Impacts of TQM Practices to the Development of
U2 Clothing in Hong Kong
Introduction
The paper intends to find the impacts of TQM practices in the effort of U2 Clothing to increase its market presence in Hong Kong knowing that this may lead to market saturation as the company already established market leadership in the country and a competitive contender within the Asian region. By using internal and market scanning, TQM practices will be emphasized on how it can improve the position of U2 to expand operations. The opportunity to grow in the Asian market could impose minimal gains to U2 that reconsidering its development decision could be a way out of trouble. Will TQM practices save such investment decision or they will ultimately put an end to it? Books, journals and helpful websites will be used in this study.
Analysis of the Current Situation
The mission of the company is to provide publicly-accepted fashionable and quality merchandise ( 2007). Pursuing to be the market leader in the apparel industry, it also intends to give ultimate shopping experience. U2 is the second chain created in 1986 after the Group became a full service and vertically-integrated business. U2 is classified as a store chain that offers superior value to customers especially in men’s and women’s casual wear. The initial stages of U2 started in Hong Kong and from there it has established over 800 chains in other Asian and Middle East countries. Basically, U2 is one of the three labels of the Group with G2000 catering the career wear while UWoman on upscale women’s wear.
Its fashion leadership in the Asian region stemmed from the ability of its expatriate and local designers to innovate upcoming new trends and their effective communication to the public ( 2007). This is supported by a merchandising information system that aids in analyzing customer preferences on a regional and store basis. U2 is able to offer value-for-money products because of its corporate resources such as having its own pattern-making and sampling studio, application of global standards in assessing quality and outsourcing fabrics directly on the mills. With these, there is an assurance to achieve successful product introductions and workmanship/ fabric quality at lower costs.
Human resources also receive substantial investment from the company assuring a multi-level and continuous training ( 2007). Store lay-outs and interior environment are managed by specialized interior designers to secure latest approach in retail environments are highlighted. In its regional expansion, U2 generally enters partnership with already established local retailing companies and assures enough capitalization by contracting under franchise agreement. However, regional stores carry the identical concept and image of the company by using the same shop lay-out, decorations display and advertising campaign.
The growth strategy of U2 is considered as gradual/ evolving type and the company does not intend to pursue a one-time and big-time approach to decision-making. Its line of products as well as store outlets is genuinely classified for easy retention and recognition of different customer clusters. The company is totally Asian and prevents direct competition with European and American brands by concentrating in the region. The company also caters to high-end market and perhaps career people and uses focus differentiation strategy. In such strategy, U2 is seen as a company that uses its core competency to serve the needs of a particular market niche in the provision of goods and services that can be perceived by customers in ways that are important to them ( 2003 ).
In the aspect of corporate-level strategy, U2 is applying transnational strategy where the firm achieves regional efficiency and local responsiveness ( 2003 ). Although this combination of efforts is hard to maintain, the firm uses flexible communication with the support of its merchandising information system. With regards to total quality management (TQM) issues, U2 is on top of the key TQM assumption that “the costs of port quality are far greater than the costs of developing processes that produce high-quality products” ( 2003 ). It has resources and adaptive mechanisms that are customer-oriented while its mission and corporate values continuously strive to exceed customer expectation.
Analysis of High-End Asian Apparel Industry
Scale advantages in the industry are low because private labels became one of the most effective marketing tools among garment retailers ( 2006). As customized products are also not manufactured in volumes, scale advantages are overtaken by new flexible manufacturing systems like mass customization. However, for big clothing companies such as U2, scale economies will be an effective platform in marketing, research and purchasing activities but small players have their own niche that will not prevent them from catering to their specific needs. The industry has high product differentiation because players are vying for quality rather than cost features of their products. As a result, new entrants must overcome customer loyalties by developing long-term strategies as lower prices will not substantially affect high-end customer preferences.
Capital requirements are medium to high due to resources required in acquiring customer trust against global competitors. The huge investment will be most likely allocated in research, marketing and manufacturing operations where they serve as critical business functions. On the other hand, Asian countries also provide least-cost labor inputs that entails establishment of local offices of Asian players ( 2007). Switching costs are high because high-end products create customer loyalty though quality perception and status representation. This means that a new entrant must surpass the features of the existing brand not only on pricing but more importantly formation of much better product. As players such as U2 builds customer relationships reflected on their products and store environments, the psychic costs of customers in switching products is also far greater.
