1 Aug 1998
Hong Kong Footwear 08/98 - Industry News
Exporters Face New Global Sourcing Patterns
CHANGES in consumer and retail trends in major Western economies are rapidly transforming sourcing methods, and Hong Kong's leading consumer goods exporters are keeping up by embracing export supply chain management (ESCM). They are also increasing their service capabilities and adopting enabling technologies like bar-codes and electronic data interchange (EDI).
These new global sourcing patterns were the focus of the Export Supply Chain Management Conference, held at the Hong Kong Convention and Exhibition Centre on 26 May 1998. Organised by the Hong Kong Trade Development Council (TDC) and the Hong Kong Article Numbering Assn (HKANA), the conference was the first in the Asia-Pacific region to examine the future of global export competitiveness.
Speakers included Lance Dailey of Customer-Focused EDI Inc, who reviewed retail and consumer trends in the US; Stuart McIvor, managing director of Arcadia Group plc/Debenhams plc, who spoke about the challenges these trends posed to exporters in the SAR; and Guido Schild, managing director, East Asia, for Kurt Salmon Associates (KSA), who explained new ESCM business practices and benefits.
In May 1997 KSA was commissioned by HKANA, with funding from the Government, to develop an ESCM road-map for Hong Kong's exporters of apparel, footwear, toys and consumer electronics. The road-map findings have revealed that consumer goods markets in large Western economies have become increasingly over-supplied and saturated. The number of consumers describing shopping as a "hassle" is also growing in the US and Europe.
To be successful, according to the study, retailers are focusing on improving the availability and choice of products. Traditional buying procedures are also changing, moving product development and buying decisions closer to the consumer's day of purchase.
Vendors have responded by driving replenishment lead times to as short as one week for basic items, and less than six weeks for new products (from order entry to delivery).
The value of products sourced through traditional methods is expected to fall from US$120bn per year to US$89bn by the year 2001. On the other hand, speed sourcing, or last-minute ordering, and continuous-replenishing sourcing are expected to double over the same period to US$97.1bn. This could potentially cause Hong Kong to lose as much as 25% of its traditional export markets within the next four years.
The study projected that the adoption of ESCM can achieve annual savings of HK$9.2bn for Hong Kong's export industries. Exporters will be able to participate as a supply chain partner to retailers and other service providers. They will be able to offer ESCM services such as Floor Ready Merchandising (goods delivered in a format ready for retail display) and Cross Docking (a vendor service which allows distribution centres to receive goods and dispatch to retail outlets on the same day), to minimise total logistics cost and lead times.
A panel discussion explored best practices by leading Hong Kong companies in the export manufacturing, sourcing, retailing, logistics and trade finance industries. According to Harry Lee, one of the panellists and managing director of TAL Apparel Ltd, having proper ESCM practices in place is a must for Hong Kong exporters who want to remain competitive.
TAL Apparel is one of the world's largest manufacturers of shirts for labels. Before the implementation of ESCM and Quick Response practices, Lee said, it took five months for customers to receive their goods. Now the goods are shipped in 7-10 days and customers receive them in 30-33 days.
This radical improvement in lead times is due to several factors, including the ability to receive orders every week through the use of EDI, compared with the traditional practice of ordering twice a year. This meant that large warehouses were not needed and electronic data exchange brought time-saving benefits. The result, Lee said, is savings of up to 15%.
Hong Kong exporters have no choice but to change the way they do business if they are to succeed in today's business environment, said TDC chairman Dr. Victor Fung in his luncheon keynote address. "It is clear that the demands of ESCM is increasing. Supply chains are becoming more complex, and are tightening all the time. Customers need to buy close to the market, to take advantage of changing consumer trends and minimise mark-down costs," Fung said.
"To fulfil these demands, we face a two-part challenge upgrading the capabilities of our companies and upgrading the skills of our workforce."
The SAR is very well placed to meet these challenges, said Fung. "Hong Kong companies retain all their traditional talents, remaining entrepreneurial, innovative and flexible."
The other panellists were: Dr. Andrew Paterson, general manager for information systems, Asia Pacific, Marks & Spencer (Hong Kong) Ltd; Robert Yau, managing director of WSR Far East Ltd; Phillip Chow, managing director of OOCL (Asia Pacific) Ltd; and Chris Chang, market manager, trade product, international trade management, Standard Chartered Bank.
