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SOSC005 Hong Kong Creative Industries & Cross-Border Production. CHEN, Y.C. Assistant Professor Division of Social Science [email protected] Overview. I. Spatial Division of Labor in Pearl River Delta II. Creative Industry: Craft-based manufacturing IIa. Watch Industry

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sosc005 hong kong creative industries cross border production

SOSC005 Hong Kong Creative Industries& Cross-Border Production

CHEN, Y.C. Assistant Professor

Division of Social Science

[email protected]

overview
Overview
  • I. Spatial Division of Labor in Pearl River Delta
  • II. Creative Industry: Craft-based manufacturing
    • IIa. Watch Industry
  • III. Cross-Border Production: Jewelry Industry
    • IIIa. The Dark Side
spatial division of labor
Spatial Division of Labor (空間分工)
  • Hong Kong: center of management, information, coordination, finance and professional services
  • China: center of manufacturing site
  • “Triangle manufacturing”
triangle manufacturing
Triangle Manufacturing
  • U.S. Buyers place their orders with Hong Kong trading firms or OEM firms, who in turn shift some or all of the requested production to offshore processing factories in low-wage countries such as China.
  • These offshore factories in China are wholly owned subsidiaries of Hong Kong manufacturers, joint-venture partners or independent overseas contractors.
  • The finished goods are shipped directly to buyers in the U.S..
triangle manufacturing8
Triangle Manufacturing

China (processing factory)

Hong Kong (OEM firms or Traders)

U.S. Buyers

OEM firms

guangdong s locational advantages 1
Guangdong’s Locational Advantages (1)
  • Cost
    • Comparison of labor compensation in 2003 (US$/hour):
guangdong s locational advantages 2
Guangdong’s Locational Advantages (2)
  • Industry Cluster (產業集群)
    • Concentration of complete up-stream and down-stream industry chain
    • Example: Dongguan
      • PC computer industry
      • All necessary materials and accessories can be delivered within half an hour
      • Production time shortened, overall competitiveness increased
slide11

Guangdong’s Locational Advantages (3)

  • Quality of semi-skilled workers on the rise
    • Experience accumulated since the opening up of the Mainland market more than 20 years ago
    • 20 million well-trained workers in the Province
    • Strengthen training in hi-tech areas to meet the needs of industry upgrade
guangdong s locational advantages 4
Guangdong’s Locational Advantages (4)
  • Close to Hong Kong
    • Rapid industrialization through capital and technology transfer from Hong Kong.
    • Around 70% of Guangdong’s products are exported to other places through Hong Kong
hong kong locational advantages 1
Hong Kong Locational Advantages (1)
  • Credibility
    • Rule of law, respect for contract
  • Institutionalization
    • Well-established legal and professional systems, procedures and rules
  • Market-oriented
    • Market economy
    • Government does not participate in or interfere with market operations
hong kong locational advantages 2
Hong Kong Locational Advantages (2)
  • International Financial Centre
    • Comprehensive financial system
    • Freedom in foreign exchange
  • International Logistics Centre
    • Advanced logistics facilities
    • Robust growth in air and sea transport
hong kong locational advantages 3
Hong Kong Locational Advantages (3)
  • Information Centre
    • Free flow of information
    • Internet hub
  • Trade Networks
    • More than half a decade’s experience in trade
    • Free trade
hong kong locational advantages 4
Hong Kong Locational Advantages (4)
  • “Democracy”
    • HK government faces serious political crisis after July 1 mass demonstration (71 遊行) (500 thousands) against “basic law article 23” in 2003.
    • Beijing government supported Mr. Tung administration by passing the CEPA, hoping that the economic benefits will rescue the political crisis.
what is creative industry
What is Creative Industry?
  • “Industries which have their origin in individual creativity, skill and talent and which have a potential for wealth and job creation through the generation and exploitation or intellectual property”. -- www.culture.gov.uk
  • “Advertising, architecture, the art and antiques market, crafts, design, designer fashion, film and video, interactive leisure software, music, the performing arts, publishing, software and computer services, television and radio”. – www.culture.gov.hk
  • Creative Industries make / produce content.
the value chain
The Value Chain
  • Even though the definition of creative industry focuses on “service industry” but it applies well in “craft-based manufacturing”, such as watch and jewelry industry.

