Enterprise 2.0

August 2, 2010 at 08:51 | Posted in Research | Leave a comment

Establish a portfolio of collaboration tools

Written by James Robertson, published November 5th, 2007

Categorised under: articles, collaboration, enterprise 2.0, intranets

There is no one-size-fits-all solution for collaboration needs within an organisation. Individual teams and business areas will have very different behaviours and requirements, and this must be reflected in the collaboration tools that are put in place.

To fully meet an organisation’s collaboration needs, a ‘portfolio’ approach should be taken. This involves providing a range of supported tools, and allowing each area to pick the functionality that they require.

This briefing explores the portfolio approach, and provides guidance on making it work in practice.

Different needs

There are many different situations within any organisation that fall under the heading of ‘collaboration’. Common examples include:

  • Team-based collaboration, where a small group of staff work on a single project or other ongoing task.
  • Communication and collaboration between a geographically dispersed group of staff, such as a working group or community of practice.
  • Collaborative creation of documentation.
  • Teaching and e-learning spaces that support educational needs.
  • Ongoing research projects, where researchers and other experts share information.

Each of these situations will require a unique mix of collaboration tools, processes and practices.

Specific needs will also be influenced by many other factors, including the skill and expertise of the participants, the frequency of face-to-face meetings, the type of information being shared, how geographically spread the group is, and the longevity of the information.

The result is that there isn’t a one-size-fits-all collaboration solution that will meet all these needs. Nor is there a single ‘templated’ interface that can be rolled out unchanged across a whole organisation.

Many different tools

Instead, a ‘portfolio’ approach should be taken, where the organisation provides (and supports) a range of collaborative tools. This could potentially include:

  • wikis
  • blogs
  • forums or discussion boards
  • intranet subsites
  • mailing lists
  • simple document management
  • SharePoint or Notes
  • fileshares
  • instant messaging
  • online conferencing solutions

Whether these are provided as part of a single software suite, or as separate tools, all of these capabilities are likely to be needed in any medium to large organisation.

Corporate support

Corporate support should be provided to this portfolio of collaboration tools. This includes deployment onto corporate servers, with appropriate backup and other technical support.

‘Single sign-on’ should also be established across these tools by integrating them with the back-office LDAP or Active Directory services. This enables seamless use for all staff, without having new usernames and passwords.

Research should also be conducted to identify the most appropriate toolset, and to configure the tools to match specific organisational needs.

Selecting the right tools

With this diversity of tools, the challenge is to help staff select the most appropriate solution. A central team must therefore be established to play a ‘mentoring’ role, providing advice and support to users of the collaboration tools.

Good documentation and how-to information should also be developed, as part of a focus on identifying and communicating best practice in collaboration.

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Size set sample

July 30, 2010 at 09:57 | Posted in Research | Leave a comment
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Variations in body sizes are becoming more apparent with advancements in body scanning technology and a number of sizing studies that give a more complete picture of an individual’s size.

It is common knowledge that no two bodies are the same. Although clothing sizes help to categorise bodies into general fits, each garment is going to hang a little differently depending on the consumer.

“Through 3D body scanning we can understand body size from a larger perspective,” says Dr Lenda Jo Connell, Under Armour Inc Professor of apparel, merchandising, design, and production from the department of consumer affairs at Auburn University, in Alabama, US.

“We can get a visual idea of a person’s shape and look at the array of different bodies. It’s not just about size it’s about how a person’s measurements play out into shape.”

While it would be easy to assume that standards in sizing have changed with the knowledge available, this is yet to happen.

“Changing the actual sizing still has a long way to go,” adds Connell. It still varies by retailer and is based on each retailer’s preferred measurements.

Large-scale sizing surveys such as SizeUK have helped us see how bodies have changed.

SizeUK captured 130 measurements (per person) for 11,000 people living in the UK. The comprehensive survey, which was completed in 2002, was the first time size had been measured so broadly in the country since 1951.

“We saw a very significant change in average measurements,” explains Andrew Crawford, director of Sizemic, a fashion technology company. “For example the average waist girth for females increased by 16cm since the original survey.”

Crawford, however, points out that we need to consider that we are, “comparing data with a time when hourglass figures were in fashion and the first survey was not as large.”

Although in general, “We are gradually getting larger and taller. Younger generations on average are bigger than previous generations.”

The same is true on the other side of the Atlantic Ocean. Connell notes that in the US, when a company decides on what sizes to offer, if they do not cater for the obese population then they cut out a third of the market. That said there is also a need for sizes at the other end of the spectrum.

“There are many different cultures in America, which represent many different sizes,” she says.

It’s the same in China, too, as size and fit specialist Alvanon found two years ago when it carried out China’s largest ever body measurement study, scanning over 28,000 people across the country.

Among its findings, which are designed to provide apparel brands and retailers with an insight into consumers in this huge and growing market, it discovered that the core body shape in China is smaller and more homogenous than in the US – which means a smaller number of clothing sizes are required to cater for them – and that the younger generation in eastern China is growing taller and heavier.

Tailoring to the target market
Addressing size and fit issues has a key commercial role to play too, by helping companies increase their sales – and full-price sell-throughs.

“One of the things we analyse for our clients is sales percentage by size,” explains Ed Gribbin, president of Alvainsight, a division of Alvanon.

“You would expect a bell-curve of sales by size, with smaller percentages at the ends of the spectrum. But we also take it one step further and look at full-price selling by size, because that shouldn’t be a bell-curve: you should sell an equally high percent at full price in your small size and your larger size as you do in your core size.

“Most merchants don’t think about it that way, but when they look at the pattern it becomes apparent that if they have a much higher sell-through in the larger sizes then they could potentially have some fit issues in the smaller sizes, or vice versa.”

Connell, meanwhile, believes more brands are figuring out what their target market is and then tailoring to that market. As well as seeing sizes go up we are also seeing sizes go down.

“A lot of it revolves around the brand. For example women’s clothing store Chicos used to be a more moderate sized brand but they have increased their size downwards.”

Brands may offer a range of sizes or two size ranges such as petite and tall, but offering a broad size range such as 0-22 can be hard for a clothing company, especially when it comes to grading a pattern.

Despite this, in the UK, Crawford has noticed an increase in size range – particularly when it comes to adding larger sizes. However, like Connell, he believes: “This [increased size range] can create huge logistical problems in terms of manufacturing, floor space etc.”

On the other hand: “It can create opportunities for niche retailers to target specific groups,” he notes.

Consistency in sizing is another crucial, but often overlooked, issue.

“If a brand can execute its fit consistently across categories – for example, a UK 12 – and maintain this from season to season, they build a competitive advantage through customer loyalty,” explains Gribbin.

Additional challenges
When it comes to taking products overseas, some retailers face more challenges than others.

Ed Gribbin says the sheer number of different product categories available from a retailer like Marks & Spencer presents more fit and sizing problems than those faced by Gap or Banana Republic, for example, who have relatively limited product lines.

“If [M&S] adjusts the fit for women’s dresses, what about women’s intimate apparel and casual sportswear?” he asks. “They have to adjust many categories, and it becomes a design, technical, production and logistics challenge because you have to co-ordinate so many different pieces of the puzzle.

