market and auto market have all recovered, especially the auto market, which is simply incredible.Take the first half of 2009 as an example, the US car sales plummeted by 35%, while the Chinese car sales rose by 15%. This figure is really exciting.Still taking the first half of 2009 as an example, the property markets in Shanghai, Hangzhou, and Beijing picked up, while the start-up rate of new housing in the United States was still falling.You can see that the whole world is in this situation, everything is falling, only our situation is very good. In order to study this phenomenon, I will start with a very interesting highlight - luxury goods.First look at the big international brands, Louis Vuitton, Gucci, Dior and Saint Laurent.Let's take the first quarter of 2009 as an example. Louis Vuitton's turnover was 4 billion euros, down 7% year-on-year; Gucci's turnover fell by about 5%; Dior's sales fell by 8%;The world's four major brands are all plummeting.Louis Vuitton operates a wide range of products, including leather bags, leather shoes, wine, cosmetics, watches and jewelry.Among them, jewelry sales fell 41%, wine and spirits fell 22%, perfume and cosmetics fell 11%. In 2008, the global luxury goods market fell by 14%. They have never fallen like this, and this may be the first time in history.What about China?Beijing's Lufthansa Department Store saw sales growth of less than 15% in the first quarter of 2009, halving from the same period last year.The passenger flow of the four major shopping malls on Nanjing West Road in Shanghai (Jiuguang, Hang Lung, Westgate, and CITIC Pacific) has decreased by more than 40%. Among them, Westgate has fallen by 15%, and Jiuguang Department Store has increased by 7%, which is lower than the original expectation of 40%. Hang Lung also fell 21%. Now that the luxury goods of the four major brands have plummeted in the same market, what future does China's luxury market have?I found some data to share with readers.Since the financial tsunami in 2008, Guangdong has been the hardest-hit province in China.Especially in Dongguan, if you go to Dongguan, you will find that although there are not many closed factories, there are many closed factories. The situation in other cities such as Foshan and Shunde is slightly better.It stands to reason that the Shanghai and Beijing markets have plummeted like this, so in the hardest-hit Guangdong market, sales of luxury goods should also plummet. In January 2009, the consumption of luxury goods in China reached 3 billion US dollars.Take Guangdong Province, which was hit the hardest, as an example. In the first quarter of 2009, the sales of luxury brands in Guangzhou Friendship Store and La Perle Plaza went against the trend and increased by 20%.The whole world is plummeting, Beijing and Shanghai are also plummeting, and in Guangzhou, the most economically hit province, the sales of luxury goods have skyrocketed by 20%, can you imagine?Moreover, in the first quarter of this year, the number of diamond consumer card customers of Friendship Store over RMB 400,000 increased by 7%.In addition, in the first quarter, the growth rate of international first-line jewelry and watch brands in Guangzhou Friendship Store exceeded 15%, among which, the growth rate of famous brand watches worth more than 100,000 yuan or even hundreds of thousands of yuan exceeded 90%; in the second quarter, sales increased by 13% year-on-year. %, of which the jewelry category increased by 23% in June and 29% in May.However, it is strange that the sales of middle and low-end luxury goods have plummeted by 30% to 40%.In a province that was hit the hardest by the financial tsunami, its sales of luxury goods soared, and high-end watches even rose by 90%, while second- and third-tier brands plummeted. May I ask why? The price/performance ratio we discussed in previous chapters can explain this phenomenon.The main reason why first-line brands sell so hot in Guangzhou is that they sell at discounted prices, and some brands even get 10% to 50% off.The drop in price has made the cost-effectiveness of the first-tier brands higher than that of the second- and third-tier brands, which has caused a strange phenomenon that the first-tier brands have skyrocketed, while the second- and third-tier brands have plummeted. The automobile market is very interesting. Taking Guangzhou as an example, the sales volume of Mercedes-Benz S350 in March 2009 increased by 20% compared with February, and increased by 30% compared with the same period last year; the sales volume of Mercedes-Benz CLK series also increased by 20% compared with the previous year. %.The price of BMW 730 rebounded by 50,000 yuan, and the price of Mercedes-Benz S350 rebounded by 30,000 yuan.Not only that, the interest-free loan originally provided by Mercedes-Benz for promotion was also canceled on March 31 this year. Why?Because the sales are so good, this is our luxury market in China. In April 2009, I went from Tsinghua University to the West Third Ring video recording site. It was very close and it was not a weekday, but there was a huge traffic jam. The taxi driver said that the weekend traffic jam in Beijing was very serious in the past two months.This is closely related to the surge in sales of luxury goods. Readers, please think about it, why is this?In fact, Duanni can be seen from some simple data. Beginning