Bra maker says labour laws are a recipe for going bust
Denise Tsang in Shenzhen
Top Form is beginning to sound like a misnomer as the bra maker struggles to get over the hump caused by rapid changes in the mainland's labour market and industrial laws.
The group, which is the world's largest contract producer of lingerie and counts among its clients high-end brands such as Calvin Klein and Victoria's Secret, has been hit by 'landslide changes' in mainland policies, complained its chairman, Willie Fung Wai-yiu.
Top Form along with tens of thousands of Hong Kong factories across the border have been finding it difficult to stay afloat amid the sweeping changes that Fung calls 'too rapid to comprehend and react to'.
These include proposals to let workers negotiate pay rises and welfare measures with bosses and also to allow them to sit on the board of directors.
These are all expected to become law in Guangdong and Shenzhen after the National People's Congress draws to an end today.
Other rules which were part of the Labour Contract law passed two years ago, will be strictly enforced in Shenzhen from this summer.
'They are not well thought out and are full of loopholes,' said Fung, who is also the chairman of Hong Kong Garment Manufacturers Association. 'We are not opposed to new rules but these new laws were introduced too fast.'
He complained that some rules could be easily abused and cited the unemployment insurance arrangement in Jiangxi province, where Top Form runs a factory with about 2,000 workers.
Shortly before the Lunar New Year holidays, a group of 40 migrant workers at the factory staged a strike and demanded to be sacked so that they could demand the insurance compensation, Fung said.
A couple of months earlier, a security guard at the same factory intentionally drank alcohol on the factory premises during working hours and demanded to be sacked in order to qualify for the unemployment insurance, said Fung.
The latest crisis was finally settled by having the workers in question resign and compensated according to their labour contract, he added.
'We follow the rules of the game, but as reward we get punished with more troubles.
'The rules come with good intentions but their drafting is so vague that it defeats the purpose of protecting workers and creates disputes, instead.'
Eventually, Top Form, which Fung said was alone in following the rules, called on the local government to revise the definition of unemployment. It now excludes workers who are sacked arising from a breach of factory rules, he added.
Unemployment insurance is a fund in which employers have to contribute on a monthly basis. The fund is distributed among employees if they lose their jobs under certain circumstances. Employees do not have to contribute to the fund.
Staff relations are crucial in labour-intensive businesses such as Top Form, which employs about 7,000 migrant workers in its production bases in Jiangxi, Shenzhen and Nanhai, Guangdong province.
And the flow of new policies shows no sign of abating for manufacturers on the mainland, with the National People's Congress due to pass today the 12th five-year plan.
Under the plan, which is aimed at preventing social unrest and spurring domestic consumption, the government wants to see minimum wages gradually increased; the welfare and rights of workers expanded; and the manufacturing sector encouraged to upgrade its technology and increase product values.
Some leaders have said during the NPC's annual session that the state aims to have the minimum wage doubled by the end of 2015. Echoing the nation's objective, Guangdong Party Secretary Wang Yang has promised to lift the living standards and income of workers under the 'happy Guangdong' slogan.
'I don't think it will take as long as five years to double the minimum wage,' Fung said. 'A couple of years will do because of the severe labour shortage.'
Shenzhen, for example, is to raise the minimum pay by 20 per cent to 1,320 yuan on April 1, while Guangdong raised it by an average of 18.6 per cent on March 1.
Dongguan, which has the largest cluster of Hong Kong factories, had the minimum wages raised by 19.6 per cent to 1,100 yuan on March 1, the second increase in 10 months.
The Federation of Hong Kong Industries forecast that one in three Hong Kong-owned factories across the border - or 22,000 of the estimated 65,000 plants - will be forced to cut back their operations or go under in the next three to five years as a result of more stringent labour rules, labour shortages, rising wages, an appreciating yuan and high raw material prices.
'Lingerie manufacturing was a sexy business even a few years ago,' Fung said. 'Now it is a headache.'
The future of the group rests on making the process more technologically advanced, he said. In recent years, bra manufacturing has deployed ultrasonic techniques, laser beams and adhesives to reduce labour and create new designs.
According to the Hong Kong Intimate Apparel Industries' Association, the average woman in the US and Europe will own six bras and eight pairs of underpants and buy two bras and five pairs of underpants a year.
In Japan, the average young woman buys 30 bras and 65 pairs of underpants a year.
Top Form's backyard, the mainland market, also has a lot of room for growth.
'The brassiere industry is viable; otherwise you would not have seen sports brands like Nike, Adidas and fashion brands like Esprit and Giordano expand into underwear,' Fung said. 'It is a growing business, but it is getting more competitive.'
Top Form, which also has a production base in Thailand, is looking for additional manufacturing sites beyond these two countries. Bangladesh, Vietnam and Sri Lanka were probable contenders due to their abundant labour supplies and relatively lower wages, he said.
Top Form's decision to move more of its manufacturing to Thailand to lower costs has proved fruitful, as the group's bottom line shows.
Its factory in Thailand, which employs about 6,000 workers, accounts for half of the group's production output.
Net profit jumped 51 per cent to HK$47 million in the first half of the fiscal year as sales rose 18 per cent to HK$749 million. Gross margin was maintained at 21 per cent, marginally lower than 22 per cent a year ago.