Hong Kong Manufacturing SMEs: Preparing for the Future

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112• Keep up to date on technologicaldevelopmentsCustomers, trade press, industry associations,consultants, and organisations like the HongKong Productivity Council are potential sourcesof information on technological developments.• Keep up to date on managementdevelopmentsIndustry associations, chambers of commerce,business schools, and organisations like theHong Kong Management Association arepotential sources of information on managementdevelopments relevant to SMEs.Reducing Dependence on Individual Customersand SuppliersMany SMEs rely on individual customers for adisproportionate part of their business. Whilethis is natural in a start-up, overreliance on asingle customer puts the SME at the mercy ofthat customer and makes any downturns in thatcustomer’s business difficult to deal with. ManySMEs also rely on a small number of suppliers dothat disruption of inputs from a single supplier cancreate enormous difficulties:• Diversify customer baseCompanies cannot rest once they get a singlecustomer, even if that customer takes up theexisting capacity of the SME. It is usually advisableto continue to search for new customers todiversify risk and reduce bargaining power of thesingle customer.• Seek guaranteesIf a customer demands exclusivity, then the SMEshould seek financial guarantees to offset theassociated risks.• Identify multiple suppliersEven if the SME’s present suppliers aresatisfactory, additional suppliers should beidentified for overflow capacity, to keep pressureon existing suppliers, and to step in case ofsupply disruption.Additional ChallengesThere are several other challenges that SMEsface. Approaches to dealing with some of thesechallenges include:• Enhance firm reputation and goodwillA reputation for reliability, high productstandards, fair dealing, and willingness to beflexible when necessary can be a key competitiveadvantage for the firm. Avoiding situations thatmight damage reputation and goodwill is alsocrucial.• Seek outside advice when necessaryWhile professional services may be expensive,SMEs need to be able to call on lawyers,accountants, consultants, IT specialists, andothers when necessary.• Manage government relations carefullyGovernment relations are particularly importantin the Chinese Mainland. SME owners andmanagers operating in China should find waysof interacting with officials on a regular basis tobuild up dialogue and understanding.• Develop long-term relations with keycustomers and suppliersLong-term relationships allow for betterunderstanding and the potential for developingtrue partnerships with selected customers andsuppliers.• Do forward-looking risk analysisSME managers often claim to be too busy to doproper risk analysis. However, SME managersneed to determine what could go wrong in theexternal and internal environments and preparefor the potential for such events to occur. Riskassessment should focus on the likelihood andpotential magnitude of disruption caused byrisk events. Contingency plans then should bemade for the most important risks. Ongoing riskassessment and contingency planning is often thedifference between survival and death for SMEs.
113• Plan for successionSuccession planning can be difficult for SMEs,particularly if the founder has no relative readyand willing to take on the task. It is best tothink about succession planning early, to groompotential successors, to consider turning overmanagement to professional managers if there isno ready successor, or to identify potential buyersif the owner-operator wishes to sell out.Questions that Hong Kong SMEsmust AnswerThe list of potential strategies may seem daunting,but it all comes down to being able to ask andanswer a number of basic questions about thefirm’s strategy, its customers, its competitors, andhow the firm’s strategy should address customersand competition. These questions can be usedto prioritise the firm’s information gathering andstrategy setting process.The challenges and strategies available to HongKong manufacturing SMEs lead to many questionsthat the SMEs need to be able to answer abouttheir business:• Which strategy or strategies will the SME use todeal with cost pressures?• Which strategy or strategies will the SME use todifferentiate itself to gain some pricing flexibility?• Which strategy or strategies will the SME use todeal with labour market pressures?• Which strategy or strategies will the SME use forits business model development?• Which geographic markets will the SME focuson?• Which strategy or strategies will the SME use todeal with regulatory and policy-related issues?• If exit or consolidation strategies are appropriate,which strategy or strategies will the SME use?In order to answer these questions, the SME willhave to answer several other questions about theirbusiness and business environment. These include:• What is competitive balance among Hong Kongfirms, between Hong Kong and Chinese firms,between Hong Kong and foreign firms operatingin China, and between Hong Kong firmsoperating in PRD and firms operating in otherlocations?• What are the sources of advantage anddisadvantage for each type of firm? What are thespecific sources of advantage and disadvantagefor the individual SME?• What is the specific cost structure of theirown business in the PRD (or wherever they arelocated) versus other places today, and how isthe comparison evolving?• Does the sector in which the SME competeshave a future in Southern China, or should newlocations by sought urgently?• What are the customer segments that areavailable to the firm and what are the customerrequirements in the different segments?• For companies operating in the ChineseMainland, how is their sector perceived by theMunicipal, Provincial, and Central Governments?Does it get favourable, unfavourable, or neutralattention?• To what extent are environmental or productsafety regulations important in the sector?• What new business models or activities might beopen to the firm?• Which of the external issues is most pressing fortheir business?• Does the firm have a clear strategy targetingspecific types of customers, with plans to satisfytheir needs, with specific competitive advantages,and with the resources necessary to carry out thestrategy?• Does the firm have a clear view of what it canand will do better than competitors?• Does the firm have the managerial, administrative,and operational capability to carry out the strategyeffectively? If not, how can these capabilities beobtained?• Does the firm have sound financial, marketingand sales, administrative, control, and riskmanagement processes in place?