Phuong Ngyuen, director of the Vietnamese clothing export company PTA Company, believes material and style also have a role to play when it comes to sizes that can be sold worldwide. “If the fabric stretches or if it’s a knitted garment, it can be worn by any country’s fit.”

She adds: “No body is perfect, so customers might prefer to wear one size bigger just to get a better loose looking fit in some styles and might also want to wear a smaller size to get a better tight fitting look in some other styles.”

Nguyen has noticed: “All the high end brands of Europe have stores in Asian countries, and Asians will pick the sizes that fit well on them no matter what is mentioned on size label, as long as they like the look of it and the price is attractive.”

But this also comes back to Gribbin’s observation that while there’s currently a great demand in Asia for western brands, most of this is based on novelty and newness; and if firms fail to adjust size and fit for local consumers “they’re going to hit a wall at some point.”

Price adjustments?
For companies targeting a larger sized population they might have to consider increasing their prices as people’s waistlines expand.

“In catalogue clothes shopping there is already a difference in pricing between larger and smaller sizes,” says Connell. “You may not notice this when you’re in a store, but it is happening.”

The same garment can have a different price depending on what sizing range it’s in: for instance in the US, ‘missy’ (or ‘misses’), ‘petite’, ‘tall’ etc. Connell stresses the most expensive part of costing is the fabric: if it takes more material to make a garment, it is going to cost more.

Crawford has noticed some moves to pass costs on to consumers in the UK. “Marks & Spencer has introduced higher prices for bigger bra sizes.”

Nguyen adds: “If the size range is large, then consumption of fabric or yarns will be more and obviously, the garment’s price will also be more than small sizes.

“The manufacturer will have to take into consideration every inch of fabric or every centimetre of yarn that they consume so they can lower the cost of the garment, but the buyer will not be happy to spend more on a big size than a smaller size. Not only when exporting [out of Vietnam] but also for sale among local customers.”

Companies need to consider the additional cost of larger sizes when determining their size range.

At the end of the day: “Consumers are loyal to brands with clothes that fit well for them. If every single brand sold the exact same sized clothing some people would find that no clothes fit them at all,” states Crawford.

Tailored, well-researched, and well-adapted sizing, rather than a one-size-fits-all motto, can help companies gain a competitive advantage.

By Karryn Miller.

SAP BPM best practices: Who should lead BPM initiatives?

July 29, 2010 at 10:52 | Posted in Research | Leave a comment
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wah…. BCG huat loh!!!

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Business Process Management (BPM) is an idea that is clearly attractive, but ideas about who owns the BPM building process – business or IT — are still unclear in many organizations.

As Brian Wood — a BPM project manager currently studying IT management at the University of Technology, Sydney — noted, the biggest hurdles come from the way BPM projects tend to “step on operational managers’ toes.”

“Many of them derive a great deal of organizational power from being the sole source of expertise for a process, or associate prestige with the number of direct reports they control,” Wood said. “BPM can be seen to threaten both of these bases of power.”

It’s a platitude that BPM should be a collaborative process. But research by both Forrester and Gartner reveals that, in many cases, organizations either put IT or business in charge. A Gartner survey of BPM conference attendees, in which nearly half of attendees came from companies with more than $1 billion in revenue, revealed that BPM projects were led by IT or by business at nearly the same rate – 29% and 26%, respectively — with 41% reporting that these responsibilities were shared.

Similarly, another survey conducted by Forrester Research focused on who held the budget and the responsibility for BPM across the enterprise. “It ended up that there was a pretty even split between the business and IT sides,” said analyst Clay Richardson.

Who should be in charge of BPM initiatives?

Because BPM is a model-driven approach, IT often finds out about this approach first, and someone who is a senior business analyst will take on the role of BPM champion, Gartner’s Michelle Cantara said.

But the strongest BPM initiatives need to be able to work across functions, because BPM is intended to illuminate the hand-off gaps between functions. And finding business sponsorship, at the highest possible level, is crucial.

“Fundamentally, the business needs to be behind BPM,” Cantara said. “I recommend finding a senior business executive who is receptive to new ideas, has funding authority, is persuasive and is in pain because of some process – and that process is where you should start.”

In implementing BPM, the most important role is the change agent, Richardson said. These people may sit in business or IT, but regardless of their titles, they are the leaders in process change and transformation. “This person is really responsible for going out and identifying process opportunities and evangelizing throughout the organization,” he said.

Next, organizations should appoint a process guru, an individual who understand tools and working with IT and in some cases might have TQM or Six Sigma expertise. “The key is that they balance technical and business capabilities,” Richardson said.

Then there are the process analysts – people who really understand process and can engage the business to scope the process at a lower level and in some cases drive the process improvement project. Richardson said this role derives from that of the traditional business analyst. “To be effective, a process analyst has to be able to define a process solution and shape things around KPIs and metrics,” he said.

There are two additional roles that must be filled in a BPM project, he noted. One is the business analyst, who is often a process analyst wannabee. “They are the ones that can focus on requirements and documentation,” he said. And the final role is that of the operator or manager for the IT systems. “They are responsible for setting up the infrastructure, configuration, and maintenance of software and in some cases creating the solution.”

“It is hard to have a successful BPM program without having people across all these roles,” Richardson said.

Who leads BPM projects is often dictated by the project’s level of sophistication. At the lowest level, which Richardson refers to as the immature level, organizations are either just getting started with BPM or using BPM in a very basic way, typically to assist IT processes or develop applications.

The second level, called aspiring, includes organizations focused on using BPM for innovation, process transformation and enterprise-wide improvement. In those organizations, there is often some sort of centralized team focused on BPM, organized under IT or its own line of business and staffed by a wide range of talent, sometimes even including a VP of process.

The last category, termed mature, includes organizations that have adopted very specific process methodology like Six Sigma and build their operations around these specific methodologies.

Getting it done – BPM best practices

The real trick is finding an executive sponsor who also understands that the decisions he makes must optimize the end-to-end process, not just the outcome for a particular function, Cantara said. That can get tricky when multiple people in an organization share that process. For example, she said, if an executive is the sponsor for a customer on-boarding process for U.S. sales, he actually needs to make decisions that can benefit worldwide sales or some other region.

Another example might be a process that spans different functions. For example, if sales are measured based on the number of units and their associated revenue shipped but the distribution pipeline has been getting packed with products that aren’t selling, it is obvious that some aspect of the process is not visible. “That is where you would want sales and distribution logistics, whoever was in charge, to make a decision to optimize revenue, not just maximize sales. And that gets back to looking across functional gaps and measuring people appropriately,” Cantara said. Aside from simply finding a good executive sponsor, BPM advocates can help themselves by demonstrating success – ideally with something considered important, she said. “Once you have a few significant successes and the sponsors believe it is a better way of improving processes, at that point you have a platform – an argument – that you can take to an executive steering committee where larger investment decisions are made,” she said. Gartner now recommends that companies set up a business process competency center, which includes people with the core technical skills related to BPM.

One of the things that make BPM so valuable is that when businesses embed a process into a software application, it tends to become invisible, and business managers may lose any intuitive grasp of what is really going on. “The idea behind BPM is to give people a visual model that is appropriate and has the appropriate level of detail – the model for strategic planners will be different than for an architect or developer,” Cantara said. “It is like the different views into a database.”

