Hong Kong Manufacturing SMEs: Preparing for the Future

68In 2009, Hong Kong imported textile and clothingsector traded goods of HK$197.7 billion or 7.3 percent of total imports. This was down 17.8 per centfrom 2008.Issues for Hong Kong Garment ManufacturersThe major issues facing Hong Kong garment firmsoperating in the PRD are rising operating costs, ashortage of skilled workers, a decrease in ordersfrom overseas buyers, competition from otherdeveloping countries, increased order frequency,reduced individual order volume, changing styles,a demand for speedier delivery, higher qualitydemands from end customers, and the appreciationin the RMB. Competition in the garment industrywithin China and between China and otherlocations is intensified by low entry barriers.The impact of the global economic slowdown canbe seen in that Chinese Customs reported that thegarment exports from China fell by 9.8 per cent fromUS$185.3 billion in 2008 to US$167.1 billion in 2009.Hong Kong’s garment business was greatly affectedby the downturn, with total exports, total imports,and re-exports of textiles and clothing seeing doubledigit declines in 2009. China’s garment exportsstarted to grow again during the latter part of 2009.However, retailers’ confidence remained fragile,and they have been reducing their working capitalby placing smaller order volumes and demandingquicker delivery times at cheaper prices. 130130 “HK exporters in Pearl River Delta win more orders,” SouthChina Morning Post, 27 May 2009.131 english.tianhechem.com.132 Interview with the leadership of Federation of Hong KongIndustries, 31 March 2010.The garment industry is labour-intensive. Thismeans that it is hit disproportionately by increasesin labour costs in China and is more subject tocompetition from low wage nations than othersectors. China has had a labour cost advantagethat helped it compete in the industry. Increasingly,however, lower labour costs can be found in otherdeveloping nations, though China still benefits frommassive scale, a huge home market, and establishedgarment and textile production chains.In addition, there is a shortage of skilled workersin the sector in the PRD. The manpower shortageacross the economy in areas such as Guangzhou,Shenzhen, and Zhuhai was estimated at morethan two million in early 2010, 131 forcing garmentfactories to reduce production. The GuangdongLabour and Social Security Bureau increased theminimum wage effective from 1 May 2010. Mostof the Hong Kong factory owners we interviewedthought the new measure would be of little helpin attracting more migrant workers as manymanufacturers still face labour shortages even afterpaying their employees more than the amountthat the government requires. 132 Further, increasesin labour costs have a significant impact onprofitability and even the viability of the business,and on the competitiveness of the PRD in theindustry.The garment industry was one of the industriessingled out for greater restrictions on exportprocessing and reduced VAT rebates in China in2006 and 2007 on the grounds that the garmentindustry was too labour and resource intensive. Thedyeing sector, a key component of the garmentsector, has been singled out as a polluting industrythat also requires restrictions. This has the potentialto disrupt a key step in the supply chain.