Ms. Li Hui has over 20 years of extensive experience in the sourcing industry. She previously served as the Sourcing Director at GAP in the U.S. and moved to Hong Kong in 2010 to join the retail company Lands' End, where she oversaw their sourcing operations in Asia. She also held the position of Executive Vice President at Li & Fung Group, managing their business in mainland China and Hong Kong. Currently, she is in charge of the Asian division of SC Sourcing. She spoke to Global Sources Chief Executive China in June 2024.
Chief Executive China (CEC): Could you share your insights on the key concerns for buyers in the sourcing domain related to your industry? What information do you think buyers are most concerned about in the sourcing field?
Li: Buyers are primarily concerned with both macro and micro aspects. On the macro level, they're attentive to geopolitical events, the worldwide distribution of orders, and the volatility of exchange rates and raw materials. They essentially focus on broader global economic factors.
On the micro level, their attention is drawn to operational procedures, including the capabilities of suppliers, the quality of products and the comprehensive assessment of suppliers in the short term, as well as the long-term sustainability and social responsibilities of these suppliers.
The emphasis varies among buyers, largely dependent on their scale. Larger entities like Fortune 500 companies tend to concentrate more on macro factors, while smaller firms or importers focus more on the suppliers' capabilities and pricing.
CEC: What changes have you noticed in the demand from overseas buyers for Chinese suppliers and exports in recent years?
Li: A significant shift in recent years is the trend of "de-Chinaization" or adopting a "China Plus One" strategy. This has been a major influence on China for the past five to six years. From my perspective, "de-Chinaization" is a strategic move, leading to the relocation of industries that can be feasibly moved. As a result, the industries and orders that remain in China are those with higher technical difficulty, while the simpler ones have largely been transferred out.
For example, in the clothing industry, US orders, which once accounted for 40% to 50% of the total, are now estimated to be only 5% to 10%. This strategic shift in the US market is substantial, and there hasn't been a significant increase in European orders either.
CEC: Based on your experience, how have the suppliers you work with changed from ten years ago? What significant changes have occurred recently? What do you think of these changes? Are they positive or negative trends?
Li: In China, I've seen a polarization among suppliers. The strong have grown stronger and are the ones that survive, standing out with competitive advantages. On the other hand, average suppliers are becoming weaker, with less distinct strengths, and are likely to become increasingly so. These weaker suppliers may face elimination or mergers in the future. Small and micro enterprises may struggle to survive and could vanish within the next decade. Those left standing will be those with an international perspective and unique products or advantages, making them more competitive.
Looking at China from the consumer goods industry, another issue is the rising cost of manufacturing. Over the past decade, labor costs and national regulations, such as environmental protection, have significantly increased production costs in China. While it's true that costs are rising worldwide, the increase in China is particularly notable.
Additionally, China's labor force is aging, and young people are less inclined to work in the industrial sector, preferring the service industry or other professions such as KOLs. This shift has implications for the traditional manufacturing sector in China. In contrast, Southeast Asian countries like Vietnam, India and Bangladesh still have a large influx of young workers into industry, giving them a labor resource advantage that China no longer possesses.
Therefore, the industry cannot remain static and operate as it did a decade ago. It must improve efficiency through automation and digitalization, or else consider relocating.
Over the past ten years, aside from the US–China relationship and trade wars, the rise in labor and other costs has led to a significant decrease in profits for Chinese suppliers, presenting a major challenge for Chinese businesses.
CEC: From your perspective, what supplier traits are considered advantageous?
Li: Advantageous traits can be highlighted in the following areas:
1. Strategic business locations: This pertains to the locations where suppliers decide to establish their manufacturing facilities.
2. Offering options to customers: This involves the suppliers' ability to update products and their capacity for design and innovation.
3. Technological integration: It's about how suppliers can bring new technological advancements into traditional manufacturing processes.
In essence, what stands out as advantageous is the enterprise's uniqueness and irreplaceability. Without these qualities, suppliers might find themselves in a position where they have to undercut prices to secure orders, which is not a sustainable business strategy.
Large international buyers often assess suppliers based on a composite score that takes into account these long-term strategic advantages. However, if the buyer is smaller, they might focus more on immediate benefits and may not have a strong allegiance to any particular supplier. If better and more affordable options are available elsewhere, they will naturally redirect their orders.
Nevertheless, buyers with a strategic vision prefer to establish enduring relationships with their key suppliers, aiming for a decade, two, or even three of stable collaboration, which is indicative of a strategic partnership. In reality, the majority of buyers allocate 80% of their orders to their top 20% of suppliers, leaving the remaining 80% of suppliers to compete for the last 20% of orders. Whether a supplier joins the top rank or ends up at the bottom depends on their ability to create and offer distinctive value. The irreplaceability and distinctiveness of a company are crucial.
This interview continues in Part 2, covering the shift of manufacturing to Southeast Asia.
Established in 2022 by Global Sources, the Sourcing Elite Board (SEB) is a collaborative initiative dedicated to advancing the sourcing industry through shared expertise and innovative strategies. Senior executives, from buying offices to retailers and brands, are welcome to join this distinguished community.
Photo by David Dibert