in November 2008, the financial crisis hit the real economy, and the global market demand plummeted, which led to a positive change in my country's export growth rate in November to -2.2%, and to -2.8% in December.Since 2009, exports have fallen at a rate of about 20%.In fact, I am not nervous about the decline in exports, because the demand in the world has dropped sharply due to the economic crisis, and the decline in our exports is inevitable.But what worries me the most is our plummeting imports. In January 2009, our imports plummeted by 43%, of which imports of raw materials other than crude oil fell by 50%, and imports of industrial equipment fell by 40%. Do you know what this means?Many people are saying that our imports fell by 43% in January and exports fell by 17%, so our trade surplus increased by 102%.This is nonsense, how can you look at the problem in this way?These are just superficial phenomena, we must see the essence through the phenomena.Please think about it, what does the sharp drop in imports mean?Many of our manufacturing companies simply import raw materials and machinery and equipment for rough processing.If imported raw materials have fallen by half, and imported machinery and equipment have also fallen by 40%, do you know what this means?Since the two major dilemmas (the deterioration of the investment and business environment and the problem of overcapacity) have not been resolved, these entrepreneurs in the manufacturing industry simply don't want to do it.After working day and night for so many years and making money so hard, at this time, I may think of my wife who has worked so hard for so many years and feel sorry for her.So I went to Guangzhou Friendship Store to buy a famous watch worth hundreds of thousands of yuan to express my gratitude to my wife, which caused the sales of luxury goods in Guangdong to skyrocket.What's behind this skyrocketing sales?This is what I am very concerned about. The funds in our manufacturing industry have flowed out of the real economy and entered the virtual economy. In fact, if these funds enter the stock market or the real estate market, it is okay, and there is still the possibility of circulation.For example, if you buy stocks and invest 100 yuan today, it will rise to 200 yuan tomorrow, and the money you earn after selling can be invested in the production industry in the future.The same goes for buying a property. Today I spent 100 million yuan to buy 10 buildings, and when the price rises to 200 million yuan, I sell them and the proceeds can be reinvested.But what is the result of you buying luxury goods?You bought a diamond for 1 million yuan now, can you still sell it in the future?You buy luxury goods without even thinking about selling it, because there is basically no secondary market for such high-end goods.Therefore, these funds will be trapped forever, and it will never be possible to flow back to the real economy.Unlike stocks and buildings, which have a good secondary market, if you make a fortune, you will always have the opportunity to invest in the real economy in the future.Of course, it is impossible for entrepreneurs to invest a lot of money to buy luxury goods, but the growth of luxury goods sales against the market is already known. Is this what we call recovery?Behind this warming phenomenon, the essential problem is very worrying.In these provinces where foreign trade is the mainstay, every entrepreneur is very tormented in his heart. Why should they give up the industry they have been working on for a lifetime?Because of the difficult situation right now?Can't you just grit your teeth and get through it?They don't want to bite the bullet.Before we criticize these entrepreneurs, we should analyze their feelings. Isn't it painful for them to make this decision?What should they do next?If they don't sell the factory, what do you think they can do?Taking Guangdong Province as an example, most enterprises are traditional labor-intensive industries, such as making cups and teddy bears. The current profit margins of these industries are very low, and if it is not negative work, it is close to zero.What do you think they can do?Where is their future? These enterprises are under great pressure and face many problems, such as the six major shocks discussed in the first chapter, including exchange rate, cost, the "Labor Contract Law", export tax rebates, macro-control and the investment and business environment caused by the increase in taxes and fees Deterioration, coupled with excess capacity caused by the financial tsunami and so on.At present, our government's countermeasure is to upgrade these enterprises. Krugman, the Nobel laureate in economics, came to China to make a similar appeal, saying that the future of China's traditional labor-intensive industries is industrial upgrading.Therefore, for these manufacturers who simply import raw materials and machinery and equipment, export after rough processing, the only option is to upgrade the industry and invest capital in high-productivity high-tech and capital-intensive industries. For example, the gross profit margin of the toy industry in Guangdong Province is close to zero.What should I do?I thought of mobile phones. Mobile phones are not high-tech, but the phone card inside the phone is high-tech. There is a golden metal piece on the phone card, called