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Company Crisis in the early 1970s, Innovation after takeover of second-generation: market expansion and bank loans
Lau Tik Wah, the successor to the founders of Champion Industrial Co. Ltd., entered the University of California in San Francisco. During her years in the USA, she took an in-depth look into the American business world and gathered information about large retailers. Her father believed that it was a successful investment to send her abroad. Whenever her father passed by San Francisco on business trips, she would accompany him to business meetings and take care of him. Eventually, she entered Champion in 1975. Several years before that, the company was facing great challenges. In 1971, Lau Bin and the founder of Nan Ya Plastics Corporation, Wang Yung-Ching, co-founded a handbag factory in Taipei. Wang supplied the land slot for building the factory, while Champion sent over some of their core staff from Hong Kong to Taipei.
By 1973, when Champion was in its heyday, Hutchison offered to buy the company off on a stock-for-stock basis, but Lau Bin rejected because he didn't want to give up what he had painstakingly built up over the years. Soon after that, the Oil Crisis occurred, causing a rise in plastic material prices. The effect on many Taiwanese factories was disastrous for they had to cut down their production. Lau Bin suffered a great loss because his Taiwanese staff stole the company's money. A lot of American importers were also out of business. Several of them which had business connections with Champion had to merge and form into a new company. To keep the supply chain alive, Champion offered to let those companies buy from his factory on credit. In view of such harsh business situation, Lau Tik Wah returned from the USA and took over the company from her father. She then rolled out a series of reforms to develop business and raise funds for the company.
1) During the early 1970s, direct sales or OEM were not a common practice among handbag factories. The factories usually advertised on Yellow Pages to reach out to clients. Local manufacturers would sell their products to American importers, or traders in Hong Kong and the USA, who then supplied those products to larger retailers such as K-Mart. The manufactures had to pay them a high commission fee. This was also how Champion conducted its businesses when it was first founded. Lau Tik Wah thought that the client base was not wide enough and recommended her father to deal directly with the retailers. However, her father believed this was not appropriate, fearing that this move could displease the importers. At that time, K-Mart was interested in making direct deals with the factories and even set up a buying officer in Hong Kong in around 1975 and 1976. Lau Tik Wah therefore approached K-Mart. She took reference from popular products in the market, and designed a variety of product samples for K-Mart's selection. From then on, Champion gained independence from the importers and traders, and began to see an improvement on its operating environment. After K-Mart set up its office in Hong Kong, other large corporation like JC Penny followed suit. The buying officers began to play a leading role in trade, and the factories would work hard to build a good rapport with them. American retailers tended to order low-end goods in large quantities. They might order up to 700,000 to 800,000 handbags each time. A lot of manufactures made a fortune out of mass production. The major handbag factories included ‘Yen Sheng’, ‘Wai Shi’, ‘Wai Hung’, and ‘Lee & Man’. These factories co-existed quite harmoniously in those days. They frequently exchanged information and interacted with one another.
2) After Champion began selling directly to American corporations, its demand for cash increased sharply. Lau Tik Wah advised her father to get loans from large banks in order to raise the capital needed. She recalled with a sigh that the banks were like the master of the factories. In those days, the clients did not commonly give any down payment, and therefore the bank loans were crucial to the factories’ survival. The banks did not simply loan out cash. The factory owners needed to present the clients’ purchasing orders (PO) to the banks in order to obtain a Letter of Credit (LC) or Trust Receipt (TR), which allows them to buy from raw material providers or to settle other production expenses. Since Lau Bin was honest and diligent in work, the banks were usually willing to provide financial assistance to help him settle his balance with his clients when he had the difficulty to do so.
In 1977, Lau Tik Wah travelled to New York to negotiate a deal with Avon Cosmetics. She successfully became the first Hong Kong manufacturer to produce for Avon. Since then, the company business had seen substantial development. They were so busy to accommodate the orders that they had to rely on sub-contracting, hiring six to seven smaller factories to help. Those smaller firms wanted advance payment for their service. To meet their request, Lau Bin had to borrow from his friends. It was a distressing process to try to get all the loans they needed, and Lau Tik Wah would act on behalf of her father in some cases. Since becoming partner with Avon, however, the company’s financial strength increased substantially enough to return all the bank loans.
