Wenzhou, located in Zhejiang Province, China, is situated on the southeast coast of China .

The Wenzhou model is a regional economic development model. In simple terms , it is a "small commodity" industrial cluster development model that was formed in Wenzhou after China's reform and opening up , with the private economy as the main body and the market economy as the basis . In the early days of China's reform and opening up, the Wenzhou model attracted widespread attention from Chinese society.

The so-called "small commodities" refer to daily necessities produced by private enterprises in Wenzhou . Most of them are labor-intensive industries with low technical content and affordable prices . Although these products have low added value , they rely on China's huge consumer market and Wenzhou's "institutional time difference" advantage to create the rapid development of Wenzhou's economy .

background of Wenzhou model

The Wenzhou model is the result of changes in China's economic system , which has created specific business opportunities under specific historical conditions.

China's reform and opening up, the conditions in Wenzhou were worse than many other places in China . There were few available natural resources, and apart from alum, there were no more natural resources that could be developed and utilized . The per capita arable land was the lowest in Zhejiang Province , less than 0.5 mu at the time . With a large population and little land, a large amount of surplus agricultural labor had to be transferred to the secondary and tertiary industries, and farmers had to develop non-agricultural industries .

Historically, in addition to farming, Wenzhou people also engaged in family handicrafts or went out to do business and crafts , and small commodities were mostly carried out by families . Although it has the advantages of traditional handicrafts, due to the inconvenience of transportation in Wenzhou and its distance from the city, it is difficult to receive the radiation of urban industries . It can only focus on small products with simple production technology and slowly and spontaneously move towards modern industry .

In 1978, the Third Plenary Session of the 11th Central Committee of the Communist Party of China was held. China decided to implement the new policy of reform and opening up . The local government of Wenzhou led the people to open factories . By 1982, there were more than 100,000 individual industrial and commercial enterprises in Wenzhou, accounting for about 10 % of the total number in the country. 300,000 distributors traveled around the country to open up sales channels for Wenzhou products .

The development stages of Wenzhou's economy

We summarize the three main stages of Wenzhou's economic development.

The first stage is the small family workshop stage .

first stage of the development of Wenzhou's famous enterprises was from the late 1970s to the mid-1980s , during which small family workshops were the most common form of production organization.

Wenzhou has many mountains and little arable land , which has led to a spontaneous privatization and marketization trend in Wenzhou's rural areas. Precisely because of the relatively good market economy foundation , after the reform and opening up , Wenzhou basically did not go through the process of collective township enterprise development that most regions in China experienced , and directly entered the era of booming private economy . It was precisely because of the "time difference" in institutional selection that Wenzhou seized the rare first-mover advantage .

The second stage is the growth stage with the company as the main body .

The "shareholding cooperative system" is a form of rural reform in China. Its purpose is to combine scattered production factors to establish new economies of scale. It was proposed and promoted in 1985.

In 1993 , China promulgated the Company Law , and Wenzhou private enterprises quickly evolved into companies and even group companies . The reason why joint-stock cooperative enterprises were quickly replaced was that it was difficult to form a stable and standardized corporate governance structure , and dispersed shareholding easily led to decentralized management rights , and high management and decision-making costs .

The third stage is the stage of development difficulties and diversified development .

The Asian financial crisis in 1998 also marked the beginning of the maturity stage of Wenzhou enterprises . Due to the sharp deterioration of the export environment , Wenzhou enterprises lost their price advantage in the international market. In addition, China has further opened up market access to private enterprises , which has gradually lost Wenzhou's original institutional advantages. After the rapid development of Wenzhou private enterprises in clusters , the market has become saturated , and product homogeneity has led to fierce price competition , and marginal benefits have been declining.

Facing the changes in the market environment , what Wenzhou enterprises need to do is to shift from the original extensive growth to high-quality growth. A few enterprises have created product differentiation by relying on their brand advantages and marketing strategies , which has avoided vicious competition among homogeneous products to a certain extent . These enterprises have also taken the lead in opening the road of branding and diversification.

Typical case of Wenzhou manufacturing: lighters

When talking about Wenzhou manufacturing, we have to mention Wenzhou lighters . We will use the lighter as an example to let everyone feel the development of Wenzhou.

the 1980s , lighters became popular in China. At that time, the lighters used by Chinese people were mostly made in Japan or South Korea and were expensive . Wenzhou people, with their keen business sense, quickly discovered the business opportunities. Through research on lighters produced overseas, Wenzhou lighters soon appeared on the market.

Wenzhou people know very well that if they want Wenzhou lighters to gain market share , they must lower the price. The market price of Wenzhou lighters is only one-third of that of imported lighters.

the three years from 1992 to 1994 , Wenzhou's sales of plastic lighters to the United States soared to 300 million units , and Wenzhou lighters once occupied 80% of the global market share.

segments of the lighter market with its extremely fast R&D speed . Different materials and styles reflect different styles and can become a symbol of identity for users to a certain extent.

