Wearing a private label
Kenneth Lo is happy to take orders from his fashion giant clients, but not from shareholders. That's why his Crystal Group is staying private
Crystal Group is one of Hong Kong's largest garment makers, with production bases in 15 cities manufacturing for global brands such as Levi's, Uniqlo, H&M, Victoria's Secret, Marks & Spencer and Walmart.
The group made a record HK$16 billion in revenue last year, a sharp 71 per cent rise over 2011. Yet Crystal is not a listed company, and its senior executives are so low profile that you seldom read about them. The company's founding chairman, Kenneth Lo Lok-fung, comes from a legendary Hong Kong manufacturing family. The garment empire built by his father, Law Ting-pong, in the 1950s was regarded as one of the four biggest in the industry.
With the money he made from the business, the family later moved into the property sector. At one point Law owned three listed companies - including Bossini International and Laws Group. His sons and grandchildren include some of the city's most well-known fashion leader, who founded apparel brands including Ztampz, Mocca, and Bread and Butter.
So why is Lo so low profile and did he ever consider listing Crystal? "People change when their company goes public. They don't need as much self-discipline. For example, it would be a bit over the top to ask the CEO of a listed company to fly economy class," Lo told the South China Morning Post, adding he always flies economy on business trips. "We don't need money; we don't need fame. If we need to expand we have enough cash for takeovers. Whatever decision we make it affects only us. If we listed we need to answer to shareholders; we will then be bound to seek short-term profit and lose the guts to do things that truly matter to the company's long-term development."
In 2003, for example, the group purchased a business management system which helps integrate multiple business processes and minimises the risks of duplication and inconsistency with data. While the SAP system was good for the company in the long run, it cost more than half of Crystal's earnings at the time. To Lo, that seems exactly the kind of thing that a listed company is not supposed to do.
The company also invested in other infrastructure that others may find unnecessary. While the company may not be seen as an active advocate of labour rights issues, it was one of the first to install sprinkler systems in its mainland factories.
"We began installing the sprinkler system in our mainland factories more than a decade ago when most others could only think about fire extinguishers when talking about enhancing labour safety," Lo said.
Labour safety issues were not as much a priority to business people as it is today, and maintaining the system was costly. Lo said the move squeezed the company's net profit margin down to 3 to 4 per cent, while its rivals generally enjoy a margin of between 6 and 7 per cent. But the group has flourished.
"It may not be a direct consequence but we never have any labour shortage problem, even during those years when everyone fought for workers," Lo said. "Our workers were also among the most efficient in the industry. It took them just some 12 minutes to make a pair of jeans, compared to an industry average of 20 minutes."
Crystal's investment in safety facilities, plus other measures to improve the work environment, has been rewarded in recent years. Major clothing brands began requiring their suppliers to lift safety standards amid rising public concern about so-called sweatshops. As the eldest son of the Law family, Lo could have had an easier life taking over the family business, but he chose to develop his own business following a row with the family's business partner. Two years after he founded his own firm in 1970, he met the first crisis that could have put him out of business.
"We received this big order which was worth nearly half of our capital. The shippers said it had to be delayed for a week as cargo space was pretty tight at the time. But our client would not budge, and threatened to cancel the order unless we gave him a huge discount," Lo recalled.
Finding both options unacceptable, Lo and his then six months' pregnant wife followed the ship on a motorboat called The Walawala. Lo and the mother-to-be climbed a long rope ladder on to the deck of the ocean-going vessel and begged the captain to make room for their cargo. "Looking back, it was quite crazy, but if we didn't make it that time, perhaps our business would have failed," Lo said.
While many of his nieces developed their own fashion lines, Lo said the group would stay doing what it does best. "Why should we do something that we don't know how to win?" he said. "We don't even prefer making garments that we are not specialised in."
The group's exports to the United States have a defect rate of 2.1 per cent, while the rate for its Japanese line of products was as low as 0.3 per cent. "The annual growth of the garment industry is worth hundreds of millions of dollars and it offers very big potential to those who can maintain their market share," Lo said.