Interviewee Lau Dick Wah Company Champion Industrial Co., Ltd. Date 1970s Subject Industry Duration 30m42s Language Cantonese Material Type Audio Collection Post-war Industries Source Hong Kong Memory Project Oral History Interview Repository Hong Kong Memory Project Note to Copyright Copyright owned by Hong Kong Memory Project Accession No. LKF-LDW-SEG-003 
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The founder of The China Paint Manufacturing Company, Lam Kwan, native of Taishan, had good academic performance in his early age. He had studied in the United States. While Lam was studying in the U.S., he not only worked in farms picking up fruits but also taught Chinese classes for Chinese-American. He graduated from Brooklyn Institute, New York, while the U.S. was hit by the Great Depression. He recommended himself to a paint manufacturing company and got accepted. Another founder of The China Paint Manufacturing Company, Lam On, the father of Paul Lam and the brother of Lam Kwan, had studied in Guangzhou Lingnan Secondary School and Pui Ching Middle School.
After Lam Kwan returned to Hong Kong from the United States, he founded a small paint factory (The China Paint Manufacturing Company) with his brother, Lam On. Since Lam Kwan had received education on chemical engineering, he brought related skills and knowledge to the factory. At the beginning, the factory produced metal paint and wood paint. The National Lacquer and Paint Products Company were separately founded in the same year (1931).
The China Paint Manufacturing Company had a limited capital to start with; the founders collected the capital from their family while there were only 6 employees. During the Japanese Occupation, the production of The China Manufacturing Company stopped. Lam Kwan turned to produce and sell peanut candy in Liuzhou, Guangxi to sustain his living. In 1946, The China Paint Manufacturing Company was re-registered and the founders raised more fund by selling shares. However, the company scale remained relatively small.
The paint production technology was not advanced in the past. The government did not have strict safety requirements on either paint factories or paint products. The workshop of China Paint had limited facilities, it used cooking pot to boil oil and rarely maintained the machinery. The China Paint Manufacturing Company built a 3 level factory at Arran Street, Mong Kok. The ground level was the production shopfloor, the second level was office and store room for raw materials and solvents, the third floor was the living place for the Lam’s family. Paul Lam had lived in the third floor after Lam Kwan had moved out. Since the paint production process required boiling oil, which is a relatively dangerous procedure, the company rented an open area at Tai Kok Tsui to conduct the process. There were a public playground and a men’s dormitory near the factory at Arran Street. The China Paint Manufacturing Company had established the workshop at Arran Street at the time when Paul Lam was in kindergarten. Male workers were responsible for production processes while female workers were responsible for packaging. Accommodation was provided for male workers only.
Other than Paul Lam, Lam Mo Bill (The son of Lam Kwan), was also the second-generation successor of The China Paint Manufacturing Company. Paul Lam graduated from the University of California, Berlekey with Chemistry major. Lam Mo Bill graduated from Stanford University with Chemistry major too. Since there was no specialized discipline on paint technology in the universities, the only way for people to learn about paint was to study chemistry and to take courses that had contents of paint, such as polymer chemistry. Usually, paint companies would obtain knowledge of paint technology by setting up licensing arrangements with foreign companies. In 1965, The China Paint Manufacturing Company employed the first chemist.
After Paul Lam graduated from university, he had worked oversea for seven years. During that period of time, The China Paint Manufacturing Company had planned to take over a joint venture in Singapore, to improve the unsatisfactory performance of the company. Lam Kwan and Lam On invited Paul Lam to manage the company in Singapore. In arriving at Singapore, he found that the business was not a good investment, he decided to forgo the take-over and returned to Hong Kong. Although paint industry is one kind of chemical industry, Paul Lam considered himself know little about paint. Initially he had no intention to stay and work for the company. Not long afterwards, Lam Kwan died of heart disease. Paul Lam had worked in Hong Kong for less than a year and then returned to his previous employer in the United States. Under the urge of the family, he eventually returned to Hong Kong to help with the family business.
The Lam’s family used to respect the individual interests and initiatives of the younger generation and seldom imposed pressure to the descendants to inherit the family business. For example, all the children of Paul Lam did not major in science specialties and he didn’t plan to arrange his children to be successors.
Paul Lam had studied in La Salle College and then changed to Diocesan Boys' School at Form 2, where he studied until graduation. Since his parents had little knowledge about studying abroad, Paul Lam himself gathered information from his teacher and sent out an application to The University of California, Berkeley. He was admitted and left for Berkeley in early 1962. There were a good number of graduates from Diocesan Boys’ School to study abroad.
Paul Lam did not have particular expectation about his future after graduation. He had a lot of interests and activities and work was only one of his concerns. At that time it was not difficult for one to find a living in the United States. Therefore, Paul Lam did not worry about his career future. Upon graduation, he joined the Specialty Gas industry, which was a challenging industry that provided him with great satisfaction. He witnessed the rapid growth of the electronics industry in the 1970s. At that time, electronic companies like Pioneer and Dupin applied a special poisonous gas rather than atomic particles to produce chips for the brands’ circuit boards.
