The Fong’s Group: Getting Ready For The Upswing

he Hong Kong-based Fong’s Group was the first Chinese textile machinery manufacturer to
acquire European companies such as Switzerland-based Xorella AG and German companies like Then
Maschinen- und Apparatebau GmbH and GTM Goller Textilemaschinen GmbH. Over the last two years, the
group has donated a lot of money to universities and some months ago founded Fong’s Water
Technology Co. Ltd. to provide water treatment and reuse systems with comprehensive services,
including design, installation, maintenance and technical support. These were enough reasons for
Textile World Asia to meet Fong Sou Lam, chairman of Fong’s Industries Group, for an exclusive

The interview took place in Hong Kong. Fong was accompanied by his son, Bill Fong, executive
director of Fong’s Industries Group. The group’s philosophy is to provide its customers the most
innovative and environmentally friendly solutions through continuous research and development
(R&D) efforts, and offer comprehensive customer service to help them achieve the utmost return
in their investments and to enable Fong’s become the “First Choice” in the textile industry.

In 1988, the Fong’s Group moved into its Hong Kong headquarters in Tsing Yi, a nine-floor
plant and office building with a floor area of approximately 16,000 square meters (m2).

The Challenge

What is your personal challenge in the Group?

Fong Sou Lam: My personal challenge is to develop new products and to maintain a
sustainable business growth. And, of course, we want to maintain the leading position of the Fong’s
Group in the industry. To back this up, in July 2008, the Fong’s Group appointed Alex Wan as the
CEO to assist me in planning the overall corporate development and strategic direction of the
Fong’s Group. Wan will also provide leadership for the board and oversee the efficient functioning
of the board to ensure the smooth and efficient business operation of the whole Fong’s Group.

Note:  The annual machinery production of the entire Fong’s Group based on 2007 sales
was more than 2,800 units including sales through Monforts Fong’s Textile Machinery Co. Ltd., a
joint-venture with Germany-based A. Monforts Textilmaschinen GmbH to serve only the Mainland
Chinese market.

Left to right: Fong’s Industries Group Chairman Fong Sou Lam; Executive Director Bill Fong;
and CEO Alex Wan

Current Market Situation

How do you see the current market situation in general?

Fong: In the wake of the global financial crisis, the textile industry has been
impacted by many unfavorable factors. The buying sentiment for textile machinery is very weak at
the moment. In addition, the textile industry is still facing a profit squeeze and at the same time
has to reduce its volume due to reduced demand from the traditional export markets for apparel.
Unfortunately, this will mean that the textile industry will have to consolidate before it can be
healthy again.

As you know, at the moment, the current financial crisis is affecting textile businesses
throughout the world. Nevertheless, if we look further ahead, we believe Asia as a whole will have
the best potential due to its long-term growth prospects, which will translate to significant
domestic market for textile consumption. Secondly, it will also be the first region to benefit when
the export markets recover.

Is your group also affected by the current market situation? What have you done to face it?

Fong: Yes, like everybody, the Fong’s Group has experienced a very challenging
year with emerging crises. The appreciation of the renminbi, the significant rise in the euro from
the second half of 2007, the slowdown of the global economy and the rise in production costs have
affected the business growth of the Group. Facing such a difficult marketing environment, the Group
has implemented corresponding measures to broaden the customer base, improve operation efficiency
and reduce costs. This is not the first macroeconomic crisis that the Group has experienced in its
45 years, and therefore, with our experience, we are confident we will be able to weather this
crisis and come out even stronger.

Although business is slow at the moment, we expect the industry to start investing again
once the global financial crisis stabilizes further, as apart from the anticipated consolidation in
the textile industry, which will help get the textile industry get back to health. The industry
worldwide will also have to upgrade their machinery in order to remain competitive both from a cost
perspective and from an environmental-compliance requirement as being demanded by the consumer
these days.

In 1991, the Group acquired a 120,000-m2 land site in Buji, Shenzhen for production
facilities. 1995, the Shenzhen plant and the 21-floor building with office and dormitory premises
were put in full use. Since that time, the Hong Kong office has served as the Group’s headquarters
for R&D, finance and sales.

Regional Aspects

: Did the handover of Hong Kong to Mainland China in 1997 affect the importance of Hong Kong?
How is the situation today compared to the time before the handover? Or is it even better with the
Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA)?

Fong:  We have not seen any negative effect on the importance of Hong Kong
since the handover in 1997. Hong Kong has always been considered one of the most attractive places
to do business in the world. Its business is mainly attributable to the demand for financial,
trading and logistics services as well as tourist activities. During the process of shifting its
economy to a higher level of service orientation, Hong Kong people have managed to retain the
position in the various competitiveness or economic freedom leagues.


