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Keynote Speech of Peter K.C. Woo, Chairman, Hong Kong Trade Development Council, Cleveland, Ohio, 31 May 2001

Introduction: Strategic Opportunity to Build on Ties

  • Delighted to be in Cleveland. I assumed the chairmanship of the TDC in October last year. My efforts to meet and connect with international business people in other parts of the world have taken me to 30 cities around the globe in eight months.

Three World Trade Themes

  • From my meetings with other business people around the world over the past six months - many of them representing medium-sized or smaller companies - it is becoming clear to me that there is a shared belief in three themes. These are:
  1. the world is becoming more and more competitive. Those who cannot compete will lose out to those who can. Product cycles are becoming much shorter; unit prices are decreasing; there is over-capacity; ideas are at a premium;

  2. increasingly, the main driving force behind this growth in world trade will be small and medium-sized businesses (which we in Hong Kong like to call SMEs). Some 98% of Hong Kong companies are SMEs. They are more agile, creative and adaptable than their larger brethren. However, because they are small, they are short of manpower and capital, and their ability to network and access information is limited. While the internet has enhanced their ability to compete to some extent, they need to form strategic alliances across borders in order to grow and to take advantage of the enormous opportunities now on offer;

  3. I mentioned just now that I had recently visited 30 cities. This reference to cities, rather than countries or continents, was deliberate. I believe that the trade links which will matter - and which already do matter - must be business to business, city to city, region to region and sector to sector. Governments will continue to set the institutional framework for developing trade links, but as we all know, this process takes time, which is a luxury that SMEs cannot afford. The next round of WTO negotiations is nowhere in sight. It is therefore up to these SMEs to forge their own strategic links in the meantime.

    • This is why world trade conferences such as this are so important: they facilitate business-to-business connecting.

    • The important role of SMEs can be readily seen in the more dynamic economies around the world. In fact, we in Hong Kong seem to provide a particularly strong case in point. Our SMEs not only provide agility and freshness of approach, but also provide diverse opportunities to forge new partnerships with overseas counterparts looking for new growth markets.

    • What are the key factors to optimize the role of SMEs in international trade? I thought you would find it interesting to use Hong Kong as a case study.

Five Overriding Hong Kong Advantages

  • Despite its small physical size and a population of only 7 million, Hong Kong currently ranks as the 10th largest trading entity in the world, with trade valued at some US$400 billion per year, and is the strategic trade services platform connecting the USA, EU and China. This highly-energised platform is infused with ideas, talent and connectivity. It leverages a critical mass of business networks in the Chinese mainland and overseas.

  • Hong Kong's core business is trade. 50% of our GDP and 50% of our jobs are trade-related.

1 Marketing Strengths

  • Even without a large domestic market, Hong Kong's world ranking in trade improved from 23 to 10 in little over 20 years. Our trade has grown by 13% to 15% per year over the past 20 years. Demonstrating Hong Kong's marketing acumen, we top world rankings in nine types of consumer exports and rank second or third in a further seven. Our driving force is our 300,000-plus SMEs.

  • Hong Kong-based companies deal only in areas in which they have a competitive edge. Everything else is outsourced or contracted out. This allows them to concentrate on moving up the value chain and getting closer to their customers, the end users, and the marketplace.

  • Requiring only 30 to 80 employees in Hong Kong, this is a low-risk, high value-added business model. Many entrepreneurs from around the world have used this model in Hong Kong and are succeeding.

  • Using this Hong Kong business model, many Hong Kong companies have moved up the value chain so successfully that 36% now have their own brands and more than 60% benefit from original design manufacturing (ODM). Hong Kong is no longer a city of middlemen: as traders become businesses, contract manufacturers become innovators of new products.

  • Hong Kong is not a cost centre, but a centre for adding value. Hong Kong's competitiveness is measured against the products and services she offers to the marketplace the world over. Like the four prominent engines of growth in Europe (Milan and the Lombardy region; Lyons and the Rhone-Alpes region; Stuttgart and the Baden-Wuerttemberg region; and Barcelona and the Catalonia region), Hong Kong and the Pearl River delta is the growth engine for our time zone.

