Hong Kong as APAC’s electronics trading hub

ECN spoke to Stephen Wong, regional director of the Hong Kong Trade Development Council (HKTDC) for the Americas. Excerpts:



How would you describe the current state distribution of electronic products in Hong Kong?

The electronics industry is Hong Kong’s largest merchandise export earner, accounting for nearly 50 percent of its exports in 2006. As for finished goods, which total about one-third of Hong Kong’s electronics exports, the majority are consumer electronics for domestic use. Regarding parts and components, which make up about two-thirds of Hong Kong’s electronics exports, the major items include parts and accessories for computers.



How would you characterize Hong Kong’s electronics industry, particularly when it comes to imported parts of key components?

Hong Kong’s electronics industry is heavily dependent on the imported parts of key components, especially ICs and dices. With its free port status and advanced telecommunications infrastructure, Hong Kong allows companies to source freely worldwide. For other parts and components, including PCBs, passive components, speakers, metal parts, plastics, connectors, gift boxes and other packing materials, Hong Kong companies may source from other manufacturers here or local Chinese enterprises in the mainland.

To what do you attribute the success of Hong Kong’s electronics industry?

Efficient management. Hong Kong companies emphasize quick response to ensure effective marketing services for their customers and to monitor changing product trends. And, because of the growing concern of quality-conscious buyers, more and more companies have strengthened their quality assurance systems. This is illustrated in the growing number of Hong Kong companies that comply with ISO 9000, an internationally recognized standard for quality management, as well as ISO 14000, a recognized standard for environmental management, amid the growing concerns for environmental protection.



How do exports from Hong Kong to China compare with exports to the US and the EU?

Hong Kong’s electronics exports to mainland China accounted for 53 percent of Hong Kong’s total electronics exports in 2006, while the US and the EU accounted for 11 percent and 13 percent, respectively, during the same period. On the other hand, electronics exports to the Chinese mainland are mainly parts and components, while exports to the US and the EU are largely finished products.



What role does Hong Kong have as a trading hub for electronic parts and components in the Asia-Pacific?

Hong Kong is an important trading hub for electronic parts and components in the Asia-Pacific region. Apart from Chinese products, many items from Japan, Taiwan, the US and South Korea are re-exported via Hong Kong. A number of multinational manufacturers of parts and components have opened offices in Hong Kong, engaging in sales, distribution and sourcing activities in the Asia-Pacific.



Before China’s membership to the WTO, Hong Kong manufacturing and trade were restrained from establishing a direct distribution presence in the mainland. How has this changed since then?

Beginning one year after accession, full rights to import and export were granted to joint ventures with minority foreign share. This was extended to joint ventures with majority foreign share, beginning two years after accession. On the other hand, majority foreign ownership in joint ventures is now allowed, with no geographic or quantitative restrictions, and there is no restriction on equity/form of establishment. Moreover, foreign-invested enterprises can now distribute their products manufactured in China and provide a full range of related subordinate services, including after-sales services, for the products they distribute.



What effect, if any, do the two EU directives – RoHS and WEEE – have on the design, manufacturing and distribution of electronics in Hong Kong?

Apart from having an impact on order placement, the implementation of RoHS and WEEE has also affected the operation of suppliers and manufacturers. Manufacturers have to find substitutes, develop new designs, perform more compliance checks and maintain lengthy documentation. All this will increase production costs.



What distribution strategy have Hong Kong companies adopted in order to strengthen their global presence and importance?

Hong Kong manufacturers of finished electronic items mostly produce on an OEM and ODM basis for reputable brand names in overseas markets. Hong Kong companies also sell to specialized importers and traders in North America and Europe, who may distribute the merchandise under their own channels or re-sell to their clients for further distribution. In any event, Hong Kong suppliers provide technical support for repair and maintenance. As for parts and components, many manufacturers produce on a custom-made basis for well-known US, European and Japanese companies, making parts and accessories of computers, recorders, and radio receivers, as well as components and modules such as PCBs and LCDs. Meanwhile, standard components are usually exported directly to distributors and manufacturers in overseas markets, although some Hong Kong companies also have their own sales offices or representative offices abroad. There are also a number of large Hong Kong companies marketing electronic products under their own brand names, including Truly, V-Tech, Group Sense, Venturer, GP and SMC. Their sales network covers advanced countries as well as emerging economies like Latin America and Eastern Europe.



What is the biggest challenge(s) to that strategy?

It is hard for local companies to compete directly with foreign multinational companies. Insufficient investment in technology and product innovation by Hong Kong companies, especially front-end R&D, means that the local industry is inevitably behind the cutting-edge competitors in the global marketplace. As mainland China’s electronics industry develops, Hong Kong will also be subject to fierce competition from a number of local Chinese giants and their advanced technology. Hong Kong’s electronics companies have not greatly developed their distribution network overseas, except in Asia. This will put them at a disadvantage when facing competition from indigenous companies in the market. Hong Kong companies also face challenges in brand development, which requires commitment to investing in promotion, after-sales services and quality enhancement. This is especially prevalent in markets outside Asia.



What role, if any, does the EPCglobal Industry Support Program (EISP) announced by EPCglobal Hong Kong in April of 2006 have on global manufacturing and the supply chain for Hong Kong electronics companies?

EISP will incorporate EPCglobal Hong Kong’s expertise in supply chain management with the technological innovations of the world’s leading solution providers to deliver a comprehensive EPC/RFID enablement package. This includes business process planning, technology sourcing, compliance assurance and knowledge transfer to better manage global programs for local suppliers who can be more focused on their manufacturing competence. It will reinforce the Pan Pearl River Delta’s position as a global manufacturing base and enhance Hong Kong’s leading role as a logistics and information hub. Encouraging investment beyond simply meeting global retailer-driven mandates, EISP will accelerate the return on investment facilitated by end-to-end supply chain visibility and real-time information.