TAL Visit Questions

1.      What is your future plan for developing new technologies?

As TAL Group now offer nine technologies for customers, they provide people different functions and comfort. For example, the Dot.TAL® technology which can against bacteria and mold growth on clothers prevent unpleasant odors. Another is technology is  EZCOOL™, it is a moisture treatmetn and allows the garments to dry twice as fast as a normal garment. It also helps to be anti-wrinkled. Then the SofTAL® Wool technology makes the 100% wool to be more smooth, washable and dryable . Although wool garments after washed several times, they are without the headaches of shrinkage or felting. Other technologies like nano technology, DriXpert ®, Emboss and so on. They all have offered different comfort and function to people. As you know, developing a new technology is not easy. However, they will keep investing our research and development and hope to provide more functionality and comfort to their customers.

2.      As TAL has a deep understanding on the customer preference and product design, will TAL consider the possibilities to transfer its position from manufacturer/ vendor to retailer, such as taking the advantage of the internet coverage and trend of online shopping, to become ab online retailer to sell your own products?

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5.      Will TAL consider any merging & acquisition to expand the business?

Question 2 is about vertical integration and question 3 is about horizontal integration, the answer is quite similar, therefore, we think it is better for us to combined it.

Whether TAL will or will not integrate vertically or horizontally is heavily depends on their company objective. In the visit, the manager emphasis that they want to mantain their current position as a innofacturer rather than reposition TAL. There are several reasons behind.

Firstly, TAL needs to consider their relationship with their clients. If TAL chooses to integrate forward (e.g. open a TAL retail store), then the clients now they are serving will become their competitors because they are selling similar products, therefore, it is doubtful that whether their clients will still order clothes from TAL. To sum up, if TAL integrate forward, there will be a risk of losing their current customers.

Secondly, although TAL has advantage on knowing the customer preferences, there are still some aspects TAL is inexperience with if TAL decided to transfer its position from manufacturer/ vendor to manufacturer plus retailer. For example, TAL needs to think about the marketing strategies on how to promote their products to end customers, but not the retailers, this could be a different strategies. Besides, brand name is quite important in the clothing industry, although TAL is famous among the clothing industries, it does not famous among the end customers, building up brand name to end customers is also an aspect it does not familiar with.

3.      Can TAL explore the opportunity of “Total customization”, such that having a website allowing individual customers to design their own clothing, to create a new business opportunity.

TAL is now the leading producer of innovative clothes around the world. It will manufacture garments according to their customers’ requirements such as the material, style and fuction they want. They have around thirty partners and they are well-known brands like Coldwater Greek, Thomas Pink, JCPenny, Callaway and so on. The customers have high loyalty to the TAL Group because they are not only providing the manufacturing service but also the demand forecasting service to help them predict how many garments should be produced and stored in the warehouse. For example, the dot to dot ?

So, at this monment TAL’s business model is B2B, not B2C. To achieve B2C, it is hard for TAL to be completely customermized and start up in the nearly future as they need resources, time and cost. They are now enjoy the stage, be a manufacturer of innovative clothes and focus on the role to offer the best service to their customers. 

4.      How does TAL get involved in corporate social responsibility?

TAL bears its corporate social responsibility by introducing the following three methods.

Firstly, as TAL need to use plenty of water in their innovation and testing procedures and it will definitly create water wastage, therefore, it has taken some methods to reduce their water wastage. These includes waste water treatment, recycling for flushing, landscaping irrigayion, and water scrubbers for exhaust emission management, and heat exchangers that recover energy from steam to heat domestic water. Originally, TAL aims at reducing their water intensity by 15% by the end of 2014 compared to the 2011 baseline. The result is very enouraging when these measures take into account, TAL not only achieved its target, the actual number is much higher than what TAL wants to achieved, it has reduced their water intensity by 27.5% by 2014 in Quater 3 already. Those water saved by TAL is equivalent to 235 standard swimming pool!

Secondly, when producing clothing such as shirts and treasures and testing the products, it is unavoidably that there will be some unused paper, cardboard, plastics, cans, textile cones and used drums. TAL will recycle those unused materials rather than just throw it away.

