A glance at Hong Kong’s official trade data gives the impression that all is rosy for the Chinese special administrative region’s (SAR) knitwear manufacturers. In 2013, Hong Kong exported knitted and crocheted fabrics worth $2.5bn, up 4.1% year-on-year, easily outpacing the 1.6% growth posted by the city’s overall textile exports valued at $10.7bn, according to figures from the Hong Kong Trade Development Council (HKTDC).
However, the real picture is not that straightforward. While Hong Kong’s knitwear manufacturers have typically kept their headquarters in Hong Kong, many have moved production facilities to mainland China, where they enjoy lower labour and land costs as well as tariff-free trade. And since knitwear manufactured on the mainland can be shipped to overseas markets either via Hong Kong or directly, the statistics hardly tell the full story, including large volumes of re-exports.
“Knitwear made ‘by,’ not ‘in,’ Hong Kong (whose population is now 7.1 million) can be put in the high-end category: item price is medium to high and lot size is small - say, 300 to 500 pieces per style,” Dr Clement TY Lo, an associate professor at the Hong Kong Polytechnic University’s Institute of Textiles & Clothing, tells Knitting International.
“To survive in the future, most Hong Kong knitwear manufacturers have moved into a more capital-intensive model….”
For instance, Raymond Chan, general manager of Hong Kong-based Kent Knitters operates its fully-automated sweater knitting machines in Dongguan, a major Chinese industrial city 50km from Hong Kong.
It mainly serves the US and Europe markets – selling lot sizes from a few thousand to more than ten thousand pieces to Chico’s FAS, Macy’s Inc, Nike Inc, Hugo Boss and Tom Tailor Group, among others. It makes financial sense to employ factory workers in China, even though “labour costs in China are rising and so is the Chinese currency…,” says Mr Chan: the Chinese Yuan Renminbi (CNY) has gained more than 7% against the US dollar in the last three years.
This is because while the company uses well qualified and experienced Hong Kong residents for sales, finance, shipping and product development, they are paid salaries three times higher than in China, according to Mr Chan.
He added that trying to gain sales in the China market is currently tough for Hong Kong knitwear manufacturers, because Chinese factories are vertically-integrated - reducing costs - and also because they are often located in smaller towns and cities, receive government incentives, such as tax rebates.
“We react by cutting costs and buying more efficient equipment, [such as] knitting machines from Germany’s Stoll,” Mr Chan says.
“We develop more customers who still can pay for quality, but this combination places us in a dilemma, as it’s hard to improve production efficiency if [we’re] doing only a few hundred high-end pieces within a few days.”
Raymond Chu, director and chairman of Chemtax Industrial Co Ltd, a Hong Kong-based sales agent for Stoll, says that the increasing costs and tough local competition was encouraging Hong Kong knitwear manufacturers to abandon mainland China for bases in Cambodia, Vietnam, Indonesia, Bangladesh, Myanmar or India, where production costs are lower.
According to him, the crux of the problem is that the world market is monopolised by a few apparel brands dictating the price.
“Yes, the Hong Kong manufacturers do have better machines and make better products, but when these global brands are offered a good product, they simply go around in the cheap countries and ask those if they can make the same,” Mr Chu alleges.
As a result, Stoll and its agent, Chemtax Industrial, are carrying out a strategic shift in machine supplies that is likely to influence Hong Kong knitwear manufacturers’ direction: leaving knitting machines for clothing manufacturing to the competitors, the two are turning to equipment for technical knitwear such as for the auto industry, medical knitwear (such as bandages), as well as knitwear components for sports shoes.
“We do this because machines for normal consumable items will be replaced by cheap machines from cheap countries,” Mr Chu says.
He explained that machines for knitwear used in alternative fields differ slightly from those used for clothing manufacturing and that the strategic transition that has already begun will take some years.
Another example of Hong Kong knitwear manufacturers carving out a niche in the industry is L plus H (or ‘Love + Hope’) Fashion, which produces high-quality knitwear for global brands.
L plus H Fashion’s workforce is recruited from the pool of Hong Kong women who lost their jobs in the years when textile production moved to China. With its Stoll and Matsuya computerised knitting machines, 22-gauge linking machines, and computerised washing and pressing machines from Italy, the firm has the capacity to produce 10,000 pieces of premium quality knitwear per month.
Ada Ho, executive director of L plus H Fashion, said she could not disclose the names of the original equipment manufacturer (OEM) customers, but adds: “Ninety per cent of production is done for luxury world brands and top 20 world designers.”
The rest is sold at L plus H Fashion’s own retail store in Hong Kong’s central business district.
“Our quality is as good as Italian factories, if not better, and unlike...Chinese products, we can give European consumers confidence that we don’t use fake raw materials,” Ms Ho tells Knitting International. “This helped us to pick up more OEM accounts, so that we will achieve 10% growth in revenue for this year.”
Ms Ho said that among Hong Kong knitwear manufacturers operating overseas, there has been talk about moving production back to the special administrative region - but she urged companies to carefully calculate the implications before making that decision.
“You must have a very clear positioning on segment and customers and you must play niche for sure,” she says.
“You must change the way of operation from mass production to small quantity and luxury, and you must be willing to make major investments in capability and product development because the clients you are going to deal with are so much more demanding.”
Written by Jens Kastner
Issue 4, 2014
[SCMP] Forgotten veterans grease the gears of Ada Ho’s social enterprise L plus H Fashion:
Articles written by Ada Ho (in Chinese) :