It has been over a century since some Hong Kong companies, responding to the mainland’s broad commercial upgrade and perceiving rising US-China business tensions, moved to set up factories abroad. Being versatile paid off, until President Donald Trump launched his storm of tariffs on US trading partners as part of his “America first ” economic plan, The Post focuses on a global clothing manufacturer that moved strategically first, just to explore new disarray in world trade today.
Hong Kong woman Pauline Ngan Po-ling was in Beijing for China ’s annual political meeting in early March when mayhem struck the international trading system.
United States President Donald Trump had begun slapping big tariffs on US trading partners, hitting China hardest, in a bid to lower the US business gap, argue American interests and proper what he believes are imbalances harsh to the world’s largest business.
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Ngan recalled the chaos on March 5, the day after Trump levied a 25 per cent tariff on imports from neighbouring Mexico, where her company produced caps, hats and other headgear mainly for the American market.
That day, she said, US customs officers did not know how to impose the new tariffs on Mainland Headwear Holdings ’ goods moving across the border.
The very next day, however, Trump suspended the Mexico tariffs, and subsequent negotiations led to zero duties for garment imports from the country.
While that was a relief, Bangladesh, where Ngan’s company had its main production base, was affected by a series of moves by the US leader.
Trump first imposed a 37 per cent tariff on US imports from Bangladesh, then lowered it to a 10 per cent upon negotiation, before putting it on hold for 90 days from April 9.
“It was so painful because things changed every day, ” said Ngan, the company ’s deputy chairman and managing director, and a Hong Kong representative to China ’s top political advisory body, the Chinese People’s Political Consultative Conference.
She co-founded Mainland Headwear in 1986 with her husband, Ngan Hei-keung, now the company ’s chairman. The couple grew it from modest beginnings in Hong Kong to a mainboard listed company with a presence in mainland China and in Bangladesh, Mexico, the US and Europe.
It is one of the world’s largest manufacturers of sports caps, hats and a wide range of other casual headgear, as well as accessories such as belts, headbands and visors.
It blamed global geopolitical uncertainty for sales sliding 4. 4 per cent to HK$ 1. 47 billion ( US$ 189. 7 million ) last year, with net profit down 51. 6 per cent to HK$ 57. 07 million from 2023.
The company was among Hong Kong manufacturers that diversified operations overseas over a decade ago in response to growing geopolitical tensions between China and the West and rising costs.
“ What we have done on diversifying geographical locations is primarily because of geopolitics, ” Ngan told the Post. “Every step we took more than 10 years ago was not easy at all, and came with lots of risks, and has proved right so far. ”
The dust has yet to settle in Trump’s tariff wars, but for Mainland Headwear, the upheaval of recent weeks has forced it to re-examine its operations, shift production between its overseas factories and reconsider plans to set up in new locations.
With Mexico spared the US tariffs, the company moved swiftly to double production capacity there to a million pieces a month as quickly as possible.
For now, the 10 per cent so-called reciprocal tariff applied on its products made in Bangladesh was being shared between the company, its customers and suppliers.
The group sold 95 per cent of its Bangladesh output to the US, with the rest going to Europe.
Ngan has already taken steps to shift some production from Bangladesh to Mexico to avoid the US levy.
Diversify to beat tariffs? ‘It’s not easy ’
Trump’s harshest tariff moves have been directed at China, and in a tit-for-tat series of actions, each side has raised levies on the other.
The US slapped tariffs of up to 245 per cent on some Chinese exports, while Beijing has reciprocated with levies of 125 per cent on all US goods, on top of earlier duties.
To avoid the tariffs, some analysts expected more mainland Chinese and Hong Kong manufacturers to start moving production lines to developing countries.
Some said the Trump administration had set out to plug the loophole of Chinese manufacturers re-routing exports to the US via a third jurisdiction.
That explained the heavy tariffs on shipments from places such as Bangladesh, Thailand, Cambodia, Vietnam and Indonesia.
In a move expected to hit Chinese e-commerce firms, small parcels worth under US$ 800 from Hong Kong and China that were previously allowed to enter the US duty-free have been subject to a 120 per cent tariff or a hefty flat fee since May 2.
“ Whether and to what extent Chinese exporters can still use re-routing via other economies to bypass those additional tariffs remains uncertain, ” said Lu Ting, Nomura Hong Kong ’s chief China economist.
But he expected innovative manufacturers to “continue to explore methods to avoid these mammoth tariffs”.
His team estimated that US$ 31 billion worth of Chinese exports to the US went via Mexico last year, and exports totalling US$ 163 billion went via Asean, the 10-member group of Southeast Asian countries.
Some Asean countries were top choices for Hong Kong and mainland manufacturers using the “China plus one ” strategy to diversify their production bases.
The total US$ 194 billion of Chinese exports diverted to the US through Mexico and Asean accounted for 5. 4 per cent of China ’s US$ 3. 58 trillion overall exports last year.
A Goldman Sachs research report anticipated that Chinese exporters would try to export goods through other countries to avoid punitive US tariffs.
“Re-routing, together with strong price competitiveness, is likely to maintain Chinese exports to other countries at solid levels, ” it said.
Mainland Headwear’s Ngan said she had recently received many phone calls from Chinese exporters eager to know about moving to Mexico.
“Many asked if I could lease some land to them to set up a factory, ” she said. “ Whether it is 145 per cent of 245 per cent tariffs, it is impossible to do business in China with the US. ”
She is willing to share what she has learned from diversifying her production lines beyond the mainland. The main lesson: it is not easy.
