A Dragon Named Youngor 雅戈尔变成龙
A quick and dirty look at the vertical integration of an industry leader
In 1979, 20 young entrepreneurs with only 20,000 RMB in capital established the ”Youth Garment Factory” and created the origin of Youngor. 25 years later, Youngor grew into a leading company in the Chinese garment industry eventually becoming a listed company, Youngor Group Co., Ltd., with approximately 40 other subsidiaries. Today Youngor Group has developed an operational standard based on fabric and garment production with real estate and foreign trade as supplements.
As Li Rucheng, President of Youngor Group, confidently states, Youngor aims to “popularize the brand-the bigger the market , the longer the industry chain.” He emphasizes that the chain of Youngor “should be as long as it can be.” But professionals within the same industry don’t entirely agree with what Youngor claims is the secret to the garment industry in China. They claim that the vertical investment makes the chain too long, creating a whole string of risks that the head company will struggle to manage. However, Youngor persists in its own way and continues to expand its manufacturing scale. It currently faces several challenges in realizing efficiency of its vertically integrated company structure. Proper leveraging of these advantages will make the difference between failure and success for the Youngor Dragon.
I. Advantages of Youngor’s vertical integration
- Investment in high-tech solutions through high-tech fabric manufacturing base – textile industrial city – large investments in pattern design
- In-house cloth production eliminates added costs of purchasing and transporting supplier’s cloth – also eliminates delays in delivery
- Set up a software company to create an IT solution for increasing the transparency among different parts of the industry chain
- Strategic similarities among all links of the industry chain – should be able to realize efficiencies by owning all parts of the product cycle
- Owns the largest garment manufacturing base in Asia – biggest garment producer in China
- National network of sales centers with a common face to the customer - stable and multi-leveled sales network with over 2000 business sites – “whoever is closest to the market gains the initiative
- Textile production chain segment is an advanced operation – cooperates with world’s leading textile companies, recruits talented people, uses advanced industry equipment – investment of 100 million USD
II. Main issues facing Youngor
- How to turn the company into a sales-oriented enterprise from production-oriented
- Increasing efficiency throughout the extended industry chain
- Concept to product cycle currently too long – 70 days – products are missing the high season – currently producing five for every one piece needed
- Keeping pace with the season’s changing fashions and demand
- Surplus inventory – discount liquidations at 100 million RMB/year
- Cost of increasing number of B2C specialty shops – corporate vision
- Increasing transparency - companies are no longer glass houses - they are “glass plates under a microscope”
- Record growth figures make investors nervous Youngor is a “typical blue chip” stock
III. Possible Solutions
- Increase transparency using IT – the company should realize efficiencies in design-to-distribution cycle – follow example of American Apparel and Zara
- Compress product cycles to the point where customers expect the latest fashion from Youngor – give customers a reason to make fast purchasing decisions and return to the store frequently
- Hire a team of market specialists with international expertise – these experts closely monitor the market trends and forecast where Youngor fashion should go – need to strive to be a market leader who has a pulse on the latest fashion and is first to make it available to the everyday consumer
- At the beginning of each product cycle and at intervals periodically throughout the cycle, key members from each critical point in the industry chain meet (either virtually or in-person) to discuss the product development and make minor adjustments where necessary to meet the market demand/production restraints – develop an informal intranetwork that helps facilitate this communication
- Fine-tune the distribution network by only shipping small orders every two weeks to the sales outlets – each outlet submits order once every two weeks
- Use e-commerce to sell customized products directly to customer
- Develop website that gives customers multiple size and style options
- Allow customer to make clothing custom design decisions with in-store kiosks
- Increase sales channels through direct marketing
- Establish reliable IT communication network among branches and with headquarters
- Follow model of new high-performance sportswear company, NAU
- Create a unique shopping experience at the stores – create a Youngor “experience” modeled after Starbucks
- Design standardized store layouts, storefronts, displays, color schemes
- At the beginning of each season, produce in small numbers and only send new designs to key stores where customer reaction can be gauged and production adjusted based on demand
- Use franchising to share some of the risk of opening many sales outlets with franchise owners
- Make investments in brand development through creative marketing
- Sponsor high-level events where Youngor clothing is worn by all the participants
- Make clothing for actor/actress to wear at award ceremony/promotion activity
- Expand the brand internationally by developing flagship stores in major global cities
- Capitalize on advantages of owning the entire production process – offer customization options and flexibility to meet customer demand – start to realize efficiencies by making custom changes to product lines
- Improve SCM – purchase professional ERP software package (SAP, Oracle, etc.) or hire individuals with experience in successful SCM software companies
- Expand the investment in cloth to selling to and trading with companies – creates a competitive environment where the first stage of the industry chain creates another profit opportunity
- Create stronger performance incentives by developing a “shared service organization” where corporate services such as IT, training, etc. must compete with external suppliers of the same services to serve internal operating divisions
- Focus on the “visible hand” of the corporation – coordination through active planning – create a “virtual corporation” that monitors and controls all segments of the industry chain
