Hong Kong Manufacturing SMEs: Preparing for the Future

86Industry participants do not expect intensecompetition from outside of the Chinese Mainlandor Hong Kong in the foreseeable future. Theyreason that India has too much red tape, notenough infrastructure, and a different mindsetthan the one that is needed to succeed in the toyindustry; Vietnam is a late entrant that has not yetaccumulated the technical skills to make a widerange of toys; Taiwan and Korea have alreadymoved to higher tech/higher value industries;Thailand and the Philippines lack political andeconomic stability or supply networks; andIndonesia, Bangladesh, and Sri Lanka would haveto start almost from scratch to build a presencein the toy sector. Other locations that wereonce competitors have been beaten by lowerproduction costs in the Chinese Mainland andby logistics systems, often based in Hong Kong,that link production in China to global markets.Thus the expectation is that Hong Kong and HongKong companies will continue to have a strongcompetitive position, though margins may comeincreasingly under threat.Basic Facts about the IndustryThe Gross Industrial Output (GIO) for Hong Kongwas HK$151 million in 2008 for the “electricalappliances and houseware and electronic toys”sector which is the only industry line within the toysindustry for which recent data is publicly available.Hong Kong employment for electrical appliancesand houseware and electronic toys is low with 414persons employed at an estimated average annualwage of HK$99,729. Wages were approximately32 per cent of total costs. 162 Wages for electricalappliances and houseware and electronic toys inHong Kong are five times those for the sector in162 Hong Kong Census and Statistics Department data on“Electrical appliances and houseware and electronic toys,”2009.163 Hong Kong Census and Statistics Department.China as a whole. This is likely explained by generalwage disparities between Hong Kong and Chinaand the employment of more senior staff in HongKong.Exhibit 51. Average Monthly Wages for theSector in RMBRegionAverage Monthly WagesHong Kong 7,328YRD 1,567PRD 1,543China 1,585Sources: Foshan, Dongguan, Shenzhen, Huizhou, Taizhou (JS), Nantong,Shaoxing, and Jiaxing City Statistical Yearbooks, 2009, China StatisticalYearbook, 2009.Total exports of toys, baby carriages, games, andsporting goods from Hong Kong in 2009 wereHK$104.9 billion, or 4.2 per cent of Hong Kong’stotal exports. The US and the EU were the twobiggest markets for Hong Kong’s toy exports,accounting for 56 per cent of the total. Demand fellin both these markets with the economic downturnthat began in late 2008. Hong Kong’s exports intothe US fell by 28 per cent in 2009, and those to theEuropean Union fell 10 per cent (Exhibit 52). Reexportsof toys, baby carriages, games, and sportinggoods from Hong Kong were HK$104.7 billionor 4.3 per cent of total re-exports (Exhibit 53).Export processing facilities in the Chinese Mainlandaccounted for HK$50.1 billion of this total (Exhibit54), while Chinese Mainland-based non-processingtrade companies accounted for a further HK$29.4billion 163 , the balance of the re-exports being fortoys from places other than Mainland China. Totaldomestic exports for this sector in 2009 wereHK$137 million, a 21 per cent decrease from theprevious year.In 2009, imports of toys, baby carriages, games,and sporting goods to Hong Kong were HK$91.9billion, or 3.4 per cent of total imports. The ChineseMainland accounted for 83 per cent of the imports,followed by Japan, the United States, and Taiwan(Exhibit 55).