1 INTRODUCTION
1.1 Research Background and Significance
Financial strategy is the capital structure and capital plan for the company tocooperate with its own development and gain the competitive advantage. The planincludes three major aspects: fund raising, fund investment and pidend andmanagement of working capital. Financial strategy is a driving factor for profit mode,and operation mode needs to match the financial strategy.
Asset-light business model has been adopted by a lot of enterprises since proposed byMcKinsey & Company. However, studies on this topic are lagging far behind.Financial theory and accounting practices of running a company under this model arefaced with many new problems which need to be studied and solved urgently.Therefore, integrating the early research results both at home and abroad and lookingfor future research directions of asset-light business model is of great significance.
The HL Co., Ltd, established in 2002, is a leading company in garment industry. Themain business of the company include high-end suits, shirts, casual wear, clothingproduction and sales, dyeing and finishing business, branded apparel business(including brand management, supply chain management and marketing networkmanagement, and other services).Unlike traditional all-business company(such as theYounger),the HL Co., Ltd fully outsources its production processes and sales channels.It mainly focuses on brand management, product design and supply chainmanagement aspects. In this way, the HL Co., Ltd becomes one of typical asset-lightcases in garment industry.
The adoption of asset-light business model helps the company build a marketingnetwork in 33 provinces across the country in a short time (excluding Hong Kong andMacao Special Administrative Region).The proportion of stores they actually own orlease accounts for less than 10% while more than 90% of stores under their flags areoperated via franchising.Net operating income, operating profit attributable to ownersof the parent company get rapid growth and achieved good returns. However, with therapid expansion, it is facing greater financial risks compared with traditional garmententerprises. There are problems in three main aspects: financing strategy, investmentstrategy and operation funds management strategy, which have negatively affected thefinancial performance of the company.
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1.2 Research Objectives
This thesis aims to evaluate the existing financial strategy management system in HLCo., Ltd. under its asset-light mode of operation and propose solutions to theproblems so as to upgrade the existing system.Specifically, the research objectives areas follows:
1.Reviewing the status quo of financial performance of the HL Co., Ltd. under itsstrategy of adopting the asset-light mode of operation.
2.Identifying the problems existing in the company in terms of its financial strategymanagement system under its adoption of asset-light mode of operation.
3.Analyzing the root causes of the above-mentioned problems.4.Providing solutions to the existing problems so as to upgrade the financial strategymanagement system and help the company make better financial performance in thefuture.
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2 LITERATURE REVIEW
2.1 The Review ofAsset-Light Mode of Operation
2.1.1 Concept of theAsset-light Mode of Operation
Scholars, focus on the theme of asset-light, make some research from the basic theoryand practical application point of view. Some of the research is described as follows:
At present, there is no uniform definition of the "light asset", but there are somestatements. Yang Xianfeng, Tang Qiusheng (2007) proposed that light assets includingthe experience of enterprises, standardize the process management, corporate brand,customer relationship, human resources, corporate culture, etc., Compared with the"heavy assets", they take less capital and have features such as strong adaptability,flexible use, high return on assets.
Lv Minle et al (2008) believes that, in addition to the above, light assets should alsoinclude the governance system and the relationship between enterprises and otheraspects of resources. The core is the brand.
Liu Yanjun (2010) describes the light asset as an intangible asset that is formed duringthe course of operation of the enterprise, which is also the key factor of theenterprise's competitive advantage and value growth.
There are also scholars (Lv Shuang, 2010) pointed out that intellectual capital takesknowledge and its management as the core, which constitute the light assets of theenterprise.
Yang Tianbo, Jing Liang (2011) consider light asset as a class of assets, theircharacteristics is the lightness and the core should be these imaginary things.
Scholars have also tried to define asset-light operation mode. Bai Renchun( 2004)pointed out asset-light operation mode is a strategic management: In the case oflimited resources of the enterprise itself, leverage external resources, bring themaximum profit with minimal investment for the enterprise.
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2.2 The Literature Review of Financial Strategy
2.2.1 Concept of Financial Strategy
Financial strategy is the capital structure and capital plan for the company tocooperate with its own development and gain the competitive advantage. Financialstrategy is an important part of the overall strategy of the enterprise.
Under the company strategy，on the basis of analyzing the influence of internal andexternal environment on the value creation of the company, financial strategy is anoverarching and long-term plan to ultimately maximize the long-term value of thecompany.