Also addressing the conference were Anna Lin, chief executive of HKANA, and Tim Harvey, HKANA chairman.
Hong Kong manufacturers who want to know more about global supply chain standards and technologies should contact HKANA at: tel. (852) 2861-2819 or fax (852) 2861-2423, or visit its homepage http://www.hkana.org.
Stepping Up to The Challenges
THIS year, the Hong Kong Leather Shoe and Shoe Material Merchants Assn Ltd celebrates its 28th anniversary, making it the oldest association of its kind in Hong Kong.
According to director Keith Leung, the association was formed in August 1970 by shoe manufacturers eager to establish a cohesive body which could further the interests of the industry and build a better future for Hong Kong-based leather shoe manufacturers. In 1981 the association was extended to include shoe material merchants, and today membership extends to more than 480 manufacturers, traders, retailers and wholesalers.
Since its establishment, the association has witnessed considerable changes within the industry, not least the shift of almost 100% of manufacturing to mainland China, and growing competition from other Asian countries such as Taiwan and Malaysia. During this time, the aims of the association have remained steadfast:
- to foster relations between Hong Kong leather shoe professionals;
- to provide for the future of the industry, from the training of young professionals to the development of new technology;
- to provide an exchange of information between Hong Kong- and mainland China-based leather shoe industry members;
- to sponsor and organise trade fairs to promote the Hong Kong shoe industry; and
- to organise business and field trips for its members.
The fact that the Hong Kong leather shoe industry has been facing an uphill struggle over the past two decades is no secret, and the association accepts that the industry's halcyon days of the 1950s and 1960s are gone forever. "The leather footwear industry in Hong Kong has traditionally been a family affair, and although the larger companies have flourished from taking advantage of lower rental and operating costs in [mainland] China, such a move has not been possible for all of the smaller companies," says Leung.
In addition, the implementation of EU quotas on mainland China-made leather footwear has meant that the majority of the mainland's manufacturers and Hong Kong exporters have been forced to cease trading with European customers and find alternative markets.
According to Leung, one of the association's main areas of concern is that there are few young people interested in carving out a career in the leather footwear industry. "These days family ties cannot compete with the realm of job opportunities available to young people. If we are not able to capture the interest of these young people, the industry is going to suffer heavily in generations to come," says Leung.
Faced with a shrinking, and maturing, industry, the association is striving to develop links with higher education establishments. "We liaise regularly with professors on an information-sharing basis and in the past we have discussed running evening classes for students to study shoe-design skills, but as yet, these proposals have not been taken up."
Compared with many industries, the leather shoe industry has seen little technological development over the years, and Leung fears that this lack of dynamic and innovative evolvement is one reason why young people are not attracted to the industry. "The methods used to manufacture shoes today are the same as those used in my father's day. The only changes we have seen are in the use of CAD on the design side," says Leung.
A government-funded, three-year research programme is underway at the Polytechnic University with the aim of developing administrative and 3D design systems for use within the shoe industry. "In the long-term, this programme will provide valuable information for companies who wish to computerise their operations," says Leung.
"However, technology is moving at an enormous speed and I believe that we also need additional funding for some shorter-term programmes which will help us put current technological innovations into use in the factories without delay." Leung hopes that the association will play a part in putting these proposals to the government.
In recent years, many of the more successful Hong Kong shoe manufacturers, including Leung's own company, Patty Co Ltd, have seen the need to move away from OEM, and have either established their own brands or entered into agreements for original design with Italian or other European footwear companies.
"Many association members are now becoming aware that this is the way to survive and thrive. They are realising that as an OEM manufacturer, a company has very little bargaining power," continues Leung.
As a focal point for information sharing, the association keeps members up to date with such trade developments and market trends. The association also arranges field trips for its members, to the mainland or overseas, each year.
As the association approaches its third decade of operation, Leung is philosophical about its future. "There is no doubt that we continue to fulfil a very important role, especially in co-sponsoring and organising shoe fairs in both Hong Kong and Guangzhou."
However, Leung is aware of the limitations of the association in attracting younger people from Hong Kong into the industry. "Hong Kong is undergoing changes from light to service industry. Therefore, to be realistic, when we look to the future of the footwear industry, we must look towards [mainland] China," he says.
"As an association we must continue to work closely with TDC and other government departments in Hong Kong, but we must also look towards developing relations with the relevant government bodies in mainland China, and at developing [mainland] China as our business centre for years to come."
Written by Judy Smith
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