Haute Couture Fashions China Dolls Case Study

SWOT ANALYSIS

STRENGTH

  • Have skilled trained by British master cutters.
  • A high quality manufacturing
  • Experience work with European country
  • High quality of design ready to wear
  • Aware about employees welfare 

WEAKNESSES

OPPORTUNITY

  • Attract more customer based from Europe
  • Expand more branch within and outside Malaysia Leave Malaysia Hire cheaper employees in China to reduce cost Improve in technology 

THREAT 

  • Price competition with China manufacturing Kiki and Houida want move to China

The PESTLE Model

Political: Definition: What is happening politically environment in which business operates. For example: Represent the way and the extent to which a government influences the economy and a certain business. Political factors are represented by specific areas, such as labour law, tax policy, tariffs,trade restrictions and even environmental law.

For example based on HCF:

  1. If Jefry Tan expending their business to China. China and Malaysia have two way relationship.
  2. Malaysia have politic relationship with Europe when HCF export their textile to Europe, indirectly it can give a good impact to Malaysia.
  3. One of the reason why Europian and Malaysia houses were looking at importing cloths from China at very low price because Malaysia have strict trade barries.

Economic: Definition: what is happening within the economy. For example :economic growth/decline, interest rates, exchange rates and inflation rates, wages rates, minimum wages, working hours, unemployment (local and national), credit availability and cost of living. For example based on HCF:

  1. Unemployment in Malaysia will increase when Petter Tan make decision to shutdown the Penang factory
  2. In 1997, Malaysia was facing financial crisis because of foreign change market volatility indirectly manufacturer with foreign customer were unable to owner their contract price as exchange rate fluctuatec.
  3. When HCF loose their customer Kiki and Houida, they will faced the big problem indirectly goverment income will decrease also.
  4. Most of HCF customer are from International Country, all the customer will spend their currency in our country, so it will increase the currency of our country.

Sociological: Definition: What is occurring social in the markets in which business operate or expect to operate For example: cultural norm and expectations, health consciousness, population growth rate, age distribution, career attitudes, emphasis on safety, global warming. For example based on HCF:

  1. Bevley Tan, Human Resource Director of HCF had introduced the employee share option scheme to enable employees to own share in the business. This in turn had created a sense of belonging among the employees as well as enabled them to gain returns.
  2. If HCF close 2 factory in Jitra and Chieng Mai, the factory would become a heaven a drug addict because HCF would have found difficulty to sell these 2 factories.

Technological: Definition: What is happening in technology-wise which can impact what you do. New technologies are continually being developed and the rate of change itself increasing. For an example: Refer to automation, incentives, the rate of technological change and R&D activity. These factors greatly influence other areas or aspects, including the minimum efficient production level, quality, costs and even outsourcing decisions.

For example based on HCF:

  1. HCF will increase new skill, knowledge, tecnology because they have a relationship with other country. For example, technology in China is more advance than Malaysia.
  2. When HCF joint venture factory in China, indirectly they will exchange their technology, so it will improve their technology skills.

Legal: Definition: What is happening with changes to legislation. For example:This may impact employment, access to materials, quotas, resources, imports/exports, tax and etc. For example based on HCF : 

  • HCF should follow a rules and regulation when they want to expand their business to China and follow the trade barries when export their product.

Environment: Definition: What is happening with respect to ecological and environmental issues. Many of these factors will be economic or social in nature. For an example: Refer to all the factors directly related, influenced or determined by the surrounding environment. This includes, but is not limited to weather, climate, geographical position, climate change and even insurance.

For example based on HCF:

  1. When the factory was established, the environment also will be effected with pollution. The pollution include water, air and etc. This will be give a bad impact to the wheather and health of people around the area.

