Hong Kong Manufacturing SMEs: Preparing for the Future

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30According to the Hong Kong manufacturingcompany managers interviewed for this study,it is clear that the emphasis in Guangdong willbe on high-technology manufacturing and highendservices at the expense of more traditionalindustries. According to the interviewees, 10years ago the Guangdong Government wasaccommodating to traditional industries but notanymore, and these industries are viewed as beingon the way out. 76 Industries that are consideredto be highly polluting, highly energy consuming,resource-intensive, and low value-added are all outof favour. For many Hong Kong companies, onetrouble is that the Guangdong Government seemsto view sectors as either “good” or “bad” in theirentirety, not necessarily taking into account whethera specific company uses advanced technology,advanced design, or green production techniques.Another problem is that industries do not exist inisolation. Instead, they exist in entire productionchains. Singling out a single industry to be movedor closed down can therefore influence an entireproduction chain. The dyeing industry, for example,has been targeted as a polluting industry, butwithout dyeing the entire garment productionchain may be at risk. Similarly, electroplating hasbeen targeted as a polluting industry, but withoutaccess to electroplating, the electronics and otherproduction chains are at risk. 77Guangdong isthe home of many industry clusters with nearlycomplete supply chains, if individual sectors aremoved too quickly then the entire supply chain canbe disrupted. The success of the PRD manufacturershas to do with the presence of complete supplychains, but many interviewees believe that policiesin the Chinese Mainland appear not to be madewith this fact in mind. All Chinese jurisdictionswant high-end of manufacturing, but many do not76 ESA Project Interview, 2010-04-07.77 ESA Project Interview, 2010-05-03.78 ESA Project Interview, 2010-03-24.79 ESA Project Interview, 2010-04-07.adequately provide for the right types of support tobe put in place to accompany changes to the profileof industry. 78 This is why industry is slow to move tolocations such as Indonesia that can provide 30 percent to 40 per cent savings on wages and land. Fewcompanies have moved there due to the lack ofsupply chain that supports their broader needs. 79In any case, the upshot of the policy directionsin the PRD for Hong Kong manufacturing SMEsand firms from other jurisdictions is that the firmswill be welcome as long as they contribute to thedevelopment of a new-type of economy in thePRD, but less welcome if they follow traditionalmodels or operate in traditional industries. Thuswhile providing some opportunities for Hong Kongmanufacturing SMEs that can participate in theupgrading initiatives and develop the capabilitiesto contribute to the desired innovation capabilitiesof the PRD, the direction calls into question thecontinued viability of the vast majority of HongKong manufacturing SMEs operating in the PRDthat cannot make this type of contribution.Operational and Strategic IssuesThe present project has identified a number ofoperational and strategic issues that affect theperformance of Hong Kong manufacturing SMEs.Shortcomings in the Business BasicsMany Hong Kong SMEs are managed in a fairlyhaphazard fashion. Few SME managers haveformal business training. Few have developedreal business plans. Few have developed creativestrategies. Few have committed to researchingmarkets, understanding precisely evolving customerrequirements, and finding new ways to serve thecustomer. Few use modern accounting, informationtechnology, inventory management, or businessprocess tools. As a result, many leave money onthe table due to internal inefficiencies. While suchfirms may get by in good times, increasingly thecombination of tough global markets, powerfulcustomers, and capable competitors makesinefficiency unsustainable.
31Failure to DifferentiateMany Hong Kong SMEs have not identified aspecific niche and differentiated themselves tothe extent that customers view them as havingsomething unique and valuable. The absence ofdifferentiation leaves a company open to pureprice competition and to customers constantlydemanding lower and lower prices regardlessof costs. The key to differentiation is to identifyspecific customer requirements and then meetthose requirements better than the competitors.If successful, such differentiation usually leads toat least a limited amount of pricing power, whichprovides some insulation against difficult economictimes. Many Hong Kong companies have yet todevelop truly distinguishing capabilities. As a result,they are vulnerable to competition from other HongKong companies as well as those from the ChineseMainland.Limited Scope of ManagementMany Hong Kong SMEs have a limited scope ofmanagement in terms of numbers, geographicscope, activity scope, and market scope. HongKong SMEs generally have one or a small numberof senior managers that are the driving forces of thecompany. A small number of managers means thatthe companies suffer significantly when new rules,regulations, and administrative requirements comeinto effect. In geographic terms, many Hong KongSMEs appear to be able to manage within HongKong and perhaps in certain cities in Guangdong,but have a hard time managing activities elsewhere.This limits their ability to react to rising costs andshifting policies, and limits their potential to takeadvantage of newly emerging manufacturinglocations elsewhere in China, elsewhere in EastAsia, or elsewhere in the world. In many cases,Hong Kong SME managers that have operated inGuangdong for many years still do not really knowGuangdong, the local officials, the local suppliers,and the local competitors nearly as well as newlyemerging Chinese counterparts. While this maynot have been an issue when there were relativelyfew capable Mainland Chinese managers andcompanies, it is less and less the case.In terms of activity scope, many Hong KongSME managers are comfortable producing forOEM customers that provide the orders and thespecifications, and then distribute the products.Far fewer Hong Kong SMEs are comfortabledeveloping their own designs, getting their ownorders in overseas markets, and then distributinginternationally. This of course limits the scope ofwhat they can do in good times or bad. Finally, asrelatively few Hong Kong SMEs have engaged insignificant market development, they are reliant onothers to carry out this process. This means thatmany SMEs are not in regular contact with endcustomers and therefore have a more difficult timeanticipating or leading industry trends.Gaps in SuccessionMany Hong Kong’s manufacturing companieswere founded in the 1980s or earlier and rapidlyexpanded with the growth in South China in the1990s. In many cases, the founder or proprietor isnearing retirement age with no apparent successor.In some cases, there are no children that can takeover. In other cases, the children are pursuing otherinterests, or careers in industries that are consideredmore prestigious and less difficult, and do not wishto take over. Since the vast majority of Hong KongSMEs are family firms with members of the familyas managers, this creates a difficult situation. Withno obvious successors and with difficulty in sellinga company that has often been built around asingle individual, for many SME owners there is noclear exit strategy. The risk is that otherwise strongcompanies with good franchises may fall on hardtimes and cease to contribute to Hong Kong and toSouth China.
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 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: 29markets. 71This included helping
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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Hong Kong Manufacturing SMEs: Preparing for the Future

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