Enlightenments brought by supply-side reform to the LED display industry

Since October, "supply-side reform" has gradually become a high-frequency word in high-level speeches. The "supply side" corresponds to the "demand side". The demand side has the troika of investment, consumption, and exports, while the supply side has the four major elements of labor, land, capital, and innovation. Supply-side structural reform aims to adjust the economic structure to achieve optimal allocation of factors and improve the efficiency and quality of economic growth.

China's economic development has entered a new normal. Under the new situation, the country's top leaders have emphasized strengthening supply-side structural reforms - resolving excess production capacity, destocking, reducing corporate operating costs, expanding effective demand and guarding against financial risks, in order to solve the current economic development dilemma.

Looking at my country's LED display industry today, there are some development bottlenecks - overcapacity; product homogeneity and insufficient innovation; increased corporate operating costs and financing difficulties for small and medium-sized enterprises, which make the further development of China's LED industry face huge difficulties and challenges. Therefore, China's LED display industry also needs a thorough supply-side reform.

The current development difficulties faced by the LED display industry

Overcapacity is the first important problem faced by the LED display industry. From the supply side, it should be said that the LED display industry has been on a very smooth road in the past ten years and the money has been very profitable. This involves two factors. First, the LED industry is a strategic emerging industry. During the early development of the industry, the state and local governments gave a lot of support, such as land allocation and financial subsidies. Second, the market supply and demand situation at that time was that supply was less than demand, so things were easier to sell. Basically, as long as they were produced and there were no major quality problems, they could be sold, and everyone's requirements were not high.

On the one hand, the profits are huge, and on the other hand, the entry threshold for LED displays is low, so a large number of small and medium-sized enterprises have flooded in, making the current development pattern facing China's LED display industry one of "large quantity, small size". The cake is getting bigger, but consumer demand is no longer as strong as before, so production capacity begins to overcapacity. This overhang has been exacerbated by the global financial crisis in 2008 and the sluggish domestic market in recent years. Take upstream LED chips with relatively high technical content. According to analysis by research institutions, the oversupply rate in the LED chip industry in 2015 was as high as 22%. Therefore, the industry is currently facing a severe test of oversupply and demand.

The second problem is product homogeneity and insufficient innovation. The products in the mid- to low-end market are highly homogeneous, and corporate products lack characteristics. In addition, the industry is dominated by small and medium-sized enterprises, many of which are family-owned workshops, and sales channels are single. When products accumulate in large quantities and inventory backlogs are serious, the only way everyone can think of is to cut prices and engage in price wars. The price war has brought down a number of companies, and it has also dragged down a number of companies. As a result, everyone's life has been difficult. Therefore, the industry is always in a pathological competitive environment. The deeper reason behind this is the poor awareness of corporate innovation, including product innovation, channel innovation, etc.

The increase in business management and operating costs is also a major problem faced by many companies. On the one hand, labor costs in China are getting higher and higher, so global manufacturing has begun to shift to low-labor-cost regions in Southeast Asia. Since 2011, China's population structure has reached an inflection point, and the demographic dividend has gradually been exhausted. Therefore, the 13th Five-Year Plan recommends promoting an active family policy that allows a couple to have two children to reserve labor for China's economic development in the next two decades. On the other hand, corporate management also needs to be strengthened urgently, including how to optimally allocate corporate resources and how to rationally lay out product structure.

Finally, there is the problem of financing difficulties for small and medium-sized enterprises. This is a common question. Because it is difficult to borrow directly from banks, some small and medium-sized enterprises choose to go to the capital market. Listing on the New Third Board is easier than independent IPOs. Therefore, many companies use the New Third Board as a springboard and adopt a curve listing strategy. Currently, five companies in the LED display industry have successfully listed on the New Third Board, but whether the New Third Board can solve the financing difficulties of small and medium-sized enterprises is still unknown.

