20 Oct 2009
Financial Crisis Changing World Trade Structure
New HKTDC Report Sees Hong Kong Maintaining Role as Asia’s Sourcing Hub
20 October 2009 – A seismic shift in the world economic landscape is leading to a major change in the world’s trade structure. Hong Kong exporters looking to expand sales in the post-recession era should pursue business opportunities in emerging markets, given the emergence of a middle-income class, retail modernisation and maturing brand culture, according to a new research report published by the Hong Kong Trade Development Council (HKTDC).
The report, “Impact of the Current Global Financial Crisis on World Trade Structure,” was cautiously optimistic that the global economy would improve through the rest of this year and continue to gain ground in 2010. Meanwhile, a new economic paradigm, characterised by a correction of global imbalances, is emerging. It noted that the United States savings rate would increase, and that the Chinese mainland would prop up domestic demand to absorb excess production capacity.
“Consumers in traditional markets are altering their buying preferences in many ways, spurred by household deleveraging, higher savings and a low motivation for spending. They are sticking to discount retailers and hypermarkets and looking for practical, durable, value-for-money products,” HKTDC Chief Economist Edward Leung said today at a media conference.
Mr Leung expected that this consumer shift will become a long-term trend. In light of this, he advised Hong Kong companies to follow evolving consumer trends, formulate the right products and marketing strategies and strengthen their supply-chain management, with a view to maintaining their market share in the traditional market.
“Discretionary items such as consumer electronics and toys will rebound more strongly once the economy is on the mend,” he said.
Rise of Emerging Markets
With business in traditional markets not expected to return to pre-crisis levels soon, Mr Leung advised Hong Kong exporters to fix their sights on emerging markets, especially Asia’s developing countries, for diversifying business and boosting sales.
“The sound fundamentals of some economies in the region, their current account surpluses, large exchange reserves and high domestic savings put emerging markets in a better position to bounce back,” said Mr Leung. “The effort to rebalance growth from external to domestic sources is another positive factor.”
He expected the Chinese mainland, the first to recover from the global downturn, would again be the axis of growth. He was also optimistic about ASEAN countries, including Vietnam, Indonesia and Malaysia.
“ASEAN’s middle class, numbered at about 75 million, would bring about stronger demand for competitively priced consumer goods that are stylish, safe and fit for use,” he said. “The maturing brand culture would also be helpful for promoting Hong Kong original brands and products.”
In addition, retailers operating in emerging markets are growing in size, and they tend to order value-for-money products from foreign suppliers directly to reduce costs. Even smaller retailers may form buying cooperatives for collective sourcing from overseas suppliers.
Compared with their counterparts in traditional markets, buyers in emerging markets are more concerned about costs and tend to place smaller orders. They are, however, more willing to accept lower but reasonable quality standards. “In terms of sourcing, trade fairs, as well as trade portals and print and electronic trade magazines, are preferred channels for buyers in emerging markets,” said Mr Leung. “Hong Kong traders can leverage these channels to reach their target buyers in emerging markets.”
The report found that, while more Hong Kong suppliers were interested in selling on the mainland, they were concerned about inadequate IPR protection, fierce local competition, high payment risks, a lack of legal knowledge, cumbersome administration procedures, unclear laws and regulations and the mainland’s heavy tax burden.
Like their mainland counterparts, Hong Kong companies in the post-recession era should adopt a high value-added strategy to secure a foothold in the competitive business environment, according to Mr Leung. He expected that Hong Kong suppliers would continue to move up the value chain, especially in product design and brand promotion, while extending their production bases away from the Pearl River Delta to other parts of the mainland, and even outside China.
Hong Kong: Asia’s Sourcing Hub
The report noted that, after the current financial crisis, Hong Kong would still be faced with mounting challenges, including tepid overseas demand and continued retail concentration in mature markets, as well as mounting competition and extension of sourcing beyond the PRD. It added, however, that Hong Kong could maintain its role as Asia’s most prominent sourcing hub.
To further enhance its competitiveness, Hong Kong will have to build its credibility, expertise and effectiveness as a marketing platform, especially in sales and marketing, product design, quality assurance and supply chain management.
“Although Hong Kong will face increasing challenges, Hong Kong’s role as a sourcing hub will likely be sustainable, thanks to the economic shift to the Asian region and a critical mass establishing Hong Kong’s trading platform,” Mr Leung said.
The report, “Impact of the Current Global Financial Crisis on World Trade Structure,” is now available at http://www.hktdc.com/info/mi/a/ef/en/1X06BWLR/1/Economic-Forum/Impact-Of-The-Current-Global-Financial-Crisis-On-World-Trade-Structure.htm
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About the HKTDC
Established in 1966, the Hong Kong Trade Development Council (HKTDC) is the international marketing arm for Hong Kong-based traders, manufacturers and service providers. With more than 40 offices worldwide, including 11 in the Chinese mainland, the HKTDC promotes Hong Kong as a platform for doing business with China and Asia. The HKTDC also organises trade fairs and business missions to connect companies with opportunities in Hong Kong and the mainland, while providing information via trade publications, research reports and online. For more information, www.hktdc.com