Seamless move beyond quotas
Over the past 14 years, the DHL/SCMP Hong Kong Business Awards have recognised excellence under the categories Business Person of the Year, Executive Award, Owner-Operator Award, Young Entrepreneur Award, International Award and Enterprise Award. Ahead of the presentation for this year's winners on December 2, every Monday we will speak to one of last year's winners and see how each has fared in the past 12 months.
Clothing firm Luen Thai Holdings has transformed its operations to get garments from designers' drawing boards to clothing racks faster as the industry becomes ever more competitive and trade barriers continue to fall.
The firm - winner of last year's Owner-Operator Award - began to specialise in the manufacture of shirts in the early 1980s. But in the late 1990s, it began planning for next year when nearly all global garment quotas will be scrapped.
Executives decided their firm would have to grow and offer more services to their customers ahead of the new environment.
'Quotas become a competitive advantage for those who have quotas,' executive vice-president Raymond Tan Cho-lung says. 'It is not about how well you manage your company but whether you have a quota to do business or not.
'The advantage for us is that we were under the quota protection for many years, so we have had time to prepare for the quota-free environment. If you are a newcomer, then you can only start from January 1, 2005, or you have to start from a very small scale before then.'
Beyond manufacturing, Luen Thai describes itself as a services company providing support at all stages of production, including design, sourcing and logistics.
'When we look at this situation, we believe that we have to turn the company from a traditional apparel manufacturer to what we call [an] apparel supply-chain services partner,' Mr Tan says. 'The word 'service' is very important. We have to apply various supply-chain services to our partner rather than just making the product.'
Luen Thai has built what it calls 'supply-chain cities', where the company's customers and suppliers can work closely together.
'We are inviting our customers to come to our development centre, which means they work at our development centre,' Mr Tan says. 'We are also inviting our fabric partners to work in our development centre. We are putting the three parties working under one roof - our customer, ourselves and the fabric partners ... We believe that if you want to shorten the cycle time, you have to work very closely together.'
To ensure access to a broad range of fabrics, Luen Thai prefers partnering with many suppliers rather than just a few large ones.
The firm has also increased logistics efficiency in order to shorten cycle times. Customised packaging has slashed the number of times clothing needs to be unpacked and repacked as it is moved from the production plant to the shipper to clothing chains' warehouses.
'We used to ... have six months' cycle time,' Mr Tan says. 'We are moving towards 45 to 60 days' cycle time now and it might even go down for some of the other products to as low as 30 days.'
Meanwhile, Luen Thai has been expanding its garment range. Previously, clothing manufacturers tended to focus on one or two items as they could not get the necessary quotas for many products. With trade liberalisation, manufacturing firms will be able to broaden their output and clothing retailers will want to deal with fewer suppliers providing a wider range of goods.
'More of our customers are going into range development, which means ... [that as a supplier] I must have the capability to develop a range rather than develop a single product,' Mr Tan says.
Much of the $699 million raised in Luen Thai's July initial public offering has been earmarked for acquisitions to extend its product range. The company is on the lookout for manufacturers of garments it does not already produce, but the targets also need to have strong management teams.
'We don't plan to go in and manage their operations,' Mr Tan says.
Last year, it entered the sports apparel arena through a 50-50 joint venture with Yue Yuen Industrial (Holdings) called Yuen Thai.
Despite the removal of the global textile quota system in January, trade wars, especially between the mainland and the United States, will probably disrupt production.
In preparation for such an eventuality, Luen Thai has established factories across different countries. Almost 50 per cent of last year's production came from the Pacific island of Saipan, while the mainland and the Philippines accounted for 23 per cent each.
More than three quarters of the company's sales last year were in the US, which has threatened to impose trade barriers on clothes made in the mainland.
The firm will set up so-called 'outward processing arrangements' next year in Hong Kong and Macau, where enough production steps will take place for the special administrative regions to be considered their places of origin to circumvent any trade restrictions slapped on China-made apparel.
