Hong Kong Manufacturing SMEs: Preparing for the Future

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24Competitive EnvironmentThe competitive environment for Hong Kongmanufacturing SMEs in the PRD is changing inseveral ways. Hong Kong manufacturing firmsoperating in the PRD face increasing competitionfrom Mainland companies, either within the PRDor in other regions of China, such as the YRD,Shandong province, and other areas that are tryingto attract manufacturing companies. 55For the past 30 years, Hong Kong firms havetransferred the factories, management practices,culture, skills, and connections to China and havehelped companies and managers in Mainland Chinato improve their capabilities in communicationand their quality assurance systems. In addition,increasingly Chinese firms are hiring employeesfrom Hong Kong firms as well as consultantsfrom Singapore firms, Korean firms, and otherfirms where they think that this will support thedevelopment of their business. 56 As a result, thegap between Hong Kong firms and Chinese firmshas become smaller and Chinese firms are lesswilling to play a junior role to Hong Kong businessinterests. 57Many Mainland Chinese companiesthat once were partners or contractors to HongKong firms now have the skills, the technology, thecapital, the critical industry mass, the supply chain,the domestic market, the know-how, the contacts,and the government support to go it on their own.Consequently, the main competitors of many HongKong firms are Chinese companies, usually the spinoffsfounded by Chinese managers once hired andtrained by the Hong Kong companies. 58 It is difficultfor Hong Kong SMEs to avoid this phenomenon.55 ESA Project Interview, 2010-03-25.56 ESA Project Interview, 2010-04-09.57 ESA Project Interview, 2010-04-09.58 ESA Project Interview, 2010-04-07.59 ESA Project Interview, 2010-04-07.60 ESA Project Interview, 2010-04-07.61 ESA Project Interviews, 2010-04-07, 2010-04-09.62 ESA Project Interview, 2010-03-26.Since fewer Hong Kong people are interested ingoing into manufacturing, the Hong Kong firmsoften have to hire Mainlanders for managementpositions even if this practice can eventually createcompetitors. In addition, many Hong Kong firms setup supply or subcontractor relations with Mainlandfirms and this too can create competitors.To the extent that Mainland competitors are ableto run a less expensive operation than their HongKong counterparts, they can quote lower prices andwin business from Hong Kong companies. The costdifferentials are such that if Hong Kong companieshave even a few Hong Kong staff then this canalready provide a cost disadvantage that makesit difficult for the Hong Kong firms to competeagainst Mainland counterparts. 59Hong Kong manufacturing company managersinterviewed for this project indicated that Chinesefirms were viewed as being more competitivebecause of their ability to skirt the law withoutincurring penalties. According to the Hong Kongmanagers, Hong Kong companies need to followthe letter of the law and operate in a moreethical manner. As a result, some Hong Kongfirms have seen their profit margins eroded in theface of competition from Mainland companiesthat are viewed as not having to meet the samemanufacturing and business standards. 60Interviewees also indicated that Mainlandcompanies are often more forward-looking andaggressive than their Hong Kong counterparts.They are more likely to take risks and they alsohave more local resources in the form of local banksupport, “free capital,” or government support. 61Several interviewees for the present study indicatedthat indigenous Chinese firms learn very fastto “play the game,” making them formidablecompetitors. 62 Mainland company owners are seenas being increasingly knowledgeable and capable,close to the ground, and closer to local officials.They are also often willing to put up with very lowmanufacturing margins, and will engage in practicessuch as copying the designs of other companies to
25keep costs down rather than investing in developingtheir own designs. On the other hand, intervieweesviewed Hong Kong firms and Hong Kong managersas more conservative and less connected. Forinstance, the senior management of Hong Kongfirms tend to live in Hong Kong rather thanMainland China and they do not commit sufficientlyto learning about China to maximise their abilityto leverage Chinese manufacturing or develop theChina market. 63Chinese Mainland Policies AffectingOperations in the Pearl River DeltaEconomic and industrial policies within the ChineseMainland, particularly those focused on GuangdongProvince and the Pearl River Delta, have a criticalimpact on Hong Kong manufacturing SMEs. Ofparticular note have been policies for economicrestructuring in the PRD, the NDRC Plan for theReform and Development of the Pearl River Delta,and the Hong Kong-Guangdong CooperationFramework Agreement.Policies for Economic Restructuring in the PearlRiver DeltaEconomic policies and plans for the Pearl RiverDelta will have a dramatic impact on Hong Kongmanufacturing SMEs that operate in the region.China’s 11 th Five Year Programme (2006-2010)reflected the Central Government’s view thatthe nation’s development needed to be adjustedto emphasise the quality of growth, reduceregional imbalances, reduce speculation in theproperty market, improve the environment, reducedependence on low value-added production, andimprove the position of workers. GuangdongProvince and the Pearl River Delta region werechosen to play a leading role in innovation,knowledge, and creativity-based economicdevelopment in China. This national role includedchannelling technology, funds, and know-how intoChina’s interior; acting as a base for foreign privateinvestment into China’s interior; and fostering thedevelopment of modern service sectors on par withthose found in advanced economies.Another goal was to move labour-intensive, lowvalue-added, and/or polluting industries out of theinner areas of the Pearl River Delta into other partsof the region, other parts of Guangdong, or otherparts of the country. One sign of how seriously thenew directions have been taken is the fact that theCentral Government has designated specific citiesin interior provinces that it hopes will become thehomes of some of the industries moved out ofthe Pearl River Delta (and Yangtze River Delta aswell). These include Chenzhou (in Hunan Province),Wuhan (Hubei), Xinxiang and Jiaozuo (Henan), Hefeiand Wuhu (Anhui), Taiyuan (Shanxi), Nanchang andGanzhou (Jiangxi), and another 22 cities.However, in the newly published policies by theState Council on using foreign capital, 64 highlypolluting, high energy-consumption, and resourceintensiveprojects, as well as projects in industriesrunning at overcapacity, will be strictly restrained allover China. Foreign-funded enterprises are offeredincome tax breaks to increase their investment inChina’s central and western regions, particularly ineco-friendly and labour-intensive companies.63 ESA Project Interview, 2010-04-07.64 Several Opinions of the State Council on Further Fulfilling theWork of Using Foreign Capital (Guo fa [2010] no. 9), 6 April2010.
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 and 10: 7In order to answer these questions
Page 11 and 12: 9Exhibit 2. Exhibit 3.Global Stock
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: 23In recent years, China has become
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
Page 61 and 62: 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 and 114:
111• Implement suitable workplace
Page 115 and 116:
113• Plan for successionSuccessio
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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