Hong Kong Manufacturing SMEs: Preparing for the Future

58The Guangdong Government also published its own“Plan on Adjusting and Revitalising the Electronicsand Information Industry” in November 2009. 120The Plan focuses on industrial restructuring andupgrading, and governmental support is focusedon pillar sectors, leading enterprises, and thedevelopment of self-owned technology and brands.Further, the timeframe for the “home appliance andmotor vehicles to the countryside” and the “motorvehicle and home appliance replacement” policieshave been further extended. 121These policiescategorise certain consumer electronic productssuch as televisions and telephones as homeappliances and eligible for support. These policieswill stimulate the demand in China for consumerelectronics and Hong Kong firms will want to bepositioned to take advantage.Labour issues are compounded by the fact thatconsumer electronics manufacturing requiresa large number of skilled technicians and thenumber of migrant workers looking for work inthe PRD, especially skilled technicians, has fallensince 2008. The Labour Contract Law will increasemanufacturing costs because of the requirementthat firms provide additional worker benefits. Thiswill have the greatest impact on labour intensiveindustries, meaning that the effect on the consumerelectronics sector is likely to be less pronouncedthan on many others, 122 but firms will still need tocover any additional cost and they will need to be ina position to source skilled workers on an ongoingbasis.120 www.uschina.org.121 The initial “Home appliance replacement” policy expired on31 May 2010 and has been extended until 31 December 2011.122 China Statistical Yearbook 2009, calculated ratio of GIO toEmployment.123 Ministry of Commerce, 2007124 The opinions on general planning and management forthe highly polluting industries such as electroplating,printing, and dyeing”, Guangdong Environmental ProtectionDepartment, 2008125 Interview with the Hong Kong Electronics Industry Council,14 April 2010.The consumer electronics sector does not haveany export processing restrictions directly imposedon it but the supply chain for non ferrous metalsis affected by restrictions on copper, aluminium,nickel, tin, and zinc products. 123 The export rebatefor the sector did not change in 2007 or since. Theupstream electroplating of components and themanufacture of circuit boards used in the sectorare polluting activities that are under close scrutinyand control, and are being restricted. In 2008, theGuangdong Environmental Protection Bureau issueda plan 124 to consolidate all electroplating factoriesto purpose-built parks with their own centralisedwater purifying centres so that all discharges can becontrolled. Factories that fail to move will be closeddown. These activities have the potential to disruptthe sector by disrupting the supply chain.Response Strategies of Hong Kong SMEsHong Kong electronics firms understand thatcompetition in the industry is cost-based to an extentand that cost increases must be managed throughimproved operating efficiencies, but the precision thatis required in doing the manufacturing means that itis a combination of price, quality, and performancethat actually determines which firms get orders andwhich firms do not. Most successful Hong Kongfirms are committed to doing well across all of theseattributes in order to cope with competition fromboth Chinese firms at the low-end and Japanese,Korean, and Taiwan firms at the higher-end. 125Many Hong Kong electronics firms do theirmanufacturing in Guangdong which is cheaperthan doing it in Hong Kong, but more expensivethan manufacturing in some other parts of China.However, as these firms point out, making productsin Guangdong means that the end product is stillrelatively high in quality, so some firms in the sectorhave for the time being strategically accepted apresence in Guangdong as being a necessary tradeoffnoting that controlling cost is only one issue thatneeds to be managed. In response to the economicdownturn, many firms in the electronics industrytried to cut costs by reducing production or bylaying off workers.