The importance of the access to distribution channels is also high as online shopping does not replaced in-store shopping ( 2006). Strong regional brands will have a better chance to be carried by regional distributors. Although clothing companies can establish both their retail and manufacturing offices in different Asian locations, the loss of strategic markets in a particular country would adversely affect the cost-and-benefit evaluation of the undertaking where a distributor can suffice. As scale advantages are earlier deemed to be low, cost disadvantages independent of sale tend to be high where players can develop their product to any willing buyer across countries. Government policy is low evidenced by the elimination of textile quotas among WTO members as well as the liberalization of Hong Kong and Mainland industries under CEPA ( 2006).
Industry prominent manufacturing retailers include Baleno, Bossini, Crocodile, Episode, Esprit, U2, Giordano and many others ( 2006). But most of them do not cater for value-for-money products like Esprit who has 11 product lines that cater to women, men and kids that favor youthful stylish lifestyle at affordable prices. The same market belongs to the interest of Giordano. As a result, players like U2 who caters on the high-end market will have to face European and American brands in Asia as immediate competitors. With players having major stake in the industry, placed substantial resources and industry growth is constrained, they would face a medium expected retaliation. This condition is possible because fashion trends will have different meanings to customers that competitive action would face an indefinite competitive retaliation.
As clothing industry has reputable manufacturers and considered as major manufacturing sector in Hong Kong ( 2006), the bargaining power of suppliers is low. The primary supplier which is the textile industry in Hong Kong alone has 90% of its output sold in Asian countries. This will show that there are many reputed textile suppliers in the country especially the isolation of sophisticated and high-value added fabrics in Hong Kong and dispersion to other Asian countries of the low-cost type ( 2006). On the other hand, the bargaining power of customers is high because the supply of high-end market in Asia is relatively small compared to Western counterparts. This is flamed by the fact that industry products tend to fight for value and service which enables customers to have the incentive in backward integration (e.g. franchise retail).
Threat of substitute products can come from imitated and Western products; however, their impact is medium. Although loyal customers are familiar to the quality of their brands and prevent them to buy imitation to save status, Western clothing will be an Asian trend especially as the global economy continuously integrate business and culture (e.g. corporate outsourcing companies scattered all over Asia). However, this is hedged by the large market base in the Mainland and as they also become fashionable the demand for the industry products will be maintained ( 2006). The cultural knowledge of Asian players will be the advantage of the industry in competing against Western products.
As there are quite numerous industry players and they are also equally balanced, a competitive action from one player will cause vigorous response from the other especially when the latter target market is at stake. The industry is characterized as slow growth as “poor becomes poorer and rich becomes richer” principle. Wealthy people or 20% of the global population have control to the 80% of global resources that makes the customer base static stiffening the available market in which industry players would be competing. There are also high fixed costs when these firms are investing in both start-up, operational and sustaining the customer relationship.
This is the situation in relation to having a very conservative and stiff market base which imposts aggressive marketing campaigns to recoup the investment. The industry has also high differentiation exemplified by its players as they want to sustain and attract customers and prove that their product service is valuable. Companies also have high strategic stakes especially when investments are located in metropolitan centers such as HK. Lastly, there is the presence of high exit barriers arising also from high strategic investments required to maintain customer loyalty, improve manufacturing and search regional distributors.
Table 1: Rating Industry Forces
General Forces
Specific Forces
Rating
Threat of new entrants
Barriers to entry
· Economies of scale
Medium
· Product differentiation
High
· Capital requirements
Medium
· Switching costs
High
· Access to distribution channels
High
· Cost of disadvantages independent of scale
High
Governing policy
Low
Expected Retaliation
Medium
Bargaining power of suppliers
Low
Bargaining power of buyers
High
Threat of substitute products
Medium
Intensity of rivalry among competitors
· Numerous or equally balanced competitors
High
· Slow industry growth
High
· High fixed costs or high storage costs
High
· Level of differentiation or switching costs
High
· High strategic stakes
High
· High exit barriers
High
An attractive industry is one that can provide the platform for a firm to earn above average returns from its invested capital ( 2003, ). An attractive industry has high entry barriers, low bargaining power of suppliers and buyers, low threats of substitute products, and not-so-fierce rivalry among competitors. In relation to an existing player developing in Asian industry particularly in Hong Kong, the company will be confronted by medium-to-high barriers to entry, low bargaining power of suppliers, high bargaining power of customers, medium threat from substitute products, and high intensity of rivalry among competitors. Overall, the endeavor is attractive but it should be noted that “customer is the king” mindset is largely important to have an even return.
