Mark Lee, winner in the Manufacturing category for this year’s EY Entrepreneur Of The Year award, explains how he is leading ‘old economy’ Sing Lun Holdings in a new world.
Mark Lee, CEO of garment maker Sing Lun Holdings, took over the running of the company from his father Patrick, who, in turn, took the reins from his own father, Lee Chee Hung.
Mark, who had been working in an IT company in the US, had to adapt to the family business when he took charge. But he was not the only one who needed to adapt. With Patrick having taken a step back into the chairman’s role, Sing Lun’s employees had to adjust to the new boss as well. The queue of managers who wanted to see Mark was never-ending. “It was like a doctor’s clinic,” quips Mark in an interview with The Edge Singapore.
This micro-management style of relying heavily on the boss continued for quite a while. During an overseas trip with his father two years after the transition, his phone rang non-stop. “Mark, there’s something wrong with the way you manage if every decision has to be made by you, every problem has to be solved by you,” he recalls his father saying. “That woke me up completely.”
He set about changing the company culture. For years, Sing Lun had been operating under the traditional model where the CEO made the decisions and assigned tasks to employees. Mark introduced a “consensus- driven” way of doing things. He got his managers more involved, and encouraged them to think as business owners rather than salary earners. “The teams all have a functional aspect and they manage their own clients. They are given the responsibility — and the ownership. They feel empowered,” he explains.
Mark must be doing something right as the company’s employee turnover is only 2.5%. He expanded the company’s services from just contract manufacturing to product development, design and logistics. Over the last three years, the privately held company’s earnings before interest, taxes, depreciation and amortization (Ebitda) recorded a compound annual growth rate of 25%. In recognition of his efforts, Mark has been named winner of the Manufacturing category in this year’s EY Entrepreneur Of The Year award.
In a sense, the story of the three generations at Sing Lun reflects the growth of Singapore’s economy. Like the many immigrants from China that sought to improve their fortunes in Southeast Asia, Mark’s grandfather, Lee Chee Hung, disembarked at Clifford Pier. With the entrepôt trade the mainstay of the economy, he started a textile trading and wholesale business in 1951. The company was then located in a three-storey shophouse along Circular Road whose back faced Boat Quay along the Singapore River, not far from where he had landed. It was at this location that Sing Lun grew. The company operated on the ground floor and the family lived upstairs.
When Patrick joined the family business in the late 1960s, manufacturing overtook trading as Sing Lun’s core business, and it prospered. Customers included brands such as Gap and Walt Disney, and department store chains such as Macy’s and Bloomingdale’s. Plants were set up in Malaysia as well as Paya Lebar where many light industries are located.
Mark was working with CSA Group in the US when his father called one day to say, “Son, I’m tired.” That was the cue to pack up and come home.
He quickly began implementing changes. In 2000, a year after he joined the business, Sing Lun was listed. By 2008, company revenues had tripled. However, the global economy was starting to soften. The shares of Sing Lun, which was regarded as a boring “old economy” company especially when measured against tech firms, were undervalued, trading at a mere six times earnings.
The company was facing structural challenges that needed to be tackled. Mark decided to make a bold move. With the help of other investors, the family decided to privatise Sing Lun. They made an offer that valued the company at 12 times earnings, and the minority shareholders accepted. Sing Lun was now privately held again. “We thought, ‘Let’s take a step back, clean the house and start the journey again and see what happens’,” Mark recalls.
Such major restructuring decisions were sometimes forced upon Mark. Most notably, during the financial crisis, a major customer stopped giving Sing Lun orders, resulting in the loss of a quarter of company revenue. It had to shut down a plant in Malaysia and 400 employees had to be let go.
Unfortunately, that was not enough. Sing Lun’s Singapore factory was suffering from a combination of lower business volume and higher wage costs, made worse by higher foreign worker levies. Mark had no choice but to close down the plant and let about 200 workers go. He recalls standing in front of the workers, with representatives from the union behind him, as he addressed those affected. Some of them had worked with the company for years, and seen Mark since he was a little boy. “I almost cried, but I had to remain strong,” he recalls.
