The future looks bright for Hong Kong's Crystal Group
Already one of the world's largest clothing producers, the Hong Kong-based Crystal Group plans to double its sales revenue to US$1 billion by 2008. Niki Tait speaks with deputy chief executive, Andrew Lo, about the company's plans for the future.
With over 23,000 direct operators in 12 manufacturing facilities across six countries, and a further 20,000 employees in associated joint venture companies, a total production area of three million square feet and a total output of over 92 million garments per year, the Crystal Group is undoubtedly one of the world's largest apparel manufacturers.
Producing men's, ladies', children's and babies' T-shirts, sweaters, woven wear and intimate apparel, the projected 2004 sales of this private, family-owned company is US$600 million.
Boosted by the acquisition of Martin International Holdings Plc, a major UK supplier of intimate apparel to Marks & Spencer, in June 2004, the group plans to double sales revenue to US$1 billion by 2008.
Headquartered in Hong Kong with sales offices in the USA, Japan and the UK, the company operates wholly-owned factories in Hong Kong, mainland China, Malaysia, Mauritius, Sri Lanka, Vietnam and Mongolia.
Its high volume joint venture CMT factories in Cambodia (woven items and T-Shirts), the People's Republic of China (wovens, T-Shirts and sweaters), Sri Lanka (wovens), and Mongolia (wovens) account for a further 18 million items a year.
Order sizes average 50,000 to 100,000 pieces per style. The minimum acceptable order size is 3,000, while the maximum has been more than one million pieces of the same item.
Production at Jinghui Industrial China
Making both OEM and ODM, customers include many international private label companies including Ann Taylor, Eddie Bauer, Gap, JC Penney, Kohl's, LL Bean, Marks & Spencer, Next, Sears, Tesco, Tommy Hilfiger and VF Corporation.
All production is exported, 65 per cent to the USA, 20 per cent to Japan and 15 per cent to Europe, mainly the UK.
Wholly-owned production facilities
- Hong Kong
With 800-1000 employees and a capacity of 50,000 dozen per month, Crystal Sweater Ltd produces fully fashioned pullovers and cardigans for men, women and children. The garments are worked under the China-HK Outward Processing Arrangement (OPA) whereby a small proportion (normally between 15-25 per cent) of the work is carried out within Hong Kong to allow the garment to be exported under Hong Kong country of origin and Hong Kong quota.
With a capacity of 25,000 dozen per month, Palace Garment Mfg Sdn Bhd has 800-1000 employees and makes knit tops, skirts, dresses, shorts, pants, and coordinated items.
- Mauritius (3000 employees)
With a capacity of 45,000 dozen per month Sinotex (Mauritius) Ltd produces shorts and trunks, pants, skirts, dresses, infant wear, loungewear, sleepwear, jackets and twill jeans.
Kentex Garments (Mauritius) Ltd produces up to 40,000 dozen infants' bodysuits, T-, rugby and polo shirts, pants and loungewear each month.
With a capacity of 20,000 dozen per month, United Apparel (Mongolia) Ltd, established in 1999, produces shorts and trucks, pants, infant wear and has 800-1000 employees.
- Sri Lanka (5000 employees)
With a capacity of 45,000 dozen per month Sinotex (Lanka) Ltd produces knit tops, pants, casual shorts, skirts, dresses, baby wear.
Crystal Sweater Lanka (Private Ltd) Ltd makes 25,000 dozen fully fashioned pullovers and cardigans for men, women and children per month.
Concord Apparel (Pvt) Ltd produces up to 15,000 dozen garments per month including men's, ladies' and children's woven tops, bottoms and jeans, jumpers, dresses, sportswear, swimwear, overalls and boxer shorts.
- People's Republic of China (over 10,000 employees)
With a capacity of 200,000 dozen per month, Dongguan Changping Cima Garment Factory, established in 1997, produces bodysuits, T-, rugby, sweat and polo shirts, loungewear, sleepwear, underwear, jumpers, dresses and skirts.
Established in 2000, Jingli (Jintan) Apparel Ltd produces 40,000 shorts, trunks, loungewear, sleepwear, boxers, shorts, infant wear, pants, vests, jackets, shirts and dresses per month.
Jing Yi Knitted Garment Co Ltd produces 12,000 men's, ladies' and children's knitted tops and bottoms per month.
Producing up to 40,000 pieces per month Jinghui Industrial (Huizhou) Co Ltd works in conjunction with the Hong Kong Factory producing mainly OPA automatic and flat knitted fully fashioned pullovers and cardigans for men, women and children.