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Hong Kong Manufacturing SMEs:PREPAR
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ContentsForeword 2Executive Summary
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3In this report and the accompanyin
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5Cost reduction strategies may incl
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7In order to answer these questions
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9Exhibit 2. Exhibit 3.Global Stock
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11Exhibit 6.Exhibit 7.Hong Kong’s
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13Hong Kong manufacturing firms RMB
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15hour in Bangladesh, US$0.33 per h
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17Utilities and sewage charges are
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19tax if they carried out export pr
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21demand and production (such as in
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23In recent years, China has become
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25keep costs down rather than inves
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27specific infrastructure projects,
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29markets. 71This included helping
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31Failure to DifferentiateMany Hong
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33The Impacts of Developments on Ho
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35performance). Note that the figur
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37The RMB appreciation and inflatio
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39In spite of these challenges, the
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41Exhibit 23. Measures Taken to Cop
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43The Chinese Manufacturers’Assoc
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45Industry Situation ReportsWhile i
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47Exhibit 33. Exports of Watches &
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49that it is unlikely production wo
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51factory in Cheung Sha Wan. The co
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53Renley focuses a good deal of att
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55The Consumer Electronics Industry
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57Issues for Hong Kong Consumer Ele
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59Some Hong Kong owned firms have a
Page 63 and 64: 61Suga has occasionally been challe
Page 65 and 66: 63In terms of dealing with regulato
Page 67 and 68: 65• Having a manufacturing base i
Page 69 and 70: 67Exhibit 41. Textiles and Clothing
Page 71 and 72: 69China’s Labour Contract Law is
Page 73 and 74: 71Case Study - Lever Style Incorpor
Page 75 and 76: 73and potential customers know of L
Page 77 and 78: 75are likely to yield them profits
Page 79 and 80: 77Exhibit 46. Top Mould and Die Exp
Page 81 and 82: 79under pressure to reduce prices.
Page 83 and 84: 81Some Hong Kong firms are finding
Page 85 and 86: 83Datamatic has worked hard to deve
Page 87 and 88: 85• Companies that try to compete
Page 89 and 90: 87Exhibit 52. Exports of Toys, Baby
Page 91 and 92: 89into the medium-term. A further s
Page 93 and 94: 91• As the entertainment and toy
Page 95 and 96: 93Company StrategySilverlit constan
Page 97 and 98: 95Silverlit plans to continue manuf
Page 99 and 100: 97Strategies to Meet the Challenges
Page 101 and 102: 99Central Governments, who set up r
Page 103 and 104: 101manufacturing jobs, which is sti
Page 105 and 106: 103• Strategies to deal with envi
Page 107 and 108: 105Strategies to Deal with Internal
Page 109 and 110: 107• Identify the key functional
Page 111 and 112: 109• Superior visionSuperior visi
Page 113: 111• Implement suitable workplace
Page 117 and 118: 115• Joint or place branding and
Page 119 and 120: 117New OpportunitiesOne major devel
Page 121 and 122: 119management, especially when it c
Page 124: Federation of Hong Kong Industries3
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Hong Kong Manufacturing SMEs: Preparing for the Future

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