How do you see the role of Hong Kong today?

Fong: With the regional cooperation under CEPA and the Pearl River Delta
integration, the mainland has become a major driving force for Hong Kong’s economic growth. From
this aspect, we wouldn’t say that Hong Kong is losing ground to places like Shenzhen and Shanghai.
On the contrary, Hong Kong should grasp opportunities under CEPA, deepen cooperation with the
mainland and expand into the global market and emerging regions.

The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) is the first free
trade agreement ever concluded betweem Mainland China and Hong Kong. The main text of CEPA was
signed June 29, 2003. CEPA opens up huge markets for Hong Kong goods and services, greatly
enhancing the already close economic cooperation and integration between Mainland China and Hong

The Mainland’s Role

How do you judge China’s role in the world in general, and in the textile industry in
particular? Is China able to supply the whole domestic market as well as the rest of the world?
Today, China is producing different levels of domestic and export quality. If the average income of
the Chinese people increases, will China still be able to supply all markets? China is having big
problems, such as energy, wastewater, and so on. How will China face these problems?

Fong: China’s current status as a leading textile producer in the world is
undebatable. China is regarded as the world’s factory for many manufactured goods and not just
textiles. Based on the current situation, China does have enough capacity to meet its export
demands as well as to satisfy the domestic market. However, China’s domestic demand for textiles
and apparel has increased some 25 percent per year. This means that the size of the market will
double approximately every three years due to the growth in income and China’s demographics.

Given the above and the recent directions of the Chinese government to try to move its
industries to higher-value products, as well as the concerns for the environment, I foresee that in
10 years’ time, China will start importing a good percentage of textiles for domestic consumption
as compared to now.

As for the comparison of domestic and export quality, I must say that the gap is getting
smaller and smaller. As a matter of fact, many producers who were purely focused on exports have
now redirected their production towards meeting the domestic markets. Furthermore, I believe that
the problem of quality is not so much about the textiles themselves, but it is the fashion and
design aspect that is lacking. As China develops its own talent in this respect, the textile
industry will become even more strong and healthy and perhaps will even influence international
fashion trends in the future, although this may take some time.

Important R&D

What are the main market requirements today for successful and modern textile machinery?

Fong: Good-quality products coupled with advanced technologies for a safe,
reliable, cost-effective and environmentally friendly operation to help the customers to save
production costs and increase their competitiveness in the market. Also, outstanding performance
and innovative environmental concepts for saving thermal energy as well as optimizing heat-recovery


Where do you set priority in your R&D work? In your company’s data, you mention that
“Research and development effort is the indispensable factor for maintaining the Group’s
competitiveness and long-term development.”

Fong: Our priority is to develop new innovative products with shortest dye cycles
and to enhance and improve the performance of our existing products and the automation controlling

How many people are working in R&D? What is the percentage you spend on R&D as it
relates to the turnover of your company?

Fong: There is a staff of around 140 working in our R&D department. The
investment in R&D accounts for approximately 2 percrent of our annual sales turnover for the
textile machinery segment.

: The requirements from the markets are ever-increasing. What are the main targets of your
ongoing R&D efforts, and how do you face the megatrends such as energy and water savings,
shortage of power supply, and such?

Through ongoing R&D efforts, we are trying to provide excellent,
innovative and environmentally friendly products to the total satisfaction of our customers. The
Fong’s HSJ environmentally friendly series machines are equipped with a Multi-Saving Rinsing System
and an Advanced Intelligent Rinsing System (AIR+) to shorten the dye cycle and reduce water
consumption significantly. At Then GmbH, the recently launched Synergy G2 dyeing machine is based
on the successful Then-Airflow® technology to further reduce water consumption. The Monfongs 828 ES
TwinAir stenter range with integrated exhaust-heat-recovery system is able to reduce energy
consumption by 18 percent.



: Your daughter company, Fong’s National Engineering Co. Ltd., donated millions of HK dollars
to Hong Kong universities. What are the main goals for Fong’s in doing that? What does Fong’s
expect from making the donations?

Fong: The donations made by Fong’s to the universities were with the aim of
further strengthening their already well-established teaching and research capabilities and helping
support more research talent in the universities. We hope with our donation, the universities will
be able to conduct more research projects, which will result in meaningful solutions for the
industries in Hong Kong and China, and throughout Asia. We are confident that our partnership with
the universities will further enhance the relationships between the universities and the industrial


: In 2007, you established Fong’s Water Technology Co. Ltd. and Fong’s Water Technology and
Conservation Equipment (Shenzhen) Co. Ltd. What are the main targets for this company?

