Hong Kong Manufacturing SMEs: Preparing for the Future

51factory in Cheung Sha Wan. The company openeda components factory in Dongguan in 2003, butdoes all of its watch assembly in Hong Kong andSwitzerland. The company has 150 employees inHong Kong, 400 employees in Mainalnd China, and25 employees in Switzerland. Roughly 40 per centof revenues come from the OEM business, 20 percent from the OBM business, and 40 per cent fromretailing. The OEM business is 30 per cent from theUS, 30 per cent from Europe, and 40 per cent fromthe rest of the world. In the period 1983 to 2010,Renley’s revenues increased more than twentyfold.Issues and ChallengesRenley has faced a number of significant challengesin the course of its history. One has been a seriesof economic downturns. The global economicdownturn associated with the dot com collapseand the 9/11 attacks affected markets worldwide.During the SARS period in 2003, suddenly therewere no customers and no business, but the costsfor rent and staff still needed to be covered. Similarissues arose during the global economic downturnof 2008-2009, with business down sharply anduncertain prospects. Fortunately business reboundedin 2010 to more normal levels.Another major issue has been competitive pressures.In the branded watch business, Swiss and Japanesecompanies are the main competitors, but in generalHong Kong companies can do reasonably well inmoderately-priced branded watches. In the OEMbusiness, however, strong competitive pressurecomes from companies that are manufacturing inthe Chinese Mainland. Customers use quotationsfor contract manufacturing in China to try to obtainlower prices. While producing in Hong Kong meansthat Renley has not had to face rapidly rising wagesin the Pearl River Delta to a great extent, its HongKong workforce receives wages on the order of threetimes that received in the PRD, which has heightenedthe competitive pressures in the OEM business.In addition to wages, even finding the right workersin Hong Kong has been a challenge at times inspite of the fact that Renley pays comparativelyhigh wages for the industry. This is due to a generalshortage of workers in the industry in Hong Kong.Not having sufficient workers has made it difficultto expand as quickly as Renley might like and mayeventually make it difficult to continue to producewatches in Hong Kong if a sufficient number ofworkers cannot be found.Managing cash flow was an early issue for thecompany. As a small factory, Renley struggled tocollect cash quickly from its customers in order to beable to pay suppliers and staff in a timely manner.In its first months of operation, Renley focusedon developing the documentation and bankingrelations in order to ensure that its trade finance,payments, and receipt system was in place so thatthe company could meet its cash commitments.Another challenge in Renley’s early history waswhen a customer that accounted for 60 per cent ofRenley’s business ran into difficulty. Renley suddenlyhad to fill the gap that was left as their largestsource of revenue retreated.Expanding into branded watches and retailingalso presented challenges. The branded watchbusiness was unfamiliar to Renley’s management.Renley’s team knew how to make watches, but nothow to manage a brand. Similar difficulties wereencountered when Renley moved into retailing.Some of the retail outlets that were set up in theearly days were in poor locations and the companyended up having to close them. The sharp increasein rent in some locations was also unexpected andcreated difficulties. Renley estimates it took threeto five years to work out issues associated with itsinitial forays into branded goods and retailing.