Hong Kong Manufacturing SMEs: Preparing for the Future

66Hugo Boss, and Banana Republic. Hong Kongcompanies have benefited from Hong Kong’sopenness, managerial skills, financial sector,international linkages, transportation system, andcommunications infrastructure, while offsettingdisadvantages in labour and other costs by shiftingproduction into the Chinese Mainland.The end of the global garment quota system inJanuary 2005 led to a tremendous spike in HongKong’s garment re-exports from China in thefirst six months of 2005. Since then, the globalgarment trade has steadied, with China’s sharesignificantly higher than before. Hong Kong andother international garment exporters have investedheavily in capacity in the Chinese Mainland.Some developing countries such as Bangladesh,India, Vietnam, Cambodia, and Thailand aregrowing their low-end garment industry. Thesecountries have lower operating costs than China.Some garment companies in the PRD haveconsidered moving their manufacturing factoriesto one or more of these countries, though fewhave done so to date. While industry participantsexpect that South Asia in particular will becomea larger player in the low end segments of theindustry, and that even Africa may become amore significant producer, China will remain thedominant production location in the garmentindustry for the foreseeable future. Thus it is key forHong Kong firms to be able to continue to leverageChinese production locations, and to competeagainst competitors from the Mainland if they areto succeed. While companies that are not ableto distinguish themselves in terms of technology,design, flexibility, reliability, and quality will face atough time, there are enough Hong Kong firms thatdo distinguish themselves on one or more of thesedimensions to indicate that Hong Kong will retain astrong position in the industry.Basic Facts about the IndustryGIO and employment in the garment sector in HongKong decreased from HK$23 billion and 24,000people in 2004 to HK$8 billion and 13,000 peoplein 2008. 128 Average wages for the garment sectorin Hong Kong are six times those for wages in thesector for China as a whole. This is likely explainedby general wage disparities between Hong Kongand China, the employment of more senior staffin Hong Kong, and the fact that higher value endproducts are produced in the sector in Hong Kongwith corresponding higher quality and more costlylabour inputs. Wages were approximately 23 percent of total costs for the sector.Exhibit 40. Average Monthly Wages for theSector in RMBRegionAverage Monthly WagesHong Kong 9,034YRD 1,605PRD 1,710China 1,559Source: Foshan, Dongguan, Shenzhen, Huizhou, Taizhou (JS), Nantong, Shaoxing,and Jiaxing City Statistical Yearbooks, 2009, China Statistical Yearbook, 2009.The total exports from Hong Kong for the textileand clothing sector in 2009 were HK$254.5 billionor 10.4 per cent of total exports. Total domesticgarment exports for Hong Kong were HK$4.4billion, a decrease of 80 per cent from the previousyear. Re-exports from Hong Kong for the textile andclothing sector were HK$247.8 billion or 10.3 percent of total re-exports. Mainland based processingtrade re-exports through Hong Kong accountedfor HK$118.4 billion of this total, while Mainlandbased non-processing trade accounted for a furtherHK$45.6 billion. Total re-exports originating fromthe Chinese Mainland were HK$164 billion or 6.8per cent of Hong Kong’s total re-exports, and 66 percent of garment re-exports. 129128 Hong Kong Census and Statistics Department.129 Hong Kong Census and Statistics Department.