Culture shock in Bangladesh
Ngan spent a decade establishing her Bangladesh factory, now the group ’s largest production base outside the mainland.
Its 7,400 workers produce 6. 5 million items of headwear and 300,000 pieces of accessories such as belts, wallets and backpacks a month, and she is satisfied that the quality of their work is top notch.
When the company first set up there in 2013, it chose to be in quiet Bagbari, on the outskirts of the capital, Dhaka, to take advantage of the ready supply of cheap labour.
A business contact had recommended the location. Visiting the place, Ngan found herself in a village surrounded by forest, without proper roads, water supply or telecommunication infrastructure.
While there was a pool of available workers, most were illiterate and so poor that they lacked food or spare clothes, and many had head lice.
The company had to build roads, set up its Wi-fi network, dig wells for drinking water and raise the factory from nothing.
She brought in managers and trainers from her mainland factory to train the workers, provided them clothes and helped them get rid of the head lice, too.
Ngan also had to negotiate with gangs.
“At the beginning, some gangsters would come to extort money from us every day, ” she said.
She decided to meet the ringleader.
“ I offered him a three-year interest-free loan to spend on clearing up a bamboo forest, building dormitories and renting them to our workers, ” she recalled. “ I said, you don’t have to be gangsters, you can earn a decent income from rent. ”
He accepted the offer and did as she had suggested.
“ He paid me back on time and no longer engaged in illegal business, ” she said.
It took longer to build her workforce because the people she hired did not know how to sew.
For the first time, Ngan learned about Islam.
Being Muslims who prayed five times a day, her Bangladeshi workers would stop work at prayer times. She also became aware that Muslims had a holy month every year, Ramadan, when they fasted from dawn to dusk.
She built a mosque on the premises last year, then learned that only the men would pray there. The women workers still went home at prayer times.
Ngan’s Bangladesh experience taught her that moving production lines overseas made business sense, but also demanded understanding the local culture and practices, and that remains a work in progress.
Lessons from a Christmas party
That was something she had to learn all over again when Mainland Headwear set up in Mexico about a year ago to be closer to its US clients, including New Era Cap, America’s largest distributor of sports caps and fashion hats.
Its factory and godown at the border town of Sonora occupies a sprawling 150 hectare ( 370 acre ) site. The town is less than 2km ( 1. 24 miles ) from the border, allowing products to move fast at lower logistics costs.
The tariff chaos spurred Ngan to expand her output in Mexico by increasing the workforce from about 430 to 1,000 to push out a million headgear products a month.
The 12-hour time difference between Mexico and Bangladesh made for round-the-clock production, allowing the company to meet urgent orders and improve profitability.
But labour costs more in Mexico, where workers get a minimum monthly pay of US$ 650 compared with US$ 104 in Bangladesh.
Mainland Headwear was the first overseas company to set up a factory in Sonora in 30 years, and had to bring in everything it needed, from thread, sewing machines, packaging boxes and even chairs, from mainland China.
The company ’s interim report last year revealed an operating loss because “production had yet to run smoothly”.
For Ngan, her team and local employees, there was some culture shock and time needed for adjustment before the factory could get on track.
She said it was “a painful experience ” working through significant cultural differences and the language barrier.
“Mexicans speak Spanish and many are well-educated, but their mindset and values are very different from workers in other developing countries, ” she said.
She recalled the time that she wanted to know how many caps a female worker completed in an hour, and was taken aback to learn it was well below expectations.
When she ticked off the worker for being too slow, the upset woman responded by slowing down even more.
Ngan realised she had to figure out how to handle her workers better.
It was a celebration last Christmas that made a difference.
“It was a great party, everyone dressed up and enjoyed the entertainment, with singing, dancing and eating, ” she said.
“The dancers were so good I could n’t help but ask how much it had cost to hire them. My staffer said, ‘Mrs Ngan, the dancers and the jazz drummer are all our workers. ’ I was astonished. ”
It moved her to try a softer approach. She gave a bonus to a worker who had danced well at the party, and the woman’s productivity jumped three times the next day.
“The workers need to be encouraged and motivated, ” she said. “Scolding does n’t work. ”
She found that Mexican workers also valued their quality of life, and some preferred not to work overtime even for more pay.
It took nearly a year to iron out such teething issues before production was finally on the right track.
“The worst is over, ” Ngan said.
Late last year, Mainland Headwear identified Cambodia as a third production base outside China, adding on to its factories in Bangladesh and Mexico.
That plan stalled last month, when Trump imposed a 49 per cent tariff on exports from Cambodia.
“The original calculation was that Cambodia and the US had stable and relatively friendly ties, but it has ended up facing even higher tariffs, ” Ngan said.
The group has temporarily suspended its plan for a factory in Cambodia.
Stefanie Pan Xueyun, a Mexico-based manager with industrial estate firm American Industries Group, did not expect China and the US to work out their differences over tariffs any time soon.
Instead, she expected more mainland and Hong Kong companies to set up factories in Mexico to benefit from the zero tariff under the US-Mexico-Canada trade agreement and tax incentives.
“Mexico has always been a very attractive place for investors, ” she said. “ But I only recommend Mexico if their clients are from North America. If they’re selling to Europe, maybe Mexico is not a good option. ”
The firm has developed 17 industrial estates and served more than 300 companies in Mexico.
Expecting the US-Mexico-Canada trade agreement to be renewed in the review next year, Pan said the United States needed Mexico’s labour and space for production.
“Mexico has always been very much respected by the US,” she added.
Additional reporting by Lam Ka-sing
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