Garment maker TAL re-engineers to stay in the game
Garment maker TAL re-engineers itself to stay in the game in the face of challenges from industrial reforms, labour shortage and wage rises
I sign on a piece of collar fabric and pass it on to a sewing worker at one end of a production line. Thirty-five workers and 19 minutes later, a custom-made, signature-bearing dress shirt emerges from the other end.
Welcome to one of the dozens of production lines at Hong Kong garment maker TAL's factory in Dongguan in the Pearl River Delta. When I first visited the factory five years ago, it took the same number of workers three days to make that shirt.
The company, which makes one in every seven dress shirts sold in the United States, made a bold move in 2008 by casting away a 60-year-old production model, under which workers used to be paid individually in keeping with the person's productivity.
The new system - modelled on the so-called lean system widely used in the car industry - replaced individual productivity with team productivity.
TAL, which produces mid to high-end dress shirts, polo shirts and trousers for brands such as Burberry, Charles Tyrwhitt, Tommy Hilfiger, Brooks Brothers and J Crew, was forced to improve its efficiency and flexibility as overseas orders began to arrive later in the season, with smaller volumes and shorter delivery time.
Like many others in the Pearl River Delta - "the factory to the world" - TAL spent the past few years re-engineering itself for the challenges brought about by this new procurement trend that favours nimbler producers.
Ken DeWoskin, a senior adviser at Deloitte Touche Tohmatsu, said the winners in this supply chain transformation would be those willing to invest in intangible assets and in the future.
"Manufacturers with modern techniques, including strong IT support, and the ability to integrate electronics with new materials and modern high-precision fabrication equipment, have the potential to maintain strong growth and market share," DeWoskin said.
The losers will be those who remain in the lower end of the value chain, continuing to rely heavily on labour.
The Pearl River Delta has seen a sea change in the past five years as the central government presses ahead with industrial reforms to raise its competiveness and sustain growth. The reforms, aimed at forcing manufacturers to climb up the value chain and the technology ladder, was necessitated by a strengthening yuan, chronic labour shortages and persistent wage rises.
These forced many manufacturers to either relocate from the delta to more remote parts of the mainland or to low-cost countries such as Bangladesh, Thailand, Vietnam and Indonesia.
DeWoskin said the mainland's global share of high-value manufacturing was growing while lower-value products with high labour content moved elsewhere.
"The advantages of an area like the PRD are likely to be more important in the future, and the disadvantages, by way of labour availability and costs, will diminish in importance," he said.
Among the keys to future competitiveness of the delta are sophisticated regional logistics, comprehensive and high-technology supply chains, centres for technology innovation, and proximity to and integration with Hong Kong's financial and trade facilities as well as international design skills, he said.
TAL has stuck with its supplier business model rather than attempting its own brand, but has focused its energy on innovation after witnessing the ups and downs in the industry for 67 years.
The company saw its second-generation leader, Harry Lee, take a backseat, chairman role and pass the torch to his son, Roger Lee, who became the chief executive, two years ago. Roger's cousin, Delman Lee, was made vice-chairman and chief technology officer.
"We called ourselves 'innofacturer', and have patented the new technologies," Delman Lee said. "China has the largest group of consumers in the world and needs factories close by. Manufacturers, even smaller ones, will survive if they find a niche."
Delman Lee, who has a doctorate in electrical engineering, used to be a researcher with private companies and universities in Britain and the United States until he joined TAL in 2000. He has since headed a group of what he calls "fashion scientists" at the company in research and development.
Last year, the company allotted about 1 per cent of its total revenue of about US$800 million for the work of the "fashion scientists".
One of their latest innovations is treating shirts with chemicals that make them resistant to sweat stains on the collars and sleeves.
Delman Lee said more than one million shirts with this feature had been sold since they hit the market two years ago.
Another innovation is a chemical that disguises a person's sweat from inside a shirt in a way that makes it look dry from the outside.
"We have introduced many different kinds of innovations such as wrinkle-free and body-cooling technologies," he said.
The cost of these innovations, he said, was offset by bigger sales volumes.
"At the consumer level, marked prices are more or less the same," he said.