REFERENCES

  1. China Doll. (2011, December 29). StudyMode.com. Retrieved http://www.studymode.com/essays/China-Doll-884274.htmls 
  2. Integrated Case Study in Accounting, Volume 1, (2010), Malaysia Institute Accountants Publication (MIA)
  3. Case Study, China Doll, Report On Case Study, Retrieved from http://www.termpaperwarehouse.com/essay-on/Case-Study-China-Doll/91557
  4. China Doll, Retrieved from http://www.papercamp.com/essay/40254/ChinaDoll
  5. China Doll Case Study Retrieved http://www.oppapers.com/subjects/china-doll-case-study-page1.html 

Unformatted text preview: China Dolls Shuguna Nagalingam Nik Nazli Nik Ahmad Mohd Noor Abu Bakar Gazali Jaat‘ar Agnes Munalis Tahir Jeffrey Cheong picked up the folder marked “URGENT”, which his secretary had just placed on his table and looked at its content. The folder contained letters from two of his major clients, KiKi and Houida. Both KiKi and Houida, two European fashion houses, were Haute Couture Fashions Bhd (HCF)’s first customers and have been with HCF since its inception. They were writing to J efirey to inform him that they may be looking to China to “contract manufacture” for them as the prices there were very competitive. Jeffrey stared out of his window in contemplation. He was in a dilemma. Loss of its two major clients would be disastrous to HCF. As it stood, HCF had been experiencing falling margins and profits over the last few years as evidenced in the financial statements enclosed. Loss of KiKi and Houida would mean that HCF would then be incurring losses (see Appendix A — Fi— nancial Statement). As soon as his other clients heard of this new development, they too would be taking similar steps. Jeffrey realised he had to review his strategy quickly if he wanted to retain the present clientele. He knew the inevitable. During the late 1990’s and into the early 2 1 st century, China had made inroads into the textile industry and was forecasted to grow further. Following the relaxation of trade barriers, many of the European and American fashion houses were looking at importing clothes from China at very low prices. This was mainly due to its low operat- ing costs. This had a massive negative impact on many companies operating at higher costs and based elsewhere. The previous adverse perception of “Made in China” labels had slowly changed as China now manufactured clothes that are of higher quality at substantially lower operating costs. If Jeffrey wanted to survive in this industry, he too must consider moving his operations to China. a Malaysian Institute ofAccounmnis Haute Couture Fashions Bhd (HCF) Haute Couture Fashions was established in the 1974 by the Tan family. Tan Boon Kheong, the patriarch of the Tan family was a skilled master cutter, trained by British master cutters in the 19503 in Penang. He ran a small but successful business tailoring men’s clothing in Argyll Road, Penang until his retirement in 1980. Peter Tan, the oldest son of Tan Boon Kheong, initially trained under his father as a young 17-year—old but after three years left for Europe as he was interested in creating for both men and women’s fashion, rather than merely tailoring men’s suits and pants. His sojourn in Eu— rope saw him training at Yves St Laurent and Gucci. He had a keen eye on women’s silhouette and soon established himself as a talented designer. Many of the fashion houses were happy to employ him into their team. He returned to Malaysia with a wealth of experience, eager to put his newly acquired knowledge into use. His return to Malaysia coincided with the trend of European clothes‘ manufacturers looking at Asia for outsourcing (see Appendix B). Peter saw this as an opportunity to kick-start his business venture, especially with his contacts with the European fashion houses. HCF started out as a family owned business with all of its shares being held by the Tao family. Peter prepared to bid for contract manufacturing deals with the European fashion houses. With the help of his contacts and excellent track record with the fashion houses, he soon managed to convince three of them to sign outsourcing deals with him. These fashion houses were keen on doing business with people known to them as they set—off their new venture. HCF’S Growth HCF started its first fully equipped factory in Penang in November 1974. Under Peter’s helm, HCF very quickly established itself as a high quality manufacturer of both men’s and women’s clothes. it had no difficulty meeting the demand of the fashion houses as Peter had recruited several European-trained Malaysian designers to join his team. By late 19703, HCF’s turnover had reached RMIO million. Over the ensuing five years since its inception, HCF had managed to add two more European fashion houses into its customer base. HCF’s talented designers were providing