Content Creator

Creates Idea

Holds IPRs

Technology Driven Ideas

Content Producers

Develops Copyrights

Packages IPRs

Programming Content

Content Distributors

Distributes Copyrights

Markets/Brands IPRs

Distribution Platform

Consumer

Tickets, magazines, books, CD, Video, DVD, Radio, TV

Net, WAP/3G

organization characteristics of hong kong craft based manufacturing firms
Organization Characteristics of Hong Kong craft-based manufacturing firms
  • Mostly small-and-medium enterprise (SMEs) with less than 50 employees.
  • Family owned
  • Finance through personal networks instead of banks.
  • Labor intensive assembly
  • Extensive subcontract system
  • Highly flexible (flexible production)
flexible production
Flexible Production
  • Labor-intensive production system is flexible because producers can quickly organize a labor force in short notice.
  • Elaborate subcontracting system facilitates the rapid production of a wide variety of products with minimal personal capital investment
  • Subcontracting system act as a buffers when market shift unexpectedly. (share risk)
  • Take small orders (batch production instead of mass production), short delivery time,
technological upgrading
Technological Upgrading
  • The competition from other developing countries (China, India, Thailand) have forced HK firms to upgrade their product to compete on high-ends market.
  • In reaction to shorter product cycles, CAD, CAM and RP* technology are commonly used.
  • 3D design and related IT technologies
  • ERP (Enterprise Resource Planning) is used to manage supply chain more efficiently. (供應鏈管理)
    • *RP: Rapid Prototyping
front shop back factory
Front Shop, Back Factory (前店後廠)
  • “Front Shop, Back Factory” has been used to describe the integration between Hong Kong and Pearl River Delta.
  • With the relocation of Hong Kong’s manufacturing sector (low end) to PRD, firms in Hong Kong could focus on high valued added activities such as marketing, financing, and R&D.
  • It could facilitate the transformation from OEM to ODM and OBM more rapidly.
from oem to odm and obm
From OEM to ODM and OBM
  • OEM : Original Equipment Manufacturing refers to the subcontracting system in which foreign firms provide specification of a product. Local (OEM) firms produce it and foreign buyers sell them using their own brand.
  • Buyers and OEM firms usually cooperate where buyers provide:
    • Selection of capital equipment
    • Training of managers, engineers and technicians
    • Advice on production, financing and management
odm obm
ODM, OBM
  • ODM: ‘Original Design Manufacturing’ refers to local firm carries out some or all the product design (as well as production) tasks according to the general design supplied by the MNCs.
  • OBM: ‘Original Brand Manufacturing’ refers to design and produce using own brand.
  • The risk of shifting to OBM is losing the HK firms might lose their existing OEM contract because foreign buyers do not trust a firm that do both OEM and OBM. (create competition)
hk watch industry took off in the 50s
HK watch industry took off in the 50s
  • 1950s: Hong Kong watch makers made watch accessories such as cases, bands, and dials.
  • 1960s: Watch makers rapidly progressed to assembling mechanical watches (with imported movements (表芯) from Japan and Switzerland).
  • Clocks were produced with locally produced movements and parts.
the increasing competition in the 1970s
The increasing competition in the 1970s.
  • 1970s – with diode technology, HK watch assemblers moved into light-emitting digital (LED) display watches.
    • LED was replaced by liquid crystal display (LCD) watched in late 1970s.
  • Many HK assemblers entered production, competition rose.
  • Japanese watch production increase at the same time, further fueled the competition and drove down the prices.
quartz analog shift in the 1980s
Quartz Analog shift in the 1980s
  • In early 1980s, digital watch accounted for 60% of the value of the total output; Quartz analog watch made up only 8%. The rest is mechanical watch.
  • By 1984, quartz analog and digital watches each accounted for 43%. By 1989, quartz analog doubled, while digitals fell to 6.6%.
  • Due to the flexibility in Hong Kong watch industry, the rapid transformation was possible.
innovation in the 1990s
Innovation in the 1990s
  • 1990s: Hong Kong watchmakers continue to be innovative in design of parts, cases, bands, and accessories. They were sold to major watch producing countries such as Japan, Switzerland, and the U.S..
  • Firms began to use CAD/CAM for design and manufacturing of more complex watch cases and bands.
  • Firms began to do watch movement-assembly in order to break away from dependence on movement firms in Japan and Switzerland.
  • Low-end watches assembly moved to PRD.
quantity and variety of products
Quantity and Variety of products
  • Quantity: Hong Kong surpass Japan to became the second largest watch producer (after Swiss) in the early 1990s.
  • Variety in finished products.
    • analogue to digital watches,
    • metal to plastic watches,
    • fashion to classic watches,
    • standard to jewelry watches,
    • novelty to sport watches.
  • Variety in parts and component: assembled movements, cases, watch straps, dials and parts for watch cases and bands.
slide34
III.

