It is 10:00 a.m., and Hung Yung-yu, CEO of WW Holding Inc., the world’s largest manufacturer of luxury bags, is fresh from a video conference with a US-based client. Within five minutes of sitting down for our conversation, he flatly states, “There is no end to this battle.”

On September 1, U.S. President Donald Trump targeted Chinese goods worth US$300 billion with 15-percent import tariffs. The list of products targeted for the tariffs includes such consumer goods as apparel and shoes.

With its main manufacturing base in Dongguan, China, where it makes such sporting goods items as gloves and protective gear for major international brands like Nike, WW Holding is of course affected by the proposed tariffs.

“I just got back from China two days ago. Who could have known that, just as we’d finally resolved the previous 25 percent tariffs and came to terms on orders, this new (tariff scheme) comes along,” laments Hung, holding his palms up in frustration.

                       

From Entry-Level Sales to Forging A Conglomerate with NT$20B in Annual Sales

In the business for over 30 years, having worked his way up from an entry-level sales position, Hung makes more than sports bags for Nike, counting such prestigious name brands as Armani, Longchamp, and Tumi among his customers.

In addition to producing athletic and boutique bags along with luggage pieces with WW Holding, Hung consolidated upstream cloth materials and downstream seller agents under the Guang Der Group, with over 20 plants spanning across Taiwan, China, and Southeast Asia generating over NT$20 billion in annual revenue.

Photo by Kuo-Tai Liu/CW

Having established manufacturing facilities in China more than 20 years ago, Hung has witnessed China’s transformation into the world’s factory from practically nothing.

Relying on a keen market sense honed over years in sales, Hung deliberately chose “little jobs” that apparel and shoe manufacturers would not touch, working his way into the accessories industry to dominate the bag industry, manufacturing the largest quantity of fine bags in the world.

Having enjoyed such a fruitful run, despite the steadily climbing cost of manufacturing in China having forced quite a few Taiwanese to pack up and leave, Hung kept the faith throughout. “I used to say all the time, even if all the Taiwanese businesses were to pull out of China one day, I would be the last one to turn off the lights.”

Little did he anticipate that the trade war would come along and trigger drastic change in China’s investment climate, nearly knocking the business he had built up for half of his life off the rails.

In November of 2016, WW Holding, operating under the umbrella of the Guang Der Group, returned to Taiwan to go public, recording NT$4.9 billion in revenue. However, this figure dipped by NT$100 million the following year, resulting in after-tax net losses of nearly NT$40 million. An array of statistics revealed warning signs, forcing Hung, on the verge of retirement, to go back to the front lines as well as back to the drawing board to map out production capacity and risk distribution, and then shifting select production lines from China towards Southeast Asia.

“There’s no way around it. Conventional industry resides where the resources are, like cockroaches. The environment may be harsh, but the odds of survival are high as long as you can acclimate.”

Beyond fancying himself an “indestructible cockroach”, the twin keys to Hung’s rise have been efficiency and flexibility, which helped WW Holding rapidly emerge from out of growing pains to turn a profit last year. Revenue of NT$1.79 billion and after-tax net profits of NT$96 million in the second quarter of this year both set historic records for the company, helping lift it from out of the dark clouds of the trade war one step quicker.

Tactic #1: Production Capacity Transfer Via M&A

How did he accomplish this? Especially given that, compared to shoe manufacturers, Hung produces thousands of different products of all kinds, of which the most complex designer bags require an intricate production process encompassing more than 150 steps, further raising the difficulty of moving production lines and replicating them in Southeast Asia.

Given the continued heating up of the trade war, despite numerous difficulties, in the face of customers’ requests to move orders, he boosted local adaptability and elevated production efficiency. The first step was to accelerate the speed of production capacity shifts through mergers and acquisitions.

Hung first acquired a Thailand-based company in 2017 that specialized exclusively in making luggage for luxury brand Tumi. At the same time, he purchased a plant in Vietnam and leased another facility in Cambodia, aiming to raise production capacity in Southeast Asia to 80 percent of that previously achieved in China, in preparation to take on all customer orders within the shortest time.

In response to the trade war, WW Holding accelerated the transition of production capacity through mergers and acquisitions, acquiring a Thailand-based company that exclusively makes Tumi brand luggage. (Source: WW Holding)

But mergers and acquisitions are not enough. The key to Hung’s ability to dominate in the Chinese and Southeast Asian landscape is his sustained management ability. This is the very aspect that sets himself apart from other bosses.

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Tactic #2: A Well-aligned Management System

“I admit that I don’t understand technical things, even how to make a bag. But a lot of businesses succeed precisely out of ignorance,” remarks Hung. After graduating from university with a degree in foreign language, he worked in sales for a trading company until he became president of the Nam Liong Group, a textiles and shoe materials manufacturing powerhouse. Yet his lack of experience on the factory floor helped him understand how to use different management approaches, working to systematize the know-how of the old masters.

