25 Sept 2001
Hong Kong: Korea's Platform for Partnership
25 Sep, 2001
Peter Woo, Chairman
Hong Kong Trade Development Council
at HKTDC Business Luncheon, Seoul, Korea
on Tuesday, 25 September 2001
"Hong Kong: Korea's Platform for Partnership"
Good afternoon ladies and gentlemen, Mr. Chung Kyu-chang, Mr. Han Young-soo, Mr. Kim Hyo-sung, Mr. Nam Sang-moo and Ambassador Kim Kwang-dong:
We're delighted to be here in Seoul. Yesterday we had a very good session at the Korean-Hong Kong roundtable with business leaders from Korea and from Hong Kong. We discussed a wide range of issues and we believe that these sessions are tremendously constructive and useful. I'm delighted that some of my colleagues are here today to join this luncheon from Hong Kong and from the TDC.
First, I would like to thank the sponsors from the Korean Chamber, the Small Business Association Organisation and the KITA. It is through these business links that we feel that more constructive dialogues can be conducted in the future.
The two subjects that I am talking about today, as listed up here, are platform and partnership. When we look around in the world there are tremendous opportunities. We see globalisation, we see borderless trade and we also see China entering the WTO. But these opportunities are also coupled with challenges and we face a very competitive world. We see that product cycles are getting much shorter than before. We see that unit prices are reducing every year, every season, in every order the manufacturers receive.
This is not only happening to Asian companies and Asian economies. Even in large companies like General Electric, former CEO Jack Welch told me that unit prices are going south, going down. So how to win and how to succeed in this particularly competitive world is a question and issue that we must all try to deal with effectively. We also see there is overcapacity. There is overcapacity in almost anything because at the end of the day, the customers have plenty of choice.
Hong Kong's core business is trade. About 50 per cent of Hong Kong's GDP is trade, 50 per cent of our jobs are trade and trade-related. In Hong Kong we have 300,000 SMEs with 100,000 being in trade.
I took over the chairmanship of TDC last year in October and I've been travelling quite a lot. I've visited, including Seoul, almost 40 cities, 40 international cities in about 40 weeks. And the reason that I do that is because it is important that we connect with different business communities around the world. The purpose of my visits, like today, is to meet creative people that have new products, new ideas and new services. And I invite them to explore the benefits of the Hong Kong platform and also to seek opportunities of forming alliances and partnerships with Hong Kong companies.
We see that in the future, trade is going to be done region to region. It is up to different regional business leaders to connect with each other to develop business opportunities. Even though we see many countries, like France, like Germany, like other countries, they have 10 per cent unemployment. Yet in Europe there are exciting growth engine areas/regions whereby business interests are intense and business cultures are intense. Places like Milan and the Lombardy area, where with nine million people they do 40 per cent of Italy's trade of import and export. There are other areas like Barcelona and the Catalonia area, which has a very exciting business environment. The Stuttgart area, the Baden area, the Lyon area, the Rhone Alps area are all growth engines of Europe.
Hong Kong is also another growth engine that we see because right now we service and we participate in about 40 per cent of China's trade. It is very interesting that when I visit these growth areas, the people there speak the same business language. They are not generally talkers. They are doers. We're talking about real people, making real things, selling to real customers and also making real profits. But certain characteristic are very clear. They are change, improving, innovation. These are the central themes that we see.
In Germany they use a term "Mittelstand" it means middle elite and that is what's driving the economies and so forth in Germany. So I would say that it is brains and also attitude that make these businesses and these regions winners. And we see that it's going to be alliances between the different regions that is going to be the central theme that we see for moving ahead and dealing with these competitions.
What are the core competencies we see that's needed to succeed? Trade development, innovation, distribution and also customer marketing. Those are the key factors. Deals are the key competencies. You see a company like Dell computer in America. They control trade development, they control customer marketing, they control distribution but they out-source everything. It is clear that no one company can be good at every aspect of business and this issue of strategic alliance and business partnership becomes a central theme to the way forward.