At that time, there were tens of thousands of lighters manufactured in Wenzhou. For a new product, it took Wenzhou manufacturers about 25 days from design and development to production and manufacturing. In contrast , it took Japanese or Korean manufacturers about 80 days. During the heyday of Wenzhou manufacturing, an average of three new lighters appeared on the market every day.

The growth and transformation of Wenzhou entrepreneurs

The "Wenzhou Model" involved tens of thousands of farmers in entrepreneurship, which resulted in many early entrepreneurs in Wenzhou having low cultural and educational levels. At the beginning of the rise of the "Wenzhou Model", they were able to adapt to market changes, but after the development of the market economy, they could only adapt to this situation by constantly improving their knowledge level and management capabilities.

Influenced by cultural literacy, most early Wenzhou bosses kept their businesses closed and were unwilling to merge with other businesses, let alone be acquired or merged by other businesses . This was an important reason why many Wenzhou businesses found it difficult to grow .

Some Wenzhou entrepreneurs also saw the future direction of business development and accelerated the pace of listing. More and more companies began to enter the capital market , producing a group of very influential Wenzhou entrepreneurs , completing the transformation from farmers to listed companies. By 2023, the total number of Wenzhou companies listed at home and abroad reached 58, of which there were 37 listed companies on China's A-shares, covering a number of fields such as clothing, food, and industry.

Wenzhou's family-based development model

Wenzhou started its rise from family workshops, and basically all of them adopted family management. Unity and group development are one of the most obvious characteristics of Wenzhou businessmen. When Wenzhou people meet friends, they will bring many of their relatives. This characteristic of the whole family and the entire clan sticking together is also rare in many other places.

Of course, family businesses also have their limitations. If the quality and ability of the main family members cannot improve with the development of the business, it will become an obstacle to the development of the business . Family businesses are maintained by kinship. Once the conflict of interests between family members exceeds the maintenance power of kinship, the business will split or even go bankrupt.

With the development of enterprises, the drawbacks of family-style management of Wenzhou enterprises have become increasingly apparent. A large number of private enterprises have turned to establishing modern enterprise systems and gradually developed into modern joint-stock enterprises or listed companies , but they still retain the excellent tradition of family solidarity .

Diversified investment of Wenzhou capital

After completing the accumulation of primitive capital , Wenzhou has a huge overall scale of private capital, which is used for various industrial investment, commercial investment and equity investment activities across the country. Some private enterprises have also entered the international market, and a large amount of private capital has been invested overseas, forming an industry-specific Wenzhou market and a cross-regional Wenzhou economy.

In addition to investments in the industrial and commercial sectors, we would like to focus on the Wenzhou real estate speculation group.

The Wenzhou people started speculating in real estate, and it started with local speculation in Wenzhou . From 1998 to 2001, foreign trade orders declined, and Wenzhou's private capital was heavily invested in real estate, causing local real estate prices to soar from around RMB 2,000 per square meter to RMB 7,000 per square meter. In 2001, the first Wenzhou home-buying group entered Shanghai and bought more than 100 houses in three days, with more than RMB 50 million flowing into the Shanghai real estate market. In the following years, about RMB 200 billion of Wenzhou funds were invested in real estate in various places, of which RMB 100 billion was concentrated in Beijing and Shanghai .

In our article, we mentioned that Wenzhou people develop in groups, and the same is true for real estate speculation groups. Generally, they are a group of relatives and friends, with a minimum of two or three people and a maximum of dozens of people. Everyone gets dividends according to the proportion of shares or the number of houses . With the advantage of capital and the correct judgment of the development trend of China's real estate, the Wenzhou real estate speculation group has bought a large number of high-quality assets at low prices.

The historical opportunity of the Wenzhou model

The Wenzhou model is a historical opportunity for China to create light industrial products from scratch.

In an era of material scarcity, the Wenzhou model made significant contributions to China's development with its cost-effectiveness and rapidly growing commodity production capacity, and participated in the entire process of China's light industrial products "from scratch".

At that time, there was a wave of migrant workers moving southwards from inland China, that is, farmers from inland areas went to Wenzhou and other light industrial clusters to find jobs. The labor cost advantages and raw material cost advantages brought by industrial clusters were also reflected in the Wenzhou model.

From the perspective of local government, when China had not yet given legal recognition to the private economy, the Wenzhou government encouraged the development of family workshops despite bearing political risks. After the policy was introduced, it actively led farmers to set up factories and dared to try boldly without reference or learning objects. The efforts and foresight of the Wenzhou local government are also an important support for the success of the Wenzhou model.

When the quantity of goods is satisfied, people will inevitably pursue quality and brand. This is the inevitable law of historical development. When China enters the development stage of "quantity to quality", Wenzhou loses its labor cost and raw material cost advantages, which means that Wenzhou's opportunities in the previous era have ended.

The fighting spirit of Wenzhou businessmen

The entrepreneurial spirit of Wenzhou businessmen is very worthy of recognition. Wenzhou businessmen have an admirable fighting spirit. Regardless of whether they are from ordinary or wealthy families, they are all very hardworking, dare to try and innovate boldly.