The decision to retrench flew in the face of the family’s proud tradition of taking good care of its employees. Patrick had retained the Boat Quay office as a “retirement club”, where old staff who had helped Chee Hung build up the business could gather and play mahjong. On his part, Mark has kept several key managers who helped his father build their business, and who are now in their seventies, as advisers.
The pressure to retrench was probably more keenly felt because he did not want the cliché that wealth does not survive three generations to become a reality. “I think that was the key driver of why I work so hard. To be frank, in the first 10 years, the pressure was so intense, it was not funny. It was really, really intense,” says Mark.
Now, with that dark period behind him, Mark is clear about which direction to take the company, based on broad market trends. While in the past, Sing Lun’s business was mainly from the “fast fashion” segment of the apparel industry — led by names such Zara and Mango — it is now shifting its focus to functional apparel.
Because of demographic changes, especially in developed economies, there is a growing emphasis on leading a healthy lifestyle. For example, a lot of attention is paid to the material used for the apparel as well as making garments to suit specific types of activity. In addition, consumers want to look good while they are at it. “It is like the car industry. In the past, airbags were optional features, but now, [you expect airbags]. You want that level of performance and function — your garments not only have to look good, but have to perform certain functions as well. We’ve moved from fast fashion, to functional apparel,” says Mark.
What used to be worn only for sports or other physical activity have become lifestyle products as well, resulting in the “athleisure” market. This segment is growing at the expense of older brands, such as Levi’s, Mark explains. For example, women today prefer yoga pants to jeans. “Yoga pants are the new jeans of this century,” he says. The trend has gained momentum, with sports apparel brands such as Puma tying up with designers such as Alexander McQueen on special product lines.
There are also underlying changes in Sing Lun’s business model. While before it was a straightforward contract manufacturer, mass producing designs provided by the client, it now undertakes “design manufacturing”, also known as “inno-facturing”. For the latter, Sing Lun partners its clients, offering design and development services in addition to manufacturing. The company also works with organisations such as research institutes and universities to incorporate additional functions into the products.
The company has also gone global. Outside Singapore, it has set up key manufacturing facilities in Sri Lanka, Vietnam and Cambodia. It is also present physically in countries such as Malaysia, Indonesia and China, working with manufacturing partners there as an agent of sorts. “We do a hybrid model. We not only manufacture ourselves, we also source for other manufacturers to help produce for our clients as well,” says Mark.
Besides manufacturing, the company also undertakes distribution on behalf of its clients. “Instead of shipping to their warehouse, we ship direct to their franchisees. We break bulk for them; we become their true supply chain partner,” says Mark. With companies such as Sing Lun functioning like their in-house manufacturing and logistics divisions, the brands can concentrate on building and marketing their brand and products.
Such a working relationship has room to grow. “When they have something to develop and prototype, they come to us because we know their brand DNA, compliance requirements and quality standards,” he says.
This wider range of functions requires further investment in people, facilities and equipment. Mark says the capital expenditure is necessary to support this shift from pure manufacturing to becoming a strategic supply chain partner. Yet, he says this commitment comes with an advantage. Although Sing Lun is expected to commit more capex, clients will give it more business and entrust it with more functions. “You become financially stronger,” he says.
Several brands have entrusted Sing Lun to do this. They include popular brands The North Face, Puma, Banana Republic, Aéropostale, Gap and OshKosh B’gosh. Another is the fast-growing Under Armour.
Mark was introduced to the management of Under Armour through mutual friends. In a way, Under Armour was founded out of necessity. Kevin Plank, its chairman and CEO, was was unhappy that the typical cotton T-shirts worn underneath his football gear could not soak up sweat. He set out to find the material that could and after many rounds of prototyping, created a product he could sell to other football players. The product rapidly gained popularity and Under Armour grew.
