For the exclusive use of s. liang, 2020.
W15553
CRISIS AT THE BALLY WEDDING DRESS COMPANY
Professor Zhu Jiqing and Lu Yun wrote this case under the supervision of Professor Paul W. Beamish solely to provide material for
class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors
may have disguised certain names and other identifying information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Copyright © 2015, Richard Ivey School of Business Foundation
Version: 2015-11-27
On February 7, 2014 — the first workday after the Spring Festival (Chinese New Year) holiday — Fiona
Lee, the general manager and founder of the Bally Wedding Dress Company (Bally), came to her factory
in Suzhou, China, to start making plans for the New Year. The factory was very quiet, with not even one
worker present. When coupled with the large backlog of orders, this made Lee frustrated. The Spring
Festival period was the boom season for the wedding dress business, but the workers had all gone home
for their holiday and had not returned to work yet. Past experience showed that they would not be back
for at least another week.
Outside, people were still lighting fireworks to celebrate the Spring Festival. Inside, Lee was in no mood
for joy. The hardships and difficulties over the last two years in operating and managing the company had
left her exhausted. Production costs had increased rapidly while orders had decreased significantly in the
past three years. The latter was due to a variety of reasons, including difficulty in recruiting workers,
increases in labour costs and costs of raw materials, and a rise in the value of the renminbi relative to the
U.S. dollar (see Exhibit 1). Compared to 2012, the sales volume in 2013 had dropped 36 per cent while
profitability had fallen by almost 50 per cent (see Exhibit 2). It was estimated that 2014 would be even
worse. If the situation could not be changed and the company could not be turned around, Lee wondered
whether it and others like it in this industry could survive. The situation was now desperate.
COMPANY HISTORY
The Bally Wedding Dress Company was established in October 2008 by Lee and two partners. Lee
owned 67 per cent of the company stock. The company was located in Huqiu District, in the city of
Suzhou in Jiangsu Province. Suzhou contained a major industry cluster of wedding dress manufacturers.
Bally mainly dealt with the design, sale and manufacture of wedding gowns, dresses, bridesmaid gowns,
children’s wedding clothes and wedding accessories. Its products were exported around the world, and its
major clients were spread over the United States, Canada, Europe and Australia.
Lee was the lead founder of the company. She had previously worked in a public service organization. In
2007, she was introduced to Jerry Chan, who was originally from Zhejiang Province. After he immigrated
to Canada, he became a real estate agent. Due to the impact of the American subprime mortgage crisis,
This document is authorized for use only by simin liang in Doing Business in Greater China Fall 2020 taught by Lihua Wang, San Francisco State University from Aug 2020 to Dec 2020.
For the exclusive use of s. liang, 2020.
Page 2
9B15M117
Chan’s real estate career suffered. Therefore, he started a website selling products like wedding gowns
and dresses online in his free time. Chan was in charge of online promotion, marketing and sales, while
Lee took charge of production, quality control and delivery in China. Later, Chan changed jobs. The new
job kept him quite busy, so he had no time to devote to the wedding dress business. The orders shrank and
finally, he exited the wedding dress business in 2008.
In her experience dealing with factories and shipment agencies, Lee came to know the business model for
online wedding dress sales. She decided to quit her job and set up her own business in the wedding dress
industry due to the huge price gap between domestic and overseas markets and its easy operational model.
Wedding dresses in foreign countries cost thousands of dollars each, while even a price tag of ¥800 1 (well
under US$200) was rather profitable in China. In October 2008, Lee started her own online wedding dress
shop, and wanted to set it up in two months. However, since she was unfamiliar with web technology and
online marketing, she had only two alternatives: either organize a tech group herself or outsource the
service to outside suppliers. It would take time to set up a tech group on her own and it was rather hard to
find suitable staff. Therefore, she contacted a company that specialized in website construction. That
company built a tailored online marketing platform for her, which included products like wedding gowns,
prom dresses, bridesmaids’ gowns, flower girl dresses and wedding accessories. Her products used
pictures taken from foreign websites. As Lee explained:
The traditional foreign trade process is like this: first, factories in China will manufacture goods
and then sell to foreign importers via trading companies. Thus, when products finally reach the
consumers, the price is far higher. We have built a website directly facing foreign consumers,
which links manufacturers immediately with foreign consumers. This means the profits will only
be shared by manufacturers and us.