Cross-border Production:

the Jewelry Industry

hong kong jewelry industry
Hong Kong Jewelry Industry
  • Hong Kong\'s jewelry industry is dominated by the precious jewelry sector.
  • Combined with re-exports, Hong Kong is the leading exporter of imitation jewelry and the second largest exporter of precious jewelry in the world.
  • Small stones fashion jewelry, pure gold items and jade are most popular.
  • Jewelry production focus on medium-to high-priced products.
prd jewelry processing base
PRD – Jewelry Processing Base
  • PRD becomes HK’s largest jewelry processing base (加工基地). Hong Kong jewelry makers moved to the area to find low cost and skillful craftsmen.
    • More labor intensive cutting (切割) and polishing (打磨) are done in China (also in India).
    • The more skillful part such as forming, moulding, die-casting and assembling are often done in Hong Kong.
panyu the jewelry center
Panyu : the jewelry center (珠寶谷)
  • Panyu District (番禺) of Guangzhou City has more than 200 Hong Kong jewelry processing factories
    • Employ more than 50,000 workers.
    • Process 100 tons of gold and platinum yearly; US$600 million in total production value;
    • Export volume is US$800 million
    • 95% of the jewelry on HK market is processed here
cepa duty free access for hk jewelry to china
CEPA – duty free access for HK jewelry to China
  • Under CEPA that came into effect on 1 Jan 2004, a total of 16 tariff headings related to Jewelry made in Hong Kong are not duty-free.
  • However, it required a lot of process (forming and assembling) to be done in Hong Kong in order to qualify.
  • Ideally, foreign jewelry firms (like the Italian firm) might take this advantage to invest in Hong Kong in order to take advantage of CEPA … i.e. export to China.
  • All in all, CEPA is a positive measurement, but its effect might take some times to realize.
occupational diseases
Occupational Diseases
  • To save cost, many jewelry processing factories do not have enough protection for the workers against occupational hazard .
  • For example, polishing process (打磨) creates a lot of hazardous dust.
    • Workers should be given warning and knowledge regarding the risk
    • Workers should be given enough protection to prevent occupational disease

惠州力奇 (Lucky Gem) 廠外觀(攝於2004年8月)

Source:

www.luckygerms.info

testimonial from a silicosis victim
Testimonial from a silicosis victim (矽肺病患)
  • “He learned how to cut and sand semiprecious stones like opal, topaz and malachite into hearts, stars, pearls, and diamond shapes that are strung together to make rings, bracelets and necklaces.
  • Mr. Hu sat shoulder to shoulder with other cutters and polishers in confined workshops. Often working 12- and even 18-hours days, they generated clouds of dust that hung in the air even when windows were wide open and the fans were set to high.”

Source: JOSEPH KAHN “Making Trinkets in China, and a Deadly Dust” New York Times, June 18, 2003

A silicosis victim holding

his own lung’s X’ray

victims protest
Victims protest
  • Since the owners of various jewelry processing factories deny compensation to the victims, Hong Kong labor organizers helped the victims demand for compensation.
  • For more information about the protests:
    • http://www.inmediahk.net/public/article?item_id=11375&group_id=16
    • http://www.inmediahk.net/public/article?item_id=18320&group_id=16

Victim protested inside the Lucky Gem office in H.K.

在灣仔會展中心的”國際珠寶展”前示威 1 Mar 2005

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