inputs toward the development of the ready- to-wear designs and were well received by the fashion houses. HCF was now faced with a problem. The factory located in Penang was no longer big enough to cope with the production capacity. Peter quickly sourced a large plot of land in mainland Penang a Butterworth and be- gan building a new and much larger state-of—the—art factory to cater for the growing demand. ‘ Malaysum lttsntule ol'AecoLuuanLa mid 'éitiixiii'iibiis STU DIES STUDIES In July 1980, HCF opened its new factory in Butterworth. Peter, then the Managing Director of HCF, decided not to shut down the Penang factory but operated both factories. HCF then employed between 80 to 100 employees, mostly tailors in the Penang factory, while the But- terworth factory employed about 300 employees. HCF continued to experience growth in sales throughout the early 19803 to mid 19903, charted annual sales of around RM100 million. Its customer base had also increased, drawing in cus- tomers from Europe as well as America. Profits were also riding high. l-ICF opened two more factories. In 1990, it opened its third factory in Jitra, Kedah. The factory had a capacity of producing 1 million garments a year with a strength of 300 employees. In 1995, due to even increasing demand for its clothes, HCF decided to open its fourth factory with a production capacity of 2 million garments a year. This time, it looked to Thailand, as labour was very cheap. HCF set up a wholly owned subsidiary Haute Couture (Thailand) Pte. Ltd to operate the Chieng Mai based factory. It recruited about 500 employees. In 1997, Malaysia was facing financial crisis, with foreign exchange market volatility being the main issue. Manufacturers with foreign customers were unable to honour their contract price as exchange rates fluctuated. HCF was caught unaware. HCF had to tender for a contract six months before the delivery of the consignment. Fluctuation in the exchange rates made it impossible to predict the cost of material that HCF had to purchase from the fashion houses. HCF found itself selling its garments at very low margins for the first time. 1998 saw HCF suffering its first loss since its inception. Many of its competitors also suffered losses and some even had to cease manufacturing. In a bid to survive the financial tsunami that had hit Malaysia, Peter Tan consolidated HCF’s position by deciding to cut operating costs. HCF’s major cost apart from the cost of imported material was labour cost. Peter Tan made the deci- sion to shut down the Penang factory, much to the dissent of his father. HCF was still able to meet the demand while still operating the other three factories in Butterworth, J itra and Chieng Mai. He also decided to shift as much of the production to Chieng Mai, as the laboar cost was a quarter of the labour cost incurred in the Malaysian factories. Moreover, HCF was facing labour shortage problems in Malaysia, as many of the labour force were moving to the cities for better prospects. As a result of this consolidation exercise, about 300 of HCF’s employees were made redundant, many of whom had been with HCF since its inception. Over the next few years, its profitability increased gradually and HCF slowly pulled itself out of the loss making situation. HCF managed this difficult feat because of its customer base as well as its reputation for high quality clothes, which commanded premium prices with its cus- tomers. The financial crisis had not affected Europe much, and as such, demand for the clothes continued. WHY] Malaysian Institute oi'Accounrams HCF’s Contract Manufacturing Structure The contract manufacturing deals signed with the European fashion houses were such that the designs were provided by the fashion houses and HCF had to adhere to the designs when pro- ducing the respective labels. The fashion houses welcomed suggestions from HCF ’s designers but were particular that the designs were not crossed between the various labels that HCF was producing. Cross producing designs between labels would be disastrous for HCF as it would immediately loose the contract for the labels involved. Further, the European fashion houses would supply the material for the clothes as they wanted to maintain the quality of the output. HCF purchased the material, sourced for appropriate ac- cessories locally and produced the clothes. The fashion houses would contract for “a specific quantity of a specific design at a specific quality/”to be delivered at a specific time. Any varia- tion outside the contract stipulation would have to be borne by HCF itself. Usually, the contracts were for delivery of clothes one season ahead. This meant that sum- mer’s design clothes would have to be delivered by the beginning of spring. HCF would sell the manufactured clothes at a contracted price. The