When I became the chairman of the TDC, a lot of SMEs in Hong Kong said, "Mr Woo we would like you to help us find strategic partners." To tackle the next stage of development in terms of WTO opportunities they're looking for strategic partners overseas that are good in products, service-know-how, innovation, in terms of technology and in terms of software. As far as the Hong Kong SMEs are concerned, they have spent a great deal of time working in China. They have spent a great deal of time in terms of selling to the world and now they are looking forward to tackle the opportunity in China. They believe that strategic alliances are the best way forward. Since I've been visiting overseas, I visited many cities. Again when I talked to the medium-size companies and also smaller-size companies to expand and also leverage their business, they are telling me that they are looking for strategic partners especially for anyone who wishes to tackle the China market after they enter WTO.
We see that there are a lot of areas where Korean companies can be very interesting in terms of future development, because we see that not only does Korea have a tremendous manufacturing capability, Korea also has great resources in terms of research and development, in terms of technology and in terms of software know-how. All these are tremendous assets that can be a very useful part of the success formula for the future.
And I know that you would agree, for any company to succeed one thing that's very important is time. Time is not at large because your competitors are moving very very quick. Whereas some companies in some countries are now born global, many companies basically start their business by being very strong domestically. It is important to see that domestic capability can be reflected in terms of the international networking capability and also presence, in order to expand and leverage your business.
As far as these possibilities are concerned, strategic partnerships between Hong Kong and Korea are multi-dimensional – low tech, high tech, medium tech or even no tech. They are all possibilities. That's business. We see that there's this whole chain of business that's happening. There are niche areas where there are many business opportunities coming out. I would suggest that there are complimentary strengths between our two economies.
Now I would like to say a little bit more about our platform - the Hong Kong platform that perhaps is not too well known to many of our friends here. I see our platform having five different pillars. The first two pillars I'd like to discuss are about marketing. The first pillar of course is the capability of marketing to the world. In 1979, Hong Kong was ranked 23 in the world in terms of trade. This year we're ranked nine in the world in terms of trade. We do about US$420 billion worth of business and in terms of 16 different categories of consumer products, we are ranked first in the world in nine categories. In seven other categories we are ranked second or third in the world. So we've made a quantum jump.
During the last 20 years our trade had actually grown in the range of 13 per cent to 15 per cent per annum. And during this process what we allowed the Hong Kong companies to do is to move up the value chain. Originally Hong Kong was only doing what I call OEM manufacturing. Now 36 per cent of our companies have their own brands, and another 60 per cent are doing original design manufacturing. As you see, the fact that we're able to participate in this huge volume growth, we're able to move up that value chain and we're competitive in world terms. Otherwise you would not be able to rank nine in the world in terms of total trade. So this first pillar is Hong Kong's ability to sell to the world and that has been proven in the last 20 years or more.
The second pillar of course is about China. In terms of China's WTO entry we feel that this is an opportunity because most people believe China's trade will double in five years time. In Hong Kong, 85 per cent of our GDP is service-based, compared to 40 per cent for China. We feel that this gap is a tremendous opportunity for Hong Kong, to use Hong Kong as that service platform for China's growth in that area. We believe that Hong Kong enterprises, have a "first mover" advantage in China. To give you some examples, back in 1979 when China was not open, Hong Kong's trade with China was 6 per cent. Today our trade with China is 35 per cent. That's a huge jump, while 50 per cent of foreign investment into China is from Hong Kong.
During those 20 years, huge experiences and know-how had been gained. Everybody can tell you that the opportunity in China is vast because a primary school student can learn how to multiply 1.3 billion with whatever product you want to sell. But the issue is "how"? The issue is how to manage the risks. As far as Hong Kong is concerned, we feel that not only does Hong Kong know what to do in China, how to make it happen in China, but it is important to know what not to do in China. We feel that not only must you look at the opportunity, one must assess how do you make that entry in an optimal risk-cost profile. We believe that Hong Kong companies are risk managers in terms of investment in China.
Hong Kong's platform is not only attractive to overseas companies looking into China but Hong Kong is also a marketplace and a showcase for Chinese companies, mainland companies especially inland provinces and inland cities when it looks out to the world. Hong Kong is that showcase. Hong Kong is the meeting place. Hong Kong is the marketplace and that's where a lot of activities are happening in terms of these aspects.