Arena Swims to the Top with PLM (Product Lifecycle Management)

July 23, 2010 at 06:55 | Posted in Research | Leave a comment
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Posted On: 3/31/2010

Arena Swims to the Top with PLM

Founded in Italy during the early 1970’s, Arena is known for its authentic waterwear brands for athletes and sports lovers, and enjoys a following of top athletes and water sports lovers because of its reputation for best performing equipment and apparel.

Arena works diligently to maintain leadership in the field of top competition swimwear, investing on research and innovation to develop a best-in-class product range including high performance technical suits, glamorous styles and innovative beachwear and equipment.

Like most companies, Arena is challenged to bring the right products to market at the right time and to stay ahead of the competition. And, like many companies, says Vincenzo Gamberale, Arena Group’s global IT coordinator, “We were challenged by partly integrated processes, both internally and externally. This resulted in time wasted and risk of errors.”

Prior to implementing a new system, all company files were managed on local PCs, and all related procedures were manual, including modifications, updating and publishing on shared network folders. The collaborative flow was supported only through e-mails, resulting in misalignment and data inconsistencies with no control over procedural flows, and no opportunity to track changes on sketches or technical sheets including bill of material, construction specifications and fitting results. All of this disjointedness translated into disharmonized and time-wasting procedures in managing the product lifecycle.

The PLM approach and timeline

Arena knew it needed a consolidated PLM solution. Its approach was to create a PLM platform using Lectra Fashion PLM, a modular and scalable solution tailored specifically to the needs of the fashion industry.

Arena’s PLM system would consist of three integrated modules. The basic module is PDM, which represents the foundation of the entire solution, and is the basis for the other two modules, Workflow and Line Planning.

From the beginning, Arena defined a progressive implementation strategy, starting with PDM functionalities that could support the users’ operational flows. The initial analysis phase was scheduled from November 2007 through March 2008. Subsequently, Arena started a pilot project using its Fall/Winter 2009 collection, managing the data simultaneously with its legacy procedures until July 2008.

In September 2008, Arena officially launched the “go live” phase on PDM with its Spring/Summer 2010 collection. After procedures were fine-tuned and consolidated, Arena started the second phase, implementation of the Workflow module, in July 2009. The company devoted roughly one month to initial analysis, in order to define a “core” process flow to be implemented in the Spring/Summer 2011 collection.

Arena recently started the preliminary evaluation phase of the Line Planning module in order to conduct a thorough investigation of the factors determining the structure of its collections, both in quantitative terms relative to the balancing of styles and colors, to the financial aspects and the resources needed.

Technical requirements

Arena has a unique ERP solution implemented at a local level for each business unit. One of the goals the company wants to achieve with the PDM module is the creation of a centralized master repository to interface with the local ERP systems. Because of this situation, the PDM has been designed to match the requirements at a local level. Consequently, Arena was not constrained by the pre-existing IT system, with the only exceptions being the interfaces required between the local ERPs and the PDM module.

The basic prerequisite from a technical point of view was a solid platform with consolidated references. When Arena started this project, the team was aware that the Lectra Fashion PLM implementation would be the first on a Microsoft database, as all of Lectra’s customers at the time were on Oracle infrastructures.

There were, early on, some technical difficulties related to this, but Gamberale says that Arena received full support from Lectra to solve those issues, and further attributes the success of the project to the Lectra consultants’ knowledge of Arena’s business.

Other important factors contributing to success, according to Gamberale, were the commitment from the company’s internal management and the experience of the project work group.

The company was also flexible in its approach, making changes when needed. One of the goals of the Arena implementation, for example, was to adapt the software to the current procedures, trying to eliminate redundancies while rationalizing the processes and automating them.

While this worked in some cases, in others the company decided to adopt alternative flows in order to improve the legacy procedures, and was able to benefit in this regard from the previous experience of Lectra’s consultants.

Benefits of the Lectra Fashion PLM solution

Arena product design and development processes are centralized, from design through product engineering, to the modeling and fitting of the prototypes and samples, while the production is entirely outsourced to third-party vendors, typically in the Far East. The whole product development cycle involves a continuous interaction among both internal departments (such as sales, marketing and sourcing) and external parties (such as design studios, suppliers and commercial business units).

The primary advantages gained during the Lectra Fashion PLM implementation are all linked to the collaborative flows that the company is now able to execute in an effective way, says Gamberale. As a result, Arena has reduced time to market of whole collections while optimizing their costs. “We have minimized the errors and manual data re-entry, are able to track in real time all the product modifications that occurred and can share and approve in real-time the sketches made by the external design studios,” he says.

Additionally, the business units can select their own collections in an interactive way, and communication flow with business units and vendors is kept under control. “Finally, due to the centralized repository and web-based architecture, all data are updated in real-time and are promptly accessible by each one of the actors involved in the collaboration process at a world-wide level,” he adds.

Looking forward, Arena has started a process aimed to share and capitalize on the internal knowledge, which it expects to further improve the quality level of its collections.

The Arena Group contributed this story to Apparel.

Li & Fung Streamlines Acquisitions and Supply Base with IT

July 23, 2010 at 06:44 | Posted in Bangladesh, Research | Leave a comment
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http://www.apparelmag.com/ME2/dirmod.asp?sid=&nm=&type=MultiPublishing&mod=PublishingTitles&mid=CD746117C0BB4828857A1831CE707DBE&tier=4&id=12184B7F4197441E96E5EDBD6861E6CA

Posted On: 8/13/2009

Li & Fung Streamlines Acquisitions and Supply Base with IT
Padma Nagappan Li & Fung Limited (“Li & Fung”), a part of the Hong Kong-based Li & Fung Group, is a global trading company that supplies high-volume consumer goods including apparel (the bulk of its business), fashion accessories, home products, handicrafts, promotional merchandise, gift items, toys, sporting goods and travel goods.

Earlier this year, Li & Fung acquired the sourcing operations of Liz Claiborne, with the aim of strengthening its sourcing platform for brands and widening its customer base. It will act as the primary global apparel and accessories sourcing agent for all Liz Claiborne brands, including Lucky Brand, Juicy Couture and Kate Spade.

Li & Fung’s operations span more than 40 economies and employ more than 14,000 people. Revenues for 2008 were US$14.2 billion. When it acquires companies, Li & Fung’s strategy is to integrate incoming staff and streamline operations seamlessly within 100 days.

Given that Li & Fung does not own any of the factories through which it sources, it functions as a supply chain manager, distributing orders for its retail clients and for its own retail stores across the thousands of vendors it contracts with around the globe. IT solutions play a big role in managing the flow of information through its supply chain and its many offices.

The Three-Year Plan
Li & Fung works to a Three-Year Plan that addresses strategies across the board and in recent years has set and met the goal of doubling its size with each plan. It is currently in the middle of its 2008-2010 plan, for which it set a target of increasing in size to US$20 billion, from the 2007 level of US$11.9 billion.

In the role of CTO of Li & Fung Group, Manuel (Manny) Fernandez assists the public companies within the group in setting IT strategies that align with the business strategy. He says the company is very committed to the Three-Year Plan.

“For the IT support plan, we look at the numbers, where the new offices are opening, what IT infrastructure they need, and whether there is a new business model. For the current plan, we decided to focus on our vendor base and established that we needed a new vendor portal,” Fernandez explains.

