TECHNOLOGY Services and intellectual property are the keys to future prosperity
Tackling manufacturing drift

15 Silicon Valley firms have signed up already to carry out R&D at Hong Kong Science park

he familiar ‘Made in Hong Kong’ label is fast disappearing. The former British colony is undergoing a major transformation from manufacturing centre to research and development hub at the cutting edge of new technology. The majority of Hong Kong manufacturing has moved to China where labour costs are much lower. International companies now deal directly with Chinese manufacturers and no longer need to operate through Hong Kong as an intermediary.
“Hong Kong has lost its position as the only window to China,” says Chan Wing-Kee, chairman of the 3,700-member Chinese Manufacturers’ Association of Hong Kong. “That is the real reason for Hong Kong’s economic problems. China is trading much more with the rest of the world and many people want to deal with China directly.

“Nevertheless, we want to maintain a strong manufacturing sector, so what we have done is to move our manufacturing facilities to China, which is to our benefit. Instead of saying ‘Made in Hong Kong’, we like to say ‘Made by a Hong Kong manufacturer in China’, or ‘Made by a Hong Kong manufacturer in Indonesia’ and so on.”
The government is tackling the consequences of the drift of manufacturing to China by transforming Hong Kong into a place that still holds a key position in global trade, although what will be traded will be less in the form of goods and more in the nature of inventions, intellectual property and services.

Peter Lo, chief executive of HKSTPC, is creating a one-stop shop for R&D services offering incubation and commercialisation

Peter Lo, chief executive of Hong Kong Science and Technology Parks Corporation (HKSTPC), says: “Manufacturing is gradually moving across the border, while services are still growing in Hong Kong. As a result, we are focusing on higher-value IT manufacturing, such as fibre-optic cables and earth satellite stations.”
HKSTPC was created last year by the merger
of the Hong Kong Industrial Estates Corporation, the Hong Kong Industrial Technology Centre and the Science Park Company.
“The rationale behind this three-way merger was to make sure we would be able to provide better services, create synergies between these former entities, and put all their resources together in order to be able to help local industries more effectively,” says Mr Lo.

A new hi-tech science park is being built on reclaimed land in a three-phase programme. The government has earmarked $420 million for the first phase, now ready for occupation. Some 15 Silicon Valley firms that plan to open manufacturing plants in China have already signed to settle in the science park to conduct R&D.
Mr Lo says: “They need an R&D centre in Hong Kong because they will rely a lot on intellectual property rights, given the importance of the content of their products. Comparing our business climate with the Chinese one, there are a lot of advantages in Hong Kong, starting with a level playing field, the rule of law and so on.
“We are creating a one-stop shop offering a full range of services from incubation to commercialisation. We do not encourage mass manufacturing – the science park is for R&D only.”

The second phase will be completed by 2005 and the final phase in 2008. The total cost is around $1.4 billion, excluding land reclamation.
“We are convinced that now China is part of the WTO, Hong Kong will need to keep its edge in the Asian investment game. This edge can only be kept by offering the best, and something that others cannot provide,” adds Mr Lo.
TechTronic Industries is just one example of a Hong Kong company which has moved its manufacturing operations over to China. The firm, which started life in 1981 trading in power tools and household appliances, has expanded rapidly over the past three years by buying up the companies for which it formerly sold products.
Two years ago, TechTronic acquired the North American business of Japanese power-tool maker Ryobi. It later went on to acquire Ryobi’s European and Australian businesses, giving the Hong Kong company a major brand presence in the world’s largest power-tool markets.

Horst Pudwill, chairman of TechTronic Industries, aims to penetrate Japan’s power tool market

TechTronic has rationalised its manufacturing operations in the UK and Indonesia and, in a drive to reduce costs, has located all its manufacturing at its plant at Dongguan, China.
Company chairman Horst Pudwill, a former Volkswagen executive, says TechTronic increased its power tool business by 20 per cent in 2000 and by 100 per cent last year.
TechTronic also bought the UK-based VAX vacuum cleaner manufacturing firm and has increased its turnover by 25 per cent. It is now the second-biggest manufacturer of vacuum cleaners after Dyson, says Mr Pudwill.
“We want to penetrate the Japanese market eventually, especially in the power tool business,” he adds.