By  on March 22, 2005

DONGGUAN, China — With quotas lifted, China is rapidly flexing its muscles as a powerhouse of apparel production.

But China’s industry is by no means monolithic. The world’s most populous country is home to hundreds of apparel companies, ranging from small shops to sprawling megafactories, from state-owned reminders of China’s communist history to temples of the country’s growing embrace of capitalism. With their exports — at least for now — unrestrained, these enterprises are fighting tooth and nail to grow their sales.

Luen Thai Holdings Ltd. is betting its future on a model of a superfactory the company calls a “supply-chain city.” Its first such 32-acre complex is now operating here in Dongguan and will employ 14,000 workers in 15 buildings when it is completed in early 2007.

The Dongguan complex, which currently employs 7,300 workers, aims to be a one-stop shop for Luen Thai’s customers, where apparel brands can source entire season’s worth of merchandise, tops and bottoms, knits and wovens.

“We offer everything in one area,” said Lewis Leung, vice president and general manager of the Dongguan facility.

Beyond simple cutting and sewing, the facility houses a robust design department, sourcing operations — with office space for Luen Thai’s major suppliers and customers — and logistics planning.

So far, the company has invested $51 million in the facility and plans to spend an additional $16.6 million in its expansion.  It already represents a hefty part of Luen Thai, which has more than 20,000 employees at 12 manufacturing facilities and 14 offices in nine countries. The Dongguan factory last year produced 65 million garments. In the year ended June 30, 2004, the company’s turnover came to $544.9 million.

But the Dongguan facility, massive as it is, will be dwarfed by the 115-acre complex Luen Thai plans to open next, in Qing Yuan, 30 minutes from Guangzhou.

Outside the Dongguan compound, one can feel overwhelmed by the noise and bustle of China’s rapid industrialization.

Within the walls, the 24-hour facility has the feel of a college campus, where young, stylishly dressed workers can be seen taking their lunch breaks, and signs in English and Chinese offer directions to the various buildings.The complex’s centerpiece is a design and research center, where 22 designers — four from Hong Kong and 18 from China — work in a gallery-like area with a concrete floor and a central area for fabric displays. Graphics and prints for various clients serve as artwork on the walls.

Each season, the design department prepares trend forecasts that are tailor-made for each client, said Patricia Ho, senior manager of design and development. As well as design, the team works on sourcing and mock-up garments to show embroidery or beading options, Ho said. There also is a space for in-house training sessions and customer seminars.

The technical center is “the pentagon,” where all the planning goes on, Leung said. This is where patterns are made and garments are fitted on mannequins that are shipped to Dongguan in different sizes from companies such as Liz Claiborne, Sears and Ann Taylor.

There are 452 staffers who work on patternmaking and samples. They produce 300 pieces a day and 2,500 styles a month.

The washing and color center is equipped with washing machines from all over the world, which Leung said allows the company to test how its garments will react to laundering, avoiding “surprise shrinkage” for consumers.

In some cases, completed samples are shipped out to potential customers, but two of Luen Thai’s largest customers — Polo Ralph Lauren and Dillard’s — have dedicated office space on site, with their own staffs.

Polo’s space has carpets and wood floors that match the image. Leung said 105 Luen Thai employees whom he described as “baptized by Ralph Lauren” work in the 30,000-square-foot space, which includes a showroom, sales, merchandising and technical center.

Polo accounts for more than $150 million of Luen Thai’s annual sales, Leung said.

Dillard’s accounts for more than $60 million in annual sales, and Luen Thai has assigned 80 people to work solely on that account.

The Dongguan facility also provides space for clients to set up temporary offices to review samples if they wish. Leung noted that companies including Liz Claiborne have set up their own quality control offices in the city to allow for faster approval of garments.For those who do make the trip to Dongguan, Building 15 of the complex is a 337-room hotel, from which they can walk to the sample room each morning.

