Extraordinary Endeavors in Turbulent Times: Asian Innovation, Inclusion, and Impact during COVID-19

ASIA BUSINESS COUNCIL HONG KONG UNIVERSITY OF SCIENCE AND TECHNOLOGY 3 6 Esquel Group (Hong Kong) Extraordinary Endeavors in Turbulent Times Future Outlook In terms of the future outlook, Tung noted that the overall theme among Esquel’s customers is, unsurprisingly, one of uncertainty: They do not know how many orders they will require in the next season, so they often place smaller orders, leaving room for the possibility of increasing volume if demand permits. In order to mitigate the risks of uncertainty, Esquel hopes to maximize its value in the supply chain, diversify its customer base, and invest in its own brands. First, Esquel hopes to maximize value according to the “Smiling curve,” which states that the marginal value added by the first and last stages of the value chain – R&D and branding – is much higher than the value added by the intermediary stages of manufacturing. Therefore, Esquel now wants to focus on identifying opportunities to monetize its extensive library of patented technologies. Secondly, Esquel has been developing a reorientation to- ward clients in Asia, especially China. The share of Esquel’s revenues in China as a proportion of total sales grew from 17 percent in 2019 to 20-30 percent in 2020 as COVID-19 hit dif- ferent parts of the world. In line with this trend, and to correct for its previous over-reliance on U.S. customers, Esquel is seeking to develop more business relationships with Chinese customers, notably sports brands like Anta Sports and Li Ning. The company is also looking to produce uniforms for large Chinese corporations. This could be a very profitable business as the number of uniforms required by one corporation could easily be in the order of millions. At the same time, Esquel is also seeking to develop deeper relationships with other Asian customers such as Muji, the leading Japanese brand. Finally, Esquel will focus on developing its own brands, including PYE, which targets higher-end consumers with shirts selling for more than $100, and DETERMINANT which is designed for value-seekers, with shirts selling for around $40. Esquel is also seeking to diversify its revenue streams by expanding its lineup of wellness-related products, such as masks, eye masks, travel pillows, sleeping bags, and clothing with anti-bacterial and water-repellent properties. Esquel has benefitted from vertical integration over the years, with control over the whole production process up to the point of selling the product to retail companies. Thus, it has been less exposed to supply chain disruptions, like shortages of raw materials, than other firms. By developing its own brands, Esquel believes it can further reduce its risk to disruptions like order cancellations or changes in its customers’ policies toward working with Chinese suppliers. This would also bring the company one step closer to the end consumer, so that it can better understand their tastes and preferences and directly communicate a strong belief in sustainability. “in Chinese history, every six decades we have a year of great turbulence. But that doesn’t mean that it is only crises. There are also opportunities...So early on, I started to look for opportunities rather than just defending against all the adverse events.”