From overseas OEM manufacturing to building a factory in Vietnam, and then to cluster-style overseas investment, Petpal's 33-year global journey | Pi

Introduction:

Looking globally and exploring the second growth curve has become a definite direction. However, how to go global still tests the wisdom and courage of every Chinese enterprise. There are numerous paths for going global, such as brand expansion overseas, supply chain globalization, and cross - border e - commerce, but there is never a one - size - fits - all answer. Markets like North America, Southeast Asia, the Middle East, and Latin America are vast, yet each has its own challenges and risks. Behind every overseas expedition is the exploration of Chinese enterprises actively involved in the process. More and more Chinese enterprises are emerging on distant coastlines.

The "Global Pioneers" column aims to seek out global benchmarks in different fields, analyze practical cases from a professional perspective, precipitate methodologies through consensus, and discover new possibilities from differences.

At the end of December, Cambodia is in the coolest season of the year, but the temperature is still around 30°C, and the air is filled with a warm and moist atmosphere. In the Cambodia Boge Economic Special Zone Industrial Park at the foot of Bokor Mountain, workers are packing pet chew toys into trucks and sending them to Sihanoukville, 65 kilometers away. A few days later, these products will appear on the pet shelves of major supermarkets in the United States.

This is one of the largest overseas production bases of Juewei Food Co., Ltd. - Petpal Animal Nutrition Technology Co., Ltd.'s Cambodian subsidiary (hereinafter referred to as "Petpal"). Petpal has also established 3 production bases in Vietnam and 2 in New Zealand.

Petpal was born in Shuitou, Pingyang, a place known for its leather industry in Wenzhou. In the early 1990s, after seeing the booming overseas pet market, the company decided to start OEM production of pet products when most Chinese people hardly knew the concept of "pets".

Thirteen years ago, when the globalization process was in full swing, Petpal sensed the "crisis" and built a factory in Vietnam in advance, starting its journey of globalizing the supply chain. As a result, it was able to sail smoothly through the waves of the global "trade war".

It can be said that in the past 20 years, Petpal has grown from an OEM factory to a global listed company, and every key step has kept pace with the rhythm of the times.

01

Discovering the Blue Ocean in the Niche

In the early 1990s, there were more than 1,200 leather factories of various sizes in Pingyang County, Wenzhou. At that time, Chen Zhenbiao, the founder of Petpal, accidentally learned from a business partner that the scraps of pig and cow leather used for making shoes could be made into pet chew toys - a kind of "teething snack" for dogs, which were quite expensive on the shelves of American supermarkets.

At that time, the domestic pet economy had not yet emerged, while the pet economy in the United States was growing rapidly. There were few competitors in the market, and the demand was high. Chen Zhenbiao rented two or three civilian houses in Pingyang and recruited twenty or thirty employees to develop China's first pet chew product - "dog chew toys". The initial products mainly included basic models such as beef and pork chew toys that met the market access requirements of the United States.

As the market share and popularity gradually increased, Petpal continuously increased its R & D investment and produced customized chew toys according to different needs of dogs, such as plant - protein chew toys to enhance the pet's gastrointestinal function, dental chew toys to remove tartar, and functional chew toys to assist in improving the pet's health.

With the continuous expansion of production capacity, Petpal began to seek a production method with lower costs and a more stable supply chain, thus launching the "going - global" strategy. In 2008, Petpal took the lead in formulating China's first national standard for the pet industry, "Pet Food - Dog Chew Toys" (GB/T23185 - 2008).

In 2011, Petpal established a production base in Uzbekistan, where the price of animal skins was low, for the preliminary processing of upstream raw materials. Uzbekistan gradually became Petpal's core raw material supply base. This was also Petpal's first attempt at overseas layout, which accumulated experience for its subsequent continuous expansion in the overseas market. In 2013, Petpal further globalized its supply chain by opening a factory in Vietnam, which soon developed into an important production base for Petpal. The export value of the overseas factory increased from 6 million yuan in 2014 to 180 million yuan in 2017. Also in 2017, Petpal was successfully listed on the Growth Enterprise Market of the Shenzhen Stock Exchange, becoming the first listed company in the pet food industry.

In 2018, Petpal continued to expand its overseas territory, selecting the Cambodia Boge Economic Special Zone as a new production base and building a pet staple food production line in New Zealand in the same year. Since then, Petpal's overseas production capacity has gradually caught up with and exceeded that in China. By 2022, the overseas export scale reached about 940 million yuan, nearly twice the domestic export scale.

02

How to Make Vietnamese Workers

Adapt to the "Chinese Rhythm"

"When Petpal first entered Vietnam in 2013, the local pet food and supplies industry was almost non - existent, and there was no relevant industry classification, customs tariff numbers, or inspection standards." Ge Jianfeng, the deputy general manager of the Cambodia Boge Economic Special Zone, told us that Petpal spent a lot of effort communicating with the local business and customs systems, popularizing industry knowledge, and promoting the clear classification of pet food in Vietnam's regulatory system, from the import regulations of raw materials to the classification of finished product exports.