Financial strategy improves the operating efficiency of the company by reasonablyarranging the size of the financial resources, the duration, the cost and the structure ofthe company. Establishing a risk and crisis warning system, so as to provide a goodbasis for the company's overall strategic objectives.
2.2.2 Characteristics of financial strategy
2.2.2.1 Supportive
First of all, it is a part of the overall strategy of the company. Secondly, the financialstrategy is the implementation of the company's strategy and security system.
2.2.2.2 Relatively Interdependent
Corporate strategy has the characteristics of multiple structure. That is to say, thecompany strategy not only includes the strategy of the company's overall level, butalso includes the strategy of the pision level and the function level. Financialstrategy is one of the functions of various aspects of the company. From theperspective of corporate strategy, the relative independence of financial strategydepends on two basic facts: Firstly, the financial management of the financial strategyhas a relatively independent content. Under the modern market economy, financialmanagement is no longer a subsidiary function of the company's production andoperation, but has its own specific content. It mainly includes investment management,financing management and pidend distribution. Secondly, the financial strategy andother functional strategies are relatively independent and closely linked. Due to thefund raising depends on the company's development and production and managementneeds, and the use of funds and the company's production process can not beseparated.
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3. CASE DESCRIPTION....................25
3.1 Company Profile.......................25
3.1.1 Company History..........................25
3.1.2 Main Business of HL Co., Ltd....................25
3.1.3 Company Development......................25
4. CASE ANALYSIS..................35
4.1 Porter’s Five Forces Analysis..........................35
4.1.1 Threat of New Entrants................35
4.1.2 Intensity of RivalryAmong Competitors.................36
4.1.3 Bargaining Power of Suppliers.........................38
4.1.4 Bargaining Power of Buyers.......................38
5. SUGGESTIONS...........................49
5.1 Broadening the Financing Channels...................49
5.2 Guaranteeing Return on Investment.............50
5.3 Strengthening The Management of Accounts Receivable.........51
5 SUGGESTIONS
In this chapter, the author of this thesis tries to propose some possible suggestions forHL Co.,Ltd to improve its performance In so doing, the HL’s financial strategy canbetter match its asset-light mode of operation in the future..
5.1 Broadening the Financing Channels
There are many means for HL Co, Ltd. to financing.Debt financing and equityfinancing is a common way of financing. Generally speaking, state-owned bigcommercial banks prefer mortgage. Therefore, asset-light enterprises, lack of fixedassets for collateral, usually are difficult to obtain loans. Compared with debtfinancing, equity financing has a much stronger ability of risk tolerance and morepursuit of long-term gains. These features determine that the equity financing act as a"timely" role and a better way for corporate risk-sharing, revenue sharing.
Selecting equity financing investors need to be very cautious. As a future shareholder,good equity financing investors not only bring funds to the company, but also bringcorporate governance norms, advanced management concepts and rich externalresources, which can greatly accelerate the development of enterprises. A bad investorwho shares different values with the company will have a very big bad impact onbusiness development. Therefore, the valuation is not the only criteria for choosing aninvestor. That choosing the most suitable one is more important.
Getting into stock market is an effective way for financing, The HL Co., Ltd. isseeking to get into stock market for several years. In 2012, it failed its IPO because ofthe unclear relationship with its relevant parties. But the leaders of the HL Co., Ltd.didn’t give up. They found another way to get into stock market. It successfullyrestructured and listed in Shanghai Stock Market in 2014, which makes it much easierto raise funds.
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6 CONCLUSION AND IMPLICATIONS
6.1 Summary of the Research
Based on the actual asset-light operation situation of HL Co., Ltd., this thesis analyzesthe external business environment, the existing financial strategy and problems facingthe HL Company. The following conclusions can be drawn: the firm should mobilizethe favorable factors inside and outside, improve the internal management system,optimizing capital structure to enhance core competitiveness.
As to the investment strategy, the company focused on the connotation investment. Inthe future, the firm should actively implement the epitaxial investment; focus onimproving the core competitiveness to take appropriate expansion, improving thequality of investment.
As to the financing strategy, the firm can make full use of domestic and foreigncapital markets and two platforms inside and outside the group, optimizing capitalstructure, use multiple financing modes to solve the long-term funding sources.
As to the profit distribution, the company should take appropriate allocation policies,pay attention to the internal accumulation and at the same time improve the incentivemechanism to balance the interests of all parties.
s to the working capital management strategy, the firm needs to enhance thefinancial flexibility and improve the use efficiency of funds.
HL Co., Ltd needs steady growth of financial performance and moderate expansion ofasset size to achieve sustainable development.
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