an integrated circuit, which is made of chips, and chips are high-tech.If we don't make toys and invest heavily in chips, this is our hope for the future, because the gross profit margin of chips is very high, at least above 40%.Therefore, many of our experts and scholars have called for the transformation of China's traditional labor-intensive industries.So let me ask you, you put the only choice in front of an entrepreneur in our traditional labor-intensive industry, do you know what he will do?He would rather buy luxury goods than invest in high technology.Why is that?Do you think the future of these labor-intensive industries is high-tech or capital-intensive?On the surface, the gross profit margin of chips is 40%, which is much higher than that of toys such as Barbie dolls and teddy bears.But have you ever wondered why the gross profit rate of teddy bears is low?Is it because it is a traditional labor-intensive industry?If you look at it that way, the thinking is too simple. Let's look at another story. Mattel recently opened a Barbie store in Shanghai, displaying 1,800 color-by-color dolls.After our factory produces Barbie dolls and sells them to Mattel for 1 dollar, Mattel then sells these Barbie dolls to China not for 1 dollar, but for at least 10 dollars or even tens of dollars. These added values are How did you create it?It is created through the six major links it masters, including product design, raw material procurement, warehousing and transportation, order processing, and wholesale and retail.Mattel's gross profit margin in 2007 also exceeded 40%, which is the same as that of chips. We look down on these traditional labor-intensive industries, thinking that its gross profit margin is low.In fact, the low gross profit margin is not because it is a traditional labor-intensive industry. If you do not do manufacturing, but do the six major links of Mattel, your gross profit margin can reach 40%.For so many years, our entire economic development model has been based on manufacturing, and we still think we are a big manufacturing country.The profits of the big manufacturing countries are all sucked up by companies like Mattel that control the six major links, because Mattel controls the pricing power of Chinese toys by virtue of the six major links.This is the real reason for the low gross profit margin of the toy manufacturing industry. Since Mattel controls the pricing power, it can decide the price at will and give you any amount you want, and you can only accept it, because the price is determined by it.For example, your cost is 9.99 yuan, and it gives you an order of 10 yuan. Do you want to do it?You can only do it, and you can only earn 1 cent. If you don’t do it, there is nothing you can do, because it controls the pricing power, and as a result, it sucks up all your profits.This is why the United States puts its manufacturing links in China, because they control the six links that create the most value and are the most profitable.This is the plight of our export manufacturing industries in Guangdong, Zhejiang, and Jiangsu. Our original manufacturing industry development positioning was wrong. This is the reason for the low gross profit margin of our traditional labor-intensive industries. If you don’t recognize this fact and must transform, then what do you transform?Do you still make chips after transformation, or do you still make "1"?Let me tell you, tomorrow's chip is today's toy.In the future, the Americans will definitely control the six major links of the chip and completely absorb the profits of our chips, so tomorrow's chips will inevitably repeat the mistakes of today's toys.The choice before us entrepreneurs is a very strange choice, a choice that only looks at superficial phenomena, because industrial upgrading itself simply makes a superficial comparison between the profit margin of toys and the profit margin of chips, and this Superficial comparisons will drive many scholars to simply conclude that China should abandon these industries and directly enter high-tech or capital-intensive industries.Moreover, this choice has been extremely exaggerated by scholars headed by Krugman.In fact, I have basically read all the papers Krugman published in the United States. He did have achievements in macroeconomics, otherwise he would not have won the Nobel Prize, but he did not dabble in industrial economics. His transformation Theory fails me.If we really come to this step of industrial transformation, the fate of the toy industry will repeat itself in high-tech and capital-intensive industries.This is the reason why luxury sales are on fire, and what we have in front of entrepreneurs is a choice to repeat the same mistakes.I don't want to criticize entrepreneurs for their helplessness, and use funds that should have been invested in traditional labor-intensive industries to speculate in real estate, stocks, cars, and luxury goods. I can only express my understanding. In addition, if our transformation is indeed successful, we will also face two inevitable tragedies. The first tragedy.If we want to transform, do you know how many toy factories we need to replace a chip factory? 