fashion houses allowed HCF to tender for the contract price based on the design, quantity and price of material supplied. The contract tendering process usually took place about six months before the due date for the delivery of a season’s batch. HCF’s Customers HCF manufactured ready-to-wear clothes for a number of European and American fashion houses. Its clothes were well-sought after for its modern designs and high quality finishing. HCF’s customers have remained loyal over the last three decades, although its major coup was the securing of 2 major American fashion houses as its customers within the last 5 years. All of HCF’s clothing was manufactured under the customer’s own label. Malaysian lnslimm nt’Aclentants l’TllU :‘JZ 17‘. :2 1L4 STUDIES .‘.._.___—._—_— The customers of HCF can be analysed as follows: (2008 figures) CUSTOMER TURNOVER SALES (94:) (RM million) ——-s- ——-z_ _— ”- HCF’s Shareholders HCF was successfully listed in early 2007 and at the end of 2008, its shares were held as followed: SHAREHOLDER SHAREHOLDING (%) —— Adrianum 100 The company had 57 million shares in issue at a par value of RMl each. The share price at the time of floating was RM2.50 per share. Market price as at 3lst December 2008 was RM1.80 per share. - ['21 Malaysian Innlflllll.‘ m Accountants HCF’s Board of Directors and Key Personnel Board of Directors Tan Boon Kheong — Founder, Chairman and first Managing Director Tan Boon Kheong was the founder chairman of HCF Bhd. He started the company as a busi- ness venture for his son, Peter, who had returned from Europe as a newly qualified designer. He retired as Managing Director in 1980 but kept a close personal interest in the company he founded with his hardveamed money. The Board of Directors still looked upon him for valu- able advice in managing the company. He still retained his 19% shareholding in the company and was a director of the company Peter Tan — Current Chairman ‘ Peter Tan, the oldest son of Tan Boon Kheong was the brains behind the success of HCF, As a newly trained designer in the 19705, he was the inspiration behind the setting up of HCF. With his contacts with the various fashion houses in Europe, he managed to secure good contracts for HCF. HCF grew from strength-to-strength under his leadership. He took over from his father as Managing Director/ Financial Controller in 1980 and continued to lead HCF until his retirement in early 2009. He still sat on the Board of Directors as the Chairman. He held 25% shareholding. He was also the Managing Director of the Thailand operations. Daniel Tan — Financial Controller Daniel Tan was the youngest of the Tan children. He had held the position since 1990. when he returned as a qualified accountant from the United Kingdom. He took over the role from his brother Peter Tan, when the latter was bogged down with too much work as a Managing Di- rector. Prior to his return to Malaysia, he worked in the United Kingdom for one of the largest audit firms in the country. He was considered to be a whiz in finance and had a good working relationship with his brother. Peter Tan and the rest of the employees of HCF. Daniel Tan also had a good working relationship with HCF’s bankers and had helped HCF to secure and renegotiate loans and extend credit arrangements whenever needed. He was con- cerned about HCF’s present situation in that he felt HCF would be unable to meet the situation in the same manner it faced during its previous setbacks. Elaine Tan — Sales & Marketing Director Elaine. sister to Peter and Daniel had worked with the company for the last 15 years. Prior to her joining HCF, she worked for a large departmental store in Kuala Lumpur as the Chief Purchasing Manager. Her role was to secure clothes for the departmental store. At HCF, she had the challenging task of maintaining a relationship with all of HCF customers — the fashion Malaysian Institute oI'Acuountants ( '\S‘ I" STUDIES STUDIES houses from Europe and America. The designers from these fashion houses were said to be very temperamental. Her time was taken up negotiating and securing contracts with these fash- ion houses. She now had her hands full with the present situation, trying to keep the customers from cancelling crucial contracts. She sat on the Board of Directors. Beverly Tan , Human Resource Director Another one of the Tan sisters, Beverly had helped keep the employees at HCF happy by looking after their needs. She had introduced the employees share option scheme to enable employees to own shares in the business. This in turn had created a sense of belonging among the employees as well as enabled them to gain returns. The general working conditions had also improved tremendously. HCF had seen employee efficiency and productivity rose over the years as a result of these new employee