Factory visit report

Factory Name Grand Dragon Leather Goods Mfy.
Contact Person Sam Lam
Date of Visit 25 May 2014
Visitors Daniel, Man Yan, William, Sam, Maria

 

General information

  • OEM/OBM Manufacture: wholly owned
  • 450 employees
  • Main products: briefcases, handbags, and small leather goods
  • Main market: Europe
  • Main customers: Medium-to-high-end Italian fashion brands
  • 3 production lines
  • Production capacity: 30,000 pcs/month
  • Yearly turnover USD5M

Factory facilities

Over 50 types and 400 units of machines for productions, such as sewing machines, punching/stamping machines, splitting machines, etc.

Story:

Grand Dragon, located in Huizhou, is a middle size factory, major manufacturing leather products. The tour involve site seeing at R&D department and one of the production floor. Unfortunately we haven’t discuss/visit about quality control which we should learn more about. Our impression on the factory is good, it is organized, and can provide good working condition to the labour.

Manufacturing in China has been faced a lot of new challenges recently, such as rising wages and other costs, more sophisticated and demanding customers, shortage of workers. Labor cost is the key issue in labor intense handbag manufacturing industry. Also, production depends very much on tacit knowledge of skillful workers, including major steps such as sewing and gluing. As a sum of the above, it is difficult to attract new blood and to retain knowledge.

Sam has high concern about sustainability of the industry, maybe in about 10 to 15 years it will shrink due to brain drain and lack of replacement. The production capacity is also restricted under these circumstances and they cannot take big orders.

We have been in discussion on how to find ways out, such as producing new products, using new distribution channels, and customization production, etc. I try a little bit with the value preposition and business model innovation method suggested by Luc (2014) 1) as follow:

 

The product is Handbags, purse, wallet, accessories; the value preposition is fashion & trends. To leverage with the existing infrastructure, the new business model is workshop enabled customization, trendy website & online shop (reference www.vogue.com/fashion and www.tmall.com), own brand design, participate design awards (www.red-dot.de, www.ifdesign.de, www.dfaaward.com, etc.)

Actually, I tried to start with “Add value process on raw material with customer design” instead of “Leather product manufacturing”, however, there is no convincing future to stick with business function as manufacturing plant only. To start thinking with the nice looking leather products is much easier. Once I work for the company Bodum (www.bodum.com), they have no production at all but they utilize the cheap labor in China. Guess what? They get the biggest cut in the value chain only with their brand and designs in Swaziland. The business model is more or less same as Apple Inc., but Bodum’s product is very cheap and low end (but very expensive at Bodum shop). 

Further, to think out of the box, maybe acquiring a small Europe brand helps to enhance the corporate image? Bodum acquired Ordning&Reda (www.ordning-reda.com) to extend their product category is a good reference.

All in all, maybe the above is just crazy ideas, a new business model should be developed for a sustainable future. Seems the R&D department is the future production prototype?

Thanks for your time and look forward for the next sharing!

Sam & William

21 Nov 2014

PS. We are more than happy to get your feedback and comment via gd.samlam@gmail.com & lim912@yahoo.com, cheers!

 

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Additional highlights from webinar

中國市場營銷策略: 如果建立品牌及開拓中國市場2)

After finishing this visit report, I coincidently accessed the webinar presented by the chairman of Chaifa Holdings Limited, John Chan, who has very insightful comments about the upcoming trend for HK industry:

  • In 2010, the average minimum wages in different provinces of China increased by 22.8%. It was planned to further increase the minimum wages for 13% per year.
  • The combination of garment imported to US market in 2010 is: China 8.7%; Bengal 30.0%; Cambodia 25.6%; Indonesia 18.4%; Vietnam 17.2%. The market share of China import is decreasing. 
  • A report from the Boston Consulting Group predicts that manufacturing will shift back to US (!).
  • According to John’s opinion, 95% of the factories cannot move to inner part of China or other developing countries, due to lack of infrastructure, supply chain, skillful workers, etc.
  • Most of HK enterprises are working in labor intensive industry, we seldom have “Hi-Tech” industry
  • Most of HK enterprises are not willing to invest on R&D (in 2013, R&D investment in China is 2.08% GPD, where 74% came from private sector; in Hong Kong is 0.7%, where 40% came from private sector)
  • Only 30% of HK enterprises can handover successfully to the next generation
  • There is lack of leadership to drive conversion from OEM to ODM/OBM
  • Corporate finance for manufacturing industry is very difficult in China
  • Advertisement in China is very expensive
  • John believes that Hi-Tech industries will stay in China but other low end production will move to India or South Africa
  • From 2010 to now (2014), over 10,000 HK owned enterprise closed their business in China and returns to trading business.

 

Useful tips from the master:

  • HK enterprises should move from OEM to ODM or OBM (Own Branding & Manufacturing) with higher profit margin
  • Wholesale doesn’t work, HK enterprises need a distribution channel for retail market or online shop
  • Technological enhancement (for example, automation, nano material, natural material, low carbon product, testing and inspection technique.)
  • Leverage the supporting policy for technological innovation in Gongdong province, start up technology enterprise
  • Invest R&D for the future, reshape and improve our core competence such as: flexible capacity capability, effective supply chain, IT infrastructure, advanced design and development facilities, shorten procurement period, etc.   
  • Enter the China market, focus on medium to high end products, and most importantly, understand the target group with empathy  
  • Want to know more about Brand Rejuvenation? Check this out.

The webinar can be accessed online, see list of references.

LIST OF REFERENCES

1) Luc de Brabandere (2014), What Managers can learn from great philosophers?

Fig: value preposition and business model innovation

[source: Lecture 6 of What Managers Can Lean From Great Philosophers (2014)]

This figure takes COFFEE SHOP as an example. The Product in value preposition is LATTE, MACCHIATO, etc; the Service in value preposition is SPACE (further converted as OFFICE). To leverage with the existing infrastructure, the new business model is CHARGE BY THE HOUR, provide POST-IT & PRINTER, or internet CONNCETION, etc.

2) John Chan Chun Tung (2014), webinar on The Open University of Hong Kong中國市場營銷策略: 如果建立品牌及開拓中國市場

http://www.ouhk.edu.hk/wcsprd/Satellite?pagename=OUHK/tcOLE2_2004&OLE_YEAR=2014&OLE_MONTH=JANUARY&OLE_DATE=5&CALENDA=true&TOB=true&SHOWPREV=false&c=C_ETPU&cid=191157124200&lang=chi&dis=1

Expiry Date: 

2014-06-02

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