  • The Hong Kong Trade Development Council is the marketing arm of Hong Kong. It has an annual budget of close to US$200 million and a network of 48 offices around the world, including 11 in the Chinese mainland. At the TDC, we offer two high-energy marketplaces of our own.

  • The first is the TDC's Convention and Exhibition Centre, which hosted almost 2,500 trade events last year.

  • Of the Council's 15 trade fairs, six are the largest of their kind in the region. Together, these events pulled in more than 100,000 buyers from around the world last year, putting Hong Kong in number one spot as a global marketplace in the Asian time zone.

  • The Trade Development Council also offers a cyber-marketplace that brings fast-track, real-time information "to your doorstep" about products, sourcing and exporting opportunities in Hong Kong, the Chinese mainland and the region.

  • Our internet portal, tdctrade.com, reaches 100,000 Hong Kong companies and 50,000 business sites. It offers detailed information on doing business in Hong Kong and China as well as a company-matching service. In just one year, hits on tdctrade.com have trebled to as many as 1.8 million per day.

  • Tdctrade.com exists to serve and accelerate trade, not to profit from it. We encourage other regions and cities to set up similar portals so that we can link ours to them and thus facilitate strategic alliances between companies around the world. We want to link business chambers, trade associations and small and medium-sized enterprises the world over to tdctrade.com because it is effective.

2 Logistical Strengths

  • With the growing emphasis on just-in-time manufacturing and shorter product cycles, a critical requirement for all companies is to have fast, reliable logistical arrangements at their disposal. As a free port, Hong Kong attaches top priority to functioning as a super-efficient trade services and logistics platform.

  • Hong Kong's status as a completely autonomous, separate customs territory is what sets it apart from cities in mainland China. It attracts, not only overseas companies wishing to do business with China, but also Chinese companies seeking a conduit to the rest of the world. Our customs authorities clear import/export declarations within 30 minutes and fully-loaded container lorries into Hong Kong at the rate of one per minute.

  • Our banks clear letters of credit within 24 hours and stay open on Saturday mornings to facilitate weekend shipping dates.

  • We send containers off to sea at the rate of nearly 35 per minute and 17 million TEUs a year. We are the world's busiest container port. We are also the world's busiest airport for international air cargo, unloading 747 cargo jumbos in an hour or less. This translates as well over 2 million tons in 2000, or more than 4 tons per minute. Hong Kong International Airport was recently named the world's best airport for 2001 in an independent survey conducted by a European airline and air travel industry research company.

  • Our telecoms are competitive and comprehensive. Calling New York is three times cheaper than vice-versa.

  • All these logistical components work together seamlessly to ensure reliability and predictability.

3 Hong Kong's Opportunity in China and our "First Mover" Advantage

  • China's trade is expected to double in the five years after it joins the WTO. This means that Hong Kong and our partners can, in future, not only source from the world and manufacture in China to sell to the world but also - for the very first time - sell our products to China as a domestic market.

  • China also offers excellent opportunities to Hong Kong companies and their overseas partners in the service sector. The projected spectacular growth of the Chinese economy will make enormous demands on service industries. Yet this sector comprises less than 40% of China's GDP, while it accounts for some 85% of Hong Kong's. There is clearly great scope for Hong Kong and its partners to fill this gap.

  • One of the questions often asked about Hong Kong concerns the impact of the change of sovereignty in 1997. Nearly four years later, Hong Kong's freedoms and way of life remain unchanged under "One Country, Two Systems". The political transition has been a success. Hong Kong retains full autonomy in all matters relating to its economy, business and trade.

  • Yet, despite the unique advantages which this separateness confers on Hong Kong compared to other Chinese cities, we enjoy close geographical proximity to the Chinese mainland. As we are all aware, location, location, location is paramount. Hong Kong's companies have a "first mover" advantage in China. This stems largely from our unrivalled location on China's doorstep, reinforced by natural ties of language, culture and kinship.

