Shirt tales from TAL, an apparel powerhouse

December 11, 2013 5:54 pm

Shirt tales from TAL, an apparel powerhouse

By Demetri Sevastopulo

Tailor-made: Harry Lee is now chairman of TAL, while his son Roger is chief executive

When Harry Lee took over TAL, a Hong Kong apparel company that manufactures shirts and trousers for dozens of big global brands in 1980, one of the first challenges he tackled was bribery.“There was still a lot of hanky-panky going on . . . I was given three written pages of how many per cent we’d pay to this customer and how many per cent we’d pay to that customer,” says Mr Lee, sitting in his spartan office in Kowloon, across the harbour from Hong Kong island.

Back then, the company was known as much for its nocturnal activities in Tsim Sha Tsui – a Kowloon district where hawkers still offer tailored clothes – as for shirts. Its monthly entertainment bill was HK$200,000. “If you went to the best Chinese restaurant, a very good table with shark fin  . . . was less than HK$1,000,” says Mr Lee. “Where did all the rest of the money go, what do you think? Women. We were very well-known in all the nightclubs in Hong Kong.”

Mr Lee, now 71, changed the culture, slashed the monthly expenses to HK$15,000 and spent three decades expanding TAL into a US$800m revenue company with 25,000 employees and 11 factories across Asia.

Barely known outside Hong Kong, it is now one of the world’s biggest ap­parel manufacturers, making 56m garments a year. In one factory in Dongguan, a shirt from each client hangs on a wall for training purposes. From Eddie Bauer and Banana Republic to Gieves & Hawkes and Burberry, it reads like a Who’s Who of high-street fashion. Brooks Brothers is such a big buyer that TAL can claim to make one in every six dress shirts sold in the US.

Almost accidentally, Mr Lee ended up as one of Hong Kong’s best known businessmen. As a young man he had gone to the UK to study electrical engineering and then to the US, where he received a PhD from Brown.

He returned to Hong Kong after his uncle coaxed him back for a vacation with a return flight and then persuaded him to join the business. By then, the company, established as a family textile mill in 1946, was well known as one of the textile businesses that had fuelled the local economy after the second world war. But its Hong Kong roots owed more to chance, and Mao Zedong, than design.

Three years before Mao took power in China, CC Lee, Mr Lee’s uncle, founded South China Textile Limited in Shanghai, then home to several prominent textile families. But the final years of the civil war that propelled the Communists to power in 1949 were taking a toll on the local industrialists.

CC Lee had ordered spinning equipment from the US for a mill in Chongqing. But facing problems securing an import licence, he offloaded the mach­ines in Hong Kong. The father of seven then moved to the British colony, where he opened its first textile factory, paving the way for other ind­ustrialists who later fled the Communists.

Margin pressure adds to a son’s challenge

While Harry Lee frets about the difficulties of attracting workers in China, where the apparel maker has two of its 11 factories, the real challenge belongs to his son Roger, a former information technology consultant who became chief executive in April last year.

For a manufacturer famous for mastering cutting-edge textile technologies – such as the wrinkle-free, non-iron shirts Brooks Brothers orders exclusively from TAL – the garment Roger Lee spreads across his desk looks odd.

One side is shorter, frayed and paler than the other. Mr Lee explains that it was made by cutting in half a shirt that uses TAL technology and one that does not and then sewing the two halves together to show how well TAL shirts maintain their shape and colour.

When it comes to cost pressures, however, he faces a tougher task. Wages at the company’s China factorieshave doubled over the past five years, to the point where TAL this year expects to record its lowest profit margins since 1982, even though it forecasts record high revenues.

But he is optimistic the company can continue to grow by expanding its dress-shirt market share in the US, even if margins remain under pressure. “One out of six [of US dress shirts sold] sounds great, but there is no reason we cannot be one out of five in the future.”

“That was the beginning of Hong Kong. The textile business was one of the major businesses and employment providers,” says Mr Lee. “There were two gangs who basically controlled it. The people from Shanghai and people from Chaozhou [in Guangdong] . . . we were the Shanghai mafia.”

In the early days, says Mr Lee, “it was not difficult to make money”, as labour costs in Hong Kong were so low. Local companies also benefited from Japan’s textile industry having been destroyed in the war. The Toyoda family – better known today for the Toyota car company – had, for example, lost all their textile factories.

In the 1960s, things became more complicated as Britain and the US started to worry that textile imports from Hong Kong – and Japan, whose industry had recovered – were bankrupting their domestic mills. US President John F Kennedy’s administration ushered in a quota system that would last until 2005. Mr Lee says this prompted TAL to open factories in other countries.

“Initially from Hong Kong, we went to Taiwan, went to Thailand . . .  searching for countries that had no quota,” says Mr Lee.

As part of that expansion, Mr Lee was sent to Malaysiato run a lossmaking factory shortly after his return to Hong Kong from the US with his Cuban-born Chinese wife. That was followed by another Malaysian factory that had 3,000 workers, 1,500 looms and 100,000 spindles. “I was sitting there, big table, really scary, losing money like crazy,” says Mr Lee. “I was sitting there with no idea what to do. I’d never seen a spinning machine before. That’s how I started.”

But after proving he could turn round factories, Mr Lee was called back to Hong Kong in late 1979 to take over the garment business, as one of his uncle’s partners, who had been in charge, branched out on his own and poached staff. “The garment division was totally vacuumed,” says Mr Lee. “He was friendly but he still took a lot of people from us.”

TAL grew – with profit margins of about 20 per cent – but eventually Hong Kong succumbed to the same fate that Britain and America had met decades before, as other countries became cheaper sources of labour. So he decided to open a factory in China.

“My uncle came to Hong Kong because of the Communists, so he just had no trust in the Communists. By 1995 . . . we had no choice. The labour costs were getting higher everywhere so we basically decided to try it.”

Mr Lee says the move helped, but now that factory and another one nearby are falling victim to the same pressures that have forced textile manufacturing to shift from the west to East Asia and, more recently, to countries such as Bangladesh. “Now it’s terrible. We cannot get workers, turnover is high, wages are high.”

Although Mr Lee is quasi-retired – having handed the CEO title to his son Roger (see box) last year – he retains the title of chairman and comes to work every day. He also still manages the account for one of his oldest customers – an 81-year-old nun called Sister M Laetitia who has been cloistered in a convent in Ohio for almost six decades. He sources cloth in Hong Kong and then ships it to the nun who sews the habits and vestments for the 15 barefoot women who spend their days praying in the Monastery of the Poor Clares.

Mr Lee has been to visit the woman, who must be separated from visitors by a grated divide. She is his sister. Even today, he remembers the day 58 years ago when his father learnt he would never embrace his oldest child again.

“That’s the only time I’ve ever seen my father cry. It was really sad.”