Hong Kong Manufacturing SMEs: Preparing for the Future

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2ForewordOn behalf of the Federation of Hong Kong Industries, I would like to present this report to Hong Kongmanufacturing SMEs. As the third study under our “Made in PRD” Research Series, this study aims toprovide them with practical guidance on dealing with the challenges emanating from reduced demand ininternational markets in the aftermath of the global financial crisis, and, in particular, recent changes in thePRD operating environment.Since the FHKI embarked on the “Made in PRD” Research Series in 2001, two reports have been releasedin 2003 and 2007, respectively. They looked into the emergence and growth of the PRD as a productionhinterland of Hong Kong industries, the economic synergy between Hong Kong and the PRD, and the pivotalrole played by Hong Kong manufacturers in driving the industrial, economic and technological developmentof this rapidly evolving region. Their findings and recommendations not only helped local manufacturing andservicing companies in formulating business strategies, but also provided a direction for furthering the HongKong/PRD synergy and harnessing the business opportunities this would bring to our industries. We weregratified to see that a number of the measures recommended in our previous reports had been adopted bythe authorities. These measures have greatly facilitated the production operations of our manufacturers andfostered the industrial growth of the region.Since the publication of our last research report, the PRD business environment has become more challengingfollowing a series of changes in government policy and the global financial tsunami. First, the shifts inprocessing trade policy at the national level have deepened. Second, steps to restructure and upgrade thePRD industrial landscape have been speeded up, driving low value-added, labour-intensive, polluting andresource-depleting industries against the wall. Then, in the midst of this restructuring, the global financialcrisis broke out, hitting many export-oriented factories in the PRD.While orders from major overseas markets have begun to pick up gradually with the crisis receding in thesecond half of 2009, they have remained off the pre-crisis levels by a significant margin. Aside from industrialpolicy shifts and demand contraction, Hong Kong manufacturing SMEs are faced with other pressingchallenges due to changes in the operating environment in the PRD. These include worker shortages, labourcost escalation, appreciation of the Renminbi and stronger regulatory pressure.In order to offer Hong Kong manufacturing SMEs expert advice on overcoming these challenges andenhancing competitiveness, the FHKI commissioned Professor Michael Enright and his research team inFebruary 2010 to undertake the present study. Professor Enright is one of the world’s reigning strategy gurusand has published books and papers extensively on the PRD industrial development.
3In this report and the accompanying “SME Advisory Kit”, there are detailed analyses of the policy, economicand operating issues confronting Hong Kong manufacturing SMEs, as well as recommendations on strategicoptions which they may adopt to tackle these issues according to their individual circumstances. This reportalso examines the present situations of five industry sectors of importance to Hong Kong, namely, garments,consumer electronics, toys, watches and clocks, as well as mould and die manufacturing. Case studies ofHong Kong firms in these sectors that are adjusting to the current challenges are provided as real worldexamples that others may wish to follow.It is worth noting that the “SME Advisory Kit” is specially designed as a handy reference guide formanufacturing SMEs in preparing for the future. It sets forth the major external and internal challengesthey commonly face and gives guidance on how to map out strategies and action plans to address thesechallenges. There is also a list of key sources of information and support available to manufacturing SMEs.Based on the findings of this study, the FHKI is drawing up recommendations to the SAR and GuangdongGovernments on ways to enhance support for Hong Kong manufacturing SMEs operating in the PRD, so as tomaintain the vibrancy and competitiveness of the PRD manufacturing base. Our recommendations will coverareas including industrial upgrade and transformation, clean production, domestic sales, sourcing workers,and regulatory compliance. We look forward to their positive response to our recommendations.Finally, I would like to express gratitude to the SME Development Fund administered by the Trade andIndustry Department for funding this research project. I also wish to thank the sponsors for their generoussupport and members who participated in the project for their valuable input and advice.Cliff K. Sun BBS, JPChairmanFederation of Hong Kong IndustriesOctober 2010
Page 1 and 2: Hong Kong Manufacturing SMEs:PREPAR
Page 3: ContentsForeword 2Executive Summary
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 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
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53Renley focuses a good deal of att
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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
Page 107 and 108:
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
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Federation of Hong Kong Industries3
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Hong Kong Manufacturing SMEs: Preparing for the Future

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