The Analysis of Hong Kong SASAs Supply Chain and Logistics System

ZHANG Chaoying, WEI Xiao Beijing Institute of Petrochemical Technology, P.R.China, 102600 zhangchaoying@bipt.edu.cn Abstract:Hong Kong SASA International Holdings Limited is the largest and leading cosmetics retailing and beauty care service group in Asia. Its sale prices are much lower than those of exclusive stores and counters because it adopts the strategy of bulk purchase throught the world and marketing many brands comprehensively. This thesis, through field research, systematic analysis and hierarchy analysis,will analyze SASAs secrets of success and challeges confronted today according to its supply chain and logistics system. Two conclusions have been drawn from the thesis: firstly, the supply chain and logistic management mode must comply with the local laws; secondly, the success of a company comes from its good supply chain and logistics system, but it can not be copied at will. Keywords:Hong Kong, SASA, Supply Chain, Logistics System

1 Introduction
Research on Supply Chains and Logistic Management first originated from USA. So far, the research development has gone through the following three typical phrases: earlist Transportation, then Logistics, and latest Supply Chain Management (SCM . Since 1990s, the two concepts, Logistic Management and Supply Chain Managemen,Coexist. At the same time, there are mainly four argument: (1) Traditionalist,who belives that SCM is just the organic ingredient of Logistic Management; (2) Relabeling, who argues that the two are the same thing with different names; (3)Unionist, who believes the category of SCM is wider than that of Logistic Management, which is opposite to the Traditionalists view; (4) Intersection ist, who thinks the two are different displines but overlap. The four totally different arguments indicate that the the two concepts have not come to a consensus, with respect to the knowledge system, theroy system, and fuandation of the displines. In this paper, Supply chain is defined as the logisitic network, composed of suppliers, manufacturers, warehouses, distribution centres, chanel sectors, etc.. Supply chain management (SCM is the integrated management philosophy and methods, which execute the plan and control of logistics from suppliers to end users. Based on the above-mentioned definition, the paper hold the point that Logistics is a significant component of Supply Chain. At present, most of the research on SCM and Logistic management are about entreprises basic business processes, the design of Supply Chain, the operating model of Supply Chain, collaborating partner relationship, and so on. The paper took the supply chain and logistic management system of Hong Kong SASA for intance, intended to discuss the influenc of different legal framework on enterprises supply chain and logistic management mode, then to reveal the fact that compliance with local laws underlies the sucessful supply chain and logistic operating mode.

2 Background of Hong Kong SASA

Guo Shaoming and his wife, Luo Guizhen, founded SASAin an underground wharehouse rented with 20,000 HK dollars in 1978. At the beginning, their store was just a cosmetics retailing counter of no more than 5m2. With the idea of more sales for less profit, they stocked cosmetics and skin-care products of different brands from agents and sold them at discount.

411

At that time, the cosmetics market in Hong Kong was much like the one in mainland today, ordinary cosmetics went at high price for high profit. Cosmetics could only be found at counters in department stores which charged admittance fare and commission from the sale. To save expenses, most of SASAs counters were located in the stores on the steets with many people, and in this way, SASA spared the admittance fare and commission deducted by department stores, with a lot of customers patronaging. If it sold all articles of different brands at the same counter, SASA would save a considerable sum of decoration cost by using their unified counter image. Trained strictly, shop assistants mastered enough knowledge of beauty culture to deal with goods of many brands so that labour cost saved greatly. Giving up the farthest benefits to customers, SASAs marketing strategy, is helpful of forming its steable consumer group. With its expansion, SASA began to stock directly from manufacturers all over the world and has become the exclusive agent of many brands. Presently, SASA owns 7 main markets in Asia, including Hong Kong, China Mainland, Singapore, Malaysia, Taiwan, Tailand and Macao, having about 2,600 employees.