schemes. With the current turn of events, Beverly was concerned for the future of HCF‘s employees. If the threat by HCF’s major customers were to materialise, the employees, most of the tailors were likely to face redundancy. Many of them had been with the company for along time and were likely to take retrenchment very badly. She also sat on the Board of Directors. Elvis Lee — Non—Executive Director Elvis Lee, a nephew to Tan Boon Kheong and cousin to Peter Tan and siblings was a non- executive director of HCF. He held a 3% shareholding with HCF. Lee T eck Choon — Non-Executive Director Lee Teck Choon was a close family friend of Tan Boon Kheong. He was 75 years of age and was a former partner of Tan Boon Kheong during the latter’s tailoring days in Argyll Road, Penaug. He had pooled his finances and helped Tan Boon Kheong set up HCF in 1974. In re- turn, Tan Boon Kheong gave him a 2% shareholding in the business. Adn'an Lim , Non-Executive Director Adrian Lim, a successful businessman and qualified accountant sat on the board of several companies in Malaysia. He was brought into HCF’s Board with the intention of appointing him as the Head of the Audit Committee. He held 2% shareholding in the business. Key Personnel Jefi‘rey Cheong — Managing Director Jeffrey Cheong aged 40, was recruited as Managing Director of HCF upon Peter Tan‘s retire— ment in early 2009. A former protege of Peter during the early days of HCF. Jeffrey had shown n'm] Malaysian instilule ul'Avcuuntanls a lot of potential as a novice designer and more so as a leader. He was always giving valuable ideas in improving the design skills of the HCF team. He left HCF for greener pastures. He had worked in Thailand for another large clothing manufacturer for several years and then wished to return to Malaysia. Peter Tan had identified him as an ideal candidate as he felt the new blood had to be injected into HCF for its continued success. Although Jeffrey was recruited before the present crisis beset HCF, he then had his hands full trying to keep HCF afloat. Jason Dong — Chief Designer “I; : ; ,_ ‘ L Jason joined HCF about 5 years ago. He was a very talentedfland like Peter had trained in Eu- rope. He had worked for atop couture company in Europe prior to his return to Malaysia and was very keen in putting his newly acquired skill to use. His forte was efficiency in churning out clothes cutting with very little wastage in material. He was able to maximise material us- age in the production of clothes. This was very useful to HCF as it could cut cost on material wastage. Tech Chin Teh , Factory Operations Director He had worked for several clothing manufacturers before he joined HCF in 1999, when he was made redundant from his last company during the financial crisis. He was skilled in managing people, a valuable skill for HCF as many of its employees were actually on the factory floor. He had a wealth of operational experience and was well liked by the factory staff. He had suc— cessfully introduced improved working conditions and total quality management skills to the employees. He was a certified TQM operator. Current Position Having read the two letters form KiKi and Houida, Jefirey quickly called for a management meeting with his key personnel to discuss possible strategies to address the situation HCF was currently facing. During the brainstorming session, Elaine — the Sales and Marketing Director proposed that HCF considered moving its manufacturing to China. This way, HCF would be able to still retain KiKi and Houida as its customers and supply the clothes at lower prices. She also pro- posed that HCF shut down its existing plants in Butterworth, Jitra and Chieng Mai. Tech Chin Teh — Factory Operations Director, on the other hand, was not interested in closing down the Malaysian operations completely. He argued that if HCF were to completely close down the Malaysian operations, a large number of employees would have to be retrenched. Many of them had been with HCF for more than 10 years. Malaysian Institme uFAccoumanls '1'}; f; ' 'ii'l'aili'a' ijfiiis' ' if, Lil G P r V} He suggested two alternative options. First — expand manufacturing operations to China to focus on contracts from fashion houses, while retaining the Malaysian operations to develop HCF’s own label. to be marketed to the Malaysian and Asean market. Second, he suggested that HCF completely pull-out from the activity of “contract manufacturing” since the remain- ing customers may also pull out on hearing the news that KiKi and Houida had pulled out. He suggested that HCF concentrate on developing HCF’s own label by producing out of the Malaysian operations. Jeffery reiterated that no clothes manufacturer should ignore China's influence and that HCF needed to have a strategy with China. According to his research, almost 