Thirdly, TAL has tried to minimize the greenhouse gas (known as GHG) generated during the manufacturing process. TAL aims at reducing their GHG intensity by 21% by the end of 2014 compared to the 2009 baseline. The actual outcome is that TAL has already reduced 24% GHG by 2014 Quarter 3.

Lastly, TAL voluntarily controls their kitchen exhaust emissions from their workers’ canteens in order to create less air pollution. Not many industrialists will take this into consideration.

6.      Why does not TAL produce material to get full control of its value chain?

Producing material involves professional knowledge and experience, it is not learned or imitated for a short period, let along producing the high quality material as TAL required. It is a high risk to get full control of the supply chain, be a material manufacturer. So it is not a goal for TAL at this stage and it has its own suppliers.

7.      As we know that ERP system is a sophisticated software and involved huge capital investment.  Has TAL encountered any difficulties and hurdles when TAL initially adopted VMI system?

ERP system is a sophisticated software and involved huge capital investment, therefore, TAL has set up a prodessional team for enhancing the EPR system and for answering and helping the clients to solve the problems they have encounted when using the EPR system.

8.      We all know that TAL has been using IT to gain a big success.  However, other companies are likely to follow the same strategies to succeed by using the similar IT systems.  How could you continuously maintain your market share and stay competitive?

Firstly, the cost (including both money and time) for developing similar IT system is quite high, not many companies can afford to pay such a large capital. The overall system integration had cost US$10 million (including system design, software licenses and support), involving 30 people working full-time in the IT core team, as well as a cohort of non-core members from different departments and factory locations. Besides, TAL starts to develop their technology in 1980s, it takes around 20 years to get the system to be mature enough. Therefore, in terms of time and money, it is hard for other companies to follow the same strategies to succeed by using the similiar IT systems.

Secondly, the source code of the technology is being kept safely inside TAL. In the visit, the manager reviews that only specific persons can have the rigth to access to the source code, therefore, it is hard to steal it and copy it.

9.      How does TAL face the trade-off between high innovation cost and the benefits of competitive advantage?

Actually, it is quite hard for TAL to quantify the marginal innovation cost and marginal benefits of the competitive advantage. For TAL, they do not just focus on the relationship on innovation cost and competitive advantage, they also focus on other four aspects including supply chain capabilities, sustainability and value-added services.

TAL Case Discussion

Q1: Background Information of TAL

The TAL Group’s headquarter is in Hong Kong and it is the world leader in the production of innovative clothes that combine style, comfort and functionality. Their products include outwears, shirts, polo shirts, blouses and pants by using different advanced technologies. For example, the SofTAL Process® technology ensuring garments to be wrinkle free throughout the day. With over 60 years of industry experience the TAL Group understand the needs of their customers and tailor their processes to meet those specific needs. They also apply the same commitment to innovation to their Supply Chain Solutions as to their product development, ensuring that they deliver consistently high quality garments quickly and effectively to any market in the world.

Moreover, they are doing business globally and have the partnership with many well-known brands such as Giordano, JCPenny, Burberry, Jones and so on. As to deal with a large amount of annual production capacity that is 5 million garments per year, there are 10 factories all over the world  involving Hong Kong, China, Indonesia, Malaysia, Thailand, Vietnam and USA, and the total production floor space exceeds 3 million square feet, and 25,000 workers world-wide of TAL Group.

Last but not least, the TAL Group has also done their corporate social responsibility well. They show the caring to the employees and the environment.

Q2: Discuss the dynamics of the apparel value chain and how the global apparel industry is classified as a buyer-driven industry.

In the past, the apparel value chain is producer-driven. Simply speaking, manufacturers play the central roles in coordinating production networks. Products were shifted from the downstream to upstream with concrete system, such as daily or weekly orders were made by the retailers, manufacturer had to forecast the demand in order to prevent shortage. Nowadays, the value-chain concept has extended from individual level to whole supply chains and distribution networks. The core value is to deliver a mix of products and services to final customer. The apparel value chain become buyer-driven, which means large retailers, marketer and branded manufacturers play the main role to set up the decentralized production networks, shifting the power to downstream. The core competencies of producer-driven are research, development and production while the core competencies of buyer-driven are design and marketing. The barriers to entry switch from economies of scale to economies of scope.