IT goals within the current plan included creating transparency and collaboration, focusing on upgrades to the core platform and extending the supply chain platforms.

The Three-Year Plan
Before the current plan, Li & Fung had utilized many different, smaller portal platforms, because it had many customers who used different solutions. Now it deploys ecVision’s platform across the spectrum, as a single solution that integrates vendor information.

Iselin, NJ-based ecVision provides a platform for retailers and private-label companies that integrates product lifecycle management (PLM) and supply chain execution (SCE) systems, combining key data and functionality into one solution. Among ecVision’s clients are JCPenney, New Balance, Phillips-Van Heusen, Abercrombie & Fitch and Timberland.

Li & Fung has deployed this platform to support its internal sourcing teams and its vendors, in order to facilitate collaboration in managing its global supply chain and shipping tasks. Initially, it piloted a different solution, but switched to ecVision because both the business and the vendor base were growing quickly, so it needed a system that would not just adapt, but do so quickly.

“We chose ecVision because its platform is quite open. We tend not to go with the biggest player, because we can get things done faster if we can influence priorities. Also, a lot of our customers were already using it. It is the new front end of our system,” Fernandez says.

He explained that the company took the core technology from ecVision and built new modules on top, including system integrations and vendor compliance modules.

Typical of the speed with which assimilation occurs within Li & Fung: ecVision began building the solution in April 2008 and it was launched in June of the same year. The company has gradually extended the rollout, adding suppliers each week, in an incremental fashion. By the end of 2009, it expects to support more than 11,000 suppliers on the portal.

(Fung Capital USA, a private-equity partnership of Victor and William Fung, acquired a stake in ecVision in June of this year.)

Software solutions deployed within the overall system

Li & Fung utilizes one core system across the board for its internal operations, a proprietary technology called XTS that was developed in-house 15 years ago.

It uses SAP software for the wholesale division in the United States and plans to extend it to the European wholesale division as well. For financials, it utilizes Oracle software solutions.

To integrate information with its customers, it uses Sterling GenTran GIS as a communication bridge for all the systems. GIS is an EDI solution that helps the company with structured communication such as orders, amendments and invoicing.

For unstructured communications, Microsoft Sharepoint addresses any ad hoc needs, such as storage and sharing of data with customers. Fernandez explains that customers often have their own PLM solutions but that the company rarely needs to work on its customers’ systems, except during the collaboration stage.

Creating visibility and improving efficiency via mobile technology
Li & Fung employs a large number of quality control/assurance inspectors who conduct factory visits and inspections on a routine basis.
Many of its vendors are located in far-flung areas, so in order to keep on top of progress with individual orders, it has deployed mobile PDA technology and a web-based platform to enable inspectors to receive customized questions for each factory and to input their audit results in real time.

“When inspectors arrive at factories, they do an audit for vendor compliance and then they ask specific questions, which differ for each customer. We manage this using templates that guide them. The information they capture is fed into our central database via the PDA or the web,” says Fernandez.

As a result of deploying mobile devices and the web platform, Li & Fung is able to track whether a factory passes inspection the first time or not, which helps improve the quality of information it receives at its central offices. QC inspectors are also able to conduct a greater number of inspections in a day, improving productivity.

With the information being fed into the online database, the company conducts more audits in less time and is able to qualify factories much faster as well.

Aside from quality control, Fernandez cited examples of how visibility has been improved for the production process as well. Li & Fung is able to track whether a vendor has begun cutting or stitching and then build customer “events” into a template for event tracking by the inspectors.

Production tracking enables the company to find out when an order was accepted by the vendor, when it was shipped, if it was shipped too quickly, and so forth.

Fernandez says the company kept the tracking system and vendor portal very simple and multi-lingual, requiring little training on the part of the vendors.

“We train our vendors when they come on board, through Webex and workshops, and we take their feedback into consideration and adapt the systems accordingly,” he says.

The ROI: Reduction in costs, time and miscommunication
The main challenge on the vendor side has come from the sheer volume of Li & Fung’s suppliers. On the customer side, the challenge has been in dealing with specific systems. But with the investment in new technology and software solutions, Li & Fung has achieved its milestones a lot faster, while keeping costs down.

Aside from the supplier portal and mobile technology, the company also has set up the infrastructure for web conferencing between all of its offices. The use of video and web conferencing has increased dramatically, reducing the costs of travel and telecommunications via phone.

IT also has played a big role in the pre-production process, where the amount of physical sampling has decreased and the company has managed to reduce order miscommunications.

Recently, the company fast tracked some of its IT projects, particularly those relative to infrastructure that will offer improved collaboration, says Fernandez, such as VOIP phones, Webex, Sharepoint for internal and customer collaboration, videoconferencing and EDI. “These cut costs and increased productivity,” he says.

Summing up how Li & Fung goes about meeting its goals and dealing with issues, Fernandez says that, while there are always challenges, breaking them up into small goals makes it simpler to implement the larger plan.

Padma Nagappan is a San Diego-based free-lance business writer who frequently writes about the apparel industry, sustainability, renewable energy and CSR.

systems at a glance

Data sharing and storage:
Microsoft
EDI: Sterling
ERP (internal operations): proprietary
ERP (U.S. wholesale division): SAP
Financial Management: Oracle
Vendor Portal: ecVision

The Business of Trading

July 5, 2010 at 03:19 | Posted in Hongkong, Research | Leave a comment
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http://info.hktdc.com/econforum/tdc/tdc080802.htm

August, 2008

The Changing Business Model of Trading Companies in Hong Kong

Content provided by:
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Summary

  • Amid the rapid development of Asia, particularly the Chinese mainland, Hong Kong’s intermediary role has been somewhat affected, and Hong Kong traders are faced with intensifying competition.
  • In response, they are changing their business model by extending the value chain and building flexibility through the dispersion of sourcing/manufacturing activities.
  • With an average of just 36 suppliers in four countries, there is much room for Hong Kong’s trading companies to expand their sourcing/manufacturing network.
  • Only by optimising the supply chain, as well as rendering more and better value-added services to overseas buyers, can Hong Kong traders maintain their lead over competitors.

As the largest economic sector, trading constitutes directly over 20% of Hong Kong’s GDP, compared with just around 10% in 1980. The importance of the trading sector is also reflected in the increasing openness of the Hong Kong economy. Hong Kong’s merchandise trade as a percentage of GDP is over 340%, vis-à-vis 150% in 1980, as well as the world’s average of around 50%, according to the latest figures complied by the World Bank. 

Since the late 1970s, the majority of Hong Kong manufacturers have set up production facilities offshore, mainly on the Chinese mainland amid its open door policy. In the wake of this relocation trend, many of these manufacturers have become traders, and the role of their Hong Kong offices has shifted towards quality control, sales, finance and accounts, production management and logistics support. This skew towards higher value-added activities has helped them sharpen their competitive edges, in turn sustaining Hong Kong’s role as a trading centre in the region. 

Amid the rapid development of Asia, particularly the mainland, however, Hong Kong’s intermediary role has been somewhat affected. In general, Asian suppliers have gained more knowledge of undertaking overseas sales than before. Some of them have even established a presence in overseas countries, making direct sourcing more feasible and convenient to buyers. Now, more sourcing opportunities are available in other places of the mainland and other Asian economies, which may further undermine Hong Kong’s role as a middleman. 

