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Hong Kong transitioning to global digital supply chain hub | Apparel Industry Analysis

Hong Kong is taking on an enhanced role

Hong Kong is taking on an enhanced role

In the wake of the pandemic, companies have begun assessing the viability of globally distributed production, while e-commerce is altering how people buy, and what they buy. For Hong Kong, these developments are important as its role evolves into a leading sourcing and digital supply-chain services hub, according to a new report.

After decades as Asia’s leading sourcing hub in which it oversaw the movement of materials and goods in and out of Mainland China – from and to the rest of the world – Hong Kong is taking on an enhanced role, with the city driving digital production through the use of technology tools in the 3D and virtual sampling space.

Digital adoption

Additionally, with a high concentration of sourcing talent, the city is becoming the ideal regional and global sourcing hub to manage supply chains, and looks set to benefit as a centre for professional services, especially in the areas of environmental, social and governance (ESG) matters and sustainability, according to a report entitled ‘Future of Sourcing: 2021 and Beyond’, from InvestHK and commissioned by KPMG.

“Hong Kong is in a unique situation amid so much change,” says Anson Bailey, partner, head of consumer and retail, ASPAC, KPMG China. “We do see digital adoption taking shape in this new era of innovation with product and material developments happening seamlessly across a more agile workplace. Long-standing strengths of Hong Kong as a regional sourcing hub include its sound financial, legal, and commercial structures. Talent development is at the core as we see the need for an internationally-minded workforce to drive the origin and manner of production across a more complex supply chain.”

Hong Kong is a Special Administrative Region (SAR) of the People’s Republic of China and home to more than 7.5m people. Based on the ‘One Country, Two Systems’ governance, the city has its own economic and administrative systems distinct from those of Mainland China.

To date, Hong Kong has signed eight free trade agreements to secure favourable conditions for Hong Kong’s goods and services: with Mainland China; New Zealand, the member states of the European Free Trade Association; Chile, Macao, ASEAN, Georgia and Australia.

Key findings of the report include:

  • The significant economic impact of Covid-19 has impacted the entire supply chain for some time to come. Companies have suddenly realised there is a need to digitise across those supply chains.
  • So where is the next Hong Kong? Well simply stated we are never going to see another Hong Kong emerge in this new era of digitisation and we do need to prepare ourselves for this new digital era where we operate across a seamless global marketplace.
  • Organisations need to leverage new digital technologies to ensure they can track those changing consumer behaviours, consumer journeys and consumer spending patterns with the need for more precise consumption patterns through data analytics.
  • The globalisation of supply chains will actually see Hong Kong survive and thrive but we must be more agile as we serve those future digital supply chains with next generation data analytics, AI and automation.
  • Talent development and upskilling our people is critical for future survival with both the international business mindset and more innovative thinking required to stay ahead of the curve.

Government support

The Hong Kong government has launched a wide range of measures aimed at boosting innovation across the country’s economy, emphasising the development of new products and services for the city’s traditionally strong sectors: trade, finance and professional services.

Innovation and technology development efforts have intensified in several areas like increasing resources for R&D; pooling together technology talent; providing investment funding; opening up government data; providing technological research infrastructure; and enhancing procurement arrangements.

The textile industry is a prime beneficiary of support through organisations like Hong Kong Research Institute of Textiles and Apparel (HKRITA), which administers projects that range from completely government-funded to 100% industry-sponsored. Recent projects have tackled waste technology, garment-to-garment recycling, dye removal, 3D shoe design, bras for mastectomy patients, and an AI platform for sales and customer support. Some single-project allocations exceed HKD10m.

CEO of HKRITA, Edwin Keh, says attracting talent is paramount for Hong Kong. Straddling Mainland China and Southeast Asia, he says the country is a magnet for “creative, smart, ambitious young people who want to build a career”. But he believes it is crucial that a supportive infrastructure exist to develop talent, wherever they come from. “That would mean a meaningful career track for them and affordable housing and that we continue to have great communications and transportation.”

Accelerating change

Christophe Roussel, executive vice president of international sourcing and production for Gap Inc, believes the impact of Covid-19 will further accelerate change in sourcing and supply chains.

“From sustainability to digital solutions, the fashion industry has been lagging behind,” Roussel explains, adding that the coronavirus crisis coupled with a reassessment of demand forecasts for clothing could lead to better practices.

“We had been seeing the fashion industry increase its use of digital technologies,” he says. “But the coming months will see a massive shift to online processes because of people being unable to travel.” For Hong Kong, this means adaptation. “As we start to see digital platforms emerge, the days of companies sending so many buyers here are over,” Roussel says. “Instead, virtual samples will enable us to be both faster and more responsive.”

A new mindset

Roger Lee, CEO of Hong Kong-based garment manufacturing giant TAL Group, believes “the industry’s brains are still in Hong Kong”.

“From a brand point of view, Hong Kong has always been the sourcing centre,” Lee explains. “It’s so convenient and dense that in a one week stay you can visit representatives from more than 30 suppliers.”

By continuing to adapt to the relocation of manufacturing and emergence of new possibilities arising from digital technologies, Lee believes Hong Kong is well-positioned to retain its position at the centre of the global clothing industry in a post-Covid-19 world.

Yet companies such as TAL Group are now overseeing operations that are becoming ever more dispersed. Today, only 10% of its manufacturing is conducted in Mainland China.

For Hong Kong to burnish its competitive appeal, Lee says, it needs “a new mindset, including being able to react faster to the impact of new technologies”. As part of a movement towards greater efficiency, everyone is reducing their number of suppliers, notes Lee, which in turn is allowing for brands to expect a far faster delivery of new products.

Becoming future ready

With the impact of the pandemic and rising costs worldwide, Hong Kong’s long-standing role as an international business and financial centre makes it well placed to serve Mainland China, as well as ASEAN and the rest of the world in a new digital era of interconnectedness, the report notes.

Organisations need to leverage new digital technologies to ensure they can track changing consumer behaviours, consumer journeys and consumer spending patterns, with a view to understand consumption patterns of the growing number of digitally savvy consumers more precisely through data analytics, it suggests.

“Hong Kong’s international mindset is crucial for its future. But it must also establish a more diverse talent pool in order to create the future-ready workforce – skilled at working with data analytics, blockchain and AI tools – its supply chain sector will require.

“To address the upcoming challenges, the leverage of technology from digital to data science is a necessity. Hong Kong offers a premier location for global sourcing and provides the necessary capabilities to continue to be one of the leading sourcing and digital supply-chain services hubs globally.”

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