Sustainable consumption, climate change concerns to further drive consumer demand

Manufacturers must nurture a culture of corporate social responsibility, says PwC’s Cheng

Michael Cheng has been the Consumer Markets Leader for Asia Pacific, Hong Kong and Mainland China at PwC Hong Kong since 2013.

Before this, he was PwC Hong Kong’s Retail and Consumer Leader for over 5 years. In his current role, he is responsible for coordinating practise strategy and service delivery for consumer companies in his assigned areas.

Bringing more than 34 years of professional assurance experience, Michael specialises in IPO advisory, business and due diligence reviews, asset injections, and merger and acquisitions activities in Hong Kong, Mainland China and Taiwan.

He is a regular speaker on trends and outlooks of the Hong Kong retail market and keynotes at leading industry events organised by HKRMA, InvestHK and British Chambers of Commerce, etc.

Michael is also a member of the Hong Kong Institute of Certified Public Accountants, Institute of Chartered Accountants in England and Wales, Audit Committee for UNICEF Hong Kong, and Hong Kong Retail Management Association’s task force on labour matters and the strategy working group. He was invited to be a member of the organising committee for the Retail Asia Conference 2020. In 2012, he was invited to join the task force that would recommend maximum working hours for the HKSAR retail industry. 

As a judge in the HKB Made in Hong Kong and Designed in Hong Kong Awards, Cheng shares his thoughts on the changes that manufacturers should focus on for future growth and his passion for helping clients explore ways to engage with consumers.

Can you explain your role as the Asia Pacific, Hong Kong and Mainland China Consumer Markets Leader at PwC China?

With almost 35 years of professional assurance experience in Hong Kong and the United Kingdom (UK), I have developed a strong passion for the consumer markets sector specialising in business operation and IPO advisory, commercial and financial due diligence reviews, asset injections and M&A activities in Mainland China and Hong Kong.

The main reason for my passion for Retail is because of my extensive experience in auditing Retail & Consumer related companies since my return from the UK to PwC Hong Kong, and a desire to help my clients to explore different ways of engaging with their consumers does help me to put more of my time and heart into this industry.

Currently, I am a member of the Hong Kong Retail Management Association’s (HKRMA) Digital Advisory Panel, the Hong Kong Institute of Certified Public Accountants and the Institute of Chartered Accountants in England and Wales, as well as the Council of the Hong Kong Committee for UNICEF.

As the business operations slowly return to normal, where should manufacturers focus to become more profitable and sustainable in the future? What trends and strategies should they take note of?

As the business operations slowly return to normal and in the light of the rapid adoption of new retail business models, manufacturers should prioritise what wholesalers and retailers care about. The notion of sustainable consumption and concern over climate change has never been more popular and such a trend is expected to further proliferate as China steers towards achieving carbon neutrality by 2060. Manufacturers must transcend price, quality, and availability by prioritising the environmental, social and governance (ESG) issues that wholesalers and retailers care deeply about as customers increasingly expect businesses to make sustainable and ethical choices, and that expectation has only increased since the onset of the pandemic. 

Driven by greater investor demand and stricter regulatory requirements on ESG issues, manufacturers should take more proactive action to embed ESG goals and ideas into their corporate culture and daily operating activities. Manufacturers should also strategically invest in sustainability and ESG actions where every decision and action is viewed through an ESG lens. Examples include proactively driving inclusivity and social impact of new net-zero products and solutions, upskilling and reskilling to enable an inclusive workforce transition, integrating social metrics into reporting and disclosure around net-zero, and incorporating inclusion into policy advocacy efforts.

Lastly, while the pattern of global demand recovery has been less than clear and stable, manufacturers should smooth out price oscillations of their products as much as possible. The pandemic has played havoc with supply chains and spiked prices. The volatility couldn’t come at a worse time; some consumers worldwide may have experienced a loss of income and higher household bills. The challenge is to use the many supply chain forecasting and price optimisation tools offered to minimise the price hikes as much as possible. Wholesalers and retailers are likely to recognise and trust the businesses that show they’re doing a better job of consistently holding down prices. 

How has the current supply chain disruption affected the operations of manufacturers? What are the challenges that companies should prepare for as they adopt digitization in their processes?

Over the past year, we have seen clear signs of inflation driven up by surging commodity prices and disrupted the supply of manufactured goods due to the resurgence of COVID-19 cases in many parts of the world that keep factories from operating full-scale. Freight rates spiked as shipping companies, ports, and logistics providers struggled to keep up with the jump in trade volume as the global economy recovered. 

The COVID-19 pandemic has caused outsized disruptions to the global supply chain network, and in response to that, manufacturers are scrambling to reconfigure, if not, reinvent their entire supply chain to stay relevant. The supply chain of the future will operate with near autonomy, making ‘smart’ decisions to self-regulate. Rapidly changing retailer and consumer expectations and behaviours are forcing supply chains to be more responsive and transparent. Trends, such as omnichannel shopping, multiple fulfilment points and geopolitical issues, will add to supply chain challenges. End-to-end visibility will be the number one requirement for the effective supply chain management. Digital enablement of the sales journey will be key in evolving the supply chain.

As an industry leader, what can you recommend to companies who would like to succeed in the manufacturing industry amidst the pandemic and challenges in the digitalization of the supply chain?

Supply chain transformation, particularly involving digital elements, has never been more relevant and is one of the key determinants of success for those who are in the manufacturing business. Much of what we have recently seen in supply chain transformation was propelled by the direct-to-consumer (DTC) trend that enables retailers to scale quickly with new technological advancements. Over the past two years, many brands have evolved to adopt a DTC strategy to circumvent the supply chain disruptions brought by the pandemic. Examples of supply chain transformation included algorithms for inventory optimisation in the real-time, enhanced connection between points of sales and warehouses, adoption of blockchain and IoT sensors for higher transparency and control, and use of AI to offer instant discounts to fill shipping boxes for greater cost efficiency. Though traditionally supply chain is considered as a cost to serve, the role of the supply chain in DTC is much beyond fulfilment alone. DTC can be the direct road to success when combined with highly efficient supply chains.

What are your thoughts about this year's entries for the HKB Made in Hong Kong and Designed in Hong Kong Awards?

Being one of the judges of the Made in Hong Kong and Designed in Hong Kong Awards, I am very much honoured to be invited by Hong Kong Business and witness so many innovative and unique products in the making - particularly at a time of uncertainty that calls for innovative ideas and solutions to meet the present challenges. 

I believe all the nominees, ranging from business-to-consumer (B2C) to business-to-business (B2B) companies, are proud to participate in and compete for the Awards. This also proves that Hong Kong has expertise specialised in different sectors. Hong Kong Business provides a platform for more customers to get to know some of the most exceptional and innovative products that are manufactured and designed in Hong Kong. 

I very much look forward to witnessing the winners of this year’s Awards and their real-life success in fulfilling their business aspirations and serving the greater good of society.