1000 pieces.Because the investment in chips is very large, thousands of times that of toys. 1,000 toy factories can employ 1 million people, while a chip factory can only employ 20,000 people. Therefore, if our transformation is successful, we will immediately face 980,000 unemployment. The second tragedy.Japan is a country dominated by high-tech and capital-intensive industries. Japan's GDP fell by 12% in the fourth quarter of 2008 and by 15.2% in the first quarter of 2009.why?Very simple, high-tech and capital-intensive products are basically dispensable products, such as mobile phones, digital cameras, etc. When the economic environment is good, we buy more of these products, and when the economic environment is not good, we buy less.What really resist the pressure are the traditional labor-intensive industries that we look down on, such as underwear and quick-frozen dumplings.If we abandon these traditional industries and upgrade to high-tech and capital-intensive industries, we will immediately face the second tragedy, that is, the products are even less resistant to pressure. I believe readers must be very sad when they see this. In order not to make readers sad, I want to give readers a sense of optimism—that is, please rest assured that industrial transformation is unlikely to succeed. I don't need to talk too much about the truth, I just want to remind readers that only Western Europe, the United States, Japan and South Korea really have high-tech and capital-intensive industries, and basically no other countries have them.Do you know why?Take South Korea and Japan, which we are familiar with, as examples. These two countries are both disciplined and rule-abiding countries.The basis for the development of high technology is to first establish a set of rules-based system engineering.What is rule-based systems engineering? Readers, please think about it, is your company looking for talents or screws?Companies looking for talents do not have system engineering at all, and companies with system engineering must be looking for screws, not talents.We can all agree that the most important talent is the chef of the restaurant, without which the restaurant would not be possible.The level of most of our current enterprises is equivalent to that of a great chef.This person's chef cooks delicious dishes, but others can't. In order to keep the great chef, you have to give him equity.In fact, you are wrong. You should systematically engineer the chef's cooking process, so that you don't need the talent of the chef. What is system engineering?For example, when frying fish-flavored shredded pork, we divide the chef’s cooking process into 20 stages, that is, 20 rules.The first person chops green onion, the second person shreds the pork... The 18th person pours soy sauce, the 19th person turns the fire to 600°C, and the 20th person fry 3 times.If it doesn't taste good, adjust certain rules; if it doesn't taste good, adjust it again.After numerous adjustments, assuming that the 1001st time the system can fry dishes as delicious as the chef’s, under the requirements of this system, the size of chopped green onion must be 1.1 cm, and the size of shredded pork must be 1.3 cm. The rule of soy sauce must be 2 spoons of dark soy sauce... From now on, we will cook according to this system. Everyone strictly implements the requirements of each rule, and we must not innovate.This is called the establishment of systems engineering.Once the system engineering is established, you don't need the talent of the chef, but 20 screws that respect the rules, which can ensure that the taste of the dishes fried every time is exactly the same as that of the chef.This system engineering was carefully established by the Koreans in the 1980s, so they could give birth to the great Samsung. But we are different from Japan, South Korea and other countries. Not only do we not respect the rules, but we are also proud of breaking the rules.For example, if you are an entrepreneur visiting a certain place, the local leaders often use police cars to clear the way and run red lights all the way in order to show their importance.It seems that the leader attaches great importance to you, but do you know that everyone from the leader to you is breaking the rules?And you yourself are still very proud, and you brag to your wife when you get home, saying: "Look, you are married to the right person!" It's not that we don't follow the rules at all.This kind of nation that likes to break rules and likes to talk about "hidden rules" is very difficult to establish a system engineering based on rules, and it is difficult to succeed in industrial transformation without the foundation of system engineering. You may say that I am too absolute, we still have high-tech and capital-intensive companies, such as Huawei and Foxconn.So let me tell readers clearly that Huawei not only has system engineering, but also integrates the "6+1" industrial chain.Huawei's system was established with the help of IBM, and of course the fees are very high, several hundred million. The system engineering concept introduced to readers in this chapter is the foundation of the high-tech industry. As long as it is an excellent high-tech company, it must have this system.If industrial transformation is not an alternative direction due to the lack of system engineering, what is the future direction of our enterprise?Regardless of whether it is a high-tech, capital-intensive or traditional labor-intensive industry, the "6+1" industrial chain integration is very important.