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Hong Kong 97', China: What you need to know about the future of Asia Business!

Author(s):

Linn E. Nelson
Linn E. Nelson, President, Barnel International Inc., Portland, Oregon USA, 503 291-1400 tel, 503 291-1600 fax.

82nd Annual International Conference Proceedings - 1997 

HELP WANTED: One ethnic Chinese Hong Kong citizen to serve as Chief Executive of Hong Kong after British Departure. Must be pro-democracy and pro-Communist. Respect for rule of law essential, but ability to bend with the wind required. Must administer capitalist society under rules of bankrupt socialist bureaucracy. Language fluency: English, Cantonese, and Mandarin. Miracle workers given preference.

One of the world's richest cities with 5 million people becomes part of the Peoples Republic of China on July 1, 1997. The Beijing leadership has pledged to let the territory operate under its own laws after it rejoins China as a Special Administrative Region in July.

The future of Hong Kong will rest with the newly selected Chief Executive who will run the Special Administrative Region for five years. The city's gleaming skyscrapers and China's barbed wire borders what could become a forgotten Hong Kong. What will the future hold for sourcing in Hong Kong and Asia in general?

Our company Barnel has invested a tremendous amount of dollars and energy in China supplier development. Competitive pressures dictated we explore other sourcing alternatives. The Asian gold rush spelled China has thus experienced a mix review of successes and failures.

The takeover of Hong Kong initially will result in minimal change for those doing business in Hong Kong. The major challenge is current sources and what direction they will seek in attempt to avoid China dominance. The mouth of the dragon (hard currency) will flow into mainland China through Hong Kong. This is the key point of why we believe no actual economic change in the near future will affect this country.

Reality.........A capitalistic society (China) is slowly emerging and there is no turning back............

One of Hong Kong's key successes is their ability to work with and motivate Chinese suppliers. Hong Kong, master of negotiation, applies the keen cultural traits to getting deliveries sort of on time and attention to quality issues at least acknowledged.

Barnel has found that with some suppliers the need to exercise quality correction due to the product not meeting spec could result in a future "no bid". Such a situation has placed us in a very difficult position as to re-sourcing the product or attempting to further develop the supplier.

Interesting enough it is estimated one out of every four Hong Kong citizens has someone in the family who can provide a legitimate way out of the territory given the going gets rough. However Beijing prefers to use Hong Kong as a "show case" as proof that China is sophisticated enough to be an asset to Hong Kong rather than destroying it.

While there are several good sourcing opportunities in China we believe the purchaser needs to evaluate the total costs of doing business in China versus other more expensive (unit cost) yet reliable Asian sources which could be "least total cost" overall.

Thailand, Indonesia, Malaysia are just a few countries that rank high on our list of "conducting credible business" depending upon the technologies required. While the unit cost may be higher the net overall cost of doing business could result in a more favorable business relationship.

Key to our success has been our ability to read, write and speak eight different languages. We have made a conscience effort to understand the culture of the country we are doing business with and further have evaluated the most effective negotiation and motivational techniques.

Summary:

  1. For Hong Kong sources stay in close touch. Do not be anxious to shift sources of supply but be prepared.
  2. Currently Hong Kong typically is a "cost adder" to the overall costs of China sourcing given Hong Kong is acting as an agent.
  3. Evaluate what the post July 1, 1997 will be both on influence and costs.
  4. On the long-term check out neighboring Asian sources based on technology, culture, attention to detail and response. Ask for references.......follow-up on them.

Barnel's opinion is that Hong Kong will continue as it is for the interim. The successful purchaser however will have in place a well thought out strategic plan for the future.


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