[CHINA] GUANGDONG AND HONG KONG TO ADJUST REGIONAL BUSINESS STRATEGIES
[HKTDC; 17oct2017]
Ø Shift of GLOBAL SUPPLY CHAIN [GSC] and
Guangdong-Hong Kong Industrial Development (6)
From: HKTDC Research; 17 Oct 2017
http://economists-pick-research.hktdc.com/business-news/article/Economists-Pick-Research-Articles/Guangdong-and-Hong-Kong-to-Adjust-Regional-Business-Strategies/rp/en/1/1X32LK39/1X0ABL27.htm
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Hong Kong and Guangdong enterprises are keen to upgrade themselves.
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Amid
the shift of global supply chain, Guangdong and Hong Kong enterprises resort to
transformation and upgrading to increase their competitiveness while
formulating new business strategies for production and sourcing in a bid to
keep abreast of supply chain development on the Chinese mainland and around the
globe.
In
order to gain a better understanding of the situation, HKTDC Research and the
Department of Commerce of Guangdong Province jointly conducted in-depth
interviews on selected manufacturing and trading enterprises in Guangdong in
the second quarter of 2017.
Separately,
HKTDC Research also conducted
similar interviews on selected enterprises in Hong Kong. Such interviews aimed
to identify the factors considered by these industry players when mapping out
their business strategies. Given below is a summary of those factors:
[1] MOVING TOWARDS AUTOMATION
China
has a well-developed supply chain system and highly efficient logistics
services. In the face of challenges like rising wages and costs, upgrading
factories and introducing automated production equipment can help alleviate
some of the problems.
This
is particularly the case with technology-intensive manufacturing, where the
wage of non-technical workforce accounts for only a fraction of costs while the
support of experienced technical staff is a must. Industry players relocating
production to lower-cost regions in Asia have to deal with the problem of
shortages in technical staff.
[2] CORPORATE POSITIONING THE
PRIORITY
In
planning future business, precise market positioning and a sustainable business
model are prime factors for consideration. For high-tech or high-end consumer
products to compete in the market, low pricing is not the way to win the
market.
The business development strategies of the interviewed companies mainly
focus on building brands, enhancing product quality and technology content, and
raising product value in order to achieve transformation and upgrading.
[3] USING
SOUTHEAST ASIA TO SUPPORT HIGH-END PRODUCTION IN THE MAINLAND
Relocating
part of the low value-added production activities offshore is one of the
options in countering rising costs. As well as relocating the production of
simple light industrial products, some enterprises also consider shifting the
production of certain parts and components or industrial materials overseas.
These
industrial materials are then transported back to the mainland to support
higher-tech production activities there. In view of the fact that the
production environment of some Asian countries, such as the Philippines and Cambodia, is relatively backward, industrial relocation mainly
involves light industrial products and parts and components which are
labour-intensive, can stand longer delivery period and have a longer life
cycle.
[3] OVERALL COST BENEFIT
When
making outbound direct investment, consideration also has to be given to the
costs involved in transportation, logistics, materials supply and management.
The overall market benefit, and not only part of the direct production cost,
also has to be taken into account.
Since
the supply chain in most low-cost regions is typically not well-developed, the
majority of raw materials required to support local production have to be
imported. This not only increases transportation and logistics costs, but the
longer production cycle also makes it more difficult for investors to capture
opportunities arising from the changing international market.
[4] MARKET
DEMAND DRAWS DIRECT INVESTMENT
In
planning regional production, the demand of the end market must be taken into
account before strategic production services can be provided to clients. For
example, products produced in factories set up in certain countries in Asia and
along the BELT AND ROAD are free
from import tariffs when sold locally.
Even
though such an arrangement may not be the lowest cost, it offers the strategic
advantage of expanding the local or neighbouring markets. Some enterprises even
opt to establish assembly lines in developed countries, and by doing so, they
can not only achieve savings in import tariffs, but can also provide better
sales and after-sales services to the local market. This in turn helps to
enhance their brand image and business value.
[5]
FOREIGN TRADE MEASURES IMPACT PRODUCTION PLANS
Conducting
production offshore can avoid certain trade barriers, such as anti-dumping
measures against certain Chinese mainland products. Moreover, the trade and
tariff concessions granted by some foreign countries to developing countries
can also serve as incentives attracting investment in production or sourcing in
these countries.
However,
it should be noted that the selected location for production must have in place
a fairly developed supply chain or a relatively convenient transportation
network to facilitate the delivery of key parts and components from the Chinese
mainland or other places in support of the production activities carried out
locally.
For
example, currently the US grants preferential import treatment [1] under its Generalised System of Preferences (GSP)
to about 5,000 types of products (including travel goods since July 2016)
originating from Cambodia, Myanmar and other least developed beneficiary
developing countries (LDBDCs).
And
under the EU’s new GSP (effective on 1 January 2014), about 66% of the goods
subject to EU’s tariff nomenclature originating from certain Asian countries
such as Indonesia and Vietnam are entitled to tariff reduction or exemption,
while Cambodia, Myanmar and Laos are classified as Everything But Arms beneficiary countries, i.e. all products except
arms originating from these countries are exempted from import tariffs.
Below are some success stories from the surveyed
companies.
For further details, please refer to:
vi.
Shift of Global Supply Chain and Guangdong-Hong Kong
Industrial Development (Conclusions and Recommendations)
[1]
These measures do not cover products such as textiles, garments, footwear and
watches
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