30% of the European fashion houses were then selling “Made in China” labels. If HCF were to continue retaining its current customer base, it had to consider moving operations to China. Daniel Tan was assigned to research the possibility of expansion in China. After several weeks of research, Daniel came up with the following information: Proposal to expand to China The management team had discussed two possible ways of expanding into China: ' Setting up its own factory in China that was large enough to manufacture clothing for its existing customers. - Manufacture in China in a joint venture with a Chinese manufacturer. The first option would require HCF to invest a large sum of money in China. Currently, HCF did not have sufficient funds to fund this expansion. HCF would have to look for alternative sources of funds. Therefore. this option would not be possible without the full support of the Board of Directors of HCF. Peter Tan, the current Chairman of HCF is keen with this option as he felt HCF would loose its independence should it consider a joint venture. However, the option of expanding into China on its own would require careful consideration. Daniel’s research had produced the following information: Cost of building a factory (fully equipped) — RM] 5 million Net present value (over 5 years) — RM6.3 million Cost of capital used — 8% pa. The new factory would be able to manufacture at a similar capacity as its current operations in Butterworth, J itra and Chieng Mai in total. 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W (ASE Lu ac: Penaug factories would fetch a reasonable resale value as its equipments were only recently renewed in 2007. Moreover, HCF would be able to sell the land for a substantial profit as they were located in a fast developing area. HCF would be able to sell the factories for about RM8.5 million. The other two factories in Jitra and Chieng Mai had very low resale value as the factories were located in rural areas. HCF would have found it difficulty to sell these two factories. Its only option would be to shut down both factories. If HCF were to shutdown the factories, it would have to pull down the factory located on the site. Otherwise, the factory would become a haven for drug addicts. The cost of pulling down the factories at both sites would cost HCF RM1.2 million. HCF could choose to simply board up the factories for a cost of RM200,000 but ran the danger of drug addicts breaking the barriers and entering the premises. Apart from the above expenses, Daniel expected redundancy payments to cost around RM3.0 million at a minimum. Many of its employees had specialised skills and would find it difficult to seek employment elsewhere if they were to be retrenched. Manufacturing its own Iabelfar the Malaysian and Asean market This was a fairly new area for HCF. HCF would have to work very hard to survive if it were to consider this option in isolation. If HCF were to terminate all its contracts with the fashion houses in the short-term, it was then dependent on the success of its label to survive. Jeffrey felt the Board of Directors of HCF would be very reluctant to consider this option un— less they saw a good potential in pursuing into this direction. The positive impact of consider— ing this option was that HCF did not need to retrench all its employees. HCF could still operate out of the factories in Butterworth and Jitra, while closing down the Chiang Mai factory. Jeffrey was concerned on the demand for HCF’s own label in Malaysia and Asean region as HCF was a relatively unknown company in this region. It had always been manufacturing for the European and American fashion houses, then again under the fashion houses labels rather that under its own label. Venturing into this business would be an uphill task, creating a brand of its own. HCF would have to price its products relatively low to penetrate the market. Ad- vertising costs would also be high as HCF created its brand. There were uncertainties present in this option. Malaysian lnslilutc ni‘Accuunlaan Jeffrey felt that HCF may not have sufficient demand to sustain its existence. He estimated the uncertainties to be: Probability High success 30% Low success 70% With the help of Elaine Tan — the Sales and Marketing Director, Jeffery developed the follow— ing targets for the next five years. “m 2.013: 1 —— Fixed costs were estimated to be RM30 million for the Malaysian factories. Advertising costs were estimated at RM2. 