Innovation and initiative needed

Hong Kong manufacturing SMEs (small and medium enterprises) need to make more effort to tap into the mainland market by taking the initiative to be more innovative, a conference organized by the Federation of Hong Kong Industries (FHKI) was told Monday.

Although manufacturing SMEs have plenty of experience in exporting goods, they also need to make more effort at brand building and upgrading their products to move up the value chain. And they will also need to receive support at a policy level, said the FHKI Chairman Cliff Sun, especially to "counter the difficulties posed by uncertain markets."

With US unemployment still standing at 9.6 percent in October and the lingering effects of the European sovereign debt crisis, up to 27 percent of local SMEs say they plan to expand their mainland business to adjust to the post-financial crisis era.

The mainland has emerged as an attractive destination for SMEs, particularly with the Central Government making domestic consumption a key part of the nation's 12th Five-Year Economic Plan.

However, tapping the mainland market will require a change in emphasis for city firms, said Stanley Lau, chairman of the Pearl River Delta (PRD) Council, an organization dedicating to helping local companies in the region.

Lau said that most Hong Kong SMEs previously exported goods as OEMs (original equipment manufacturers), mainly producing the brands of other firms. "This cannot be simply replicated when moving into the domestic market on the mainland, where building a brand marked by a Hong Kong style matters more," said Lau.

He said that most SME teams are simply sales-oriented and usually deliver less than desirable results when it comes to brand building. It usually requires a large amount of capital to spend on marketing - and patience, too. Lau said it can take up to 10 years to build a brand.

But participants also said that in order to get a slice of the mainland consumption pie, government policies that are consistent and substantive are needed.

One participant said that the business environment on the mainland can be very hard to predict, leaving them to guess about what will happen next.

For example, a policy was recently introduced in Guangdong province that introduced ordinances on democratic management and collective wage negotiations, which temporarily excluded Hong Kong-owned operations.

They also expect more than just various trade shows organized by the Hong Kong Trade Development Council (HKTDC) - they want to see this translated into increased revenue.

David C.W. Hui, chairman of garment company A-Fontane - which has operations on mainland cities - said competition in department stores is cut-throat, with 50 percent discounts the norm.

Hui said there should be a designated exhibition areas showcasing Hong Kong companies at mainland trade shows.

"Such collective action will bring us the best deals in terms of rental, as well as creating the best brand impact," said Hui.

China Daily

(HK Edition 11/09/2010 page3)