OPENING A FACTORY
The initial stage of the business did not go smoothly due to Lee’s limited knowledge of online promotion
and marketing. The company had only a few orders every day.
In 2008, with the onset of the Global Financial Crisis, the demand from international markets decreased
sharply and export orders for traditional trading enterprises shrank dramatically. Though the purchasing
power of consumers had declined in many international markets, there was still demand. Many people
were looking for cheaper substitutes or spending time searching for more suitable goods with better value.
Cross-border online shops provided the products that this group of consumers sought. Compared to
traditional foreign trade, cross-border online shops provided their consumers with a huge information
database, customized commercial feeds, word-of-mouth reputations and diverse payment methods. Via
the Internet, products could be directly sold to retailers or final consumers after being manufactured in
China. This immediately reduced costs and improved efficiency. When the traditional export system
faced trouble, new e-businesses had their chance.
Seeing other companies’ booming business, Lee became anxious. After visiting a friend’s company, she
realized that online promotion was her weakness. To strengthen marketing and promotion, she had to
establish her own marketing and technology team. At the end of 2008, Lee arranged for web tech experts
from outside web companies to become her business partners to specialize in online marketing and
promotion. She gave these partners 33 per cent of the company shares. To increase the coverage, Bally
further enriched its product categories. It operated on multiple sites, launching websites using different
1
All currency in renminbi (¥) unless specified otherwise.
This document is authorized for use only by simin liang in Doing Business in Greater China Fall 2020 taught by Lihua Wang, San Francisco State University from Aug 2020 to Dec 2020.
For the exclusive use of s. liang, 2020.
Page 3
9B15M117
languages. For online promotion, the company not only focused on the traditional Google search list, but
also targeted social websites and depended on social media networking service marketing via Twitter,
Facebook, etc. to increase brand recognition.
Thanks to the boom season and strong online promotion, at the beginning of 2009 online orders surged to
30 per day compared to only two to three orders per day at the end of 2008. The monthly turnover
increased to US$300,000 in less than half a year. Lee outsourced all her orders to a wedding dress factory
called Happy Time. This factory was quite small, with only a dozen workers who were all relatives. The
daily capacity was 10 dresses. Due to the delicate, high-quality work and better service that Happy Time
could provide (relative to other suppliers), Lee gave almost all her orders to it. Besides Lee’s orders, the
factory had three other clients. Although the production capacity was far lower than demand, the factory
would not enlarge its production scale for fear of having no orders in the slow season.
Although the production capacity was far below demand, at the end of April 2009 Lee gave more than
1,000 orders to Happy Time. Of these, about 500 could not even enter the process of production given the
lack of qualified production staff. Even if it was in the production plan, it would take at least seven days
for a wedding dress to be tailored and then about five days to be delivered. One issue for her was that
foreign customers were often ordering dresses close to their wedding dates. They kept pushing for
shipment and some even started to complain. The other issue was the limited production capacity for the
factory. Lee tried to contact some other factories, but they all had large order backlogs and their quality
and service were even worse than Happy Time’s. Faced with the urgent orders, Lee had to go to Happy
Time several times a day to urge the factory to speed up the process. Sometimes, she had to stay in the
factory for a whole day and would not leave without taking the clothes she had ordered. Other clients of
Happy Time did this too, keeping their eyes on the production of the factory. A week before the May Day
holiday in 2009, several factories responsible for Lee’s orders kept working overtime, and Lee managed
to deliver more than 100 pieces. She had thought this would mitigate the pressure of pressing orders and
would help her relax a bit during the holiday. However, to her shock, after the May Day holiday,
complaints and returns requiring refunds came to her one after another. Some customers complained
about the quality while others said the dresses had arrived too late for the wedding ceremonies. The return
and refund rate for the shipments just before the May Day holiday was up to 40 per cent.