3 Hong Kong Cosmetics Market

Hong Kong has being adopting free-trade policy all along without any trade barrier. Before 1997, the Hong Kong ex-government imposed tax on liquors, tobacco, carbinol, hydrocarbon oil, soft beverage and cosmetics manufectured both locally and abroad, say, levying ad valorem tas of 25% of CIF on imported cosmetics and 25% of trade price on the ones manufactured locally. Afer the returning of Hong Kong in 1997, the government began to loosen the limit of tax policy and now leves taxs only on alcohol, carbinol, hydrocarbon oil and tobacco, with soft beverage and cosmetics exempted. Therefore, the cosmetics market in Hong Kong became flourishing, increasing by 3.8% yearly from 1998 to 2006 according to the Forbes release. Otherwise, Hong kong accepts the sanitary quarantine criterion of Europe for cosmetics, so those with Europe quarantine certificate are not to be re-inspected, fercilitating the importing and marketing of cosmetics. Currently, the cosmetics stores in Hong Kong fall into four categories: 3.1 Cosmetics department stores large-scale department stores mark off a floor for cosmetics sale and each famous brand has its own counter. For instance, shopping malls, such as FACES, BEAUT SOGO, JOYCE, Pacific Place, Times Square, International Finance Center, etc., have their special counters for cosmetics with all assortments of world-famous brands including Chanel, Lancome, Clinique, and Shiseido. 3.2 Exclusive stores of brand cosmetics Such stores sell cosmetics of certain particular brand, but not any others. 3.3 Pharmacies It was in the pharmacy where cosmetics were sold at the very beginning in Hong Kong and now the tradition still remains. But the way of sale has changed, with a special room marked off for cosmetics selling in pharmacies such as Watsons, Wanning, and Longcheng. 3.4 At-a-sale cosmetics stores This kind of stores include SASA, Bonjour, Angel and Rainbow, etc.. At present, the greatest challenge to SASA comes from its competitor, Bonjour. Bonjour was founded in 1991, listing on The Stock Exchange of Hong Kong Limited in July, 2003. In Hong Kong it has 28 branch stores selling over 30,000 kinds of products which neighbour on those of SASA, threatening to share the market with SASA equally. Most of the products sold by Zhuoyue are second-class ones and their super low prices attract lots of customers from mainland of China

412

4 SASAs Low Price Strategy

SASA always offers surprising low prices because it can do a good price bargin with bulk purchases all over the world. Except the brands dealt with as an agent, SASAs other supplies of goods come from the agents throughout the world at discount prices, not from famous-brand manufacturers directly, so its prices are much lower than those of the exclusive counters of goods in Hong Kong and Macao. To pursue the goal of low prices, SASA adopts the strategy of inviting supply tenders at the lowest price through worldwide price competition, so it is not surprising to find the same line of articles with different packings in its stores. Actually, manufacturers would design different parkages for different target markets and print labels and specifications, etc. respectively according to the laws of the host country. For instance, SK-II is made in Japan, but sells all over the world, which bears different language labels bearing or enclosed specifications. Therefore, the same articles, SK-II, are packed in defferent form of packages, those directly from the manufacturer bearing only batch code without date, those from Hong Kong agent with the words refering to date,, those from Taiwan with manufacture date such as 0710 (indicating the date , Oct., 20070 . Otherwise, some suppliers dont want others to know that they sell goods to SASA, so cover the English letter printed before the batch code on purpose. For an example, some of the Clinique products sold by SASA imported from the US, some from UK and both are packed in the same way originally except the first English letter indicating different marketing places. In order to disguise, the suppliers would attach a another label to the package so that the first English letter is covered and make the packing look different.

5 SASAs Products Supply Chain System

Figure1 SASA supply chain of commodity

As is shown in Figure 1, SASA commodity supply chain is a supply system based on markers. The cosmetics manufactures sell their products all over the world through agents. SASA stocks from agents in different places in the world by the means of price competion and collctes the stocks in its ditribution center in Hong Kong. SASAs suppliers are mainly agents of manufactuerers of Hong Kong, America France, England, Japan and Germany as well as other manufacturers whose agent is SASA. Through the
413

development of 30 years, SASA has estabilshed good relationship with those agents mentioned above and possesses over 100 chain stores with regular consumers so that any agent in Hong Kong or elsewhere in the world would not ignore SASA. Moreover, each time manufacturers want to market its new product through agent, SASA is one of their first choices. All those conditions above help SASA get goods at even lower price and ensure to keep the supply chain the smooth and continous.

6 SASAs Logistics and Distribution Channels

At present, SASA has 51 chain stores in Hong Kong, 14 in New territories, 23 in Kowloon, 14 in Hong Kong Island. SASA transfers its commodity from oversea to Hong Kong by the means of the sea transportation but locally it celects a special company which delivers the goods the to differnet destinations. Quick and exact distribution channel is another highlight of SASA.

Figure 2 SASA distribution channels

As can be seen in figure 2, SASA adopts a three-level distribution system. The goods are distributed from the master station (first-level distribution center) to the second-level distribution center, then from the second level to the third level, and last from the third level to the retail stores. The distribution centers of each level do the distributing timely according to the sales of the sub-levels, of which the key link to ensure the timely distributing is the sales information delivering system. It is a special limitless information delivering system that does the delivery in SASA Hong Kong.

Figure 3 Sales Information Delivering System in SASA Hong Kong.

As shown in Figure 3, the code of each article will be scanned by shop assistants when it is being sold so that not only can the cost be counted out but also the sales information will be sent to third-level

414

distribution centers, including the store number, name of the article, volume, model, etc. Then the third-level distribution centers will distribute and deliver the products timely based on the sales information from each store in their administrating areas, ensuring the supply of goods in each store. The third-level distribution centers will also scan the code of each article when they distribute. The cost and models of the goods delivered to each store will be recorded and meanwhile the delivery information will be sent to the second-level distributing centers. The second-level distributing centers will do the distribution and delivery timely in the same way and will purchase goods from the master station according to their own specific condition.

