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International Trade/Offshore Manufacturing/Sourcing/Export/Import/Consulting In Hong Kong, Change Is Only ConstantBy Julie Sell
Back when the first Europeans landed on Hong Kong, they found nothing but a rocky, mountainous island off the south China coast. There were virtually no natural resources and, except for a deep natural harbor, there was not much to recommend the place. Traders were undeterred, however, and eventually turned Hong Kong into a thriving entre port.
Today, the city of 6.7 million people with gleaming skyscrapers, state-of-the-art transportation systems and constant motion leaves no doubt about Hong Kong's ability to transform itself. Even in the midst of the worst financial crisis to strike Asia in decades, business analysts and executives are confident Hong Kong will eventually rebound, particularly given its growing importance as a springboard into mainland China.
The former British colony's return to China's fold in 1997 as a "Special Administrative Region" has further strengthened already close ties to the mainland, which has the fastest-growing economy in Asia these days. All of this means there are some interesting opportunities for U.S. businesses in Hong Kong.
To be sure, Hong Kong has suffered the effects of the regional economic crisis. Real GDP growth was negative in 1998 after better than 5 percent growth in 1997. Unemployment, while still low at 5 percent, is twice the normal rate. Retail sales have plunged, and bankruptcies are on the rise. Tourism, once a mainstay of the Hong Kong economy, has suffered as other Asians stay home or spend less when they visit. As a regional center for many businesses, the city has shared in the pain of its neighbors.
But Hong Kong has already shown renewed signs of its characteristic optimism, which had been badly bruised in the months after the economic crisis hit. The stock market has bounced back from its precipitous plunge in 1998, and is showing an overall gain for the 12-month period. This optimism, combined with the city's proven ability to reinvent itself, pro-business attitudes, liquid financial markets, and sound legal and banking systems, prompt many analysts and regional executives to predict that it is well-placed to rebound more quickly than its neighbors, even if that doesn't occur until late in 1999. The Hong Kong currency's peg to the U.S. dollar has also afforded a degree of stability for business that has been envied in other Asian countries whipsawed by currency devaluations.
The difficult economic times Hong Kong is experiencing can mean opportunity for foreign investors with strong nerves and careful planning. According to investment bankers in the city, there are a number of financially distressed companies, particularly in the manufacturing and property sectors, that are relatively low-cost acquisition targets at the moment.
The window of opportunity to snatch up companies at bargain prices has narrowed for some investors, however, given the Hong Kong stock market's turnaround in recent months. The rise in share prices has caused some deals to drag on for some time, investment bankers have noted. In addition, some Hong Kong business owners have gone bankrupt and have lost the incentive to dispose of their companies.
Hong Kong used to be known as an important low-cost manufacturing center for products such as clothing, electronics and housewares. There are still a number of small manufacturing operations in the city, but many manufacturing facilities have moved across the border into mainland China, where costs are lower. Of those manufacturers remaining in Hong Kong, many are adopting more capital-intensive modes to offset labor costs.
In recent years, Hong Kong has increasingly identified itself as a regional services center, a transportation and communications hub, and the gateway to China. The new airport at Chek Lap Kok, in addition to the always-busy port, has enhanced Hong Kong's image as a city that emphasizes technology, connections and service.
Specific sectors attracting good interest from foreign investors recently include the information technology, telecommunications and biotechnology industries. Each of these industries take advantage of the city's excellent communications system and highly educated work force. An estimated 13 percent of Hong Kong's population is on the Internet, making it a close second to Singapore in terms of Internet use in the region.
The financial services sector has been hard hit in the economic downturn, and there are currently many experienced finance professionals on the job market. The Hong Kong Institute of Biotechnology, which opened about six years ago, is an active incubator for new companies in Hong Kong, as well as overseas partners who want to work in the region. The institute has also been a catalyst for work in developing herbal medicines that might be used for Western applications.
Amid all the economic turmoil in Asia, mainland China stands out as an engine of growth, although it is expanding at a less robust pace than in recent years and questions persist about a possible devaluation of the yuan. The latest official forecast has said China's economy will grow 7% this year. It is the combination of China's growth potential, its geographic and cultural proximity, and also its shortcomings that allow Hong Kong to benefit as the gateway to the mainland. Concerns about the mainland business environment, including its legal and financial systems, have prompted many foreign businesses to locate their regional offices in Hong Kong, or to form partnerships with Hong Kong companies to pursue mainland business opportunities.
