The article of China Dolls is about the fashion designer by Haute Couture Fashions Bhd (HCF) of its history of establishment, an expanding, the problems and also the solution that were taken. They were facing problems regarding their two major clients from European fashion houses, Kiki and Houida looking into “contract manufacturer” to China because of the prices there were very competitive. Jeffrey was in a dilemma with his assumption of others clients would take the similar steps that would lead HCF had been experiencing dropping margins and profits would then be incurring losses.
Jeffrey was thinking that he should also consider moving his operations to China. HCF was established by Tan family, Tan Boon Kheong in Argyll Road, Penang in the 1974. He was skilled master cutter and was ran successful small business on tailoring men’s clothing. Then, HCF was successful expand by his son, Peter Tan who was study at Europe and become the talented designer and wealth of experience was interested in creating for both men and women’s fashion. HCF started its business by getting contract manufacturing deals with European fashion houses.
Peter Tan had a good networking skill for HCF’s growth with the European people where he was studied before. By the late 1970s, HCF was expanded to Butterworth that much larger (three time larger) state-of-the-art factory to cater for the growing demand because of the production capacity in Penang was not longer big enough. By expanding their business to Butterworth, HCF continued to experience growth in annual sales from RM10 million to RM100 million. Its customers and profits were also riding high. Then, it expands another two factories in Jitra, Kedah and Chieng Mai, Thailand.
It looked to Thailand because the labour was very cheap, cheaper land and more competitive. In 1997, HCF was facing the problems regarding the financial crisis in Malaysia. HCF handles the crisis by closing down the factory in Penang and still able to meet the demands while it still operating the other three factories in Butterworth, Jitra and Chieng Mai. Besides that, although over the next few years HCF manage to face difficulty and still survive because of high quality clothes and high demand for the clothes continued. Furthermore, HCF needs to be very careful with the contract manufacturing structure and make sure that the designs were not crossed between the various labels that HCF was producing.
The contracts were take for delivery of clothes one season ahead and HCF would sell the manufactured clothes at a contracted price. All of HCF’s clothing was manufactured under the customer’s own label and there is no its own label. Tan Boon Kheong was the founder, chairman and first managing director of HCF and he started the company as a business venture for his son, Peter. He was retired but he still retained his 19% shareholding in the company and was a director of the company.
Peter Tan, current chairman was the important person behind the success of HCF. He held 25% shareholding and also the managing director of the Thailand operations. Daniel Tan, financial controller was the youngest of the Tan children and was qualified accountant from United Kingdom. He was very good person and had a good attitude which was very friendly and easy going. He also managed to face the financial crisis on 1997.
Elaine Tan, sales and marketing director was the Tan’s daughter and she was very good with the customers to keep the customers from cancelling crucial contracts. Apart from that, Beverly Tan, human resource director had helped keep the employees at HCF by offer benefits for them so that they felt they were part of the company and the company was important for them. He also concerned for the future HCF’s employees.
Elvis Lee, non-executive director was a nephew to Tan Boon Kheong and held 3% shareholding with HCF. Lee Teck Choon, non-executive director was a partner of Tan Boon Kheong to set up the business. He held 2% shareholding in the business. Adrian Lim, non-executive director was a successful businessman and qualified accountant.
He was also the Head of the Audit Committee and held 2% shareholding in the business. Jeffrey Cheong, managing director of HCF was recruited upon Peter Tan’s retirement in early 2009. He had a lot of potential that always giving valuable idea in improving the design skills of the HCF team. Jason Dong, chief designer and had trained in Europe. He was able to maximise material usage in the production of clothes.
Teoh Chin Teh, factory operations director was skilled in managing people. He was a certified TQM operator. Regarding the problems HCF’s facing, Elaine as the sales and marketing director proposed two options that HCF considers moving its manufacturing to China to restrain its customers, Kiki and Houida and simultaneously shut down its existing plants in Butterworth, Jitra and Chieng Mai.
Besides that, Teoh Chin Teh as the factory operations was not interested in closing down the Malaysian operation completely because a large numbers of employees who had worked with HCF for more than 10 years would have to be retrenched. But, he suggested two solutions. First, expand manufacturing operations to China to focus on contracts from fashion houses and also develop HCF’s own label in Malaysian operations to be marketed to the Malaysian and Asean market. Second, he suggested to pull-out from the activity of “contract manufacturing” and concentrated on developing HCF’s own label by producing out of the Malaysian operations.
Based on the Elaine and Teoh Chin Teh suggestions, proposal had been made either to setting up its own factory in China that was large enough to manufacture clothing for its existing customers or to manufacture in China in joint venture with a Chinese manufacturer. For the first options, HCF need to invest a large sum of money in China but HCF did not have sufficient fund for this expansion and need to look for alternative sources of funds with full support of the Board of Directors of HCF.
Moreover, to setting up the new factory to China, HCF could take in about 18 months but it would be able to manufacture at similar capacity as its current operations in Butterworth, Jitra and Chieng Mai in total. However for the second option, by entering into joint venture with an existing Chinese manufacturer, it would require a much shorter period to become a operational and would able to service its customers in 6 months instead of waiting for 18 months for the factory to be ready.
For this second option, HCF already found its possible partner to be joint venture which is “Calestial Clothes” as a high quality clothes manufacturer. These proposal was come out with the calculations for sales revenue and average gross margin for 5 years and the estimated of probability of success to sustain its existence.
Based on the problems HCF’s facing, the suggestions and also the proposal had been made. I as the consultant of HCF, I think that HCF should take the second option to manufacture in China in joint venture with a Chinese manufacturer as the best solution. It is because HCF already found its possible partner to be joint venture in China which is “Calestial Clothes” and found that “Calestial Clothes” as a high quality clothes manufacturer.
Besides that, by entering into joint venture with an existing Chinese manufacturer, it would require a much shorter period to become a operational and would able to service its customers in 6 months instead of waiting for 18 months for the factory to be ready by setting up the new factory in China.
I saw this option in positive impacts because it has a good potential to still operate its factories in Butterworth and Jitra while closing down the Chiang Mai factory. Furthermore, HCF did not need to retrench all its employees. So, HCF can sustain its new customers in China and would still remain sustain it existing customers and making high profit for the company.
