INTERVIEW: William E. Connor "dialled in" to sourcing sensitivities
As an ethical business, "we have to measure up every year," William E. (Chip) Connor explains
Hot on the heels of another record financial year and being named one of world's most ethical firms for the fourth time in a row, William E. (Chip) Connor, chairman and CEO of sourcing specialist William E. Connor & Associates Ltd., remains characteristically modest about the company's achievements. But drill down, and he sees the realignment of retail and being "dialled in" to sourcing sensitivities, as key pointers for the future.
"There hasn't been anything in the way of momentous change over the last 12 months," he explains from his 15th floor office overlooking Hong Kong's Kowloon Bay. "Things incrementally grow and shift, but nothing earth shattering, which is probably the way you want it."
It's an understatement of course from the CEO of a company with an annual turnover of $2bn, operations in 35 locations across 20 countries, more than 1,500 employees and a portfolio of clients that includes some of the world's leading apparel brands and retailers.
Among recent achievements is the strong double-digit growth being seen at Omega Compliance, the company's standalone subsidiary set up to provide specialist quality assurance, social accountability, and supply chain security and risk consulting.
Not to mention the fact the accolade from US business ethics think-tank the Ethisphere Institute makes William E. Connor & Associates one of only a few Asia based companies to receive the award - and the only sourcing firm in the world to be included on the list.
Indeed, a special 'Sourcing Services' category had to be set up to embrace the company's unique business model that enables brands and retailers to source apparel and homewares from a global supply base of over 6,000 audited factories, with dedicated teams managing the process from product development and price negotiation through to shipment. For this service, clients pay a commission based on the value of products delivered, with no hidden costs.
The award also puts Connor in the same league as apparel firms like Gap Inc, Hennes & Mauritz AB (H&M), Levi Strauss, and UK based retailer Marks & Spencer – which has itself been a Connor client for 18 years – who were also recognised as the world's most ethical companies in 2015.
"That recognition is hard won and isn't conferred easily," Connor explains. Another understatement. The Ethisphere vetting process involves reviewing codes of ethics, litigation and regulatory infraction histories; evaluating investment in innovation and sustainable business practices; looking at activities designed to improve corporate citizenship; and studying nominations from senior executives, industry peers, suppliers and customers. And this information has to be resubmitted from scratch each year.
"The whole thrust behind it is to define and advance the notion of ethical business, and it's so much like ourselves. We started as a values-based company without defining what those values are; there was a sense that some things you do that are right and some things you do that are wrong.
"But as time goes on you start to articulate exactly what that means, how that translates to your business, especially a complex business like ours. It's an evolving yardstick...and we have to measure up every year."
Realignment of retail
Measuring up also involves taking a wide view of upcoming challenges – and opportunities. And one issue Connor homes in on immediately is that of continuing change within the global retail industry.
"It's interesting that if you look at CEO changes across the industry, including the clients that we represent, I don't remember a period quite like the last 12-24 months in terms of the amount of change. I think this is reflective of the realignment of retail globally to comprehend the e-commerce channel."
Connor believes the intrinsic impact of e-commerce on his company's business model is to make it more viable "because e-commerce is an inherently deflationary phenomenon." As consumers increasingly compare products and prices online, and go towards the cheapest sources, the key for retailers to remain competitive over the long term "is to offer more differentiated product, product that isn't readily available through other sources – and this means private label.
"That's the space that we occupy as the sourcing of private label merchandise for our clients. So in terms of what it means for our business model, I think that it is a positive, it should lift us over time."
Also feeding into these changes are more longer-term strategic issues for the company. "Where do we want to be, say, in five years time in terms of company staffing and management? Do we need additional product development and design resources within the company because of a greater need on the part of retail for these services? What skillsets are we looking for, and where do these skillsets live throughout the group? Are they in hub offices in Hong Kong or Taipei or Shanghai, or are they more dispersed into the field, providing design, product development, engineering expertise. We think about all these things."
E-commerce might be adding to deflationary pressures on the cost of goods, but demand from retailers and brands for lower prices is not new. "What drove retail 50 years ago was price, speed to market, delivery and quality. It's still price, speed to market, delivery and quality – and with incredible competitive pressure to drive that down."
The Connor business model plays to this too, he says, "because there are no other margins added to the cost of goods. We provide a global scope and we have a fast, nimble, diversified, scalable vendor base that we can draw from.
"You cannot offer that if you are centred only in one market or you have a group of suppliers to whom you are beholden. The only thing influencing our [decision] is whether they can perform for a client."
As far as sourcing goes, the company's global footprint from China through to South and Southeast Asia helps balance risk as well as giving an enviable view into worldwide sourcing shifts.
"We don't see the need to rush anywhere to take advantage of a hitherto unseen opportunity. [It's just a case of being] vigilant and sensitive to how the industry itself is changing and [how we can] support it. And I think that we're pretty well dialled in there."
With around half of the firm's apparel sourced from China, the country hasn't relinquished its leading edge yet. A year ago Connor suggested the biggest shake-up to manufacturing in China is likely to come from rising domestic demand, and he concedes it continues to be "hard to ignore China."
This is largely thanks to a combination of "productivity increases, inherent efficiencies, how business operates in China, from the industrial clusters through the cost and ease of moving goods through a port, the internal infrastructure that allows a factory in Sichuan, for example, to get merchandise to the coast very efficiently and quickly."
But fast-forward 25 years "when the demographics of China really start to change...I'm not sure if the shifts will be seismic, but they will be major, and China will have been displaced to some degree by the emergence of other large economies."
Citing forecasts that the population of China will be smaller in 2050 than it is today, he notes: "That one statistic is very telling in terms of where the country is going over the longer term [with] implications for both consumption and production. The social safety net, the welfare retiree to worker ratio, will start to weigh very heavily on China."
Connor also remains bullish on India: "With a population of over a billion and a population demographic that is going to put a lot of young people in the workforce at a time when China is going to be going in the other direction, India long-term has potential."
Myanmar, too, is back on the sourcing map, although its growth is being fuelled by outside investment and know-how "fleshing out the sourcing opportunity at the margins."
There's also "a lot of competition from Vietnam, Cambodia and Indonesia, so while we see Myanmar as continuing to grow, we don't think it will displace to any great degree any of our distribution of sourcing." Myanmar also has political and ethnic challenges, Connor believes, "as well as with China along their eastern border."
"We [also] worry a little bit about stability in countries like Bangladesh, which is very important as an exporter to both Europe and the US."
Measuring and managing
While Connor's team acts as "the eyes and ears" of its clients worldwide, carrying out nearly 500,000 inspections a year, Omega Compliance fills an important need for specialist quality assurance, compliance and supply chain security work above and beyond that already carried out by its parent.
"What Omega represents really is the dedication of resources to labour, sustainability and the environment, and it has proven to be wise from a business standpoint as well," Connor says, adding: "But if you had asked me 20 years ago whether we would be specialising to this degree, the answer is probably not."
Omega's specialist services include a 'Connor standard' - and a measure of its success is that its customer base has extended beyond Connor clients to include companies like Adidas and Columbia Sportswear. Indeed, the unit's non-Connor business is now larger than its Connor business.
With its wide geographic spread, the company takes very seriously the job of "measuring and managing across a big chunk of the world." As Connor says: "You don't rest on your laurels; you've got to be on top of it all the time."
And its track record speaks volumes. "We don't look at our business with our partners or clients in a transactional sense, we look at it in a partnership sense; the idea being that 30, 40, 50 years from now we will continue to be their partner. We're not selling to them."
Click on the following links to read two additional interviews with William E. Connor published on just-style last year:
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