Facing a backlog of several hundred orders and a high return rate, Lee realized that the supply chain was
the biggest issue at present. If she did not have her own factory, she would never be able to ship the goods
in time, and could not satisfy customers’ requirements on materials, handcrafts and quality. Even if the
factory managed to deliver the goods, they would be poorly made and result in complaints and returns. As
a result, Lee decided in August 2009 to invest in her own factory, which was located in Huqiu, Suzhou.
Lee took over a factory and bought eight sewing machines and other facilities, employing 16 workers. It
cost her about ¥120,000 (approximately US$17,600).
INDUSTRY FEATURES
Suzhou was one of the key cities in the Yangtze River Delta in the eastern part of China. In early 2014, it
had a registered population of 6.5 million, plus up to three million additional migrant workers. Suzhou
was famous for its silk production. Local residents raised silkworms and Suzhou was called the City of
Silk. Huqiu, Suzhou, was a major hub for wedding dress suppliers and occupied a 70 per cent market
share of national wedding dress production. After 30 years of development, the Huqiu wedding dress
market had more than 2,000 manufacturers and outlets. It had developed from dealing only with wedding
dresses to selling several hundred products such as cheongsams (traditional dresses), nightgowns, veils
This document is authorized for use only by simin liang in Doing Business in Greater China Fall 2020 taught by Lihua Wang, San Francisco State University from Aug 2020 to Dec 2020.
For the exclusive use of s. liang, 2020.
Page 4
9B15M117
and accessories. Nearly every store had its own design, tailor, manufacturing specialists and factory.
Related industries like wedding equipment, photography studio supplies, wedding dress materials and
accessories were also clustered there. Although the wedding dress industry in Huqui had a reputation in
China, it was primarily known for low-end and low-price products.
There were fewer than 10 high-end wedding dress stores in Huqiu which had their own brands. Most of
the stores were small workshops that did not have high-quality production and management. All these
small factories were clustered around Huqiu Tower.
Wedding dress production was a traditional, labour-intensive industry. Processes like sample making,
cutting, sewing and embroidering were almost all done by hand. In China, unit labour costs had had a
great advantage for many years and products were highly competitive in the international market.
Wedding dresses and other types of clothes could earn more than 40 per cent in profits, which provided
the products with a great export advantage. According to statistics from “The Wedding Report, Inc.,” in
2011, the price for the average wedding dress in the United States was US$1,166, while in the same
period a wedding dress made in Suzhou was sold in online shops in international markets for only
US$200 to US$300. These prices were extremely attractive to foreign clients.
Recently, many payment methods had been put into use, including third-party payment, so that consumers
overseas could pay with local credit cards on the web. At the same time, cross-border transport and
delivery had become very efficient with the entry into the Chinese market of international logistics
companies like DHL, FedEx, etc. As a result, cross-border online dealers had swarmed into the wedding
dress industry. In some residential buildings near Huqiu, there were numerous foreign trade e-commerce
groups, most keeping a low profile. Their annual revenue was US$2 million to US$10 million. A typical
cross-border online seller would do business as follows: first it would upload features, prices and pictures
of its products onto a website. When it received orders from overseas, it would start the manufacturing
process. The moment the products were completed, logistics services would pick up the goods and ship
them to the buyers. The shipment would take about five days. The product pictures were usually copied
from foreign brands. Customers could customize according to their own figures and colours as long as
they could provide pictures and sizes. There was no minimum order quantity.
