Studies On The Lack Of Pricing Power Of China's Raw Silk

Even though China is the largest producer and exporter of raw silk, the absolute advantage in the quantity production does not make China dominate the world's raw silk trade. At the same time, China's raw silk industry is suffering under the anti-damp investigation by India. Therefore, it is important to study the lack of pricing power over raw silk to improve profit in the silk industry, increase income of the farmers and stabilize the economic development in the silk production area of China.This paper studies the world raw silk trade and China's raw silk export and production. Using Michael Porter's five forces model, the paper qualitatively studies the foreign trading environments of China's raw silk industry. The paper also analyzes the price war behavior in the raw silk industry through game theory. Lastly, the paper qualitatively and quantitatively analyzes the lack of pricing power in China's raw silk industry using mathematical models. The following conclusions are drawn from the analysis:1. With the right to export raw silk open to the public, the price of raw silk export of China has been declining for many years.2. Among the exterior environments that affect development of China's raw silk industry, the favorable factors are:⑴It is very difficult for some countries to emerge quickly enough in the raw silk production to replace China.⑵Because of habits and culture in silk consumption, raw silk is unlikely to be replaced by other substitutes. The unfavorable factors are:⑴Raw silk industry in India and Brazil are threats to China's raw silk industry.⑵There are too many raw silk export enterprises in China, and these enterprises are very small and scattered. The bargaining power of individual enterprises is low.⑶There are not as many consumers and they are concentrated. In some cases, the import of raw silk is controlled by the local government. The bargaining power of raw silk consumer is high.3. The degree of industry concentration is too low. Homogeneity of products is a serious problem. There are too many raw silk enterprises in China, and these enterprises are very small and scattered. The number of unified trading is too low. The competitive behavior of low-pricing is the main method of competition between domestic raw silk enterprises.4. With high grade raw silk less than the demand and an over supply of low grade raw silk, the low grade raw silk played a leading role in the drop in the price.5. The price volatility of raw silk in China has little relationship with supply and demand. The price volatility of raw silk in China possesses little impact on exporting price. The ratio of the pricing power of China and India are 0.42 and 0.61, calculated exports of top 4 firms and top 8 firms. The lack of pricing power of China's raw silk industry is obvious.6. Based on the above analysis, the paper proposed the following suggestions to help China's raw silk industry fight for the pricing power.⑴China should establish the raw silk forwards and futures and become the pricing centre of raw silk in the world.⑵Support large-scale enterprises in raw silk export. Large-scale enterprises can the number of advantages and technical barriers to increase the bargaining power, and fight for pricing power.⑶Develop self-discipline, implement export quotas and minimum price.⑷Raw silk export enterprises should hold a price negotiation with foreign traders to secure a large increase in price by jointing together.⑸Perfect reserve system of raw silk, increase the number of reserves, and establish specialized company to manage the reserve system of raw silk.⑹The establishment of authoritative information release platform and mechanism for enterprises can help them eliminate the information disadvantage when they price raw silk.