SWOT Analysis of U2 in relation to Industry
Strengths
- Long-term relationships with suppliers
- Ability to implore economies of scale in advertising and operations
- Highly differentiated products
- Can create customer loyalty
- Clear market niche boundaries (e.g. Focus on adult, career people needs and focus on Asian market to minimize Western competitors)
- Franchising agreement to avoid substantial loss
- Valuable resources such as highly-trained manpower and presence of information systems
- Adaptive mechanisms and economies of scale in strategies
Weaknesses
- Depletion of strategic manufacturing location and store sites especially in Hong Kong area
- Limited customer base
- Design and innovation efforts are costly
- Customers can be very demanding and meticulous (e.g. presence of Western customers)
Opportunities
- Presence of industry standards on quality
- Western quota elimination and CEPA
- Avoidance of expatriate regulations in case of war unlike offices in other Asian countries
- Free market with minimal political intervention
- Destination of global FDI
- Low corporate income taxes
- Mitigated problem on double taxation
- Prosperous economy
- More active trading and financial relations with the Mainland
- Stable currency back-up with US dollar reserves
- Quality banks
- High earnings mobility of the labor force
- Having large labor supply from the Mainland
- Continued increasing tourist arrivals
- Support of theoretical frameworks in tourism analysis with regards to HK
- Modern infrastructure, sufficient transportation, environment-friendly and culturally-dedicated
Threats
- Inability to maximize Internet capabilities and online shopping
- Tarnished media reputation that can undermine fashion news
- Absence of military and self-defense as a region
- Pressing need to raise taxes as a source of government revenues
- Quite unpredictable HK people culture and preference
- Difficulty in analyzing different cultural preferences
Facts and Findings about Total Quality Management (TQM)
In Deming’s approach, statistical methods are applied that necessitates continuous improvements of the production process to conform in specifications and reduce variability ( 2002 ). The two primary sources of process improvement are the elimination of common quality problems (e.g. poor product design) and special causes (e.g. machine or employee). There is a need to undermine final product inspection to achieve quality rather to educate and train employees and managers to minimize its variability from the standards. His 14-points can be summarized as follows; namely, create long-term goals to quality; elimination of acceptable levels of poor quality, inspection, productivity quotas and numerical targets to focus on process rather end results; empowerment of employees; and instilling leadership to managers ( & 2003 ). The Deming Wheel or plan-do-check-act (PDCA) cycle is also extracted in the 14-points. In this wheel, the importance of step-by-step process in adopting a process improvement proposal is emphasized.
Suggested by , an annual quality program should be made separately from other more obvious corporate goals like revenue ceilings and cost control policies ( & 1995 ). Coordination of goals is crucial in the undertaking. He highlighted a focused approach in solving chronic quality problems and implementing a breakthrough solution to deal them which may require hundreds and even thousands of quality improvements projects corporate-wide. On the other hand, advised that the cost of poor quality will exceed the cost of preventing poor quality that rework and inefficiency should be avoided ( & 2003 ). When it comes to defects, he emphasized the importance of top-down approach In order to achieve a quality improvement that is not only free of additional costs but can increase profits without increasing sales and investing in new people and other machineries.
The top-down approach in implementing total quality control implied by is echoed by that strong leadership from top management is necessary to make quality improvement a continual process ( & 1998 ). Further, Ishikawa promoted quality circles in his attempt to show the key role of containing internal customer within the organization ( & 2003 ). This will ultimately lead to quality organization that can achieve the basic tenet that an organization can create a quality product if its internal components know and commits to quality. As quality circles would monitor performance and propose improvements, quality initiatives are required to be employed in every level of the organization. With the admonition of quality gurus, TQM is considered a company-wide strategic effort and the most important company issue where the organization is responsible in deciding what customer wants in terms of quality and make plans to address it.