INCREASE IN PRODUCTION COSTS
The Global Financial Crisis not only brought about many more online orders, but also depreciation of the
U.S. dollar. The rapid appreciation of the renminbi caused export costs to increase, which weakened the
international competitiveness of Chinese export products. Small and medium-sized enterprises which
manufactured low-end products faced a serious threat. In late 2011, Lee began to feel the pressure from
factory operations. Even in the boom season, when the factory operated at full scale, the profitability had
already dropped dramatically compared to previous years, due to labour shortages, an increase in labour
costs, high raw material prices, and pressure from the renminbi’s appreciation. The factory had already
approached the critical point for profit and loss. When the factory was established in 2009, the pay for a
skilled sewing machine worker was ¥2,500 to ¥3,000 per month, and for a hand worker it was ¥1,500 to
¥2,000 per month. In addition, the factory’s additional labour was readily available whenever more staff
was needed. However, in 2014, the pay for a sewing machine worker in the busy season rose from a base
salary of ¥6,000 per month to ¥10,000 to ¥12,000 per month (see Exhibit 3).
As economic development in the mid-western part of China accelerated, many labour-intensive industry
jobs, including clothing industry jobs, were transferred to those areas. Many workers took jobs in adjacent
areas, so there were fewer people seeking clothing manufacturing jobs. Due to the unbalanced regional
This document is authorized for use only by simin liang in Doing Business in Greater China Fall 2020 taught by Lihua Wang, San Francisco State University from Aug 2020 to Dec 2020.
For the exclusive use of s. liang, 2020.
Page 5
9B15M117
development in China, eastern China was highly developed but the rural areas in the mid-western part
were still poor. Many migrant workers were from the mid-western part and sought jobs in the eastern part.
They worked almost all year in the eastern part and usually returned home to mid-western China during
the Spring Festival holiday. The pressure to quickly produce a high-quality product in this industry was
high. Many young people were not willing to do it if they had a viable alternative. Many workers had also
exited big cities because living expenses had risen dramatically. During the boom season for wedding
dresses, especially around the Spring Festival, due to the difficulty in recruiting workers, wedding dress
factories were faced with a major dilemma: too many orders but no workers. For those who were willing
to continue working on holidays, they expected to receive much higher pay — usually triple the normal
pay level.
To alleviate this issue, though the Spring Festival holiday was not over as of February 7, 2014, all
wedding factories were already trying to recruit more workers. Despite the fact that some workers would
return, it would not be until the 15th of the first lunar month that normal production would start.
A labour shortage was not the only problem that wedding dress factories encountered. Wedding dress
workers were mostly somewhat older with families, and wanted to balance work and life. During busy
periods, older workers were less willing to take on overtime work. Even so, the imbalance of supply and
demand in the labour market caused the payment for labourers from other provinces to rise continually.
Salary was the most vital factor in competing for employment. The Employment Information Board in
Huqiu had salary statistics: workers operating sewing machines received a monthly payment of ¥6,000 to
¥8,000 (minimum plus bonus), cutters received ¥6,000 to ¥7,000, sample designers received ¥6,000 to
¥8,000 and low-skill jobs had an average pay of ¥5,000 per month. However, many factory owners still
complained that it was getting harder to find someone who would work steadily. Workers would change
jobs the moment they felt dissatisfied because it was easy to find another one. To avoid missing promised
deadlines, factory owners would yield to workers. In the past, it would be easy to make workers work
overtime, but now, the workers would not do so if they were not inclined.
TROUBLES OF OPERATING THE FACTORY
Lee was exhausted because of recruitment, high labour costs and difficulty in management. Although the
Spring Festival had just ended, she had already started recruitment plans and posted employment ads
around the streets in Huqiu. Unfortunately, high promised payment did not attract many applicants.
Factory owners were all desperate to attract those workers who came back early. Some even set up
recruitment desks on busy roads in Huqiu. Nevertheless, most workers were not too hasty in selling their
services.
Lee was trapped in a dilemma. On one hand, the cost of operating the factory was high. Even in the boom
season, when the factory was in full operation, the profitability from production was very minor. But she
could not lay workers off in the low season because it would be difficult to recruit more workers in the
boom season next year. Huqiu was not a big place and rumours spread quickly if she did not treat her
workers well. On the other hand, if Lee shut down the factory, focused only on online sales, and
outsourced production, she would worry about production and quality in the boom season, as she was still
scared over the complaints and returns from last year. Lee was particular about quality. She told the
workers that a wedding ceremony was an important occasion in a woman’s life, and hence the bride had
every right to wear the most beautiful wedding dress.
