Hong Kong Manufacturing SMEs: Preparing for the Future

50• Contract manufacturing is a commodity businessand companies that only do OEM are likely tohave a limited life or limited profits and limitedgrowth unless they can provide superior oradditional services to their customers. Companiesin the OEM segment must either face difficultprice competition or look to develop by addingvalue through other means as well.• One area in which Hong Kong firms havetraditionally distinguished themselves fromMainland Chinese firms is in design and ODMbusiness. Many Hong Kong SMEs are investing indesign capabilities in an effort to build sustainablerelations with key customers. This may be difficultand costly to do, but is one way to try to stayaway from competition based totally on cost.• Entering the branded watch business (OBM)is also viewed as a potential strategy, but thisinvolves a large investment and long lead times,with uncertain chance of success. Building abranded business is hard for export processingfirms, especially for SMEs that may lack thefinancial scale, managerial resources, andgeographic reach required to be a successfulbranded watch company.• Other options that have been explored includesubcontracting production to others, becominga subcontractor to larger companies, relocatingto the Heping County Park, moving into retailing,and -when all else fails- exiting the business.Case Study – Renley Watch ManufacturingCompany LimitedRenley Watch Manufacturing Company Limited(Renley) is a Hong Kong based watch companyengaged in OEM, ODM, and OBM watch productionas well as watch retailing. Renley produces 80,000to 100,000 watches per month in facilities inHong Kong and Switzerland for OEM customers(and an unspecified number for its own brandedproduction), has a watch components factory inDongguan, and has watch retail outlets in HongKong (4) and the Chinese Mainland (8).Renley was established by Mr Stanley Lau in 1983after he had spent 10 years working for otherfirms in the industry. Renley was started with aninvestment of HK$200,000, 1,800 square feetof space in Tsuen Wan, 10 employees, and twocustomers (one from the US and one from Japan).Renley got into watch design when a company thatheld the licence for Asian markets for a well-knownFrench watch brand asked Renley to create a watchcollection that was stylish yet reasonably priced.Renley manufactured the watches and the companyholding the licence handled the sales and marketingof the watches. When this business faced adownturn, Renley decided to reduce its dependenceon a single customer and participated in trade fairsand exhibitions in various countries to make newcontacts, find new customers, and develop thecompany’s reputation.In the early 1990s, when most Hong Kong watchmanufacturers shifted production to the ChineseMainland, Renley decided to retain production inHong Kong, acquired three Swiss watch brands,and opened a factory in Switzerland to manufacturepremium quality Swiss-made watches. In 1999,Renley established a retail business, GlobalTimepieces, to sell its own brands as well as otherbrands such as Tissot, Cartier and Omega directto end consumers. The retail outlets in China arenamed “IN-Style” and sell style watches such asGucci, Burberry, Armani, as well as Renley’s ownbrands, though the merchandise mix in the ChineseMainland shops is focused on brands lower-pricedthan the Hong Kong shops due to differences inlocal demand.Today, Renley’s activities include design, production,sales, and after-sales service of watches. Renleyproduces a range of watch styles including classic,sporty, dressy, jewellery, character, and fashion.Most of the watches that Renley manufactures arepriced in the range of HK$1,000 to HK$50,000with some watches priced much higher, particularlythe watches produced in the Swiss factory. Renleyhas 25,000 square feet of manufacturing spacein Hong Kong, including a 20,000 square foot