For customers, it’s a convenient setup. They can come to the supply-chain city and stay at its hotel as they follow a garment through its various stages. Amenities at the facility include a library, karaoke, gym with personal trainer and classes, computer room, snooker tables, mah-jong room, coffee shop, a theater that shows two movies a night — Chinese and English versions of “Alexander” and “Van Helsing” were on the schedule during a tour of the facility early this month.

The company’s chief executive officer, Henry Tan, has the penthouse suite at the top of the tower, overlooking the complex of greenery and playing fields at the center of the complex, which Luen Thai calls “Central Park.” Tan was not available for an interview.

In addition to offering work space to its customers, the complex features a Fabric and Trim Innovation Center, which serves as “a convention center” without the travel, Leung said.

This is a place where suppliers, such as Fountain Set Holdings Ltd., can exhibit their offerings in separate rooms. Luen Thai picked the 24 tenants, who don’t pay for the space.

The complex’s sewing buildings are designed to be focused and efficient. Each of the sewers has a “traffic light” — a collection of green, yellow and red plastic cards above their workstation. Green means all go; yellow means there’s a quality problem and red means a “big problem” Leung said.

With this color system, a supervisor can simply look down a row to rate the productivity level. In addition, each row has a quality and efficiency percentage.

Dormitory buildings ring the property. When all are completed by the beginning of 2006, they will provide room for 14,000 workers.

Leung said 95 percent of employees live at the complex, though they are offered a housing subsidy of $12 a month if they wanted to live outside. Leung acknowledged that sum in most cases would not be sufficient to pay for housing in the area.Couples can live in the dorms, provided they both work for Luen Thai, Leung said, but children aren’t allowed. Other rules include no smoking, no mixing of men and women in rooms and no gambling.

Staff also get a food stipend. There are four canteens at the facility, three of which are run by Café de Coral, a Chinese fast-food restaurant group based in Hong Kong.

A typical daily shift runs from 8 a.m. until 6 p.m. with an hour and a half lunch break, Leung said. Each person works one shift and gets paid a monthly minimum wage, worth $69. Those who work overtime receive additional pay, Leung said. There also are monetary incentives for high productivity and quality.

Leung insisted that managing a complex of 14,000 workers isn’t a different challenge than managing a factory of 1,000. The essential task is to “make sure you preach the gospel” of the company culture, he added.

That gospel is plastered on walls throughout the complex, on signs that read “One Company, One Culture, One Team.” It goes on to explain how unity is part of the corporate culture and how “luen” means “unity” in Cantonese and Mandarin Chinese.

Workers at the complex come from various Chinese provinces, as well as Hong Kong, Singapore, the Philippines, Mexico, Japan, the U.S. and the U.K.

To Luen Thai — and some of its largest customers — the advantage of the supply-chain city model is the economies of scale it allows.

Some of Luen Thai’s competitors pooh-poohed that notion.

“In general, my experience — and there are exceptions — is that big factories equal big prices,” said Steve Feniger, ceo of sourcing firm Linmark, which buys from a network of smaller factories. “The economies of scale we were all taught in business school turns out to be not so directly applicable to an apparel industry because of the changes in the last three years.”

The changes hinge on timing. Previously, buyers might have bought twice a year, then four times a year to reflect the seasons. Now, Feniger said every single one of his clients is buying at least eight times a year and sometimes even as many as 12 times a year.The increase, however, isn’t necessarily reflected in the amount that is ordered.

“They aren’t buying more, just smaller initial quantities, chasing what sells with repeats, changing to new styles where initial sales are weak,” Feniger said. “All healthy for minimizing stock and increasing responsiveness, but very hard for megafactories to handle such small runs, without annual commitments.”

But one Hong Kong apparel analyst suggested there are advantages beyond scale to the megafactories. By providing space and additional services to clients and suppliers, the analyst said, “You kind of lock up the relationship with your customers.”

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