This document is authorized for use only by simin liang in Doing Business in Greater China Fall 2020 taught by Lihua Wang, San Francisco State University from Aug 2020 to Dec 2020.
For the exclusive use of s. liang, 2020.
Page 6
9B15M117
Another issue that worried Lee was copyright violation. Almost all the photos on her wedding dress
websites were directly copied from well-known foreign designers’ websites. Since 2012, many foreign
wedding dress designers had worked harder to protect their copyrighted designs. The biggest wedding
dress chain stores in the United States had filed complaints against a large number of China-based
wedding dress websites. As a result, these domain names under complaint had been forced to close. Lee
herself had consistently received complaints about copyright from a number of foreign wedding dress
designers, asking her to stop using their photos for online sales. Some of the 20 profitable website
domains she used had been forced to close. On multiple occasions, Lee had had to close down operations
under one company name and reopen under a new name. Even worse, PayPal, a third-party payment tool,
had permanently closed her account. This had severe financial implications since she could not even
withdraw the US$500,000 in her account.
To avoid legal proceedings in court, Lee had thought of building her own brand, designing with her own
designers and hiring models for the photos to be uploaded to her websites. However, after doing some
calculations, she had concluded that the cost for every piece would be about ¥180 — from design, to
sample, to photo — and this did not even include the cost for a sample dress itself. One website needed to
have about 2,000 products, which meant the total cost of going this route would be up to ¥360,000. This
was more than Lee could afford. Some bigger companies and more wealthy entrepreneurs in this industry
did invest in designing and taking photos of their own products. But it proved to trigger a much lower
sales volume than using foreign brands’ photos.
Lee also considered the possibility of relocating her factory to a city in inland China, such as Hefei in
Anhui Province or Zhengzhou in Henan Province, because there was plenty of lower-cost labour there
and hence production costs would be comparatively lower. However, the related industries were not
mature there. Unlike common clothing, wedding dresses were a special category. Wedding products were
not goods that had a high repurchase rate, and they could not be mass-produced. They needed to be
customized according to different styles, designs and sizes. As for the procurement of fabrics, laces,
crystals and flower pieces, this could only be done in small units with high frequency. Unlike Huqiu in
Suzhou, Henan and Anhui did not have mature wedding dress industry clusters and would pose a great
challenge for raw material purchases.
Lee had no idea what to do. In several days, workers were due back and she needed to make a decision as
soon as possible.
This document is authorized for use only by simin liang in Doing Business in Greater China Fall 2020 taught by Lihua Wang, San Francisco State University from Aug 2020 to Dec 2020.
For the exclusive use of s. liang, 2020.
Page 7
9B15M117
EXHIBIT 1: EXCHANGE RATE OF U.S. DOLLAR TO ¥, 2007–2014
7.5
7.39
7
6.85
6.81
6.62
6.61
6.5
6.25
6.07
6.05
6
2007
2008
2009
2010
2011
2012
2013
2014
Source: Created by authors.
EXHIBIT 2: SALES VOLUME OF BALLY WEDDING DRESS COMPANY BY YEAR IN U.S. DOLLARS
2008
(2 months)
9,460
2009
2010
2011
857,760
1,646,700
2,412,000
2012
1,853,280
2013
1,188,000
2014
(1 month)
89,000
Source: Company files.
EXHIBIT 3: COMPARISON OF AVERAGE PAYMENT FOR SKILLED WORKERS IN WEDDING
DRESS INDUSTRY BY COUNTY (¥/MONTH)
Suzhou
Zhengzhou
Hefei
2008
2,500
2,000
2,000
2009
3,000
2,200
2,200
2010
3,800
2,500
2,400
2011
4,500
2,800
2,600
2012
5,000
3,000
3,000
2013
6,000
3,500
3,500
Source: Company estimates.
This document is authorized for use only by simin liang in Doing Business in Greater China Fall 2020 taught by Lihua Wang, San Francisco State University from Aug 2020 to Dec 2020.
Purchase answer to see full
attachment