  • Yes, location, location, location is what sets Hong Kong apart from Singapore as a trade services platform. Singapore has achieved remarkable success as a great city, and this is something that Hong Kong welcomes, since the more successful Asian cities there are, the more opportunities Hong Kong will have to serve them. But physically, Singapore is three and a half hours' flying time away from Hong Kong's hinterland and serves a very different region. Hong Kong's easy access to China and the Pearl River delta is unrivalled.

  • The Pearl River delta is the largest and fastest-growing manufacturing basin in the world. With 20 million people, it is the most prosperous region in China excluding Hong Kong. In 5 to 10 years the Pearl River delta will also become a major consumer market - no different from what New Jersey, Long Island, Connecticut and upstate New York mean to the city of New York.

  • Hong Kong's strength in the China market has been earned through 20 years of successes and failures there - though mostly successes. This long and extensive experience of doing business with the mainland has enabled Hong Kong to develop first-mover advantage in China. Twenty years ago, China's share of our export market was 6%. Now it is 35%. Hong Kong accounts for over half of all overseas investment in the mainland and operates a huge installed customer base for products and services. Our SMEs therefore have unrivalled first-hand, intimate knowledge of doing business in China.

  • TDC provides tremendous reach for anyone doing business in China. With offices in 11 mainland cities, ours is the largest network of any overseas trade promotion entity. TDC/Hong Kong Expos on the mainland promote our products. Our trade fairs in Hong Kong attracted 16,000 mainland buyers last year and are also very effective for penetrating the mainland market.

4 Institutional Strengths

  • Many people ask whether Shanghai will soon replace Hong Kong as China's main link with the rest of the world. While Shanghai is growing very fast indeed - and while Hong Kong welcomes this growth, since a successful Shanghai means more business for Hong Kong - the relationship between these two cities is not competitive, but complementary. We hope that Shanghai will continue to grow and to serve the eastern part of China and the Yangtse River delta. Many believe that the twin growth engines of Hong Kong and Shanghai will help propel China's economy to new heights. However, it is Hong Kong's different institutional framework that sets it apart and makes it such an attractive platform, both for overseas companies wishing to do business with China and - especially - for Chinese companies wishing to link up with the outside world.

  • Hong Kong enjoys a plethora of institutional strengths, including a small, hands-off government; a common law heritage; a level playing field for everyone; and world-class enforcement of intellectual property rights.

  • With absolutely free and instant information flows, Hong Kong is Asia's leading hub for market information and trade intelligence. Over 130 international media organizations have correspondents there.

  • As a leading financial centre with a fully-convertible currency, our international banking and currency markets are transparent, privately-owned and privately-controlled.

  • Many people ask whether the Asian financial crisis has had a deleterious effect on Hong Kong. In fact, far from buckling under the stresses of that period, our banking systems not only weathered the crisis, but emerged stronger. It would have been easy to bow to pressure from our critics, break the link with the US dollar and devalue our way out of difficulties like some other countries in the region, but instead we maintained the link, swallowed the bitter medicine that this entailed and emerged in better shape than before, with even more foreign reserves and stronger banks.

5 Tax Advantages

  • Finally, Hong Kong offers the ultimate incentive for business. It is the place where you work hard, work smart and keep the profit you earn. Our flat taxes are reckoned to be among the lowest. There is no sales tax, no capital gains tax, no dividend tax, no tax on overseas income and no estate duty tax on non-Hong Kong assets. Hong Kong is the ultimate sanctuary for preserving capital. This is why Hong Kong has become a successful international business city, attracting so many local and overseas firms.


Conclusion

  • I hope this brief case-study of Hong Kong helps to illustrate what it takes to nurture the role of SMEs in world trade. I hope it gives you some ideas on how to build on new opportunities in international markets. Perhaps our discussion will even encourage you to explore using Hong Kong as your international trade platform in Asia.

  • I encourage you to come to Hong Kong in person to see for yourself the opportunities available and to experience the buzz and excitement of this international city. If this option is not available to you, tdctrade.com brings these business opportunities to your doorstep. Hong Kong is keen to attract new products, new ideas and especially new partners from the USA.

  • I wish each of us in this room today success in finding a business platform and a suitable business partner to tackle the new opportunities of world trade.


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