Hong Kong Manufacturing SMEs: Preparing for the Future

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8Issues for Hong Kong Manufacturers in the PRDHong Kong manufacturing firms are facingextremely challenging times. Slowdowns in globalmarkets have resulted in disruption of traditionalmarkets and trade patterns. These difficultieshave added to the challenges that the HongKong firms were facing even before the globaldownturn. Several issues have emerged in recentyears that are making it more difficult for HongKong manufacturers operating in the Pearl RiverDelta. An appreciating currency, labour shortages,rising wages, higher material costs, and other costincreases are affecting the region’s cost position.At the same time, several changes in regulatoryand legal structures, such as changes in exportprocessing, labour and environmental rules in Chinahave made it more difficult for Hong Kong firms,particularly SMEs. Changes in the competitiveenvironment, particularly the rise in capabilities offirms from the Chinese Mainland, have altered thelandscape for Hong Kong manufacturing SMEs.Finally, changes in the overall policy frameworktowards the Chinese economy in general, andthe Pearl River Delta economy in particular,have created additional challenges as well. Thecombination of challenges will require creativestrategies and solutions going forward if Hong Kongmanufacturing firms are to be able to survive andthrive in the new environment.The Global Economic EnvironmentThe global economic environment has had asignificant impact on Hong Kong manufacturingSMEs. The global economic downturn that startedin 2008 has had a major impact on demand in thetraditional export markets for the Hong Kong firms.In addition, the downturn has exacerbated thedifficulties that Hong Kong manufacturing SMEsface when dealing with powerful, concentratedretailers in major markets.Exhibit 1.Real GDP Growth Performance and Forecasts %(April 2010 forecast)101581064620020022003200420052006200720082009201020112012201320142015-220022003200420052006200720082009201020112012201320142015-5-4-10WorldAdvanced economiesEmerging and developing economiesUnited StatesJapanIndiaEuro AreaChinaSource : IMF
9Exhibit 2. Exhibit 3.Global Stock Market Capitalisation(US$ trillion)Unemployment %7012United StatesEU 27JapanUK601050840630204102001/20063/20065/20067/20069/200611/20061/20073/20075/20077/20079/200711/20071/20083/20085/20087/20089/200811/20081/20093/20095/20097/20099/200911/20091/20103/20105/20101/20073/20075/20077/20079/200711/20071/20083/20085/20087/20089/200811/20081/20093/20095/20097/20099/200911/20091/20103/2010Source : World Federation of ExchangesSource : National sourcesInfluence of DemandThe global economic downturn that started in2008 has had an important impact on Hong Kongmanufacturing SMEs. Globally, world GDP growthin 2008 slowed down to 1.7 per cent from 3.9 percent in 2007, and world GDP in 2009 was 2.2 percent lower than in 2008. World trade growth in2008 slowed down to 3.6 per cent from 7.5 percent in 2007, and world trade in 2009 was 9.3 percent lower than in 2008. Major markets, like the US,EU and Japan went into recession in the last half of2008 and remained depressed throughout 2009.Only in the last part of 2009 and first part of 2010did global output and trade begin to rebound (seeExhibit 1). Stock market values peaked in October2007 and have still not nearly rebounded to theirpre-crisis levels (see Exhibit 2). Unemployment inkey economies reached very high levels that areexpected to persist for a significant period of time(see Exhibit 3).While the IMF and others gradually increasedtheir forecasts for global GDP growth in 2010,uncertainty surrounding public finance in Greeceand other European countries has raised the spectreof a prolonged period of slow growth in the OECDcountries, with high levels of government debt,higher taxes, higher interest rates, more bankdeleveraging, and higher inflation. Even with areturn to growth, it is projected that the US will onlyreach 2008 levels of GDP in 2010, Western Europein 2013, and Japan in 2014. 1 Similarly, US importsare not expected to reach 2008 levels until after2013, Western Europe until after 2011, and Japanuntil 2013. 2 The result is that the world economyis likely to generate on the order of US$100 to120 trillion less in GDP over the next eight to 10years than it would have if it had continued on thesame trajectory that it experienced in the 2000 to2007 period. World trade is also expected to havea trajectory far different than that before the crisis(see Exhibits 4 and 5).1 EIU, “Global Outlook,” May 2010.2 EIU, “Forecast,” 2009. IMF, World Economic Outlook Database,April 2010.
Page 1 and 2: Hong Kong Manufacturing SMEs:PREPAR
Page 3 and 4: ContentsForeword 2Executive Summary
Page 5 and 6: 3In this report and the accompanyin
Page 7 and 8: 5Cost reduction strategies may incl
Page 9: 7In order to answer these questions
Page 13 and 14: 11Exhibit 6.Exhibit 7.Hong Kong’s
Page 15 and 16: 13Hong Kong manufacturing firms RMB
Page 17 and 18: 15hour in Bangladesh, US$0.33 per h
Page 19 and 20: 17Utilities and sewage charges are
Page 21 and 22: 19tax if they carried out export pr
Page 23 and 24: 21demand and production (such as in
Page 25 and 26: 23In recent years, China has become
Page 27 and 28: 25keep costs down rather than inves
Page 29 and 30: 27specific infrastructure projects,
Page 31 and 32: 29markets. 71This included helping
Page 33 and 34: 31Failure to DifferentiateMany Hong
Page 35 and 36: 33The Impacts of Developments on Ho
Page 37 and 38: 35performance). Note that the figur
Page 39 and 40: 37The RMB appreciation and inflatio
Page 41 and 42: 39In spite of these challenges, the
Page 43 and 44: 41Exhibit 23. Measures Taken to Cop
Page 45 and 46: 43The Chinese Manufacturers’Assoc
Page 47 and 48: 45Industry Situation ReportsWhile i
Page 49 and 50: 47Exhibit 33. Exports of Watches &
Page 51 and 52: 49that it is unlikely production wo
Page 53 and 54: 51factory in Cheung Sha Wan. The co
Page 55 and 56: 53Renley focuses a good deal of att
Page 57 and 58: 55The Consumer Electronics Industry
Page 59 and 60: 57Issues for Hong Kong Consumer Ele
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59Some Hong Kong owned firms have a
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61Suga has occasionally been challe
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63In terms of dealing with regulato
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65• Having a manufacturing base i
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67Exhibit 41. Textiles and Clothing
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69China’s Labour Contract Law is
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71Case Study - Lever Style Incorpor
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73and potential customers know of L
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75are likely to yield them profits
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77Exhibit 46. Top Mould and Die Exp
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79under pressure to reduce prices.
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81Some Hong Kong firms are finding
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83Datamatic has worked hard to deve
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85• Companies that try to compete
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87Exhibit 52. Exports of Toys, Baby
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89into the medium-term. A further s
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91• As the entertainment and toy
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93Company StrategySilverlit constan
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95Silverlit plans to continue manuf
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97Strategies to Meet the Challenges
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99Central Governments, who set up r
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101manufacturing jobs, which is sti
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103• Strategies to deal with envi
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105Strategies to Deal with Internal
Page 109 and 110:
107• Identify the key functional
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109• Superior visionSuperior visi
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111• Implement suitable workplace
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113• Plan for successionSuccessio
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115• Joint or place branding and
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117New OpportunitiesOne major devel
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119management, especially when it c
Page 124:
Federation of Hong Kong Industries3
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