“We have a set of precise management methods, which is actually quite easily replicated, and happens to be our greatest competitive advantage,” he notes. For instance, 30 years ago, Hung led the industry in working to replace humans with computers, integrating the ERP system to manufacturing plants, opening up each aspect from finance to manufacturing, inventory and sales management.

Tactic #3: Promoting Lean Production

Following the expansion of production scale, Hung turned his attention to promoting lean production, which entails preventing as much as possible unnecessary waste, boosting production efficiency through manpower and production line adjustments. In doing so, the demands of international clients like Nike could be met, and a variety of smaller customized orders accommodated.

In addition, as China’s manpower costs rise and recruitment becomes more difficult, a foundation of systematic management has helped Hung lead the company in the transition to automation.

Today, upon entering any production facility under the WW Holding banner, tasks such as pattern-making, cutting, embroidery, and stitching for everything from real leather bags costing tens of thousands of NT dollars to sports backpacks, which previously had to be done by hand, can now be handled by machines.

Although leather selection, leather scoring, and treatment is done by craftsmen with machine assistance, “with revenue unchanged, manpower in Dongguan has been reduced by at least 30 percent,” relates Tsai Tiao-wen, vice president of the WW Holding Production Center.

Also owing to the continued integration of automation, despite being a step behind others in the industry in moving southward, in less than two years, Hung managed to oversee the completion of 28 production lines at the Cambodia facility. Apart from keeping production for export sales to Eurasia or select high-end products in China, nearly 30 percent of production capacity has already been moved to Southeast Asia. And the company is further considering additional mergers and acquisitions to expand production and further widen the gap with competitors. (Read also: Taiwanese Textile Industry’s New Paradise)

WW Holding’s Cambodia facility has 28 separate assembly lines, making it a major Southeast Asian production base for the company in its efforts to minimize the risks of the US-Sino trade war by spreading out production capacity. (Source: WW Holding)

Effective Industry Chain Integration Provides Clients with Seamless Services

For these reasons, for Hung, any business venture is possible as long as management is in place. Over the past 20-plus years, over the course of saving at least 10 companies through acquisitions and reorganizations, he has built a large conglomerate spanning materials, production, sales and brands.

“It’s harder to die that way. Spreading risk? Well, if you only make one product and I make 10, who stands to gain more?” asks Hung, confidently.

One executive at a sports bag manufacturer with production facilities in Vietnam relates that WW Holding has been able to reach today’s scale at least partially because of its effective industry chain integration. This provides clients with seamless services, consolidating cooperative relationships while raising the competitive threshold. (Read also: How a Taiwanese Company in Vietnam Supplies 70% of Leather Used By Coach)

“This gives him the ability to design products exclusively for Nike, and even apply for patents (on those products). A zipper that looks about the same as any other might be made from a different material, so he makes it look a little better. Nike then commits to a certain purchasing volume, and over time the relationship between the two gets closer,” says the executive.

For Hung Yung-yu, any business venture is possible as long as management is in place. Effective industry chain integration can largely be credited for WW Holding’s development to its current scope, providing clients with seamless services and consolidating cooperative relationships. (Photo by Kuo-Tai Liu/CW)

From Manufacturing to Original Brand, Taking on China’s Domestic Market

As part of the first wave of Taiwanese businesses to head across the strait, having witnessed the vicissitudes of doing business in China, when it comes to future arrangements, Hung maintains, “We have not withdrawn from China. And actually, as long as appropriate adjustments and transitions take place, it’s a very potential-rich market.”

Accordingly, apart from manufacturing and the continuing production of Nike brand sports equipment, his next planned move is to introduce an original brand in China to cut directly into the end-consumer market and tap into the commercial potential of China’s 1.4-billion population.

Wang Sheng-yi, non-technology industry analyst at KGI Investment Advisory, says that, compared to the compound annual growth rate of the U.S. and European bags market of just 1.5-2.0 percent, China’s domestic market has a 13-15 percent growth rate, providing an excellent opportunity to establish an original brand and test the waters.

The US-China trade war has forced Taiwanese businesses to re-evaluate their worldwide deployment of resources and decide whether to step up investment in China or move into Southeast Asia. Hung firmly believes that, only by maintaining a high degree of flexibility and adaptability, effecting rapid transformation of production bases via mergers and acquisitions, and establishing a vertical supply chain to raise the competitive bar - only through constant transformation and upgrading - will opportunities to thrive present themselves.

Translated by David Toman
Edited by TC Lin, Sharon Tseng