Hong Kong Manufacturing SMEs: Preparing for the Future

64Lessons from the Suga Holdings CaseThere are a number of lessons that can be learnedfrom the Suga case.• SMEs should focus on specialised products.These products are not as vulnerable to marketfluctuation as general products, and they tendto have a higher profit margin than generalproducts.• By being the leading manufacturer of a nicheproduct, the SME becomes more important tothe customers that have developed the endmarkets for those products. This creates barriersto entry which mean that other companies wouldfind it harder to compete with the firm.• SMEs that specialise in selling niche products arelikely to have fewer competitors.• The price/performance ratio is most important forthe customer because low price but low quality isnot an efficient trade-off.• SMEs need to continually innovate. Innovationis difficult but to remain successful it is essential.This means finding innovative people anddeveloping innovative ideas is important.• Striving to innovate means that there will befailures as well as successes.• SMEs should ensure that their business modelmatches the business environment.• To avoid problems from an overreliance on onelarge customer, SMEs should develop a customerbase with a diverse geographical and productmix.• SMEs in this sector need to carefully considerwhether it is worth spending the money that isrequired to build a brand.• SMEs can leverage off their technologicalcapability to capture an attractive profit margin.• SMEs in the sector operate in a complexenvironment that requires technology andengineering support at a fairly high level.• Firms will need to automate operations wherepossible. This adds to the cost and complexity ofrunning the business.• China’s domestic market is fast-growing butcomparatively small and not yet very attractive.Thus any move to try and replace existingmarkets in the US, Europe, and Japan, with themarket in Mainland China being premature.• Cost increases need to be covered by thebusiness and when they frequently occur there isa need to pass the costs along to the customer,which is sometimes difficult.• Customers and competitors won’t wait for afirm to put its strategy in place. Firms needto constantly revisit their strategies and thinkthrough the various scenarios that might affecttheir business and plan on how to respond tothem.• Excellence in a specialised field or niche area maynot be enough to make the firm successful.• Spikes and troughs in demand occur and plansshould be in place to deal with them.• Hong Kong’s regulatory system is simpler andmore transparent than China’s. Firms may needsenior staff in China who know how to deal withthe system there.• SMEs must take their regulatory responsibilitiesvery seriously. It is unlikely that being small in sizewill be accepted as a reason for regulatory noncompliance.• SMEs should benchmark their activities againstworld’s best practice.• SMEs can and should think and act like big firms.They should consider using globally recognisedprofessional services firms. They will benefit fromputting world-class management performancesystems in place.• SMEs don’t need a lot of start-up capital. Theycan scale capacity by leasing a portion of anotherfactory’s production capacity. The money savedby not immediately buying a factory can be spentin marketing and developing the business.• Good financial management is important toSMEs. This includes the maintenance of strategiccash buffers, and the establishment of bankingfacilities.