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Looking at the Wider Market

To capture opportunities in the integrated China-Hong Kong market,
Hong Kong SMEs have to expand their marketing horizons,
writes TIMOTHY CHEUNG

After experiencing lots of tough challenges in recent years, many Hong Kong people are wondering where the future of this city lies, and how we should position ourselves in the face of growing competition from cities in the Pearl River Delta in particular, China as a whole and the Asian region in general.  Deeper inspection, however, reveals a silver lining so pessimism should not be the order of the day.

To understand the role Hong Kong has to plays in the Chinese economy as one of the country's key cities, we must first look at the mutually dependent relationship that has developed.

China should be viewed as a "domestic" market

Though a border exists between Hong Kong and the Mainland, the two places are in effect emerging into one large integrated market judging from the level of government and commercial activity indicated above.  Hong Kong is a small place by comparison with the whole of China but its economic significance cannot be undermined.  With a population of 6.8 million -- around 0.5 percent of the Chinese population -- Hong Kong's GDP is one-eighth of that of China.

Hong Kong and the Mainland can fully complement one another from a market perspective; the integration between the two places is mutually beneficial.  We should view the whole of China, including Hong Kong, as becoming one large domestic market. Hong Kong's physical border should not be regarded as a hindrance to the development of this market.

According to official statistics, there are over 280,000 SMEs in Hong Kong, representing 98 percent of all enterprises.  Hong Kong's SMEs and China's enterprises differ fundamentally in their perception of the China market.  Despite the fact that some of our larger local companies already have relatively comprehensive plans in place to take advantage of this integrated market, the majority of Hong Kong companies still consider "Hong Kong" as their marketplace.

Many Hong Kong SME owners are shrewd businessmen but by limiting their marketing horizon to Hong Kong they have limited the growth of their companies.  To move ahead, Hong Kong companies should revisit their business plans and objectives and adjust their approach to cope with changes in the market.

In China, by comparison, privately-owned enterprises (POEs) have grown from virtually nothing 20 years ago to account for 40 percent of all China enterprises now and are recognized as a major economic driving force.  Some of them are gaining a global reputation, yet 20 years ago few if any of China's POEs would have been considered on par with Hong Kong's SMEs.   So, why can't Hong Kong SMEs grow into international brand names?

Embracing transformation for success

When you begin to ponder over this question, you are already embarking on a course of transformation.   Many Hong Kong SMEs have shrunk away from the China market for fear that the rapid changing market dynamics would lead to failure.  So, Hong Kong SMEs wanting to expand in China must first change their mindset, embrace new practices and transform the way they operate.

SMEs conducting business in China not only need to compete with multinational companies, but also with POEs of the Mainland.  These POEs are constantly seeking to reinvent themselves.  Their ongoing quest to optimize their management model, coupled with their greater market concept and broad market vision, gives them an insatiable appetite for growth.  The likes of CNOOC, Haier, Huawei, and Lianhua Supermarket are notable examples of this.

We heard and saw these initiatives at play in the "China's Top 100 Privately-Owned Enterprises Conference" co-organized by IBM in Shanghai recently.  Large enterprises from around the world, on the other hand, are also sharpening their knives for a share of this vast potential market.

Running a business in present-day China calls for professional management and planning.  Sole reliance on "guanxi," or relationships, is no longer the winning formula.   Apart from embracing a vision, an enterprise also needs to have a thorough understanding of the entire business landscape and identify any changes in external forces before establishing its business goals and market positioning.  A well thought-out plan, an optimal operating model, an efficient organization structure, a suitable management style and a smooth workflow are all indispensable.

Innovation should be given priority when designing all these components.  The management team should make an effort to identify those core competencies that they should focus on.   With a set of clearly defined goals in place, technology should be deployed to implement and support the workflow, management and decision-making process, as well as innovation activities and employee training.

Technology is vital to the development of an enterprise.  Hong Kong SMEs should employ technology strategically to support their "transformation" and create the competitive advantages needed to secure a foothold in the vast domestic China market.

Timothy Cheung is General Manager of IBM China/Hong Kong Limited.