Production sourcing : a study of small and medium-sized clothing firms in Hong Kong

Abstract

Small and medium-sized enterprises (SMEs) constitute a large part of the commercial sector, in particular in the clothing industry. In Hong Kong, the clothing industry is the biggest industry consisting a large number of small and medium-sized manufacturing and non-manufacturing firms. It is also a leading export earner for the local economy. Prior to 1994, Hong Kong had been the world's leading exporter of clothing products. Though its leading position has been overtaken by Mainland China since 1994, it is still the world's second-largest clothing supplier by 2002. In recent years, Hong Kong has lost much of its competitive advantages. This has been due to the emergence of low-cost competitors, global over-supply, short product life cycles, falling international prices, and high rents and labour costs in local market. In response to the pressures from both domestic and global competitors, many garment firms in Hong Kong have attempted to sustain their competitiveness by increasingly relying on sourcing production strategically from non-owned affiliates (outsourcing) and/or neighbouring low-cost sites (offshore production). The objective of this research is to study the Hong Kong small and medium-sized clothing firms in their adoption of production sourcing strategies and buyer-suppler relationships. A two-stage methodology was applied in this research. The first stage was an exploratory study administered by in-depth interviews. In which, the firm-related characteristics of SMEs, different types of sourcing strategies and buyer-supplier relationships, and the motivational factors and critical performance indicators for production sourcing were explored. The second stage was a questionnaire survey used to test the relationships among the firm-related characteristics of SMEs, the perceived importance of motivational factors, the adoption of production sourcing strategies and buyer-supplier relationships, and the level of satisfaction with the performance of production sourcing. From the responses of 104 small and medium-sized clothing firms, it was found that (1) firm-related characteristics of firm age and firm size, the perceived importance of motivational factors for production sourcing, and the adoption of in+outsourcing strategies have an impact on the SME's satisfaction with their performance of production sourcing; (2) firm-related characteristics of industry sector, firm age, firm size and ownership, and the perceived importance of some motivational factors have an impact on the adoption of sourcing strategies and buyer-supplier relationships; and (3) firm-related characteristics of industry sector and firm size have an impact on some of the motivational factors. The findings provide a deeper understanding of strategic production sourcing in the context of a non-Western country and provide valuable insights for managerial personnel in making their production sourcing decisions.