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Is Hong Kong losing its competitiveness?

Aug 99

As recession bites and Hong Kong faces a slow, labourious recovery, now might be the time to consolidate strengths and tackle weaknesses to improve competitive advantage.

Whilst Hong Kong has a high-cost structure, particularly in land prices, the current recession may well provide opportunity for companies to lay the firm foundations needed for a full future recovery.

From a macroeconomic perspective, Hong Kong's ongoing competitiveness may depend upon an increased emphasis on innovation and technology. By exploiting high-technology and the intellectual capital of its relatively youthful society, the economy may benefit from increased diversity as multimedia, e-commerce and other cutting edge sectors expand, perhaps reducing Hong Kong's traditional reliance on the property and finance sectors.

Indeed, if Hong Kong can really prove itself in these areas, it would help to attract more inward investment from the global market leaders, given its continued commitment to low taxation. In the days of high-speed data links, Hong Kong's distance from some of the key markets should, in theory, matter much less.

From a more microeconomic view, Hong Kong's longer-term global competitiveness may well benefit from the current period of deflation. Not for us the irrational exuberance feared by Alan Greenspan (Chairman of the US Federal Reserve), with companies having, by sheer necessity, to focus on efficiency drives and productivity enhancement action plans. For example, labour costs have been reduced to more realistic levels (particularly for new starters) and this will inevitably prove to be increasingly advantageous over the longer run. Moreover, competitiveness will also be improved by a renewed tendency of companies to concentrate on core competencies and to outsource those less critical functions. There is also evidence of more re-engineering and restructuring of companies by the use of management consultants.

Effective Supply Chain Management (SCM) practices may also serve to increase the competitiveness of suppliers, manufacturers and service providers.

With a view to examining these areas The Bulletin spoke to four high-profile people and got the experts' views on how competitiveness can be raised.

Through innovation and technology

Innovation and technology, when going hand in hand, bring about profits and growth for companies.

With this in mind, the Government of the SAR has a strategic vision of making Hong Kong into a regional knowledge-intensive technology hub.

In March 1998 the Chief Executive, Mr Tung Chee-hwa, created and tasked the Innovation and Technology Commission to explore ways in which Hong Kong could take advantage of the global technology revolution.

Two reports were produced, one in September 1998 and the final report in June 1999, which inter alia, recommended that Hong Kong could become a high-tech regional hub in five years - with substantial returns within a decade.

Professor Tien Chang-lin, Chairman of the Commission, is confident that proposals in the report will increase Hong Kong's competitiveness relative to that of Singapore and Taiwan.

"Hong Kong has many special characteristics such as geographical location which is one of the very best in Asia. It is a major economy in the region and is within five hours flying-time of other centres such as Tokyo - despite email, people still like to have face to face meetings," he said.

Other features, Prof Tien outlined, to Hong Kong's benefit, is its living or social environment, which is unique and stimulating.

"Scientists and engineers like somewhere interesting to live - Hong Kong provides this."

However, Prof Tien said one possible drawback that might detract companies and people from locating here is the "culture".

"Hong Kong has a very short-term commercial culture. People here want high returns, and fast. What they need to do is look to the longer-term investment and take a risk," he said.

With the Government's obvious commitment to develop Hong Kong as a high-tech hub Prof Tien said many multinationals that showed no interest in locating here a year ago, have now decided to take a closer look.

"The Government has already started implementing proposals made in the first report. One of these was the setting up of the Innovation and Technology Fund (ITF) and the Applied Science and Technology Research Institute (ASTRI)," he said.

The ITF will finance mid-stream and downstream R&D projects undertaken by universities, industry support organisations, trade associations, private enterprises as well as ASTRI.

It will also finance R&D projects undertaken jointly by private enterprises and local universities.

"The Government is not waiting around. In order to develop a knowledge-based and technology-intensive economy it has taken up our proposals, which include institutional changes - one of our top priorities. Plus, we are discussing with the Immigration Department about relaxing their criteria so Mainland technocrats can be brought in," he said.

To encourage innovation, he said, education would be imperative.

Prof Tien said all the recommendations had been well received by Government. He hopes that one day Hong Kong will become a San Francisco of the East.

"San Francisco like Hong Kong has a beautiful harbour and a high tech centre - Silicon Valley. It is a financial centre, transport hub and place for knowledge-based and high value-added activity. This is what Hong Kong will be like in ten years time," he said.

