TAL APPAREL LIMITED: STEPPING UP
THE VALUE CHAIN1
In 2004, TAL Apparel Limited, a Hong Kong-based apparel manufacturer, was faced with unprecedented strategic challenges. On the one hand, the new supply chain management system designed by the Company for the giant retailer J.C. Penney had brought about remarkable opportunities. The Company was trying to find out howto leverage the system to strengthen its position as a dominant apparel supplier to the Western markets. On the other hand, the upcoming regulatory changes relating to China’s accession into the WTO and the elimination of all textile quotas under such agreement were posing serious threats to the Company’s role as the commercial gateway to China and the sourcing hub for the Asian region. Inaddition, the dramatic price falls and the persistent over-capacity in the apparel industry in recent years were causing overwhelming pressures to manufacturers and suppliers on a global basis.
Dr. Harry Lee, the Managing Director of the Company, was contemplating on how to transform his business in light of all the unfavourable changes in the external environment. Specifically, how could he leveragethe Company’s information management system to strategically reposition the Company with a view to creating sustainable competitive advantage in the long run? How could he use information and communications technology to move up the economic value chain in the apparel industry? Should the Company move into the wholesale business to capture the growth potential afforded by the supply chainmanagement system, or should it venture into the logistics business providing third party logistics services to its retail customers?
Apparel Sourcing in Asia
The global apparel industry was known to be a buyer-driven industry, led by the retailers,
marketers and branded manufacturers. In the United States, the industry was dominated by a
handful of giant retailers. By 1995, the five largestretailers, Walmart, Sears, Kmart, Dayton
1 This case was awarded the First Prize in the Society for Information Management (SIM) Paper Awards Competition in July 2004. SIM is a not-for-profit organization providing a community of thought leaders and IT practitioners who share their experiences and rich intellectual capital in order to explore future IT directions.
Phoebe Ho prepared this Caseunder the supervision of Dr. Ali Farhoomand for class discussion. This Case is not intended to show effective or ineffective handling of decision or business processes.
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udson and JC Penney, accounted for 68 percent of all apparel sales in the US2. In Europe, the power concentration was not aspronounced, but a similar shift from manufacturers to retailers and marketers appeared to be underway (in Germany, the five largest clothing retailers accounted for 28 percent of the nation’s total economy in 1992; in the United Kingdom, the two top clothing retailers controlled over 25 percent of the market in 1994). In East and South East Asia, the supply of low-cost and abundant labour hadhistorically provided significant competitive advantage for the region’s export growth. However, in light of the persistent over-capacity in the industry and cost pressures from other emerging economies, it became questionable whether such advantage could be sustained in the long run. This, together with the elimination of all textile quotas under the WTO Agreement on Textiles and Clothing (ATC) by...