Chinese manufacturing is facing difficulties. Costs have risen. Labor costs in the Pearl River Delta area, one of the largest manufacturing hubs is growing at double digits.

Add to that the rise in the value of the Renminbi, and manufacturers are feeling the pinch of higher costs. Combine this with sluggish global markets still trying to come to grips with the financial crisis started in 2008, and the picture is grim.

The Financial Times recently ran an article entitled “China’s manufacturers feel the squeeze as costs rise” (FT, November 4, 2013). The article talked about the challenges facing the numerous small manufacturers that have been the bedrock of Chinese prosperity over the last several decades.

What was interesting though was the fact that these challenges facing the SMEs are driving many of the more entrepreneurial players in exactly the right direction. They are making the move from manufacturing commodities to becoming branded players.

Consider Ambassador, a maker of suitcases out of Shenzen in southern China. Two years ago it sold 200,000 suitcases to Benetton, but last year that had dropped to 50,000! Due to price pressure, Ambassador’s margins have been squeezed. They make only a $10 profit on a three-suitcase set that sells for $80. The set of course fetches several times that outside China.

Given these pressures, Ambassador has started selling suitcases in China – an expanding market as growing millions of Chinese travel overseas for the first time each year. For Ambassador the Chinese market has rapidly grown to account for 30 per cent of its annual sales, offsetting the weak demand overseas. It has also changed their mindset. The FT reports the company as claiming that it wants “to build our brand”.

And, it is not just Ambassador that sees a future in China. Many other players from both within and outside China see the possibility of building a branded business in China. Perhaps, for Chinese and other emerging market players, the downturn is a blessing in disguise. Perhaps it is helping create another wave of EMNCs who in a few years will burst upon the world stage, further tipping the balance of world stage towards the emerging markets.