Facing the challenges of disintermediation and increasing competition, Hong Kong’s trading companies have responded by changing their business model. In contrast to what has been perceived as simply being an intermediary, many Hong Kong traders are establishing themselves as an integral part of the global supply chain. They have a much wider scope of responsibility than simple matchmaking for buyers and suppliers. 

Compared to 10 years ago, 67% of our surveyed companies (which have engaged in trading business for more than 10 years) have increased quality control activities. More importantly, 62% of the respondents have stepped up sales and marketing efforts, whereas 58% have bolstered product design and development. Hong Kong companies, in general, have moved up the value chain by extending their business focus from OEM to ODM and OBM. 

While increasing their value added, Hong Kong’s trading companies have also expanded their procurement activities. Survey results show that Hong Kong’s trading companies, on average, source/manufacture in four countries from 36 suppliers. Although Hong Kong’s trading companies still maintain most of their sourcing and/or manufacturing operations in Guangdong, they have been seeking opportunities in other parts of the mainland and elsewhere in Asia. 

During the process of expanding procurement activities, trading companies tend to specialise. By doing so, they have better knowledge of their product lines and suppliers, and can offer personalised services. Yet, as long as they can manage, they would try to develop new but mostly related products. In most cases, Hong Kong’s trading companies start with one industry, but may also look into the possibility of branching-out into other mostly related industries. 

Asked what the likely difficulties of developing trading business would be, respondents said keen competition is the most significant, followed by problems arising from industry concentration, the diminishing intermediary role of Hong Kong’s trading sector, lack of talent with relevant industrial knowledge, changes in policies/regulations and financial constraints. 

For now, overseas buyers generally appreciate the performance of Hong Kong’s trading companies. But in the face of intensifying competition and industry concentration, in tandem with the threat of disintermediation, Hong Kong traders should strive to further strengthen their competitive edges. They should continue extend the value chain, not least by engaging in ODM and OBM, and widening their range of products. 

In view of the proliferation of new production sites on the mainland and elsewhere in the region, they are further required to set up production or strengthen their sourcing connections there, as the business environment in the PRD has become particularly challenging. With a fairly flimsy sourcing network, there is much room for Hong Kong’s trading companies to broaden and diversify their sources. In all, only by optimising the supply chain, as well as rendering more and better value-added services to overseas buyers, can Hong Kong’s trading companies maintain their lead over competitors, and help Hong Kong prop up its role as a trading centre. 


I. Importance of Trading
 

Undoubtedly, the trading sector has played a very important role in the economic development of Hong Kong. As the largest sector of the Hong Kong economy, the trading sector directly generated value added of HK$305 billion in 2006, equivalent to 22% of Hong Kong’s GDP, compared with just around 10% in 1980. There are now some 97,000 companies in Hong Kong engaged in trading business, employing 520,000 people, or one-fifth of total employment. 

chart
chart 

The importance of the trading sector is also reflected in the increasing openness of the Hong Kong economy. Hong Kong’s merchandise trade as a percentage of GDP is now over 340%, vis-à-vis 150% in 1980, as well as the world’s average of around 50%, according to the latest figures compiled by the World Bank. 

table 

However, the development of Hong Kong’s trading sector does not refer only to the larger size of merchandise trade, but also a change in its role. In the 1980-90s, traders in Hong Kong served mainly as middlemen, striving to match overseas demands with supplies from the Chinese mainland. Then, following the opening up of the Chinese mainland, this intermediary role has been diminishing. Facing the challenges, Hong Kong’s trading companies have responded quickly by increasing value added of their services and better supply chain management. 

In this report, we shall present readers an overview of how the role of Hong Kong’s trading companies has evolved in the past decade, discuss how they have responded to the challenges of disintermediation, and re-examine Hong Kong’s role as a provider of quality services, supplemented with findings from surveys and interviews with Hong Kong traders. 


II. Traditional Model and Rising Challenges
 

Role as a Middleman 

In the late 1970s, both escalating labour and land costs made Hong Kong an expensive place to manufacture with fierce competition coming from other Asian tigers (South Korea, Singapore and Taiwan). Coincidentally, the Open Door Policy of China provided a relief to Hong Kong manufacturers. To reduce operation costs and stay competitive, the majority of Hong Kong manufacturers set up production facilities offshore, mainly on the Chinese mainland. In the wake of this relocation trend, many of these manufacturing companies in Hong Kong were reclassified as import-export establishments. 

Meanwhile, the role of their Hong Kong offices has shifted towards quality control, sales, finance and accounts, production management and logistics support. This skew towards higher value-added activities has helped Hong Kong’s trading companies sharpen their competitive edge, while expanding production capacity through relocation. While production on the Chinese mainland has been facilitated by an efficient network of supporting industries and services, the competitiveness of Hong Kong exports in terms of productivity, quality, reliability and delivery has been greatly enhanced. 

Against this background, Hong Kong has been able to sustain its role as a trading centre in the region. Especially during the early stage of China’s opening up, mainland suppliers did not know much about international trade. Due to language and information barriers, most overseas buyers were not familiar with the mainland either. That was why Hong Kong could play the role as a middleman. Besides, overseas buyers had to rely on Hong Kong companies to perform quality control for the goods produced on the mainland, and finished products also had to be re-exported through Hong Kong because of the backward ports and related infrastructural facilities on the mainland. 

Threat of Disintermediation 

Amid the rapid development of Asia, especially the Chinese mainland following its WTO accession in 2001, Hong Kong’s intermediary role has been somewhat affected. In particular, foreign trade and business regulations of many Asian economies have been liberalised, and the business environment has generally improved. Not surprisingly, for instance, some large retailers or manufacturers, such as Wal-mart or Dell, have already set up offices and production lines on the mainland, directly engaging in production or sourcing activities. Although other smaller importers may still source China-made goods from Hong Kong, Hong Kong’s role as solely an intermediary is greatly affected. 

With rising export opportunities, Asian suppliers have also gained more knowledge of undertaking overseas sales than before. In addition to being more competent in international trade, some suppliers have even established a presence in overseas countries, making direct sourcing more feasible and convenient to buyers. To make matters worse, production or sourcing activities in Asia were previously more centralised in the southern part of China. Now, more sourcing opportunities are available in other places of the mainland and other Asian economies, which may further undermine Hong Kong’s role as a middleman. 


III. Evolution of Trading Activities
 

Current Model – Supply Chain Management 

Facing the challenges of disintermediation and increasing competition, Hong Kong’s trading companies, not least the larger ones, have responded by changing their business model. In contrast to what has been perceived as simply being an intermediary, many Hong Kong traders are establishing themselves as an integral part of the global supply chain. They have a much wider scope of responsibility than simple matchmaking for buyers and suppliers. In addition to providing support services such as marketing, orders processing, materials sourcing, product design and development, and quality control here in Hong Kong, they oversee the whole process of value creation, from sourcing or manufacturing to the point products get into the hands of the buyers. 