The greater challenge lies in the management system. "The local area in Vietnam generally uses the hourly wage system. At first, Petpal's piece - rate system was resisted by local workers, and nearly half of the employees left." Ge Jianfeng recalled. Petpal's solution to this management crisis was to send experienced Chinese workers to Vietnam for production demonstrations. When local young employees saw that Chinese workers twice their age were more than twice as efficient as them, their ideas began to change, and they realized the benefits of the piece - rate system, which rewards more for more work. "With high - paying rewards, a competitive atmosphere has formed among the workers, and their work enthusiasm has become higher and higher." Ge Jianfeng said.

The piece - rate system also enables Petpal to show stronger production resilience in the face of market fluctuations. In recent years, to cope with frequently changing tariff policies, overseas customers sometimes place concentrated orders before the tariffs take effect, resulting in a sharp increase in order volume in a short period. The piece - rate system allows workers to get higher pay for overtime, thus rapidly increasing production capacity in a short time and ensuring timely response to customer needs.

Petpal also takes various incentive measures irregularly, such as organizing production capacity competitions. The top 100 employees in terms of efficiency have the opportunity to participate in a lottery and win prizes such as motorcycles, which are very popular among local young people. After long - term adaptation, most of the 2,000 employees in Petpal's Vietnamese factory are now locals, and there are only about 50 Chinese employees.

03

Cultivating the Second Growth Curve

Entering the Boge Economic Special Zone, the first thing that catches the eye is a comprehensive office building. A four - meter - wide cement road extends straight behind it, leading to two - story factories laid out horizontally. There are green belts on both sides of the road, and there are also living and entertainment facilities such as a canteen, a basketball court, and a volleyball court in the park.

Around 2018, when more and more Chinese factories flocked to Vietnam, Petpal started a new round of layout in other regions. "At that time, some American customers suggested that we build a new factory outside Vietnam to disperse the risks brought by changes in the global trade environment. The local labor and land costs were also rising continuously." Ge Jianfeng said.

Finally, Petpal chose Cambodia. First of all, the land price in Cambodia is only one - third of that in Vietnam, and the labor cost is also lower. Cambodia has a long - standing friendly relationship with China, a relatively stable political situation, and a safer investment environment. At the same time, enterprises can enjoy various tax incentives such as a maximum of 9 - year income tax exemption, zero - value - added tax, and exemption from import and export taxes.

Secondly, Cambodia has a very loose foreign exchange control environment. The US dollar is its main currency, and the free circulation of the US dollar is allowed. Accounts can be opened, transactions can be settled, and even goods can be bought in supermarkets directly with US dollars. Cross - border trade enterprises can reduce the risk of exchange - rate fluctuations, lower financial costs, and simplify operational complexity.

Ge Jianfeng recalled that when they first came to Cambodia, the local infrastructure was very weak, and there was even no stable supply of electricity and water. For this reason, the Boge Economic Special Zone not only laid a dedicated power line through a substation but also built a reservoir with a capacity of 300,000 cubic meters. It stores water in the rainy season and supplies water in the dry season, forming its own water - circulation system. In addition to the dedicated power line and the reservoir, infrastructure such as a sewage treatment plant (2,000 tons) has also been built in the special zone. There are also a commercial center, canteens, dormitories, and a medical service center to facilitate the daily lives of enterprise employees. A special office for the Council for the Development of Cambodia (CDC), customs, commodity inspection, and the Ministry of Commerce has also been set up.

Currently, the Boge Economic Special Zone is the only provincial - level overseas economic demonstration zone (industrial direction) in Cambodia for Zhejiang Province, which is recorded by the Chinese Ministry of Commerce. It covers an area of about 2,400 mu of land, of which nearly 300 mu is used by Petpal's Cambodian subsidiary. The rest is open for cooperation with Chinese and global enterprises, providing various forms of entry, such as land leasing, factory building leasing, and joint development. It focuses on attracting light - industry enterprises in pet food and supplies, plastic products, hardware furniture, clothing and bags, cultural and sports toys, and auto parts.

Ge Jianfeng mentioned that the Boge Economic Special Zone consciously selects upstream and downstream related enterprises during the investment - promotion process to form a complete industrial ecosystem. It only introduces one representative enterprise in each niche field to avoid unhealthy competition among enterprises.

In terms of supporting services, the special zone has established in - depth cooperation with many Chinese - funded banks such as the Bank of China to build various financing channels for enterprises in the zone and assist them in solving their capital needs. It has also cooperated with a local national - level security company to establish a human - resources center in the special zone. With the support of local industry associations, trade unions, and government functional agencies, it helps enterprises in the zone recruit employees, conduct employee training, and handle labor disputes. It has also cooperated with domestic vocational and technical colleges to provide language and skills training for employees in the zone.

From initially relying on domestic cost and industrial - chain advantages for product exports, to actively transferring production capacity overseas to be closer to the market and avoid trade risks, and then to using overseas industrial parks as a carrier to drive upstream and downstream enterprises in the industrial chain to go global together, in more than 20 years of overseas practice, Petpal has grown into a participant that connects the industrial development between China and Southeast Asia, builds service platforms, and promotes cluster - style investment. This evolution from "product going global" to "production - capacity going global" and then to "ecosystem going global" is a typical path for Zhejiang and even Chinese manufacturing enterprises in the process of globalization.

*The views expressed are from the interviewed institutions or individuals and are for reference only.

This article is from the WeChat official account "Zhejiang Enterprises Going Global Comprehensive Service Port", author: Zhejiang Enterprises Going Global.