Jacob Rothman, president and chief executive officer of Velong Enterprises, whose head office, was adapted to Shanghai, manufacturer of kitchen and exporter equipment, navigates pricing and commercial policies.
Global finance: Can your business in China remain viable with 30% of American rates?
Jacob Rothman: I think now there are problems that stimulate this, and they are difficult. A main problem is: can I trust this figure? Our customers look at this and because the retail products cycles work in the way we quote or we have cited our customers for the next season.
GF: So this strengthens the strategy to look beyond manufacturing in China?
Rothman: Recent decisions of the Trump administration concerning prices on Chinese imports to the United States have not changed our pressure to move manufacturing outside China. However, can we work with 30%? We had accumulated substantial stocks, between $ 8 and $ 10 million.
And we need money to build our factories abroad, which at our scale is around $ 160 million in China combined with our Indian manufacturing partners now – we have two factories in India and one in Cambodia – we reach around 250 million dollars. Based on these totals, $ 10 million is a lot for us and I need money for cash flows and to invest. And therefore the price relief of 30% came from the possibility of moving our inventory, but our customers must also be concerned about their cash flows.
GF: What is the situation regarding freight and shipping?
Rothman: Certain ports such as Qingdao and Yantian as well as Shanghai, and Ningbo have been overwhelmed for a while, but they are not so now. A factor is considerably increased shipping prices, the almost shipping prices of the core era era. Ships that carry goods in China or Asia in general in the United States have dropped considerably. The price of the shipment could take 18 months to return where they were, and they were already raised.
GF: How do your peers react?
Rothman: They say that we focus more on Europe, but we have too much capacity with regard to much smaller markets. And so, it has forced us all and opposed each other to pursuing a smaller pie, and frankly, we do it because we owe it.
GF: Is it very sensitive to prices?
Rothman: It is sensitive to the price and even more now because we are all competing for these markets. However, we have never been focused on the United States. Canada is a cheap but small. And the population is a fraction of the population in the United States. Over the years, you have had super retailers like Walmart, Home Depot and Lowe’s, who dominate the majority of the market and the same thing has happened in Europe with Carrefour or Tesco. And each of these markets works differently in terms of product request, and you do not have the same volumes you get to the United States. European regulations are another consideration.
GF: What is the importance of exchange rates for your business?
Rothman: When I arrived here 20 years ago, the dollar renminbi was 8.2 and now there is 7.4 – a devaluation – and that has affected us positively, but now the dollar is lower and expected this year may be 5% to 8% reduction. This makes Chinese exports more expensive, and we have the prices and shipping rates that hurt us. All these things together add up. So, I think that when you saw that what relaxes tensions between President Trump and President XI, there was an initial exaltation, but when you add all these factors, it’s always difficult.
GF: There are a lot of discussions on the recalibration of the supply chain within the APAC. Does this materialize?
Rothman: During President Trump’s first term, through Biden’s mandate, the majority went to Vietnam, and you have Japanese factories, Korean factories and Vietnamese factories. Now I would say that China has taken the lead.
The problem is that people now see this business as an American problem, but it is also a problem in China. And I think people want to see a more balanced supply chain and people who will work through it will survive, trade will be balanced, and maybe it will be better for the world. But it’s certainly painful now.