Through optimising individual talents

Dr Lily Chiang, Chairman of the Chamber's Industrial and Technology Committee, believes that raising competitiveness is important at all times - not just in a recession.

"In the Millennium high-technology will impact on every facet of daily life, creating new challenges that we must be ready for. Years ago companies competed locally but with the Internet there are no spatial or time barriers so companies need to be ready to compete globally," she said.

Dr Chiang admits the best future business opportunities lie in the Internet, multimedia and environmental protection sectors.

"Making business opportunities out of protecting the environment will boom. The Internet and multimedia will serve to empower young people - and it won't just be about business expansion, but about personal development as well," she said.

Dr Chiang is a great supporter of optimising individual talent, and this she thinks is the best competitive advantage a company has, or indeed, an economy has.

"If you look back 30 years ago people were happy to focus on one area, now they have a much wider scope of expectation and capability. To capture this companies need to set a clear vision in a task force orientated environment. This means enhancing communication and progressing to the shared vision more efficiently," she said.

Dr Chiang said that in manufacturing, optimisation of people is becoming even more important.

"Obviously automation is necessary to raise competitiveness but it's not just the hardware that is important, it is the people - the software. In the past, manufacturers just considered themselves suppliers of a product, but now clients want to buy a total solution. This may mean outsourcing and focusing on core competencies to optimise talent and technology.

"The past financial turmoil has proved Hong Kong cannot rely on just the finance and property sectors - this is too imbalanced. London and New York are major cities in the world and they don't rely on only two sectors. Hong Kong is a whole economy and it cannot put all its eggs in one basket because if there's a problem - there will be repercussions for the whole economy," she said.

Dr Chiang said the mentality and value systems of Hong Kong people needs to change to raise competitiveness.

"Government said 15 years ago that Hong Kong did not need the manufacturing sector, now they are suffering the consequences of this decision," she said.

Dr Chiang said that Taiwan was very strong in high-tech hardware but this is not what Hong Kong should try and aspire to - it should focus on creativity, flexibility and acting as value-added middlemen for China, which are Hong Kong's biggest competitive advantages.

"Hong Kong should focus on transferring technology to and from the Mainland, which is good at R&D, but not so good at down-streaming. Hong Kong can fill this gap," she said.

Through efficient supply chain management

Hong Kong has experienced a boom for more than two decades leading businesses to be more complacent about improving efficiency. But now, faced with tough economic times, this is the area that needs attention - according to Ms Anna Lin, Chief Executive, Hong Kong Article Numbering Association (HKANA).

"Hong Kong has mainly focused on marketing and sales but rarely on operational efficiency - so many companies don't realise how they can save, reduce redundant processes and be more responsive to customers in the market place - even in economic doom and gloom," she said.

The West has experienced severe recession resulting in increased competition which has caused them to boost their efficiency of operations.

"This particularly relates to Supply Chain Management (SCM). Good SCM (rare in Hong Kong) enables you to be more dynamic in the market place," she said.

SCM involves efficient tracking and movement of goods from producer to consumer and the whole chain in between. This usually involves Internet assisted communication and barcoding inventory management technology, with the overall results being reductions in lead-times and costs.

"Everything can be automated and customised at the least possible cost - which results in stronger supply chain links," Ms Lin said.

Through management consultancy

By analysing the strengths and weaknesses of individual companies, management consultancy can serve to enhance the competitiveness of that entity.

Mr K K Yeung, Chairman of the Hong Kong Management Consultancies Association, said from such specific studies, and through their perspective of wider economic factors, the management consultant's advice and recommendations can guide the company to improved efficiency, and hence, greater competitiveness. Depending on individual circumstances, such recommendations may include management restructuring, business reengineering, costs improvement and higher levels of training.

"When invited by a company to assist at a time of economic difficulty, the role of a management consultant is to advise, assist and perhaps refocus the company. A management consultant can review a company's current and historical structure and operation, plus look for opportunities, long-term goals and profit potentials," he said.

Management consultants do in-depth assessments of corporate strengths and weaknesses from an objective viewpoint and examine the validity of business activities and asset utilisation.

"We study and project these analyses and benchmark the company against world trends for their business or industry to find the 'best practice'," he said.

However, he warned there is no general formula to be followed in raising competitiveness.

"Each company has circumstances that are separate and distinct, which require individual diagnosis of the strengths and weaknesses of their operational efficiency, profitability and prospects. Management consultancy can be very effective in helping companies to higher competitive levels - but there is no magic wand," he said.