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PRD needs to reinvent trade models

By Hong Liang (China Daily)
Updated: 2008-05-27 07:39

Export growth in Guangdong province has slowed down significantly as demand in overseas markets, mainly the US, continues to slide. Latest figures showed that the 15 percent growth in exports from Guangdong in the first four months of this year was considerably lower than the national growth rate of over 21 percent in the same period.

As expected, the hardest hit were the industries that manufacture vast amounts of toys, clothing, shoes and a range of low-cost consumer goods on contracts with foreign buyers. As the outlook of the global economy continues to be clouded by high energy costs, surging food prices and the fallout of the US credit problems, the much-talked-about need to restructure the industrial base of the province, or more specifically, the Pearl River Delta (PRD) region, has assumed greater urgency.

Although great progress has been made in the past decades in productivity and quality control, the majority of the factories in the PRD region have remained stuck in contract manufacturing, or OEM, for foreign buyers. They are lagging behind their counterparts in Shanghai and the Yangtze River Delta region in developing domestic marketing channels and establishing their own brand names.

This was not much of an issue for most Guangdong manufacturers in the past when large sales volumes and depressed wages had combined to produce big profits that dampened whatever sense of change managements might have. But making money is no longer that simple now.

Workers' wages have risen at double-digit rates in each of the past three years. This, coupled with the appreciation of the renminbi against the US dollar, has greatly trimmed exporters' profit margins. Adding to exporters' woes are shrinking orders and tightening delivery schedules demanded by foreign buyers keen to keep their inventories at the lowest possible levels in the face of a worsening market outlook.

The Guangdong provincial government has reiterated the importance for manufacturers to move up the value-added chain. That is the area where Hong Kong can play a key role. By helping enterprises in the PRD region in marketing and brand-building, Hong Kong can secure a position of strength in the mainland's economic development.

In the past, Hong Kong was a major investor keen on taking advantage of the plentiful supply of labor and land in the PRD region. The massive migration of manufacturing activities to Guangdong from Hong Kong has helped speed up the industrialization of the region.

But Hong Kong's hold on the front end - design and financing - and the back end - packaging and shipment - has largely been chipped away as the industries in the PRD region matures. What is more, the Guangdong government has invested heavily in building infrastructure facilities, notably the container ports, that can rival those in Hong Kong. These developments have given Hong Kong's economic planners and business leaders a growing sense of irrelevance.

The opportunities presented by the rising demand for Hong Kong's marketing and branding expertise by the mainland, particularly Guangdong, enterprises have not been ignored. The Hong Kong government has been keen on promoting Hong Kong's new role in the PRD region.

As part of its efforts, the Hong Kong government, jointly with the Guangdong provincial authorities, has initiated a scheme to provide marketing and branding training to PRD enterprises. So far, 200 such enterprises have dispatched key executives for training under the scheme.

Hong Kong, of course, can offer much more. The marketing acumen of such retail establishments as Esprit in clothing, Watson's in healthcare products and Sasa in cosmetics is well known not only in Hong Kong but also in many mainland cities where they have established a large presence. There are much that these and other Hong Kong companies can contribute to the further development of the PRD's economy and particularly of its corporate sector.

E-mail: jamesleung@chinadaily.com.cn

(China Daily 05/27/2008 page8)