Silk Road

GUANGZHOU: A restructure pulled it from the brink of bankruptcy, and now Chinese silk producer Guangdong Silk Group is expanding. In less than six months the group has taken over two silk companies - and it's banking on the new acquisitions to help build its export business.

In late January, the firm bought a 55 percent stake in Guangxi Silk Group in the Guangxi Zhuang Autonomous Region. A few months later, in May, it took over Hunan Silk Group Co, buying a 50 percent stake in the company, based in Hunan Province.

"We expect both acquisitions to help our company become stronger in China's silk industry, and to help shape the silk industrial belt in South China," says Cai Gaosheng, president of Guangdong Silk Group.

"The two purchases will help us take advantage of Guangxi's supply of raw materials and Hunan's production capacity," he says. "We should be able to accept a lot more orders."

Guangdong Silk Group is the nation's leading silk exporter. Its imports and exports were worth $2.33 billion in 2006.

Guangxi Silk Group is the nation's leading cocoon supplier, with a production volume of 185,700 tons in 2006, or one-third of the nation's total.

Hunan Silk Group has 21 subsidiaries with thousands of machines for silk reeling, knitting and weaving, dyeing and printing as well as an export-oriented garment factory with an annual production capacity of 1 million.

"These acquisitions put Guangdong Silk Group in a better position to expand its silk business using the raw material supply, production and cocoon resources of Guangxi and Hunan," he says.

Cai says Guangdong Silk Group plans to restructure its new acquisitions using the same model it used to reform its 80 branches throughout the province.

He says the restructure will include a shareholding strategy for management and employees. Staff will hold 35 percent of shares in Guangxi Silk Group and 22 percent of Hunan Silk Group's stock.

"Our strategy of restructuring and giving staff shares is the main reason we were able to bring this State-owned company back from the brink of bankruptcy and make steady headway over the past few years," he says.

Guangdong Silk Group reported sales of 14.7 billion yuan last year, compared to 2.9 billion yuan in 1999. And its imports and exports were worth $2.33 billion in 2006, up from $690 million in 1999.

Cai says the group is hoping to develop a stronger presence overseas. He says it will redouble its efforts to explore markets in South America, Russia, Southeast Asia, Australia and Africa, while consolidating its foothold in North America, countries of the European Union and Hong Kong.

The company is targeting exports of $4 billion and imports of $1 billion by 2010, with total industrial output of 5 billion yuan, Cai says.

And it also has plans to build its Silique brand locally and internationally through fashion shows, more marketing and opening chain stores, he says.

Silique is backed by a Ministry of Commerce export initiative. The Silique trademark is registered in 15 countries and regions worldwide and the group has also acquired a German clothing brand.

The group also plans to increase its research and development (R&D) spending, team up with researchers from local and international universities, and import state-of-the-art equipment.

It's already set up a large R&D facility in the Pearl River Delta and plans to invest more in this area, Cai says.

Investment in R&D has already paid off in Guangdong Province. Once considered the low end of silk manufacturing, the province is now turning out high-quality raw silk.

(China Daily 07/09/2007 page9)