Case Study: 

The most frequently quoted example is Li & Fung, Hong Kong’s largest export trading company with annual turnover in excess of US$11 billion and more than 13,000 staff around the world. Li & Fung has an extensive global sourcing network, with more than 80 offices covering over 40 economies around the world and more than 10,000 suppliers, which allows multiple sourcing at different stages of production. 

Instead of investing in production facilities, the company has mastered supply chain management by providing the convenience of a one-stop shop for customers through a coordinated package which runs the gamut from product design and development through raw material and factory sourcing, production planning and management, quality assurance, and export documentation to shipping consolidation. 

In addition, the company has orchestrated a network comprising a variety of contracted suppliers and maximised technology and logistics to make the production process as seamless as possible. Such a by-necessity, non-hierarchal organisational structure allows them to respond quickly to customer needs. 

In light of increasing global consumer scrutiny, Li & Fung enforces a rigorous supplier code of conduct. It also requires all sourcing teams to undergo extensive training to gain the awareness, knowledge and necessary skills to meet compliance requirements. To ensure production from socially responsible suppliers, it implements systematic inspections, audits and comprehensive vender education. 

Source: Company website 

It is apparent that big companies like Li & Fung are able not just to better build their supply chains, but build competencies in network orchestration, which involves the development and management of both a network of a large number of suppliers, as well as specific supply chains inside the network. 

However, the business model adopted by large corporations may not be applicable for smaller companies, given their limited financial resources and management expertise. To find out how the business activities of Hong Kong’s trading companies, in general, have evolved over time, the HKTDC conducted a survey study by sending questionnaires to local traders in HKTDC’s database. 

A total of 2,230 valid replies were received, with 38% from traders and 62% from manufacturers-cum-traders. About two-thirds of respondents have engaged in trading business for 10 years or more. In terms of company size, 40% of the respondents handled goods worth less than HK$10 million, 50% between HK$10 million and HK$100 million, and the remaining 10% over HK$100 million. Corresponding to the structure of the trading companies in Hong Kong, the majority of respondents are small and medium-sized enterprises. 

table 

Changes in Business Activities 

In order to build better supply chains, Hong Kong’s trading companies have changed and expanded their business activities, or, specifically, are strengthening their services of higher value added, so as to differentiate themselves from other suppliers competing solely on cost. 

Compared to 10 years ago, 67% of our surveyed companies (which have engaged in trading business for more than 10 years) have increased their quality control activities amid intensifying competition and rising product safety concerns. More importantly, 62% of the respondents have stepped up sales and marketing efforts over the past 10 years, whereas 58% have bolstered product design and development. 

Respondents have also increased their procurement and production activities. There were 51% of our surveyed companies which have increased product procurement activities, while another 49% have increased raw materials procurement activities. In the meantime, only 41% of surveyed companies have increased their own production activities. 

It is worth noting that half of the surveyed companies have increasingly assumed corporate social responsibilities (CSR). CSR refers to, besides making a profit, what corporations should do to take care of others in society, including their customers, suppliers, employees, shareholders, communities and other stakeholders, as well as the environment. CSR is a growing trend, particularly in Hong Kong’s major markets such as the US and the EU. Still, there were a quarter of respondents who have reduced their CSR activities, or never been involved in any CSR. 

table 

Extending the Value Chain 

In line with increasing activities in sales and marketing and product design and development, Hong Kong’s trading companies are extending their business focus from original equipment manufacturing (OEM) to original design manufacturing (ODM) and brand development (OBM), which involve supporting activities beyond what are required for subcontract manufacturing. 

In most cases, trading companies were engaged only in OEM business in the 1980s and later diversified into ODM and even OBM. With expertise in the manufacturing process, Hong Kong companies may find it easier to master prototype creation, detailed product design and development of product concepts, the core activities of ODM, than product development, brand building, marketing and distribution, the core activities of OBM. 

table 

While engaging in ODM and OBM, most of them have still maintained their OEM businesses despite their ODM or OBM businesses being already well developed. There are a few reasons behind such a business decision. First, as both ODM and OBM also involve production, by expanding the scale of operation, companies which have already engaged in OEM can enjoy economies of scale. Second, although the profit margins of ODM and OBM businesses are higher, the associated risks are also higher. By engaging also in their well-developed OEM businesses, companies can diversify the risk of their business portfolio. 

However, the most important reason for Hong Kong companies to maintain their OEM business is that they are still very competitive in activities in the middle part of the value chain, i.e. quality control, materials sourcing, logistics arrangement, etc, despite that their costs of production are not the lowest among competitors. 

Dispersed Manufacturing/Sourcing 

While increasing their value added, Hong Kong’s trading companies are also expanding their procurement activities. Survey results show that Hong Kong’s trading companies, on average, source/manufacture in four countries from 36 suppliers. Although Hong Kong’s trading companies still maintain most of their sourcing and/or manufacturing operations in Guangdong, they have been seeking opportunities in other parts of the mainland and elsewhere in Asia, as the production environment has become increasingly difficult on the mainland, particularly the PRD, where labour shortages are widespread and wage increases are rampant. 

table 

Diversification of sourcing/production operations allows the trading firms to exploit the comparative advantages of other locations, such as low-cost labour and material inputs, bypass protectionist measures, and take advantage of trade preferences offered by developed economies to some developing economies. For example, Laos is granted duty-free and quota-free market access to certain developed countries such as the US and the EU. 

Besides, given the ability to source and produce in various places, Hong Kong’s trading companies are flexible and responsive to changes in the business environment in general and the specific requirements of their clients in particular. For instance, they will be able to react to urgent orders or reconfigure sourcing patterns and strategies frequently, while ensuring that the stipulated quality standards and delivery deadlines are met. 

Case Study: 

Makebest Industries Ltd, established in 1987, is one of the leading candle manufacturers and traders in Hong Kong. Its major exports markets are the US, Europe, Canada and Australia. 

Makebest is successful in managing its dispersed production. It had its manufacturing base in Hong Kong when founded. In the late 1990s, it relocated the production base to the mainland because of escalating costs in Hong Kong, while maintaining its headquarters in Hong Kong. In recent years, some of its production lines have been moved back to Hong Kong to avoid the 108% anti-dumping duty, imposed by the US, on candles imported from China. 

Makebest sources raw materials mainly from the mainland, but avoids sourcing from one single supplier to ensure stability and flexibility. However, it maintains just a small number of suppliers, and is able to bargain for the best prices and quality of raw materials. 

Product-wise, Makebest started with a few types of candles. Through market research, participation in exhibitions and customer feedback, it has developed more new products such as aromatic candles, wax candles, gel candles, container candles, exotic candles, seasonal candles, etc, and even tries to incorporate electronic elements in the candle products. 

Makebest started with both ceramics and candle-making. Later on, it realised that candle-making offers greater potential for higher value added mainly via product design. Then it gave up ceramics and specialised in candle-making. 

Like other Hong Kong companies, Makebest was first involved in OEM only. Driven by market demand, Makebest has engaged also in ODM and OBM. With its own designers, Makebest now has 80% of its business in ODM. 

Source: HKTDC interview 

Product/Industry Specialisation 

During the process of expanding procurement activities, trading companies tend to specialise. Instead of trading a wide variety of products, they are inclined to trim down the number of products they trade so as to direct more resources for developing their expertise in specific products. This is particularly the case for smaller traders. By doing so, they have better knowledge of their product lines and suppliers, and can offer personalised services. Otherwise they can hardly compete with their larger counterparts. On the other hand, as long as they can manage, Hong Kong’s trading companies are keen on new product development. They usually develop products related to those they have been doing well in as they have already accumulated relevant experience, or sometimes because there is demand from their existing buyers. 