Supply-side reform of the LED display industry

The supply-side reform of the LED display industry is nothing more than strengthening effective supply, creating effective demand, and improving the efficiency of resource allocation from the four major elements on the supply side - labor, channels, capital and innovation. They are: use the new demographic dividend to fill the labor gap and reduce corporate operating costs; encourage free competition among enterprises, mergers and reorganizations, and enterprises should rationally deploy channel construction to resolve excess production capacity; reduce direct and indirect financing costs of enterprises to improve the risk resistance of the enterprise's capital chain; increase innovation efforts to promote the industry to get out of the trap of product homogeneity as soon as possible.

The first is to strengthen labor supply. Facing the adverse effects of my country's current labor shortage and rising labor costs, the industry should strengthen the construction of a professional talent team and pay attention to the training and reserve of professional and skilled talents in order to create a new demographic dividend. In addition, companies should take advantage of the strong opportunity of "Made in China 2025" to actively move closer to intelligent and automated production, increase productivity, reduce production costs, and improve the market competitiveness of products, in order to get rid of the troubles caused by rising labor costs as soon as possible.

How to strengthen supply from channels? Enterprises should reasonably lay out the construction of product sales channels according to their own development conditions, including traditional channels and emerging online channels. With the rise of "Internet +", the Internet of Everything, and O2O, online channels will surely become the main battlefield for competition among enterprises in the future; on the other hand, we will actively explore emerging overseas markets. Currently, our country is vigorously promoting national development strategies such as the “One Belt, One Road” initiative. We must seize these opportunities and export our products to the global market.

When it comes to capital, it is mainly a matter of financing. Small and medium-sized enterprises are the main force of my country's LED display industry structure, the main body of industry innovation, and the source of our vitality. The so-called clever woman cannot make a meal without rice. Without financial support, small and medium-sized enterprises will lose the space to display their talents if they lose their source of funds.

Therefore, the government should provide more policy support for small and medium-sized enterprises to borrow from banks; in terms of capital market financing, the "Several Opinions on Further Promoting the Development of the National Small and Medium-sized Enterprises Share Transfer System" and the "Decision on Authorizing the State Council to Adjust and Apply the Relevant Provisions of the Securities Law of the People's Republic of China in the Implementation of the Stock Issuance Registration System Reform (Draft)" have been released one after another. In terms of capital market financing, it should be said that it has brought more convenience to small and medium-sized enterprises in moving to the capital market and financing. Secondly, small and medium-sized enterprises are also encouraged to develop various forms of financing channels to maintain sufficient cash flow.

Finally, innovation. At present, the country is vigorously calling on the public to innovate and start businesses. For the LED display industry, innovation is directly related to the life and death of many small and medium-sized enterprises. It can even be said that innovation is the fundamental and most important part of the supply-side reform of the LED display industry.

The superiority of innovation is reflected in all aspects of the LED display industry. Channel innovation is conducive to resolving excess production capacity. There is a strange thought in China's LED display industry: Originally, the factory price of LED displays was not high, but in the end, the price in the hands of consumers was obviously high. In the end, the screen manufacturers could not make money, or even lost money, and the money was made by the brokers in the industry. This is a loss for both factories and consumers. Therefore, in the future, the channel construction of the LED display industry should move closer to flattening, reducing intermediate links as much as possible, and directly opening up the channel between factories and consumers.

Product innovation helps companies escape the trap of industry product homogeneity. In the future, companies should launch more personalized products. Today's market is becoming increasingly rich in products, and cookie-cutter products can no longer impress consumers. Only personalized products can win customers' favor. When Apple's mobile phone was first launched in 2007, it quickly established its dominance by relying on its very personalized smartphone positioning.

Brand is also very important. Chinese LED display companies should not just be content with exporting products, we should export brands. If in the past we relied on the low-end model of OEM and OEM processing for foreign brands to make profits, then we should change now. We should build our own brands. Only with a brand can we control the commanding heights of the global LED display industry.

Innovation in corporate management models can help companies get out of the dilemma of rising operating costs; innovation in financing channels, such as the current online financial financing P2P platform, can allow companies to obtain more financing channels.

Supply-side reform is always ongoing and has no end. At this moment, China's LED display industry also needs a baptism of supply-side reform. I believe that over time, the face of China's LED display industry will surely take on a new look and regain its vibrant and youthful style.