Supply chain
Hong Kong Echo: In the balance
Hong Kong’s status as a sourcing hub is at stake. The doubts are valid, but it’s time to double down on a service-led transformation, says Edwin Keh.
“I’m sorry about the mess,” remarks Edwin Keh, gesturing towards the scattering of papers on his desk and drawers. “It’s mostly just bits and pieces that my wife won’t let me bring home anymore,” he jokes.
His cosy corner office overlooks the main courtyard of the Hong Kong Polytechnic University (PolyU) in Hung Hom, where construction is currently taking place on an adjacent building. “Welcome to the most crowded campus anywhere in the world,” he says with a hint of pride.
A sourcing and supply chain veteran, the 64-year-old CEO of The Hong Kong Research Institute of Textiles and Apparel (HKRITA) has been on the frontline during much of the territory’s evolution into a global sourcing capital.
“Today, there is a real risk that Hong Kong will lose some of this status. Personally, I have a lot of confidence that it won’t be the case – but the doubts are definitely out there.”
“If you’re moving your regional buying office to Shanghai or Singapore, then you’re making the wrong move.”
History in the making
Keh traces Hong Kong’s sourcing origins to 1949, when a group of businessmen found themselves – and their yard-spinning machinery – delayed in the bustling port city on the way to Shanghai. In light of the extended stopover, they decided to cut their losses and set up shop in Hong Kong instead.
An abundant supply of semi-skilled labour provided the manpower for the city to become a yarn-spinning powerhouse. By the 1970s, global trading quotas had given Hong Kong an extra edge and even saw the city become the largest exporter of garments anywhere in the world.
With Deng Xiaoping’s sweeping reforms of the 1980s, mainland China opened up to the world, and suddenly Hong Kong could no longer compete. But it had the geographical and cultural foothold to bridge China to the world, and vice versa. Operators like Li & Fung – who themselves were not operating factories, but rather connecting manufacturers to customers – became emblematic of the city’s prowess as a sourcing powerhouse.
That was all well and good until the mid-2000s, Keh explains. “By then, however, Hong Kong’s role as a middleman had become much less tangible. Suppliers and manufacturers started to evolve and become more sophisticated – even from the linguistic standpoint of speaking a greater level of English.”
Regional rivals
While the city has largely maintained its place as a hub in the region, Keh admits competition is fiercer than ever, with Singapore and Shanghai both presenting themselves as attractive alternatives. “Shanghai gives you access to the huge domestic market, especially with its proximity to Hangzhou, these are the heart of China’s fashion industry,” he says. Singapore, meanwhile, is keen to emphasise its coverage of the Southeast Asian region.
Both, Keh says, claim to be cheaper than Hong Kong for overall operating costs. “On top of that, there are lingering reputational issues from the social unrest of 2019 and the city also finds itself in the middle of a global trade war. That’s before we even talk about the practical impact of COVID-19 travel restrictions.”
The concerns are valid but not game-changing. “If you’re moving your regional buying office to Shanghai or Singapore, then you’re making the wrong move,” he says. “I have a running bet with a large buying office who made precisely that decision last year. I’ve given them five years at most before they return to Hong Kong.”
Hidden costs and a lack of talent are drawbacks for both locations, he believes. “Singapore is really missing the northern hemisphere focus – and the brutal reality is that’s where the business is. Shanghai gives you great visibility on China, but little else.”
A chance to change
As for Hong Kong, he predicts a shuffling of the cards rather than a mass exodus. “Every couple of decades these questions come up – so in some sense we’ve seen this all before. That being said, there are some fundamental differences today, namely the shifting balance of the East and West relationship.”
So how can the city stand out? “Hong Kong should be looking at material, production, and product innovations, as well as brand management, trade financing, the management of logistics and supply chain operations, as well as last mile solutions,” he says.
Keh points out that footwear and apparel companies already account for 133 of the listed companies on the Hong Kong Stock Exchange, including the likes of Italian luxury brand Prada.
Financing aside, he insists that the upstream and downstream visibility Hong Kong provides for sourcing professionals is still unmatched. “It might be what some call the ‘boring’ bits of the supply chain, but Hong Kong should be trying to lead the way in creating the digital tools to manage inventory and the logistical headaches that the world is facing today,” he says.
His organisation has underlined sustainability, ‘industry 4.0’, and social good as three research priorities. Among its eye-catching collaborations include the development of a water-free dyeing solution with Patagonia and a food-waste-to-fibre programme with Starbucks.
In 2018, it opened its garment-to-garment concept in The Mills in Tsuen Wan where members of the public can have their once-loved items of clothing recycled into new pieces. Apart from this, in the same year HKRITA opened a recycled spinning mill in Tai Po, set up in partnership with Novetex, and a hydrothermal recycling plant with the H&M Foundation. These projects have ambitious mandates to fine-tune the upcycling of materials like polyester in a clean and scalable manner.
According to the soft-spoken CEO, Hong Kong has a great opportunity to spearhead the response to some of the biggest problems the sourcing industry is facing. “But I worry that we’re not translating this to the next generation. Most will choose to follow a safe career in a stable industry. For any kind of disruptive research, we’re looking at an 80% failure rate. In Hong Kong, we’re not comfortable with that kind of risk, and that’s a problem.”
