Jeffrey Cheong picked up the booklet marked “URGENT” , which his secretary had merely placed on his tabular array and looked at its content. The booklet contained letters from two of his major clients, KiKi and Houida. Both KiKi and Houida, two European manner houses, were Haute Couture Fashion Berhad ( HCF ) ’s first clients and have been with HCF since its origin. They were composing to Jeffrey to inform him that they may be looking to China to “contract manufacture” for them as the monetary values there were really competitory.
Jeffrey stared out of his window in contemplation. He was in a quandary. Loss of its two major clients would be black to HCF. As it stood, HCF had been sing falling borders and net incomes over the last few old ages as evidenced in the fiscal statements enclosed. Loss of Kiki and Houida would intend that HCF would so be incurring losingss.
Equally shortly as his other clients heard of this new development, they excessively would be taking similar stairss. Jeffrey realised he had to reexamine his scheme rapidly if he wanted to retain the present patronage. He knew the inevitable. During the late 1990’s and into the early twenty-first century, China had made inroads into the fabric industry and was forecasted to turn farther. Following the relaxation of trade barriers, many of the European and American manner houses were looking at importing apparels from China at really low monetary values. This was chiefly due to its low operating costs. This had a monolithic negative impact on many companies runing at higher costs and based elsewhere. The old inauspicious perceptual experience of “Made in China” labels had easy changed as China now manufactured apparels that are higher quality at well lower operating costs.
If Jeffrey wanted to last in this industry, he excessively must see traveling his operations to China.
Haute Couture Fashions Bhd ( HCF )
Houte Couture Fashions Bhd was established in the 1974 by the Tan household. Tan Boon Kheong, the patriarch of the Tan household was a skilled maestro cutter, trained by British cutters in 1950s in Penang. He ran a little but successful concern orienting men’s vesture in Argyll Road, Penang until his retirement in 1980.
Peter Tan, the oldest boy of Tan Boon Kheong, ab initio under his male parent as a immature 17-year-old but after three old ages left for Europe as he was interested in making for both work forces and women’s manner, instead than simply orienting men’s suits and bloomerss. His visit in Europe saw him developing at Yves St Laurent and Gucci. He had a acute oculus on women’s silhouette and shortly established himself as a gifted interior decorator. Many of the manner houses were happy to use him into their squad. He returned to Malaysia with a wealth of experience, eager to set his freshly acquired cognition into usage. His return to Malaysia coincided with the tendency of European clothes’ makers looking at Asia for outsourcing. Peter saw this as an chance to kick-start his concern venture, particularly with his contacts with the European manner houses.
HCF started out as a household owned concern with all of its portions being held by the Tan household. Peter prepared to offer for contract fabrication trades with the European manner houses. With the aid of his contacts and first-class path record with the manner houses, he shortly managed to convert three of them to subscribe outsourcing trades with him. These manner houses were keen on making concern with the people known to them as they set-off their new venture.
HCF started its first to the full equipped mill in Penang in November1974. Under Peter’s helm, HCF really rapidly established itself as a high quality maker of both men’s and women’s apparels. It had no trouble run intoing the demand of the manner houses as Peter had recruited several European-trained Malayan interior decorators to fall in his squad.
By late of 1970s, HCF’s turnover had reached RM10 million. Over the resulting five old ages since its origin, HCF had managed to add two more European manner houses into its client base. HCF’s talented interior decorators were supplying inputs toward the development of the off-the-rack designs and were good received by the manner houses. HCF was now faced with a job. The mill located in Penang was no longer large plenty to get by with the production capacity. Peter rapidly sourced a big secret plan of land in mainland Penang – Butterworth and began constructing a new and much larger state-of-the-art mill to provide for the turning demand.
In July 1980, HCF opened its new mill in Butterworth. Peter, so the Managing Director of HCF, decided non to close down the Penang mill but operated both mills. HCF so employed between 80 to 100, largely seamsters in the Penang mill, while the Butterworth mill employed about 300 employees.