In achieving TQM, there are various functions that make-up the productive process ( & 2003 ). The marketing, sales and research have direct contact with customers that they have the ability to know their needs/ wants, provide feedback information and exploration of new ideas that can result to innovation. Engineering decode these customer information as well as other inputs from top management into product design, specifications and resource requirements. Since it is far costly to change the processes in the production stage, engineering must determine an efficient level of serving customer expectations early in the design process. Purchasing functions should only select high quality materials and parts to attain the efficient design goals of the engineering team.
Human resources are responsible in hiring highly competent employees and also instilling quality culture in them ( & 2003 ). Management will approve the product design to align resources to the expected output. At the end of the production process, packing, storing and shipping unit is responsible to assure that products will maintain their quality (e.g. zero damage) as designed and manufactured. Lastly, the after-sales support represents the marketing and sales mechanism after the product has been made to assure that quality is according to customer expectations or is there any fall-backs. With such structure, the vertically-integrated emphasis on quality will not be supported without the commitment of each functional areas and initiation of top management to embrace quality.
Many TQM companies have reduced the number of their supplier options in a level that they can influence quality and delivery of performance through the adoption of single-sourcing (, & 1998 ). This business model necessarily creates partnering where the supplier will agree in achieving customer requirements in return of long-term purchasing agreement. Such relationship may include stable customer order and delivery schedule that can dissolve outsourcing flexibility. When it comes to customer satisfaction, TQM requires feedback on how customers view the corporate products where the widely used measuring method is customer survey (, & 1998 ). With the adoption of surveys, companies will be provided with invaluable information necessary to rationalize TQM policies. Due to the presence of information technology, surveying has obtained economies of scale and efficiency and is a breakthrough in getting valuable customer information.
Customization, a once forgotten integral part of customer relationship marketing (CRM) in mass-level manufacturing, can be addressed by e-marketing in distribution level of value chain. Dell is one who uses e-marketing to implement its customer-configured computers ( 2003); however, the impression is less because this is a hi-tech firm. In business to consumers industry, the producer of all-time favorite Barbie, Mattel, launched in 1998 Barbie.com wherein customers can choose the doll’s skin, hair and clothes including its name using an online questionnaire. The firm also made delivery more sensational as the packaging bears the name of the doll including its determined personality that relates with that of the customer
With these examples, it is clear that database and internet marketing can positively impact not only advertising costs, sales revenues and manufacturing costs making the firm price competitive, but more importantly, adhere to CRM principles like customization and satisfaction (i.e. a result of fast resolution of complaints/ queries, ultimately, less trouble to consumers) making the firm sustain its competitive position in the long-run. However, the limited household ownership of computers and internet connectivity in some areas could impede, if not lessen, the fruits of e-marketing. As a result, there is a need to resort using other unidirectional media and enhance TQM policies through additional communication and research costs.
Human contact is an important aspect of producing products and services ( & 2003 ). A vertically integrated manufacturing company is in advantage because it can directly affect production processes as soon as the company’s selling efforts accumulated negative feedbacks. This is concretized as manufactured products are easily observed (e.g. held, felt, stored and used again) unlike purely service-oriented ones that determining defect can be measured with relative ease. As with hybrid businesses like a vertically-integrated organization, there are intangible and difficult-to-measure quality dimensions such as employee performance that can be embodied in TQM policies. In this way, their reliability and attitude in serving customers is within the quality framework of the company even though personal characteristics is hard to integrate to corporate goals.
In several studies, it is proven that long-run quality improvement and profitability are closely related (, & 1998 ). As quality improves, the costs associated with poor quality decline, productivity is increased, competitiveness of company’s products is achieved and ultimately its market share increases. Moreover, indirect productivity gains like enhancement of workplace, removal of congestion and smooth production stages should be strongly monitored. Otherwise, the gains from TQM will not be fully-appreciated. Perhaps, it can be a useful guide for TQM decision-makers that process improvement has both explicit (e.g. quantitative) and implicit (e.g. qualitative) benefits as well as costs. In effect, all stakeholders (e.g. shareholders, managers, employees, customers, suppliers) should feedback on how to evaluate current TQM policy in continuous and participative manner.