Set up by Yvonne and Kenneth Lo, the Crystal Group began operation in 1970 as a small Hong Kong sweater manufacturer with 70 employees. The introduction of quotas in the 70s, along with their associated costs and availability, meant the company expanded by moving abroad, first to Malaysia and then to Mauritius and Sri Lanka.
Production at Dongguan
As labour and real estate costs continued to increase in Hong Kong, and quota availability became more restricting, Crystal further expanded production to China, Mongolia and Vietnam.
From 1994 to 2000, compound growth was 20 per cent per year. Between 2001 and 2004 it dropped to around 8 per cent per annum, mainly due to problems in Madagascar. The company is now back to achieving 20 per cent growth.
Andrew Lo, deputy CEO for the Crystal Group, believes that once quotas are eliminated on 1 January 2005 there will be consolidation of production internationally with winners and losers on a country-wide basis. Globally, the industry will change dramatically, response will be faster and prices lower.
However, he says the full impact is unlikely to become clear until the middle to end of 2005 when new buying patterns begin to emerge.
Dongguan factory China
Companies who are good enough and large enough will be the main survivors; by 2007 many medium-sized companies will have been squeezed out. The average size of factory will grow, with 5-10,000 workers per factory becoming the norm, and each will be more product focused.
More responsibility for production monitoring will be levelled at the supplier. For example, Crystal has already set up a corporate wide quality assurance team which works on behalf of the external customer monitoring production throughout the Group.
Equally, external audit checking for ethical compliance is likely to be the manufacturers' responsibility. The demand for value added activities will also increase, with product design and development being core.
The shift to a smaller number of internationally operating manufacturers will enable customers to focus on what to buy and how to sell and market. The manufacturer, meanwhile, will concentrate on how and where to produce the products, offering various options on cost and turnaround time depending on the needs of each customer.
With increasing industrial and political pressure in the USA to prevent a flood of Chinese apparel imports, the future of China to US apparel imports is unclear.
Dongguan Changping Cima Garment factory in China - cutting room
Andrew Lo believes it is unwise to rely on China servicing the USA to any great extent in the short term where sensitive categories such as T-shirts and men's and ladies' pants are concerned - these being key areas of Crystal's production.
Although the Crystal Group is currently expanding into China, this is only for the production of non-sensitive goods. The withdrawal of quotas will allow Crystal to rapidly expand threefold within China, but the company does not see this as its only growth area.
New locations for expansion may include the NAFTA and CBI countries for quick response manufacturing aimed at the USA; and Eastern Europe, Turkey and/or Morocco for quick response exports to Europe.
Countries best geared for core products include China, Vietnam, India, Sri Lanka, Bangladesh, Cambodia and Pakistan.
China's production advantages are not just cost related but include factors like the area's support structure. Garments made in Sri Lanka have a similar cost to China (maybe +/-10 per cent depending on the product), but because most fabric has to be imported into Sri Lanka, taking 10-12 days, and the shipping time of finished goods is 7-10 days longer, turnaround from China ends up 20 days quicker.
Although Mexico is close to the USA, delivery times are slowed by limited capacity and up to 20 days for goods to clear customs - which means producing in China can be potentially faster than Mexico.
Where there is a large manufacturing base, capacity can be shuffled to provide the best service to the customer. The availability of many local subcontractors, as in China, enhances production flexibility and versatility even further.
China also provides an excellent industrial infrastructure with road, rail, air, river and port networks, as well as special finishing plants, embroidery facilities, printing works, local fabric and accessory suppliers.
In the same way buyers are looking to reduce and consolidate their suppliers, Crystal also wants to consolidate its customer base so that it can be more focused on individual demands. A company like Next, for example, is more concerned about innovations and new ideas than price alone. Wal-Mart is extremely cost conscious. Gap requires a balance of the two.
Some customers want to increase the transparency and integration of their IT systems with that of the manufacturer to improve supply chain management and reduce lead times, to the extent of manufacturer operated stock replenishment systems. With others, the ability to leave decision-making to the latest point in time will be the key.
Niki Tait, C.Text FTI, FCFI heads Apparel Solutions, which provides independent assistance to the apparel industry in the areas of manufacturing methods, industrial engineering, information technology and quick response.
Companies: Ralph Lauren Corporation, Warnaco Group Inc, Gap Inc, AnnTaylor Stores, Kohl’s Corporation, Sears Holdings Corporation, Tesco Plc, Tommy Hilfiger Group, VF Corporation, TJX Companies Inc, Wal-Mart Stores Inc
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