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The risks in the LED industry are increasing, and quality remains paramount - Insights from the bankruptcy of Xiongji.
Oct 24,2013
The closure of a business is a normal reshuffling process that any industry must go through. However, the news of the owner of Zhongshan Xiongji Lighting Factory fleeing has caused quite a stir. In recent years, due to the national emphasis on LED development and the promotion of various favorable policies, a lot of capital has flowed into the LED industry. However, the lack of industry standards has led to a flood of low-quality, low-priced products, and Zhongshan Xiongji Lighting Factory is a typical example of producing inferior products.
The lighting factory owner has fled, and wages owed have been advanced.
According to a report from the government of Guzhen Town in Zhongshan City, the operator of Xiongji Lighting Factory, Mr. Xie, is suspected of fleeing and is involved in contract fraud and refusal to pay labor remuneration. The local police have initiated criminal proceedings and formed a special task force to capture Mr. Xie and other involved personnel, and the inventory goods have been transported to a public warehouse for storage. Currently, the wages owed to over 300 employees of Xiongji, amounting to over one million, have been advanced by the Guzhen Town government, while the payments owed to Xiongji's 38 suppliers, exceeding 40 million, are still unresolved.
Low prices seize the market, but product quality cannot be guaranteed.
Zhongshan has over ten thousand LED enterprises, and Xiongji Lighting Factory is one of the few local companies that has sold over 100 million. Reports indicate that Xiongji shifted from traditional lighting to producing LED lights, desperately lowering prices without regard for quality, thus capturing a certain market share. However, it ultimately faced a dead end due to repeated quality-related returns. The development of Xiongji may be a microcosm of the low-quality, low-price enterprises in the LED industry in the future. On July 3 at 11:00, an industry Weibo influencer named "Kaihua Li Die Casting" posted about the news of Xiongji Lighting's owner, Mr. Xie, fleeing at noon on July 2, which immediately attracted the attention of industry insiders.
@Energy Saving Wan Jia: Xiongji Lighting Factory is a microcosm of the inferior products made in Guzhen. How many companies are there that are profit-driven and lack ethics? Without the push from manufacturers that produce low-priced LED shells, light sources, and power supplies, how could they produce such low-quality goods? (July 3, 11:11)
@Yashi Lighting Feng Feiyang 2843078455: Fleeing happens every year, but this year seems particularly high. (July 3, 11:19)
@Guangyin Yanxi: The second half of the year has begun with fleeing; let's see how many will go bankrupt and how many will flee this year. (July 3, 11:19)
@ETN Lighting Liu Yuangu: LED is both enticing and terrifying. (July 3, 13:19)
@Xisai Yuqiao: The time for LED lighting in Zhongshan Guzhen to repay debts is approaching; the expansion was too rapid, and the market woke up too quickly. (July 3, 13:55)
@Zhongshan Kaihua Li Lighting: If it is true that they owe suppliers 50 million, then it is not just "Xiong" that has fled; there will be 2 Xiong, 3 Xiong, 4 Xiong... N Xiong! Just think about it: a 100W floodlight sells for 17 yuan, and a 50W floodlight sells for 48 yuan... How much profit do suppliers have? LED peers can see this at a glance and can calculate how much profit they have. For many component suppliers, it feels like the sky is falling... (July 3, 14:30)
@Didi Dada Didi: Inferior and harmful! Now the component suppliers in Guzhen can't sleep. Dear, have you received your payment? (July 3, 14:36)
@Kaihua Li Die Casting: While condemning the low-priced finished product manufacturers, we should also condemn those who provide them with inferior kits, light sources, and power supplies. Without these profit-driven pushers, the market would not be so unethical and bottomless. (July 3, 14:44)
The incident occurred in Zhongshan Guzhen, the largest professional production base and wholesale market for lighting in China. In 2012, the total output value of the lighting industry reached 15.81 billion yuan, accounting for over 60% of the national market share. The industrial support in this town is quite mature; many people rent a factory, buy a few soldering irons, procure the necessary components in the town, and simply assemble them at home. Such workshop-style enterprises are everywhere in Guzhen. According to data from the Guzhen official website, there are over ten thousand registered individual business licenses in the town. These small workshops engage in vicious price competition to sell their products. On one hand, they want to keep prices low, and on the other hand, they want to make a profit, so these enterprises start cutting costs on product quality. In addition to purchasing low-cost components, some factories even reduce processes to further lower costs. A certain supplier mentioned that the initial prices of Xiongji's lighting products were relatively reasonable. For example, a 3W LED bulb was sold for over 5 yuan with a profit, but later Xiongji only sold it for 3.8 yuan, which was not even enough to cover costs. This kind of product, referred to in the industry as "garbage goods," has no quality assurance.
Victims become perpetrators; long-term checks become worthless.
The low-end LED lights produced by Xiongji Lighting Factory have experienced three return waves due to quality issues since last year, severely affecting the company's operations. In particular, last year, they lost seven to eight million due to a supplier "fleeing," which may have led Mr. Xie to consider "fleeing" as well. Thus, former victims slowly became the current perpetrators. According to rough statistics, the checks held by nearly 40 of Xiongji's suppliers and distributors add up to over 40 million. The checks issued by Xiongji are dated for June, July, and even September, all from a bank in Heyuan City. Once a company "flees" or goes bankrupt, the checks cannot be cashed. According to a certain supplier, Xiongji's checks have not been honored since March of this year, which was not a problem before. Xiongji owes over 1.5 million in wages to workers, and with commissions and bonuses, the total reaches around 2 million. Currently, over 300 unemployed workers have had their dining and accommodation issues resolved through coordination with the local government, which has contacted relevant factories to provide job opportunities for the workers. Additionally, one supplier lent hundreds of thousands to ship goods to Xiongji and then took Xiongji's checks. After learning that Mr. Xie had fled, the supplier almost considered jumping off a building that night. In the incident of "Xiongji's owner fleeing," the most affected are the component suppliers and distributors. Those suppliers that are still operational will have to bear some responsibility for the bankrupt company. If low-quality, low-priced products run rampant in Guzhen, then the brand image of the "Lighting Capital" will also be affected.
Industry risks are increasing; quality remains king.
It is understood that Xiongji's products have issues with cutting corners, and the factory's management philosophy and methods are fraught with contradictions. Key positions such as procurement, warehousing, production process design and manufacturing, and finance are all held by Mr. Xie's relatives, leading to inaction and corruption from top to bottom. In international division of labor, generally, only those who master key technologies can enjoy greater profits, while the lower the technological content, the easier it is to be replaced, resulting in lower profits. In the future, the more scarce the technology, the higher its value will be in international division of labor. Domestic LED OEM companies must enhance the technological content of their products and master higher-end LED technologies to occupy an important position in the international division of labor. Companies like Xiongji, which sacrifice quality to lower prices, will ultimately end in bankruptcy.
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