Implications and Discussions
By applying Deming’s approach, U2 can protect its limited customer base and bring down design and innovation costs through elimination of quality problems and inspection on final products. Undermining quality standards and maximizing the potential of processes, the expectations of meticulous (e.g. new customers) clients can be served. The Deming Wheel can be used for U2 to organize its Hong Kong operations and optimize its market presence because the country has already its biggest share of production locations and store outlets over other Asian countries. With regards to , U2 can use annual quality plan to bring timeline to the Deming Wheel as well as making a breakthrough solution on how to maximize the chronic problem of underutilization of internet capabilities in the industry. Further, the awareness that quality improvements are company-wide will leap the isolation of quality standards in the production process of U2 to different functional areas like human resources, finance, etc.
’s “prevention is better than cure” policy on poor quality can enhance the ability of U2 to implore economies of scale especially on store advertising where one mistake can have maintenance and customer costs. A number of store designs in Hong Kong can be used as a primary pattern to avoid design problems. In addition, the emphasis on zero defects and top-down approach in implementing the strategy can augment the ability to create customer loyalty and positive franchising impression. In this regard, U2 can have effectiveness on both B2B and B2C relationships which can bring to the front economic opportunities such as prosperous economy, quality banks, large labor supply, Western quota liberalization and CEPA to aid U2 expansion and maintenance of market leadership especially in Asia. It should be noted that as market base expands the economic opportunities can be utilized profitably and ’s continuous quality improvement assertion will act as an agent for sustainable growth and development.
Quality circles within U2 can further strengthen relationship with suppliers, the already differentiated product line, clear market boundaries and valuable resources because rank-in-file employees are collaborating with the management towards quality improvement and maintenance. The reputation of U2 when it comes in fashion trends will increase as company-wide appreciation to quality will be recognized by the market. Due to this, its reputation can replace the tarnished media status and will be a great edge in mitigating ambiguous cultural differences of Hong Kong and Asian customers. This mindset can also improve the framework U2 uses in analyzing the real needs of its customers in order to execute its mission of exceeding their expectations.
The vertically-integrated structure of U2 can use the schema TQM employs in seeing a quality organization. Departmental policies will be reconciled with another to come-up with incorporated quality system that each component of organization can manage and inserted in each job description. With this, responsibility and accountability in each product process from market study, product process, manufacturing and after-sales support will be applied to easily detect problems areas. Supplier partnering will be compatible in efficiency sourcing of raw materials but U2 must select a supplier that can operate within its quality standards and policies on a long-term basis. As alternative, U2 can consider acquiring key suppliers to minimize the need to dissolve outsourcing flexibility which can be a source of inefficiency.
Database, internet marketing and e-marketing can be used to simplify customer survey endeavors and to have an efficient platform in getting quality feedbacks. However, as internet will not replace store shopping, U2 can utilize database that views the complaints and compliments of its customers through the inputs provided by store personnel. U2’s vertically-integrated manufacturing and distribution processes can maximize the use of the database in injecting customer feedbacks directly in the design and production process. U2 produces tangible products but its store operations include intangible features that employee performance should be included in quality policies (e.g. smiling). Lastly, quality audit should have qualitative and quantitative aspects as well as application of systems thinking in order to recognize obvious and non-obvious quality drivers and potential quality problems.
Conclusion
By studying the internal and industry aspects of U2, SWOT analysis is made. Its SWOT is then applied with TQM findings and associate TQM aspects that can enhance benefits and mitigate problems within and without the company. With this methodology, it is found that TQM practices can positively impact the development of U2 Clothing in its home base Hong Kong. Generally, U2 can rationalize the plan through the use of TQM practices as well as insert TQM practices in the implementation process to manage impending market saturation. Through TQM, Hong Kong operations can increase the differentiation and efficiency of U2 that can hedge the threat of both cost-effective China products and quality-bound Western products not to mention the needed improvement in U2’s current offerings.
Recommendations
- Implement a company-wide TQM practice
- Eliminate inspection on the final outputs and impose global standards on processes
- Make annual quality plans
- Create a database of historic, current and forecast quality characteristics of the company
- Select a visionary corporate leader
- Exploit economic features of Hong Kong in implementing TQM practices
- Develop and maintain quality reputation in individual-, managerial- and corporate-levels
- Maintain a flexible partnering contract or have a strong bargaining power
- Create a database on customer survey
- Quantify both implicit and explicit quality drivers during quality audits
References
Books
Journals
Electronic Sources
Credit:ivythesis.typepad.com
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