When Sing Lun began manufacturing for Under Armour in 2006, the Maryland-based company was generating revenue of some US$250 million; last year, the figure reached US$3.08 billion ($4.4 billion). This year, Under Armour expects to record US$3.84 billion in revenue and on Sept 16, it announced a sales target of US$7.5 billion by 2018. The company’s share price reflects growth and optimism: It has doubled this year to cross the US$100 mark.
Under Armour’s growth can be attributed to the combination of quality products and having the right celebrities endorse its products. NBA player Stephen Curry of the Golden State Warriors, recently named Most Valuable Player, is one. Golfer Jordan Spieth, winner of two of the four major titles in the sport, is another. Sing Lun is one of the few suppliers of Under Armour’s golf polo shirts, which retails at $109.
Mark won’t say how much business is derived from Under Armour, saying the latter has many suppliers. He says the overall pie for business from Under Armour is growing, and that Sing Lun is one of the few suppliers able to grow their share of this faster than the rest.
Old company, new ideas
Sing Lun has grown with its clients. Over the past three years, the company’s Ebitda has expanded at a compound annual growth rate of 25%, and return on equity has also been in the double digits. “Sometimes, it is a question of timing. We have also managed to have good clients like The North Face, Under Armour and Oakley — brands of the world that are recognisable. It is like Hon Hai riding on Apple,” says Mark, referring to the Taiwan-based contract manufacturer whose army of workers in China has churned out the millions of iPhones and iPads.
While he acknowledges the global economy is not in the best of health, he prefers to view the situation as half-full, rather than half-empty. “Clients would start consolidating their supplier base and within this group, you can benefit in the long run.” He says many of his clients still have a lot of room to grow, and that Sing Lun will be able to ride that growth.
Lee also recognises that with 70% of business coming from US companies, Sing Lun’s fortunes are tied closely to the world’s largest economy. “Can the US economy continue to grow over the next two to three years? Maybe. We survived the worst, which was 2008, 2009. It is testimonial to the strength and viability of the company. We did transform over the last few years following the delisting. It is exciting to see where we are going so far,” says Mark.
Meanwhile, the steady demand has whet his appetite for more. The company has a new investor in the form of Mizuho ASEAN Investment LP, and has plans to build a new plant in Vietnam with 2,500 employees. To fund the growth, Sing Lun might be taken public again, although he says there is no hurry and the country of listing has yet to be determined. Mark also aims to move into other parts of the value chain: He has held talks with potential sellers of what he calls “heritage brands” — those with a certain equity or cachet.
The textile industry has long been regarded as old economy. Sing Lun has, however, introduced manufacturing technology where the materials are fused together using ultrasonic waves, instead of being sewn. This means there are no seams and electronic components can be included within the products.
In short, Sing Lun is positioning itself to ride the coming wave of “wearable” technologies, where garments come with electronic sensors for added healthy lifestyle appeal, or simply for safety.
Technological wizardry aside, Mark has a longer-term vision of what he would like Sing Lun to be like: VF Corp, the 116-year-old US company that started making mittens before diversifying into underwear, and today owns a portfolio of top brands that help generate a market value of more than US$30 billion. VF Corp owns jeans brands such as the iconic Wrangler, Lee Jeans and 7 For All Mankind. It also owns outdoor brands such as Eastpak, JanSport, The North Face and Timberland, which was acquired in 2011 for US$2.2 billion.
While many brand owners are outsourcing their production, VF Corp is running on a business model where it still owns production plants, as it has developed efficient production into an art. In the same vein, Mark wants to have a firm grip over his supply chain and improve production efficiency.
With those capabilities, Sing Lun can better compete when it starts to acquire brands instead of merely manufacturing for them. When it does this, it would be able to strip out the costs and manage its business in a more competitive way. “We are an old company, but we have new business ideas,” Where it all started: Sing Lun’s original premises at Boat Quay says Mark.
This article appeared in the Enterprise of Issue 697 (Oct 5) of The Edge Singapore.