Hong Kong Manufacturing SMEs: Preparing for the Future

39In spite of these challenges, the majority of HongKong companies still gave positive responses toquestions of investment with a total of 53.3 percent of them planning to upgrade their technologyor raise their product value-added, while 29.9 percent planned to increase the mechanisation levelof their production. However, 3.1 per cent of thecompanies surveyed were planning to shut downtheir PRD operations. Most enterprises that claimedthey would shut down were smaller in size, with72.5 per cent having a turnover of HK$10 millionor less in 2007, 15.7 per cent having a turnover ofbetween HK$10 million and HK$15 million, andnone having a turnover exceeding HK$100 million.Exhibit 20. Hong Kong Companies’ Choice ofResponse to ChallengesResponse% of RespondentsRaise mechanisation level 29.9Upgrade technology and raise productvalue added53.3Suspend PRD expansion 14.0Scale down existing PRD operations 22.5Shut down existing PRD operations 3.1No plan yet 19.3Note: *Multiple answers allowed.Source: Hong Kong Trade Development Council.Federation of Hong Kong Industries(May 2009) 88In a March 2009 survey, the Federation of HongKong Industries found that the major difficultiesfor Hong Kong manufacturers since the globalfinancial crisis began was shrinking orders, followedby dwindling profit margins, rising operationcosts, high payment default rates, and sharplyrising financing costs. Manufacturers reported thatthey had experienced on average a 30 per centreduction in profit compared with the previous year.Operating costs were estimated to have increased17 per cent on average, with labour costs, rawmaterials costs, and appreciation of the RMB theprimary contributors to the rise in costs.Half of the manufacturers surveyed said they hadencountered payment defaults or delays from theircustomers equal to approximately 20 per centof their business turnover. Respondents also hadsuffered cuts to their bank credit lines on the orderof 30 per cent, and 25 per cent of manufacturerssaid that their interest expenses had increased by 30per cent. About 20 per cent of the manufacturerssurveyed indicated they had experienced problemsin obtaining bank loans.The survey found that, in light of the pooreconomic climate, manufacturers in general havetaken measures to mitigate the financial distressincluding postponing all new investment projects(41 per cent), outsourcing production (19 percent), investing in new products or equipment orto upgrade (17 per cent), relocating productionfacilities to Mainland cities other than the PRD (10per cent), relocating production facilities back toHong Kong or overseas (four per cent), and throughmerger or acquisition (one per cent) (see Exhibit 21).Exhibit 21. Measures Taken to Mitigate theEffects of the Economic DownturnMeasures% of RespondentsPostpone all new investment projects 41Outsource production 19Invest in new products or equipment toupgrade17Relocate production facilities to Mainlandcities outside the PRD10Relocate production facilities back to HongKong or overseas4Merger and Acquisition 1Source: Federation of Hong Kong Industries.88 Federation of Hong Kong Industries, “Survey on HongKong Enterprises in the PRD,” May 2009.