I would now like to talk about another two pillars of Hong Kong that I believe, reduces risks for anybody who wants to do business there. One pillar is about logistics. The other pillar is about institutional strengths.
Let me deal with logistic strengths first. As you know nowadays this first-in-time or just-in-time manufacturing, where you deal with the shorter product cycle demands, is key to success. And this of course is a key area where the free port of Hong Kong excels, making it a very efficient platform.
Let me provide you some numbers to give you a feel in terms of what we do. First of all, Hong Kong has a status of a completely autonomous and a separate customs territory. And this is one feature that sets Hong Kong apart from the Chinese mainland. We clear import/export declarations in 30 minutes. We clear fully-loaded container lorries from Pearl River Delta into Hong Kong at the rate of one per minute. Our banks clear letter of credits within 24 hours and stay open on Saturday mornings to facilitate weekend shipping dates. We send nearly 35 containers off to sea every minute, 17 million TEUs or boxes every year.
We are the world's busiest container port. We send four tonnes of air cargo per minute, or two million tonnes per year, as we unload 747 cargo planes in just one hour or less. And our telecom is very competitive because the US charges for long-distance to Hong Kong is three times higher than Hong Kong charges to the US. All these logistical components work together seamlessly to ensure reliability and also predictability. We deliver what's needed to make your business work. And it does work.
The forth pillar is the institutional strength. Before 1997 many were concerned about the impact of the change in sovereignty for Hong Kong. In fact, four and a half years later, Hong Kong's freedoms, and our way of life, has remained unchanged under "One country, Two systems". We lived it. Our foreign visitors can see it. Working in Hong Kong you can feel it. We are recognised as the freest city in Asia. We also enjoy a wide range of institutional strengths including a small and hands-off government; a rule of law based in the British tradition of common law; a level playing field for everyone; a world-class enforcement of intellectual property rights; free and instant information flows with a tremendous robust and active free press, more than any other city in Asia and probably in the world. We also have a very efficient financial system that has transparency, that has accountability, which is compatible to any system in the world. Of course one thing that's very important to business people is that Hong Kong has a totally, highly corruption-free society. With these institutional strengths, we believe that we distinguish ourselves from many places with transparency and with predictability that reduces risk.
The final pillar that is just as important offers incentive. We believe that Hong Kong offers what is perhaps the ultimate incentive for business. It is a place where you work hard, you work smart and then you can keep the profit that you make. We have low and flat taxes that are well publicised – 16.5 per cent on ordinary income by companies and by individuals. But there is no sales tax, no capital gains tax, no dividend tax, no tax on overseas income and virtually no estate-duty tax in Hong Kong. We have estate-duty tax on Hong Kong assets but no estate-duty tax on non-Hong Kong assets. We believe that the right incentive motivates enterprising people who wish to build the future for themselves.
Recognising these very critical issues, Hong Kong's Trade Development Council pulls together everything in terms of infrastructure capabilities, information for our stakeholders. We have 48 offices around the world. Our Convention and Exhibition Centre offers 2,500 events and over the year collects 100,000 buyers from around the world. That's our physical marketplace, our physical showcase. We also have tdctrade.com which is our cyber marketplace. This cyber marketplace registers up to 1.8 million hits a day, this is the number one portal in trade. We are linked up with other trade promotion organisations around the world. We have 11 offices in the Chinese mainland. That makes us the biggest network of any trade promotion organization in China. From TDC's standpoint, if you do business in Hong Kong, you are TDC's client and we serve you.
As you notice, when I come here and I discuss these issues, I do not talk about trade barriers. I do not talk about inviting Korea to take more imports from Hong Kong. I believe that the world is our marketplace. China is our marketplace. I'm here to propose that Korean businessmen and Hong Kong businessmen work together. That is the right way forward and I believe that this is the right time.
We will continue to have a roundtable with Korean leaders. We hope that these events will be useful to the business communities, for your country and for Hong Kong. By swapping our respective core competencies, we can take the right step to move on to this platform that I described, this platform that we call Hong Kong. This platform we are proud of and we would like to introduce to you. Thank you very much for your attention.