1 million per annum. Retrenchment cost of shutting down the Chieng Mai factory was estimated at RM1.8 million. Case Question: Jeffrey convened a Board of Directors meeting to inform them of the latest development and put forth the strategic options identified by his management team. The strategic issues were discussed by the Board and it was agreed that a consultant would be appointed to advise the Board on which direction HCF should take. You are the consultant appointed by HCF’s Board. Prepare a report that prioritises, analyses and evaluates the issues facing HCF, and make ap— propriate recommendations. Malaysian Institute al'Acculmtams t‘t’lllfl (TAN-T. STUDIES m H; I: :3 'r' a: a; 3!} 4., 'v Haute Couture Fashions Bhd’s Income Statement and Balance Sheet (Consolidated Group Accounts) Income Statement Year ended 30th September 2008 RM ‘000 Revenue 120,000 Cost of Goods sold 77,250 Gross Profit 42,750 Operating Costs 3 8,150 Operating Profit 4,600 Finance Cost 1 300 Operating Profit after financing 3,300 Taxation 858 Operating Profit for the period 2,442 " Balance Sheet As At 30th September 2008 RM ‘000 RM ‘000 Fixed Asset (net) 33,413 Current Assets Inventory 28,420 Trade Receivables 43,865 Cash/Short-term investments 376 72,661 Current Liabilities Trade Payables 13,904 Tax Payable 858 Bank Overdraft 3,058 17,820 54,841 Net Tangible Assets 88,254 Financed by : Paid up share capital 57,000 Share Premium Account 10,500 Retained Earning 16,254 Long Term Loan 4,500 (repqvable in 2011) ' 88,254 1'17“] Malaysmn institute ot‘Aecountmtx Appendix A Year ended- 3 0th September 2007 RM ‘000 130,000 72,510 57,490 43,650 13,840 1,250 12,590 3,399 9,191 As At 30th September 2007 RM ‘000 RM ‘000 36,375 Appendix B European Fashion Industry’s Foray into Asia Europe had always been in the forefront of high fashion. Designers from France and Italy had inspired and dominated the fashion scene since the 1950’s. As the world and especially Europe crawled out of the doom of World War II, many were anxious to bring normalcy into their life. The post World War II era saw many people becoming much more fashion conscious and many fashion houses such as Christian Dior, Armani, Gucci etc. sprouted like mushrooms overnight to meet this growing demand. Haute Couture — the French word for high fashion had been widely accepted as the official term used by many European fashion houses to. define their craftsmanship. These fashion houses held proud to their designs and craftsmanship and enjoyed a constant demand for their “one of a kind” designs. They pride themselves to the fact that their designs were “limited edi- tions” and that customers were willing to pay a great deal of money to be seen wearing them. By the mid 1960’s, many more similar fashion houses had joined this very competitive and lucrative market. However, it was during the same period, the euphoria of the post WWII needed to be fashionable had settled to a more practical level. Clothing manufacturing began to make inroads into the fashion industry and consumers were being distracted and lured into this new fashion market. The clothing manufacturers, often contracted by High Street retailers to supply ready~to—wear clothes made it possible for clothes to be available at a fraction of the “Haute Couture” prices and yet be fashionable. Customers soon realised that fashion need no longer be costly. Demand for “haute courtier” began to nose-dive as a result and many of the fashion houses started recording their first losses. This trend continued for several consecutive years and threatened the continued existence of the once powerfiil “haute courtier” industry. In a bid to survive, several fashion houses decided to consolidate their position by branching out to ready-to-wear as a new market segment while still maintaining the “haute couture” seg— ment. Their aim was to make ready-to-wear much more fashionable than High Street labels and at the same making them available to everyone. They began sourcing for suitable cloth- ing manufacturers who would be able to produce very “high quality” clothes at reasonable prices so that they could penetrate and capture a portion of the ready—to—wear market. The trend during the earky 19705 was to look outside Europe for the manufacture of clothes as the operational cost of maintaining factories in Europe had risen sharply. especially labour cost. The rise of trade unions during the late 1960s had resulted in the labour force holding employ- ers to ransom while demanding for better pay and working conditions. Thus, many European companies were now either establishing manufacturing bases in countries with much lower \talaysmn Instinite ol'Accounlanrs :1 5?, :o :e :5 :9 ST U DIES labour and overhead costs or sourcing manufacturers based in these countries to “contract manufacture" for them. Asia1 otherwise known as the Far East to the Europeans became their area of interest. Land was in abundance, and labour was cheap, without the threat of trade unions. Additionally, Asia was welcoming foreign currency inflow with open arms. U} H H C: D [— U3 I I. k.» 4.. | .2 ...
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