The Small and Medium Enterprises in Hong Kong:

To Be or Not To Be ?

by

Albert PK Lau

Vice-chairman, Hong Kong Small and Medium Enterprises General Association

Status Quo of SMEs in Hong Kong 

According to the definitions adopted by Census & Statistics Department of Hong Kong, manufacturing establishments with labour force less than 100 or non-manufacturing ones with that less than 50 are classified as small and medium enterprises (SMEs).  Up to June, 2002, there are about 300,000 SMEs in Hong Kong, which provide jobs for 1.36 million people and account for 60% of total employment in Hong Kong (excluding civil service).  Over 60% of SMEs in Hong Kong are engaged in import, export, wholesale, retail, catering and hotel and these businesses employ half of the total employment.  In Hong Kong, labour-intensive industries have become moribund because the manufacturing operations have been relocated to Pearl River Delta in Guangdong, China while the back-office service and logistic support are still available in Hong Kong. That the services sector dominates the GDP in Hong Kong is borne out by the contribution percentages to GDP at current factor cost in 2000: 85.6% for the services sector and 5.9% for the manufacturing sector. 

Features and Prospects of SMEs 

SMEs are characterized by the following traits: (1) The ownership and corporate governance are so concentrated in an individual or a family that the decision process is as flexible as biased; (2) Employees are more mobile and resourceful in a less bureaucratic environment; (3) SMEs have to carve out market niches as a means to cut costs and circumvent heavy investment in branding and high technology and    (4) The lead time is short while the order can be small.   

In the ??70s and ??80s, the buzzword was: ??Go big or go home!??.  CEOs and economists used to be obsessed by the fad about scale of economy through financial leverage, mergers & acquisitions and organic expansion. Thanks to media coverage and Internet, the individualistic and transient tastes of the yuppie, Bo Bo and DINK  began to override the mass-market production in the ??90s and the paradigm shift is evident from Big to Small.  Peter Drucker, the management guru since the ??60s, argues that SMEs will lead the way in future.  Even though SMEs have been put on a pedestal, they must brace themselves for the knowledge-based economy in the global village.    

How To Gain the Upper Hand by SMEs 

SMEs must adopt cost-effective measures in sustaining their clientele because they can only pull themselves up by their own bootstraps.  In doing so, they can tap niche markets, which are occasioned by individualistic and transient preferences among consumers nowadays.  Large corporations are not interested in or belittle these niche markets on the grounds that they are too small to be viable from their perspective. By contrast, SMEs shy away from head-on competition against large ones and exploit these niche markets, which have priority for services over brands and prices.  In fact, a consumer in a niche market is willing to pay a price premium for a non-branded product or a service if he or she is gratified with customer delight.

SMEs can attend to a small market by adopting specific-customer strategy.  For example, some SMEs supply parts or components to one large corporation as partners, which work closely with their buyers to meet their specific requirements.  They are reliable and loyal to their patrons in a synergetic and symbiotic relationship.  On the other hand, their patrons very much depend on them if they have to achieve Just-in-time (JIT) delivery and zero defect in production.  A case in point is Toyota Motor Corporation in Japan, which is immaculately served by s number of SMEs in its vicinity as trustworthy suppliers of parts for its car assembly lines.

SMEs should be on the alert for new niche markets, which have emerged or will emerge in the wake of changes in situation or legislation.  Some intriguing instances are cited as follows: (1) In Hong Kong, a supermarket specializing in up-market products for the aged targets at ??silver surfers??, who are well-to-do retirees arising from baby-bloomers in the ??40s and ??50s: (2) In Hong Kong, ??private dining?? becomes a hit among middle-class gourmets who are fed up with routine menu in eatery; (3) A handy parachute for life escape from high-rise office is available in the US after the tragedy of September 11 and (4) A technology is available for turning human ashes into diamond, which is exquisite in terms of environmental protection  and remembrance.

SMEs are encouraged to practice ??low tech, high intelligence?? approach, that is, their products or services are innovative gizmos without any advanced technology.  They can streamline their operation costs by availing themselves of IT for production, marketing and management.  The niche-marketers can enjoy first-mover advantage by identifying prospective niche markets through market research, market segmentation  and customer-profiling analysis via  ??data mining?? process available in computer software.  Supply Chain Management for SMEs, that is, long-term partnership among suppliers, manufacturers, distributors, retailers and logistics operators is impossible without the IT support, including Internet, POS and bar-code-numbering system.   

How To Go Branding by SMEs in Hong Kong 

In general, SMEs in the manufacturing sector in Hong Kong live off thin profit margin on OEM basis.  In other words, they are merely engaged in manufacturing process while the design and the brand are proprietary to their clients.  Some SMEs with a vision take part in ODM transaction, that is, manufactures provide and own the design in addition to the manufacturing process.  Even though SMEs on ODM basis are better off and benefit from higher value added, they should aim at OBM as their ultimate goal. In addition to brand equity, they are no longer exploited by large corporations and multi-nationals, which are proprietors of household names, such as IBM, Disneyland, Sony, etc.

At issue are the tremendous resources to be committed by SMEs to promote their brands.  It is just a pipe dream for SMEs to make their trademarks and logos well known on their own. While Hong Kong Trade Development Council (HKTDC) is instrumental in promoting ??Made in Hong Kong?? label through international exhibitions and campaigns, it can take a step further by promoting some brand-names of its own and collecting license fee from SMEs in Hong Kong on OEM and ODM basis.  For example, HKTDC creates ??Rainbow Series?? for fashion and ??Green Island Series?? for eco-friendly products.  SMEs in Hong Kong can manufacture and trade under these brand-names if they comply with provisos, such as quality assurance and country of origin. The license fee to be collected must be competitive to SMEs and ploughed back for development of other brand-names.  The manufacturing sector in Hong Kong deserves a shot in the arm, which can alleviate the unemployment rate looming large for the unskilled and aged workers. 

Concluding Remarks 

The SMEs in Hong Kong have been hard hit by the global economic recession amid the era of knowledge-based economy in which conventional inputs, like machinery, labour and land, are relegated whereas innovation and entrepreneurship play a more significant role in business survival.  The ubiquitous ??cut-throat?? competition among the SMEs only ends up cannibalization of themselves.