Fong: Well, the reason we set up Fong’s Water Technology was due to the constantly
rising costs of various natural resources, such as energy and water. These days, being a profitable
environmentally conscious company is the utmost goal in the modern dyeing industry. Fong’s Water
Technology provides a reliable and economical solution to customers to meet this goal. Our mission
is to provide a water treatment and reuse system with comprehensive services, including design,
installation, maintenance and technical support to help our customers reduce water consumption by
more than 70 percent and also to reduce discharge.



: If you compare today’s market requirements with those of five to 10 years ago, what are the
biggest differences?

Fong: The demands of customers are becoming more and more sophisticated. The
customers are increasingly looking for machine suppliers that can provide them with competitive
products both in technical terms and with respect to price to help them achieve economic and
ecological benefits in their dyehouses. In addition, they are looking for the flexibility to tailor
products to meet their individual requirements.

Which countries will be the strongest competitors in the textile markets for China?

Fong: In one of your articles, titled “India – A Sleeping Giant?” you briefly
elaborated the current status of the Indian textile market (See ”
The Editor
Textile World Asia, September/October 2008
). India is a promising marketplace
as its textile industry covers a wide spectrum of activities and its market size is valued at US$52
billion with the industry’s potential foreseen to reach US$115 billion by 2012. With the strong
domestic and export market demand and good potential in technical textiles, combined with the
advantageous governmental policy, the Indian textile industry will continue its upward growth and
play a major role in the world of textiles and apparel. In addition to India, it is foreseeable
that Bangladesh will play a significant role in the global textile arena.


: How do you see the market over the next few years? What is your vision for the next

Fong: Firstly, in the short term, the textile industry worldwide will require the
next 12 to 18 months to recover. Secondly, the good thing about the textile industry is that
clothing is one of the basic necessities of human beings, and the demand will not evaporate.
Therefore, looking ahead in the next one and one-half decades, I foresee that China will produce
fewer and fewer textiles for export to meet its own demand. This will also play a proxy to the
overall situation in Asia; it means that Asia will likely export fewer textiles as a whole for the
very same reasons.

Central and South America will also have very good long-term prospects for textiles due to
their proximity to the United States and also their own growing domestic market.

I also believe the regions of the Middle East and North Africa will have great potential due
to the young demographics of the population.

Lastly, and in general, in the next one to two decades, traditional markets such as Europe
and North America will play a lesser role in the consumption of textiles due to the changes in
demographics and aging populations, and the trick will be how the local textile industry and
international players adapts to these changes.

: Your group is considered to be a leader in your business sector. What do
you do to keep this position in the market?

Fong: Throughout 45 years of operation, Fong’s Group has successfully built its
brand name “Fong’s” as a world-renowned dyeing and finishing equipment manufacturer. The Group
upholds its commitment to the demands of the customers – excellent-quality products, prompt
delivery and comprehensive customer services. It is our aim to offer a one-stop-shop service to the
customers, with machinery to handle processes ranging from yarn conditioning to dyeing and
finishing, thereby further boosting the recognition among our customers and enhancing our
competitiveness so that we will maintain the leading position in the industry.

Furthermore, although we have grown locally in Hong Kong and have traditionally very much
focused on China, we have in the recent decade also focused on the importance of our international
customers and markets outside of China. In fact, 50 percent of our machinery sales these days are
for markets outside of China, and we hope to further add customers internationally given our
long-term outlook above.


•    1963:  Fong Sou Lam establishes Fong’s in Hong Kong.

•    1969:  The company is officially renamed Fong’s National
Engineering Co., Ltd.

•    1979:  Fong’s becomes one of the first Hong Kong companies to
explore the textile dyeing and finishing market in China.

•    1998:  Fong’s National Engineering Co. Ltd. and RF Systems S.r.l.,
Italy, enter into a licensing cooperation to manufacture and market the Radio Frequency Dryer.

•    1999:  Fong’s Industries Group joins forces with A. Monforts
Textilmaschinen GmbH & Co. KG to establish Monforts Fong’s Textile Machinery Co. Ltd. and
Monforts Fong’s Textile Machinery (Shenzhen) Co. Ltd. for the manufacture of fabric finishing
equipment in China.

•    2002:  As a major step toward further diversification, the Group
establishes Xorella Hong Kong Ltd. to acquire Xorella AG, which is engaged in the design and
manufacture of yarn-conditioning equipment.

•    2004:  The Group establishes Germany-based Then Maschinen GmbH to
acquire the former Then Maschinen- und Apparatebau GmbH and Scholl-Then GmbH.

•    2006:  The Group establishes Germany-based Goller Textilmaschinen
GmbH to acquire the fixed assets, inventory and all intellectual property rights of former GTM
Goller Textilmaschinen GmbH.

November/December 2008