Sustainable Sourcing: A Chilean Perspective
27 July 2022
Louis Chan, Nicholas Fu
Since the onset of the Covid-19 pandemic, buyers and suppliers all over the world have been forced to adapt their sourcing practices. In the “new normal” of travel restrictions and social distancing, the disruption of global supply chains, increasing freight costs, stock shortages and shipment delays have all emerged as major challenges to sourcing.
While the world debates the best possible ways forward and re‑evaluates the roles of physical and virtual business operations, the pandemic has accelerated the development of digital supply chains and caused a paradigm shift to ESG globally. Supply chain sustainability and ESG sourcing have now become instrumental for buyers and suppliers, going from a nice-to-have to a must-have for businesses of all sizes.
Hong Kong has decades of experience in both sourcing and supply chains, and so has all the elements needed to maintain its position as a world-class global sourcing hub in this new, more agile, innovative and sustainable era. Furthermore, it can take advantage of its high concentration of sourcing talent and the prime position it occupies to help companies explore emerging opportunities between the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) and the rest of the world.
To discover how one leading Latin American retail conglomerate is continuing to use Hong Kong to manage its global sourcing activities, Louis Chan, Principal Economist (Global Research) at HKTDC, talked to Tomas Vicente, Director of Ripley Hong Kong Limited.
Chan: Ripley has been operating in Hong Kong for 16 years. What made you choose Hong Kong as your first office in Asia back then? What do you see as the new opportunities going forward?
Vicente: We are one of the largest retail conglomerates in Chile and Peru, covering retail, banking and consumer credit, and real estate investment. We sell apparel, fashion accessories and home products through 77 department stores and via e-commerce, operate 33 bank branches in Chile and 33 in Peru, and have issued more than 1.5m credit cards, while our real estate portfolio includes 14 shopping malls.
Ever since we were founded in 1956, we have placed a high priority on the maintenance and expansion of our supplier network when it comes to sourcing. This is the principal reason why we decided to set up our first Asian office in Hong Kong 16 years ago, when the trade agreement between Chile and mainland China first came into force. Most of our suppliers had established their offices and/or headquarters in the city to take care of their mainland operations.
Chile, which is ranked the most liberal country in Latin America, has a very accommodating trade regime, boasting one of the most - if not the most - extensive networks of free trade agreements and preferential trading arrangements. The network covers more than 90% of world’s GDP, and includes deals with mainland China (2006) and Hong Kong (2014).
Our decision to continue using Hong Kong as our primary sourcing base came after in-depth research and operation analyses back in 2010, and also took into consideration the evolution of the sourcing industry worldwide.
We believe that, from a global perspective, the sourcing industry has been changing fast, with firms diversifying their production bases from mainland China to ASEAN countries and markets further afield. But while many light and labour-intensive sectors such as the apparel and footwear industries have relocated their production lines to Southeast or South Asia to take advantage of lower wages, Hong Kong is still one of the most efficient gateways to the gigantic pool of innovative mainland Chinese suppliers. It is also a world-class logistics hub with superb professional service support, no tariffs/VAT and low profit taxes, and as such it remains well-positioned for companies like Ripley which are looking to strengthen their connections with other Asian suppliers such as India and Bangladesh.
Despite the current supply chain challenges around the globe, Hong Kong will keep playing a very important role for us as the main connection between our HQ and China. The sporadic lockdowns and harsh travel restrictions have certainly imposed great challenges on us, especially when it comes to the search for and connection with new, prospective suppliers, but we strongly believe that everything will return to normal rapidly once the pandemic ebbs.
Chan: How important is Hong Kong in Ripley’s global supply chain, especially when it comes to sourcing? How has the Hong Kong office helped Ripley in terms of sourcing within these 16 years? Any change in its role(s)?
Vicente: As one of the most popular retail brands in Chile and Peru, we are running about 50 successful private labels which are responsible for more than 40% of our total sales. Most of their pre- and post-production operations take place in Hong Kong, despite the fact that production is mainly done in mainland China, India and Bangladesh.
