Hong Kong SMEs have learnt how to do business with China over the past 20 years placing the city in a vaunted position in the region, says the Hong Kong Productivity Council's (HKPC) Vincent Li.
"Since the eighties, Hong Kong businessmen have been working with China, establishing about 70,000 businesses in the Pearl River Delta, employing about five million," says Li, general manager of the Enterprise Enhancement Services Division of the HKPC. "We [Hong Kong and mainland China] also have similar culture and language - not easily replaceable assets. Hong Kong is also a metropolitan city with very sophisticated professional services, port facilities and financial system."
For Hong Kong's 300,000 SMEs, which employ nearly 1.5 million people, to compete effectively after China has entered the WTO, Li says they must establish their own niches and turn them into "sustainable competitive advantages".
To help SMEs achieve this, the HKPC, since 1999, has organised more than 40 study missions to China, attended 200 exhibitions and conferences and invited more than 500 mainland delegates from enterprise and government to Hong Kong.
The most recent study tour - organised by the HKPC's SME Centre - was to Shanghai in December. Li says the visit helped local businesses better understand the changes WTO membership will bring. "They were able to meet key people that as an SME you usually don't have access to."
Co-organised by the School of Management at Fudan University and by financial consultants BM Intelligence International, the Shanghai mission attracted 16 delegates and included talks from officials and academics on economic trends, financial system reform, taxation and challenges facing overseas investment and corporate management.
One of the delegates from the study tour, was entrepreneur Laurance Tsui, whose electronics firm Apex Joint has a factory in Dong Guan in Guangdong Province. "I wanted to know what changes would take place with China in the WTO," says Tsui. "I found out good news. I learnt about [China's] manpower rules and taxation. The tour gave me a clearer picture of China's policies. I believe that China's WTO entry brings good prospects for business in Hong Kong, Macau and Taiwan. "The main concern for Hong Kong industry over the past 10 years was cheap labour, but now I think the trend will change," says Tsui.
The HKPC offers several other services to help Hong Kong SMEs gear up for the challenges of China's WTO membership, including a professional hotline service manned by lawyers experienced in dealing with Chinese trade. The organisation also holds solution workshops and seminars covering issues such as China law and taxation and those issues faced by businesses trying to establish themselves in the mainland.
Li says the impact on SMEs of China's accession into the WTO is three-fold. "Firstly they should be looking at how they can get more business from China. Secondly they should look how to get Chinese enterprises to use Hong Kong services, and thirdly, as a bridge between international businesses and China.
WTO director general Mike Moore (pictured) agrees, saying Hong Kong's role will be "as a service sector and training base... its ability to prove these and of course location, location, location are Hong Kong's advantages".
However, HKPC's Li says it won't all be easy sailing for Hong Kong SMEs. "The challenge for Hong Kong manufacturers is to learn how to better market and distribute their products. If they can overcome that hurdle these businesses will mature to another level. American companies do so well in international trade because they have a very big domestic market. At the moment Hong Kong's market size is small, but when you are talking about the China market, particularly in five or six years' time, Chinese consumption power will be huge."
The Hong Kong Trade Development Council chairman Peter Woo says a growing number of overseas companies are using Hong Kong as a platform, a partner and risk-manager to capitalise on opportunities in China. "Hong Kong has first-mover advantage... Hong Kong firms have learnt how to be successful in the mainland, and more important, how not to lose money there."
TDC deputy executive director Frederick Lam says while Hong Kong SMEs have the first-mover advantage in the mainland, "it is no longer enough for Hong Kong companies just to do OEM [original equipment manufacturing], just to be the middleman and re-export centre. There will be growing competition from mainland cities and companies, so Hong Kong's challenge is to move up the value chain (products, services, ideas and practices), from OEM to ODM [original design manufacturing] to brands."
Hong Kong firms such as V-Tech electronic products and Lamex furniture, as well as retail chains - including Giordano, Chow Tai Fook Jewellery and Sa Sa cosmetics stores - are already making an impact across the border, says Lam.
To help SMEs expand into the mainland market the TDC has established 11 offices in the mainland.
Useful websites:
www.hkpc.org
www.tdctrade.com
www.info.gov.hk
www.chamber.org.hk
www.smecentre.com