Rolling the Dragon...(29/8)

Met the buyer of a retailer chain today at work. As a brand of my preference for bicycle, I am interested in the sourcing operation of the retailer. I read an article some time ago about a decomposition of bicycle...indeed a bicycle is composed of some 50 components and parts, and for the chain, these parts are manufactured in numerous countries and assembled at last. A simple example of competitive advantages, and of course, this is a normal way of sourcing and division of labour. Today, the buyer explained in some more details about the way they source for products. There is no surprise that the group has quite a huge percentage of sourcing taking place in China, and for electronic products, particularly in the Guangdong area. The issue at these days is not where to source but how to source. It is understandable that the group is actually a first-mover to source from our World Factory since the late 1980's, but the difficulty the group faces is indeed how to locate a good partner and the tedious need to work on quality control and standard verification for the operation of the factories and production. This is the same scenario for many big buyers and brands I encountered here - too many suppliers and too little information. This retail chain indeed has its in-house sourcing team in Shenzhen and Shanghai, and there is a mobilised team who does regular site visit and factory inspection to ensure guaranteed production work. A luxury set-up in fact, but perhaps this is also the magic to do it well. The chain diversifies its sourcing pattern and requests geographically with different suppliers. It adopts, for me, an intelligent model of business as more than half of the products produced in China are sold in their stores in China. Production and retail at one go in developing market. Price can be controlled and logistic can be simplified. It is also an appropriate approach to get ease of institutional restriction and regulations. The search of factory location for the group usually correlates with the proximity of their outlets too, and apparently the concept works well. Hong Kong, to these chains and retailers, is a stepping stone for their sourcing needs in China and a port with easier communication channel as the Hong Kong people are in general more experienced in handling overseas buyers' requests and orders. This is the situation at the moment, but to me, Hong Kong is losing gradually its beauty and attractiveness to foreign buyers with keen development of other Chinese cities. The dragon of the East is always a dreamland for French companies, and if they were to choose an installation base, it would more often be Shanghai and Beijing due to their historical background and their long-time-projected-image of 'red lantern' in China. Hong Kong is not classic enough to be a part of China perhaps. But then business is in principle free-flowing and profit-oriented. There is definitely a strong need for Hong Kong companies to comprehend the needs of European buyers and retain the clientele. Obviously a cut-throat battle is not the way for Hong Kong to deal with the trend.