7 Business Failure in Mainland China

After 25-year development in Hong Kong, SASA began to prepare for entering the Mainland market. In March, 2004, its first business was inaugurated on Huaihai Road in Shanghai. However, the stores in Mainland are not so prosperous as in Hong Kong. At present, SASA Hong Kong owns more than 400 brands while there are only less than half of those numbers in Mainland, whose import prices are 15% to 20% higher. The main reason may be attributed to the breaking of the supply chain. Firstly, the European test standard of cosmetics is not recognized by Chinese government. All the cosmetics imported must be re-quarantined, which will take nearly one year in addition to a quarantine fee of RMB 20, 000 each model. So SASA will have to wait for a long time to sell the cosmetics by itself, which may easily lose the commercial opportunities. Secondly, according to the government regulations, the Ministry of Public Health will issue quarantine numbers and labels of Chinese Characters to the cosmetics quarantined, each of which is unique and belongs to the applicants. It means that SASA cannot apply for re-quarantine on the major cosmetics that have been imported into Mainland even if it gets the dealership. Thirdly, most of the major brands in the world have been introduced into China and most agencies of these brands in Mainland are their own branches, who are not willing to see comparatively much differences in prices between the SASA stores and special counters in department stores. Therefore, they would unlikely to sell the brands to SASA at the lower price. Fourthly, SASAs entering the Mainland market woke up the companies in Mainland, such as the Xieheng Mobile Chain stores, famous for selling mobiles at reasonable price. After SASA announced that its entrance into the Mainland market, Xieheng found that there were hardly no large-scaled cosmetics chain retail companies in Mainland. As a result, Shanhai Yiting Cosmetics Chain Ltd. was set up and 16 branches were opened in Shanghai before SASAs entrance. Meanwhile, SEPHORA, attached to the world-famous luxury brand LVMH, opened a store within 100 meters form SASA, and soon developed into three chain stores. The breaking of the supply chain and the increasing of competitors caused much trouble for the development of SASA Shanghai branch. According to the 2004 report by Citigroup Smith Barney, the first store of SASA International in Mainland China suffered a loss of HK$10 million in the first year. The annual report of SASA Shanghai branch also indicated that SASA suffered a loss of more than HK$10 million in Mainland market in the fiscal year from 2006 to 2007. Due to different conditions of law and market, SASA Hong Kongs supply chain mode cannot be duplicated in Mainland market. Even Shanhai Yiting CosmeticsLtd., who wanted to copy the mode of SASA at the beginnging of its business, has not approached its expected result and be marching hardly nowadays.

8 Conclusion
The supply chain and logistic management mode of enterprises must comply with local laws. The management and trade policies of cosmetics vary considerably between Hong Kong and China Mainland. The successful operation of SASA in Hong Kong could not guarantee the its prosperity in the Mainland.

415

Healthy supply chain and Logistic system, which underlies the success of enterprises, could not be copies easily. Hong Kong SASA copies its Hong Kong mode in the Mainland, but the result is frustrating. Shang Hai Yiting, which copies the SASA mode from its beginning, also learned a bitter lesson. All the facts indicate that successful supply chain and logistic management mode cannot be copied blindly without flexibility.

References
[1]. Tallontire Anne. Partnerships in Fair Trade:Reflections From A Case Study of CafDirect. Development in Practice,2000(10):166-178 [2]. Robert J,Trent, Achieving World: class Supplier Quality[J]. Quality of Product Management,1999(10):927-939 [3]. Wu Xiaopo, Geng Shuai. Suppy Chain and Logistics Management.Zhejiang: Zhejiang University Perss,2003:226-319(in Chinese) [4]. Li Yan,Chen Ming,Qian Bing. Suppy Chain and Logistics Management.(2nded)Beijing:Publishing House of Electronics Industry,2010:19-92(in Chinese) [5]. Sun Jingping. Research on the Core Capability of Enterprise Based on the Value Chain Management.Journal of Anhui Radio Broadcasting and Television University,2006(1):39-41(in Chinese) [6]. He Jianhua. Enterprises Value Chain Mode Under E-business Environment. Journal of Anhui Normal University (Social Science Edition),2007(4):390-394(in Chinese) [7]. Yang Xinghua,Nie Hua.The likelihood between the Food Chain of Economic Ecology and Value Chain of Enterprise.Journal of Beijing Forestry University (Social Science Edition), 2005(2):79-82(in Chinese) [8]. Xu Zhongyan, Sun Rui. On the Coordinated E-business Mode Driven by Virtual Value Chain.Business Research, 2004(12):168-170(in Chinese) [9]. Yue Dianmin,Wu Xiaodan.Research on the Cost Management System Based on the Value Chain System.Business Research, 2008(7):70-74(in Chinese) [10]. Zhao Chunyu.Research on the Rebuilding of Value Chain Based on Circular Economy. Business Research, 2009(3):100-102(in Chinese)

416