In most cases, Hong Kong’s trading companies start with one industry. As mentioned, they usually develop related products which are in the same industry. However, there are also cases of branching out into other mostly related industries. For one thing, there may be limited potential for further growth of a particular industry. Then, they will have to find some other way out. For instance, owing to the increasing trend of incorporating electronic components in traditional products, such as toys, trading companies in the electronic industry may also look into the possibilities of developing electronic toys. On occasions, they may even be compelled to branch out into other non-related industries, which pose the highest business risks. On the whole, survey results indicated that Hong Kong’s trading companies, on average, handle 49 products from four industries. 

Case Study: 

Flamingo Gifts Creation Ltd is a Hong Kong company trading imitation jewellery and gift items, with Europe being its major export market. 

Although Flamingo sources most of the gift items on the mainland, it also sources from other countries upon the request of buyers, a good demonstration of high flexibility and customer-oriented spirit of Hong Kong companies. 

At first, Flamingo traded a wide variety of gift items, ranging from stationery to crystal items. Soon, it realised the essence of specialisation – with more product knowledge, it could create higher value for its customers. Then, it started to focus on fewer products. Now, it only focuses on eight types of gift items, each traded by designated salespersons who receive regular training on product knowledge. However, Flamingo has recently branched out into the packaging industry as requested by its buyers. 

Product quality is always important to Flamingo. At first, gift items manufactured on the mainland were sent to Hong Kong for quality checking. Subsequently, Flamingo set up a testing centre near to its factories on the mainland so as to save costs and time of shipping goods back and forth from the mainland to Hong Kong. 

Source: HKTDC interview 

Strengthening Quality Control 

Hong Kong’s trading companies are well known for their quality assurance service, an edge over their competitors, especially indigenous mainland suppliers, which usually compete on costs. In the old days, Hong Kong traders had their goods produced on the mainland shipped to Hong Kong for quality checking. Now, most of them find it easier to manage if products are checked somewhere close to the production base. When importers’ requirements are higher, the quality control process becomes more sophisticated. 

As a way to guarantee product quality, importers may ask suppliers to have their products certified by quality assurance bodies to ensure compliance with internationally recognised standards. Besides, exporters are making use of statistical knowledge to improve the standard and accuracy of checking. Exporters are also keeping track of their suppliers’ quality, setting up and maintaining their own quality control system. 

If anything, some recent issues have accentuated the importance of quality control. Since the summer of 2007, there have been high profile product recalls and safety alerts involving Chinese-made products from mature markets such as the US and the EU. In particular, defective and tainted toys and other children’s products have become a major issue amid claims of lax safety standards in some of the Chinese factories supplying the US and the EU. As a result, Hong Kong’s overseas markets have tightened their requirements, and Hong Kong traders are required to further enhance their quality control. Indeed, quality and safety are not only crucial to children’s products, but also other products like food and related items. 

Case Study: 

Lucky Future Co Ltd, established in 1985, is a Hong Kong company producing and exporting food additives such as soya sauce and MSG. Its major markets are the US, Canada and European countries. 

As a responsible food manufacturer, Lucky Future has always strived to enhance product knowledge, ensure product safety and improve product quality. 

3-MCPD, a byproduct of the production process of soy sauce, can cause cancer, but the level of that found in soy sauce was commonly regarded as acceptable before the UK Food Standards Agency (FSA) disagreed in 2001. 

Indeed, as far back as 1997 when there were no international regulations governing the levels of 3-MCPD allowed in foodstuffs, Lucky Future, through working with academics, already took steps to modify its production process and brought 3-MCPD to an insignificant level in its products. As a result, Lucky Future can easily hit back at claims from the UK FSA that some soy sauce from China contained cancer-causing chemicals above safety levels in 2001. 

Source: HKTDC interview 

CSR 

While growing quality concern has increasingly affected the operations of Hong Kong traders, international labour issues continue to grow in their importance. This development is based on the recognition that the pace of globalisation has outstripped the existing mechanisms for regulating labour rights around the world. At the same time, public awareness about CSR has grown exponentially in the US, attracting mounting attention from the news media, labour groups, non-governmental organisations (NGOs) and the government. This has forced companies to critically examine the working conditions of labour at their suppliers’ factories. 

In the mid-1990s, the principal labour issues facing US companies, including such brands as Nike, Liz Claiborne and Gap, were the alleged sweatshop practices in suppliers’ factories. In response to protests and boycotts, US companies began to demand their overseas suppliers to comply with a number of regulations and standards, such as labour laws and workplace regulations, forced and child labour, harassment and abuse, compensation and benefits, hours of work, discrimination, health and safety standards, freedom of association, environmental standards, customs compliance and counter-narcotics. 

On the other hand, a variety of organisations and initiatives has been responding to the resulting proliferation of CSR-related reporting standards by attempting to set up standards which assist importers in selecting suppliers’ rule of thumb. Hong Kong exporters, realising such a trend, have been putting more efforts on assisting their buyers to perform CSR responsibilities, which serves to be another type of value-added service for their buyers. 

Case Study: 

Wing Fung Optical International Ltd manufactures and exports a wide range of optical frames and sunglasses, including normal metal, Monel, stainless steel, pure titanium, hand-made acetate, combination, rimless, and injection frames. 

Wing Fung is a good example of how Hong Kong companies move up the value chain. Established in 1982, Wing Fung was originally a 100% OEM firm. In the 1990s, facing fierce competition from other emerging Asian economies, Wing Fung started to develop ODM business and continuously increase quality over the world class standards. 

Amid the higher requirements of its buyers, Wing Fung set up its own laboratory on the mainland to test for its products’ quality. 

In addition, Wing Fung has performed more CSR activities than those required by buyers. As an optical manufacturer, it pays a lot of attention on the impact of its production on the environment by, for example, sending their plastic scrap to recyclers. 

Source: HKTDC interview 

IV. Prospects 

As noted, compared to 10 years ago, trading companies in Hong Kong have performed more quality control, sales and marketing, and product design and development. When asked what activities they would engage in more over the next three years, sales and marketing, quality control and product design and development still topped the lists. Around 70% of surveyed companies said they would increase their sales and marketing efforts and quality control in the coming three years. Sixty-two percent said they would enhance product design and development. In the meantime, 53% and 48% indicated they would increase product procurement and raw materials procurement respectively, while 49% would strengthen their CSR efforts. The results show that the trend of Hong Kong’s trading business in the medium term will still be towards higher value added and dispersed manufacturing/sourcing activities in the supply chain. 

table 

On business development strategies, a majority of the surveyed companies (64%) revealed that they would expand their sourcing base on the Chinese mainland. Rather than a sourcing or production base, some others (47%) considered the Chinese mainland as a market, where they would establish a presence or expand their current presence. In contrast, fewer respondents appeared to be interested in overseas markets, with 27% and 26% of our surveyed companies planning to expand the sourcing base overseas and establish a presence or expand the current presence in overseas markets, respectively. This is completely justified, as Hong Kong companies are generally more familiar with the mainland, which provides lots more of business opportunities than the overseas markets. 

table 

Meanwhile, consistent with the global trend, 46% of the respondents said they would increase the use of the Internet in developing their business. In terms of developing new products, 45% said they would develop related products, while 20% would develop non-related products. There were relatively fewer companies trying to expand into other industries. Still, 23% and 13% of surveyed companies said they were going to expand into related and non-related industries, respectively. 