As our key sourcing hub in Asia over the past two decades, Hong Kong has been our destination for trial orders. Our product development, design and sourcing experts are responsible for formulating and implementing the sourcing strategy from a market-specific to a firm-specific level, analysing each prospective supplier and verifying if they could comply with our sourcing requirements and policies. To us, like many sourcing businesses, Hong Kong is like a halfway point in the whole value chain, where we can always look for new partners and opportunities.
When Covid-19 started to take a heavy toll on the world economy and created a nightmare for global sourcing and logistics operators, the role of our Hong Kong office became even more prominent and diversified. Before the pandemic, most of our sample or product inspections were only executed at the destination market. But the supply chain disruptions, widespread lockdowns and sporadic travel restrictions caused by the pandemic have made it impossible to perform quality control inspections at the port of destination as before.
To cope with this, we’ve decided to relocate all our sourcing activities, including product design, pre-production approval and pro-production quality controls to the Hong Kong office. This expedient sourcing model has helped to simplify our sourcing procedure. It proved to be best fit during the pandemic, when on the one hand we were encountering supply chain hiccups and on the other seeing online sales surges that in some months accounted for 80% of our total sales.
Chan: Global ESG awareness has been growing exponentially in recent years, especially amid the ongoing Covid-19 pandemic. Ripley has earned recognition for searching suppliers with new sustainable technologies in their production processes. Could you share in greater detail how these are being done, with the help of your Hong Kong office? What’s Ripley’s ESG sourcing strategy?
Vicente: Latin American consumers attach high importance to ESG in their purchase decisions, while social media usage has a positive influence on companies sharing news about and delivering on their green claims.
Thanks to, and in line with, the successful launch of our “Commitment R (Compromiso R)” programme, we have set a very simple but challenging ESG goal of requiring all of our private label apparel products for women, men, children and sports to bear at least one certification-backed sustainable attribute, or be part of a global ESG initiative by 2026. In 2021, 28% of our own clothing brands had some attributes that guaranteed sustainable practices, compared to just 1% in 2019 and 3% in 2020.
These sustainability attributes generally require the use of organic fibres and the adoption of organic or circular production, including the use of organic cotton, the use of organic or recycled fibres and plastics, the reduction of the water and carbon footprint, and proof of compliance with use of non-harmful materials.
To achieve this goal, we have been working closely with different certification bodies and ESG initiatives such as Global Organic Textile Standard, Global Recycled Standard, Jeanology, Repreve, OEKO-TEX Standard and LENZING, not to mention strictly complying with the mandatory requirements stipulated by the Chilean government’s Extended Liability of the Producer (EPR on account of its Spanish acronym) Law. This makes the producer liable for the waste generated by its products (including packaging), from production until recovery or disposal.
As the region’s forerunner in ESG movement, in 2020 we became the first Chilean retailer to become a member of Better Cotton, the world’s largest cotton sustainability programme. It aims to reduce the environmental impact of the cultivation of raw materials and improve the corresponding production process. This is a significant move for us as a key apparel buyer. Cotton is the most widely used natural fibre in the textiles industry, and producing it requires a large amount of water. Since we joined the programme, we have saved up to 394m litres of water and avoided the use of 255kg of pesticides.
We also encourage the use of voluntary eco-labels on products to promote the use of materials coming from forests certified by the Forest Stewardship Council (FSC). Our hope is that the progress we make towards sustainability is not only about how we use our materials, but also about how much better our society can be if we tilt towards a sustainability-oriented management that embraces respect and care for nature and the planet’s eco-communities.
Through active and multi-sided co-operation, we aim to have each and every process along our supply chains ESG-certified so that transparency and traceability can be made visible and accessible to all stakeholders and we can make progress towards a circular economy.
With mainland China accounting for more than 80% of our sourced products and Hong Kong responsible for the procurement of our private label products, I’d say the city is pivotal to the success of our ESG strategy, especially as regards the search for new supplies from partners in the GBA, the rest of the mainland and the whole of Asia.
- Garments, Textiles & Accessories
- Hong Kong
- Central & South America
- Hong Kong