The low entry barrier of apparel industry leads to many companies involving the competition and severe competing environment. When large retailers, marketers and branded manufacturers want to take advantage in that environment, they have to locate their factory in the regions with low labor cost and production cost, usually decentralized. This may weaken the bargaining power of suppliers.

        

   

Q3: Based upon the Porter’s value chain model, describe how the use of VMI has enabled TAL to turn the sequential value chain to an integrated and synchronous value network with its major customer such as JC Penny.

             Based upon the Porter’s value chain model including Inbound logistics, operations, outbound logistics, marketing and sales ans services, the use of VMI has enabled TAL to turn the sequential value chain to an integrated and synchronous value network with their customers such as JCPenny. In

TAL’s traditional value chain, it purchases and receive raw materials based on back-order in the inbound logistics while using VMI, it purchases and receive raw materials based on shared information by customers like JCPenny. For operations, TAL needs to ask JCPenny to give the POS to know about the sale pattern for sales forecast and plan for production while VMI allows TAL to manufacture according to customer orders. Moreover, JCPenny involves inbound logistics and operation in TAL’s  Integrated and Synchronous Value Chain. It receives garments from TAL to store them in the central warehouse in the bound logistics. For operation, JCPenny can forecast the sales amount can place replenishment order.

Therefore, the use of VMI helps TAL to create the purchase orders based on the real time front-line sales information and demand at the warehouse or store level as a backward replenishment tool. There are several benefits by using VMI. It can reduce inventory level and cost, shorter replenishment cycle and reduce ordering cost.

TAL’s Integrated and Synchronous Value Chain

Q4: How did Porter and Millar (1985) classify the impacts of IT on competition? Discuss the benefits and impacts of the use of IT initiatives to TAL, and how these initiatives have contributed to the strategic repositioning of the company in the apparel value chain.

Impacts of IT on competition

According to the five forces model proposed by Porter and Millar, it is a analytic tool to measure the level of competition and business strategy development. The development of IT is so rapid and successful that the business environment provides much more opportunities in the society. So, let’s discuss the five forces model one by one.

Threat of new entrants

In order to fight against other competitors, every company may develop their own IT system, including analyzing, simulating, forecasting, etc. The IT system requires huge investment budget and time. That would be extremely difficult to create a professional system. Even companies with enough capital for installing some advanced software, like SAP, they still have to spend time on training employees adapting the software. Thus, the threat of new entrants is really low.

Bargaining power of buyers

Nowadays, buyers can have access on the information of different kinds of product, no matter on most of the brand existing in the market. Many choices are provided for them. In an open market, buyers will opt for the more suitable products for themselves. The IT advancement may create more competing opportunities for companies.

Bargaining power of suppliers

Suppliers may face a new challenge. The supply of the product or service is no longer treated as a difficult part in their daily operation, which means most of them have basic infrastructure in competing with other companies. The core competence becomes the degree of sophistication in the IT development. Some companies have developed their unique IT system and made the whole supply chain so smooth.

Threat of substitute products

New innovative technology may lead to higher variety of products. The function of product varies by different product line or brand. Thus, the competitiveness between companies increases.

Intensity of competitive rivalry

Nowadays, shopping is much easier than before. Buyers can buy goods on the Internet by few clicks on the home computer. Therefore, the shopping effort for online products decreases. Products go faster and faster, and make the competition more severe.

For TAL group, they started their investment on IT in the early 1990s. Over two decades time, TAL continues to improve their business strategy on IT system. It employed the vendor-managed inventory and made-to-measure. Traditionally, retailers placed the orders based on their forecast. When they couldn’t sell all of them, they would return the back-order. This makes the pie smaller. However, after launching the VMI, TAL will automatically produced the correct product as the same product is sold simultaneously. Not only TAL can reduce the effort in managing orders, but also can they build loyalty with their business partners.