HCF continued to see growing in gross revenues throughout the early 1980s to mid 1990s, charted one-year gross revenues of around RM100 million. Its client base had besides increased, pulling in clients from Europe every bit good as America. Net incomes were besides siting high. HCF opened two more mills. In 1990, it opened its 3rd mill in Jitra, Kedah. The mill had a capacity of bring forthing 1 million garments a twelvemonth with a strength of 300 employees. In 1995, due to even increasing demand for its apparels, HCF decided to open its 4th mill with a production capacity of 2 million garments a twelvemonth. This clip, it looked to Thailand, as labor was really inexpensive. HCF set up a entirely owned subordinate Haute Couture ( Thailand ) Pte. Ltd to run the Chieng Mai based mill. It recruited approximately 500 employees.
In 1997, Malaysia was confronting fiscal crisis, with foreign exchange market volatility being the chief issue. Manufacturers with foreign clients were unable to honor their contract monetary value as exchange rates fluctuated. HCF was cought unaware. HCF had to tender for a contract six months before the bringing of the cargo. Fluctuation in the exchange rates made it impossible to foretell the cost of stuff that HCF had to buy organize the manner houses. HCF found itself selling its garments at really low borders for the really first clip. 1998 saw HCF enduring its first loss since its origin. Many of its rivals besides suffered losingss and some even had to discontinue fabrication. In a command to last the fiscal tsunami that had hit Malaysia, Peter Tan consolidated HCF’s place by make up one’s minding to cut operating costs.
HCF’s major cost apart from the cost of imported stuff was labour cost. Peter Tan made the determination to close down the Penang mill, much to the dissent of his male parent. HCF was still able to run into the demand while still runing the other three mills in Butterworth, Jitra and Chieng Mai. He besides decided to switch every bit much of the production to Chieng Mai, as the labor cost was a one-fourth of the labor cost incurred in the Malayan mills. Furthermore, HCF was confronting labour deficit jobs in Malaysia, as many of the labour force were traveling to the metropoliss for better chances. As a consequence of this consolidation exercising, about 300 of HCF’s employees were made redundant, many of whom had been with HCF since its origin.
Over the following few old ages, its profitableness increased bit by bit and HCF easy pulled itself out of the loss doing state of affairs. HCF managed this hard effort because of its client base every bit good as its repute for high quality apparels, which commanded premium monetary values with its clients. The fiscal crisis had non affected Europe much, and as such, demand for the apparels continued.
HCF’s Contract Manufacturing Structure
The contract fabricating trades signed with the European manner houses were such that the designs were provided by the manner houses and HCF had to adhere to the designs when bring forthing the several labels. The manner houses welcomed suggestions from HCF’s interior decorators but were peculiar that the designs were non crossed between the assorted labels that HCF was bring forthing. Cross bring forthing design between labels would be black for HCF as it would instantly free the contract for the labels involved.
Further, the European manner houses would provide the stuff for the apparels as they wanted to keep the quality of the end product. HCF purchased the stuff, sourced for appropriate accoutrements locally and produced the apparels. The manner houses would contract for “a specific measure of a specific design at a specific quality” to be delivered at a specific clip. Any fluctuation outside the contract judicial admission would hold to be borne by HCF itself.
Normally, the contracts were for bringing of apparels one season in front. This meant that summer’s design apparels would hold to be delivered by the beginning of spring. HCF would sell the manufactured apparels at a contracted monetary value. The manner houses allowed HCF to tender for the contract monetary value based on the design, measure and monetary value of stuff supplied. The contract tendering procedure normally took topographic point about six months before the due day of the month for the bringing of a season’s batch.
HCF manufactured off-the-rack apparels for a figure of European and American manner houses. Its apparels were well-sought after for its modern designs and high quality coating. HCF’s clients have remained loyal over the last three decennaries, although its major putsch was the securing of 2 major American manner houses as its clients within the last 5 old ages. All of HCF’s vesture was manufactured under the customer’s ain label.