The company he worked for was a material supplier for electronic companies. In 1969, his company supplied the disinfection gas to the American astronaut Armstrong when he returned to the Earth after landing on the Moon. It was common for the American hospitals to use the same disinfection gas. In 1970s, he was relocated to Los Angeles, a city which was faced with serious air pollution. His company provided gas for General Motor to detect the gas exhaustion level. His company also produced heavy water, a material for producing atomic bomb. The production of atomic bomb was a dangerous industry as carbon monoxide was emitted as a by-product. When he was the Chemist of the company, Paul Lam had witnessed explosion in the company. Therefore Paul Lam was experienced in managing accidents and hazards in the paint industry. Back in the U.S., Pau Lam was promoted to branch manager since he showed good performance in handling an accident caused by hydrogen chloride in the Intel Corporation. He was then the youngest and the only expatriate branch manager of the company.
The Lam’s family had urged Paul Lam to return to Hong Kong several times. He made such move after he had obtained the resident identity (literally called Green Card) after marriage. To maintain his resident status in the U.S., he returned to the U.S. after he had worked in Hong Kong for around one year. To make good use of his mobility, the Lam’s family arranged Paul Lam to for Sherwin Williams, which engaged in a partnership of technology transfer with China Paint. Sherwin Williams was the largest paint company in the United States. Paul Lam was employed as a salaried technician for 9 months. He was there to learn the skills necessary for producing the brand name products under China Paint. The two companies signed a 10-year partnership agreement for technology transfer. China Paint was allowed to use the technology and the brand name of Sherwin Williams to produce paints in Hong Kong. Because of this partnership, the production technology of China Paint was improved. Paint companies needed chemists to produce paint and made adjustment according to client’s request. However, Paul Lam believed the company could not rely on the paint manufacturing formula only. Fulfilling the need of customers and providing quality customer service would also be important. The marketability of paint products relied on proper chemical formula, sale network, adequate combination of materials and the skill knowledge of technicians. Therefore, instead of focusing on chemical formulas, China Paint employed consultants to teach its staff with the chemical knowledge and properties of paint materials.
After Paul Lam left Sherwin William, he returned to China Paint and worked at the Kwun Tong factory. At first, he engaged in the administrative section to improve the company’s work environment, efficiency, labour structure and promotion system. Then, he worked on market research, doing analysis on the market shares and profit margin of the company and its competitors.
The development of The China Paint Manufacturing Company (Part I): Plant, products variety and industrial paint expansion
In the 1970s, there were six major paint factories, Kin Kwok Lacquer Manufacturing Company and several small factories in Hong Kong. The market competition was intense. China Paint had two plants in Kwun Tong, one of which was built by the company. It was a 6-level building of 40,000 square ft. The factory moved to Sai Kung later, which had a total area of 160,000 square ft. Nowadays the company had a factory in Shenzhen with a total area of 58,000 square meters, which was still not sufficient for operation. At the time when Paul Lam started to work for the company, the sales figures were only of 8 digits. In terms of market share, the company was the smallest among the major paint factories, with National Lacquer and Paint Products Company being the largest among all. Nowadays the China market contributed 90% of the company’s sales.
The company’s products used to be exported to overseas markets. In the 1970s, as many of these import countries imposed various kinds of import restriction, China Paint began to develop local market. At that time, Hong Kong’s industries was growing rapidly. With the help of foreign companies, Paul Lam and his cousins switched to produce industrial paints. In the early stage of China’s economic reform, the company started to relocate its production to China, which led to an increase of orders from the industrial sector. The company’s industrial paint could be used for producing rattan, electronic fans and toys. Types of toy included metal toy cars, both soft and hard plastic toys and PVC dolls. Different types of toy required different kinds of paint. The paints for toy were mostly classified into the followings: paint for metal, paint for hard plastic such as Acrylonitrile Butadiene Styrene (ABS) paint, paint for soft plastic such as Polypropylene (PP) paint, Polyethylene (PE) paint and Polyvinyl Chloride (PVC) paint.
During the production of the company’s industrial paint, the chemists had to try different combinations of chemical materials in order to fit with the receptivity of different material surface. Once the chemists successfully fit a type of paint with the kind of material, they would focus on cost reduction. 30% to 40% of the company’s revenue came from toy paint, which representing 70% of the Hong Kong market demand. Paint for architectural construction composed the major part of the company’s revenue. Brand name “Flower” was specialized for architectural construction while “GIRAFFE” was specialized for paint for wood.
