Diversifying works for Li

PUBLISHED : Wednesday, 23 May, 2012, 12:00am
UPDATED : Wednesday, 23 May, 2012, 12:00am


Few of the many rags-to-riches stories are more spectacular than that of Li Rucheng, the 59-year-old CEO of the Ningbo-based garment and real estate giant Youngor Group.

Sent to Ningbo with his family as a child in the 1960s, Li was transferred from a state farm to a garment factory, where he hauled bricks with a horse-driven wagon.

Li transformed the factory into what would become the Youngor Group, a conglomerate that notched sales of 11.5 billion yuan (HK$14.1 billion) last year.

Li was in the right place at the right time, but he also benefited from a deep 'understanding of the importance of branding, diversification of investment, supply chain management and co-operation with government', according to Jason Choi, an associate professor who teaches fashion business at the Hong Kong Polytechnic University.

Youngor extended its brands as the market grew and diversified. Choi says the firm 'successively moved the brands up the ladder from the mass market to the middle and upper levels'. Not that Youngor's path has been easy. The preference of many Chinese consumers for foreign brands has prevented Youngor from charging the kind of premiums - and the resultant profit margins - on which foreign brands rely.

Now Youngor is being squeezed by factories in Laos and Vietnam that have much lower labour costs. That led Youngor to spend US$4 million on a factory in Hanoi last year 'to maintain our cost competitiveness'.

The conglomerate used extensive diversification to move into different industries. This has helped the firm to integrate vertically and to hedge its risks, spreading to growth markets in boom times and relying on the steady flow of cash from staples such as garments in lean times.

It's the kind of strategy used by companies such as Virgin in Britain, and with the same kind of desire to be everywhere for everyone. 'My dream is to see more and more people dress in Youngor garments, live in Youngor apartments and have fun in [the] Youngor zoo in Ningbo,' Li told the China Daily in 2010.

Getting the branding right will be a key challenge. That means expanding its presence in the mainland. It may also mean working 'with reputable brands from the US and Europe as a catalyst for growth', Choi says. That might entail hiring a Western celebrity or designer to infuse a Youngor line with the messaging or imagery of its partner.

The other challenge that faces Li is how to pass the baton. While personality-driven companies face transition difficulties, passing the baton is easier when 'these CEOs are only vision setters and the major administrative and executive jobs are done by their delegates and the board of directors', Choi says.