Asked what the likely difficulties of developing trading business would be, respondents said keen competition was the most significant (rated 4.34 out of 5), followed by problems arising from industry concentration (3.88). The diminishing intermediary role of Hong Kong’s trading sector (3.62), lack of talent with relevant industrial knowledge (3.57), changes in policies/regulations (3.52) and financial constraints (3.45) were the next significant difficulties. 

table 

Despite all the difficulties and challenges facing Hong Kong’s trading companies, the respondents are broadly optimistic on the trade prospects. Not surprisingly, the Chinese mainland is considered the most promising market. Fifty-six percent of them believed the mainland market would expand in the next three years and 29% thought it would remain unchanged. The remaining 15% believed the mainland market would contract, or that they had no business activities, nor any interest to develop in the future. 

For the US, the EU and Japan, there were 49% of respondents expecting market expansion there, while 28% anticipated stable prospects. The remaining 23% believed these markets would contract, or that they had no business activities, nor any interest to develop in the future. Lastly, other markets, mainly emerging markets, have remained new to Hong Kong’s trading companies. Thus, proportionally fewer of our respondents (64%) were either upbeat or neutral on the outlook of regions other than the mainland and the major mature markets. 

table 

V. Conclusions and Recommendations 

Hong Kong’s Role as a Trading Centre 

Having reviewed the changing business model of Hong Kong’s trading companies, it is evident that Hong Kong has been able to sustain its role as a trading centre. But the challenges facing Hong Kong are very real. More and more Asian economies, particularly the Chinese mainland, are clamouring for a bigger slice of the pie. By all means, enhancement of the trading capabilities of these economies, albeit unlikely to create a serious threat to Hong Kong traders and manufacturers in the near term, will increasingly facilitate direct sourcing from mainland cities, probably eroding Hong Kong’s role as a trading centre. 

Hong Kong, indeed, has a dual role to play. On the one hand, Hong Kong is home to some 15,000 manufacturing companies, which usually undertake trading activities as well. Their manufacturing activities are propped up by around 55,000 factories on the mainland, the majority of which are in the PRD. These manufacturing firms invariably maintain their headquarters in Hong Kong to control and coordinate various trade-supporting services, including sales, marketing, finance and administration. The competitiveness of Hong Kong manufacturers will directly affect Hong Kong’s overall attractiveness to overseas buyers. Should Hong Kong manufacturers be able to remain sufficiently competitive to deliver what overseas buyers ask for, the advantage of Hong Kong as a trading centre will be strengthened. 

Hong Kong, on the other hand, assumes an intermediary role. There are now almost 97,000 import/export companies in Hong Kong. Many have been working on behalf of mainland companies, which may lack the appropriate export experience and overseas sales network to promote their products. Meanwhile, Hong Kong trading firms help overseas buyers source appropriate merchandise of the best quality and price. Some provide a full range of supply chain management for their clients, covering product development, raw material sourcing, production planning, factory sourcing, manufacturing control, quality assurance export documentation and shipping consolidation. The existence and prosperity of trading firms will definitely support Hong Kong’s lead as a trading centre. 

On the demand side, many overseas buyers still do not have the necessary experience and expertise in direct sourcing from the Asian region in general and the Chinese mainland in particular, and they will tend to be more reliant on Hong Kong companies for sourcing products. Such dependence, especially for small-and-medium importers, will not easily fade. But if the competitiveness of Hong Kong suppliers, whether manufacturing or trading companies, is not adequately sharpened, the risk of direct sourcing by overseas buyers will certainly increase. Should overseas buyers decide to bypass Hong Kong companies to buy directly from other regional suppliers as a consequence, Hong Kong’s status as a trading centre will be eroded. 

Strengthening Supply Chain Management: A Viable Solution 

It is apparent that whether Hong Kong can sustain its role as trading centre will, to an extent, depend on the ability of Hong Kong traders to strengthen their competitive edges. In general, overseas buyers appreciate the competitiveness of Hong Kong traders, and are satisfied with the services they offer. Overseas buyers also consider Hong Kong’s business environment as competitive, which underpins Hong Kong’s status as a trading centre. But they have some concerns about the future status of Hong Kong as a trading hub, especially over the longer term. 

Not surprisingly, the major concern of overseas buyers is the increased competitiveness of mainland and some other regional suppliers. To many overseas buyers, sourcing products from Hong Kong appears somewhat expensive compared with sourcing from, for example, indigenous mainland manufacturers. They pay a higher price premium with regard to the quality of services offered by Hong Kong companies, thus saving the trouble of locating the right suppliers on the mainland and the attendant business risks. Simply put, the benefits of keeping the procurement through Hong Kong outweigh the costs. 

Nonetheless, overseas buyers also contend that the improvement of the services of indigenous mainland companies and other regional suppliers may over time reduce the competitive edges enjoyed by Hong Kong traders. From a macro view, there is no escaping from the need to strengthen Hong Kong’s business environment as well as the competitiveness of its trading sector so as to maintain Hong Kong’s status as a trading hub in the region. 

For now, overseas buyers generally appreciate the performance of Hong Kong traders. But in the face of intensifying competition and industry concentration, in tandem with the threat of disintermediation, Hong Kong traders should strive to further strengthen their competitive edge. They should continue to extend the value chain, not least by engaging in ODM and OBM, and widening their range of products. Furthermore, they should increase the use of Internet, tighten quality control, perform CSR activities, and conduct more business with the mainland. 

In view of the proliferation of new production sites on the mainland and elsewhere in the region, they are further required to set up production or strengthen their sourcing connections there, as the business environment in the PRD has become particularly challenging. By broadening and diversifying sources, Hong Kong traders will be better positioned to exploit the comparative advantages of different manufacturing bases, and build flexibility through the dispersion of sourcing/manufacturing activities. With an average of just 36 suppliers in four countries, there is much room for Hong Kong’s trading companies to expand their sourcing/manufacturing network. In all, only by optimising the supply chain, as well as rendering more and better value-added services to overseas buyers, can Hong Kong traders maintain their lead over mainland and other regional suppliers, and help sustain Hong Kong’s role as a trading centre. 

Exactly what I’m doing now…

June 23, 2010 at 07:59 | Posted in Research | Leave a comment

Comic relief

June 22, 2010 at 03:22 | Posted in Research | Leave a comment
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All hail Dilbert the wise one…

http://productquadrant.com/?p=100

Sweat the small stuff

June 14, 2010 at 03:54 | Posted in Research, Singapore, Work | Leave a comment
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Laughs to quadrant where “Consultancy” belongs to… have people overlooked the small stuff?

Would implementing a wiki as a form of database management system be cheap & good? 

Knowledgebase

June 10, 2010 at 05:51 | Posted in Indonesia, Research | Leave a comment
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Knowledgebase, some concept I read about long ago

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