Due to proximity and cultural ties (including the Cantonese language), a significant portion of Hong Kong's business activity in mainland China is concentrated in neighboring Guangdong Province and the special economic zone of Shenzhen. Shenzhen's exports, although they were down sharply in 1998, still accounted for nearly 15 percent of mainland China's total exports for the year.
When it comes to doing business, China's regulations are much more stringent than those in Hong Kong. Foreign investors are required to have a mainland Chinese partner in any deal. In addition, there are caps on foreign investment levels, which differ by industry. Adding a Hong Kong partner to the equation (in addition to the mainland partner) can offer a U.S. company added benefits in entering China.
U.S. companies interested in Hong Kong will find it an easy place to operate. Business information is generally available, English is widely spoken, regulations are fairly transparent and business-friendly, and Hong Kong companies are used to doing business internationally.
Unlike mainland China, Hong Kong has no requirement that a foreign company have a local partner to establish a presence in the city. U.S. businesses may register with the Inland Revenue Department either as overseas companies or incorporate as limited companies in Hong Kong. It generally takes only about 30 business days to obtain a business registration certificate.
There are several good information sources for companies getting started in the Hong Kong market. The Hong Kong Trade Development Council, a semi-official organization with North American offices in Chicago, Los Angeles, Miami, New York, San Francisco, Toronto and Vancouver, actively promotes Hong Kong business around the world, sponsors trade-promotion events, and can provide information on Hong Kong companies that are active in particular sectors. The HKTDC also has a Web site with general business information. The site can be found at .
The Hong Kong Government's Economic and Trade Office has offices in New York and San Francisco to handle business inquiries from U.S. companies, as well as a Washington, D.C., office to deal with political and policy issues. The economic and trade office's mission is to provide information on investment opportunities and trade links. The office concentrates primarily in the manufacturing sector, but also can provide information on issues such as transportation and environmental pollution.
In terms of general information, the office offers a free publication called The Hong Kong Investment Guidebook, which is useful for companies new to the market. The office expects to launch a new Web site early in 1999. Investment promotion officers are also available at the economic and trade office to assist with more detailed business inquiries.
A number of U.S. states operate their own trade offices in Hong Kong. These are useful sources of information and contacts for companies from those particular states, and often organize industry-specific trade shows. Among states in the Southeast, North Carolina is the only one with a Hong Kong office. Most other states in the region can assist with Hong Kong inquiries to their international offices in the U.S., or may refer inquiries to other state trade offices in Asia.
In terms of federal assistance, the U.S. Commerce Department's International Trade Administration has a Gold Key program that works through the U.S. consulate in Hong Kong to establish business contacts and set up meetings for U.S. companies seeking distributors or partners in Hong Kong. The American Chamber of Commerce in Hong Kong is another source of information for businesses, although its primary purpose is to serve the needs of its members in the city.
Most of the resources listed above provide fairly general information, and are offered for free or at minimal cost. For those companies seeking more detailed information or assistance, there are a variety of research and consulting companies that work in the Hong Kong market.
U.S. companies will also find Hong Kong a straightforward place to take care of financial and accounting business. Virtually all major multinational banks, investment banks and accounting firms have offices in the city to provide assistance with audit, corporate finance, tax and related matters. The major U.S. accounting firms, such as Ernst & Young and Arthur Anderson, have been doing business in the city for decades.
While it is relatively straightforward for a U.S. company to establish distribution or an office in Hong Kong, the situation is quite different in mainland China. There, it is impossible for a foreign company to proceed without a mainland partner, and many U.S. companies also join forces with a Hong Kong firm as a third party.
Be aware that a Hong Kong distributor or partner who is the right choice for you in the local market is not necessarily the best choice on the mainland. Hong Kong companies have varying degrees of experience, reach and (perhaps most importantly) connections on the mainland. The China market can be as murky as Hong Kong's is transparent.
Finally, businesses that are traditionally tightly regulated, such as pharmaceuticals, will find that the procedures in Hong Kong are clearly defined and relatively transparent. Although Hong Kong is now a special administrative region of China, it is operating under the principle of "one country, two systems." As a result, products must still be registered separately with the mainland Chinese authorities. Hong Kong may be the gateway to China, but it is not necessarily the fast track. |
