Change. Vitality. Growth. Hong Kong Enterprises – Grow with and into China - PowerPoint PPT Presentation

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Change. Vitality. Growth. Hong Kong Enterprises – Grow with and into China

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  1. Change. Vitality. Growth.Hong Kong Enterprises – Grow with and into China Timothy Cheung General Manager IBM China/Hong Kong Limited

  2. Agenda • China’s Ascendancy: A Global Economic Force • Hong Kong’s Economy: Strong Growth Tied to China • Opportunities & Challenges: “Hong Kong Enterprises – Grow with and into China” Study • Recommendations for Hong Kong Companies to Seize the Growth Opportunities

  3. "China is like a sleeping giant. And when she awakes, she shall astonish the world.” Napoleon Bonaparte, 1803

  4. China’s ascendancy: A global economic force Significantly Improved Infrastructure • Telecommunications: 334M mobile phone users, 94M Internet users* • Real Estate • Roads / Transport • Power An Attractive Market • GDP of US$1649.3B* • Population of 1.3B* • GDP per Capita of US$1,276* • FDI of US$60.6B* • Import & Export of US$1155B* • Consumption of US$652B* • Household Savings Deposits of US$1445B)* • Private-owned Automobile 4.9M units** WTO Commitment • Tariff periodically cut as scheduled • More monopoly industries opening: Financial Services, Telecom, Infrastructure • Emerging service industries: Legal, Consulting, Accounting. * 2004; ** 2003

  5. China: Decade of Transition Economic structure • Influx of FDI • Profitable SOEs • Substantial growth in the private sector Industrial structure • Central planning  WTO (Emerging competition) • Government monopoly  Open competition • Restructured and smaller government • “12 Golden IT projects” • Greater sensitivity to foreign affairs Government profile Quality of workforce • Professional leadership profile • Strong management team Consumer profile • Substantial increase in annual income • Credit cards, home loans, automobiles

  6. Agenda • China’s Ascendancy: A Global Economic Force • Hong Kong’s Economy: Strong Growth Tied to China • Opportunities & Challenges: “Hong Kong Enterprises – Grow with and into China” Study • Recommendations for Hong Kong Companies to Seize the Growth Opportunities

  7. Anchoring Success on Services • Over 80% of HK’s GDP originated from services, 70% of which were consumed in HK and 30% exported • Attract Chinese & foreign enterprises as well as individuals to come to consume Hong Kong’s services: • Position 1: A Metropolitan City Offering Quality Living and World-class Cultural and Entertainment Activities • Position 2: A Regional Hub for HK, Chinese and Foreign Enterprises • Expedite services exports through amalgamating our unique China experience with Hong Kong’s specialist services, re-packaging, promoting & exporting them to the international and China markets

  8. Hong Kong’s Economy – Strong Growth Tied to China • Solid, broad-based upturn in Hong Kong economy • Real GDP rose by 6.5% in 1H 2005 • Consumer prices posted a gain of 0.8% (Aug 2005) • Unemployment rate stood at 5.7% in the three months ended Aug 2005, down from 6.8% in 2004 • Total exports and imports of goods grew by 11% and 8.7% (Aug 2005) • Tourist arrivals increased by 40.4% to 21.8 million in 2004 and another 9.6% in 1H 2005 • Continuous growth due to China-driven initiatives • CEPA I & II • CEPA III (early 2006) • Individual Travel Scheme • Pan Pearl River Delta co-operation • RMB currency reform in China

  9. from Strong to Stronger

  10. ManufacturingSupply Play in PRD and the Mainland Manufacturing Demand Play Service Play – Demand/Supply Hong Kong’s ties to China economy started 3 decades agoChina’s Metamorphosis: Sleeping Giant Awakes Introduction to reform Rapid growth and investment Full Integration Hong Kong’s Tie with China 1980s 1990s 2000 – Present

  11. Agenda • China’s Ascendancy: A Global Economic Force • Hong Kong’s Economy: Strong Growth Tied to China • Opportunities & Challenges: “Hong Kong Enterprises – Grow with and into China” Study • Recommendations for Hong Kong Companies to Seize the Growth Opportunities

  12. “Hong Kong Enterprises – Grow with and into China” Study Conducted by the Assessment and Training Centre (ATC), Chinese University of Hong Kong (CUHK) Objective: Identify quantifiable data to showcase business issues that may facilitate and/or hinder HK enterprises’ growth with and into China Methodology: Focus groups (Apr 2005) and mail surveys (Jun & Jul 2005) Industry sectors: Manufacturing, retail & wholesale and transportation Research sample: 6,300 HK enterprises with 50+ staff Completed responses (up to July 15): 525 (completion rate: 8.3%) 78% of respondents were key decision makers in their companies

  13. Profile of Respondents The survey interviewed business leaders of typical HK enterprises. • Respondents were from key industries most impacted by CEPA. • 78% of respondents were key decision makers in their companies. N = 525

  14. 27.2% 22.4% 14.0% 13.2% 11.4% 8.5% 3.30% Increase by Increase by Increase by Increase by Increase by Flat Negative >100% 50-100% 20-50% 10-20% <10% Investment Majority of Hong Kong Companies Plan to Increase Investments or Enter China in the Next 2 Years CUHK Survey Results in 2005 Hong Kong companies which plan to increase investment in China in 2 years (% of already in China) Hong Kong Companies in China (% of Total Surveyed) Over 80% plans to increase investment in China within 2 years N = 525 N = 323 Source: CUHK, 2005

  15. Business Expansion and Market Size are the Top 2 Reasons Top 3 Attractions for entering into China N = 323 N = 80

  16. Hong Kong Companies Though Already in China Find it Difficult to Apply their Proven Business Models Top 3 Considerations of HK Companies Already in China Environmental Considerations Operational Considerations • Keen competition from local-based companies • Risk in payment collection from customers • Difficult to deal with the government • Difficult to acquire reliable business information and intelligence • Difficult to develop standardized process • Difficult to control different points of operation Management Considerations Human Resources Considerations • Different management culture • Difficult to manage operation from a distance • Inability to apply the successful HK business model • Difficult to recruit staff with right skills • Difficult to recruit experienced staff • Low ethical standard of staff Source: CUHK Study, 2005

  17. Those Planning to Enter into China Share Similar Concerns Yet with Different Priorities Top 3 Considerations of HK Companies Planning to Enter into China Environmental Considerations Operational Considerations • Difficult to deal with the government • Risk in payment collection from customers • Keen competition from local-based companies • Difficult to control different points of operation • Difficult to develop standardized process • Difficult to acquire reliable business information and intelligence Management Considerations Human Resources Considerations • Different management culture • Insufficient knowledge of local market • Difficult to manage operation from a distance • Low ethical standard of staff • Difficult to recruit staff with right skill • Difficult to recruit experienced staff Source: CUHK Study, 2005

  18. Three Common Growth Challenges Must be Addressed in Operating or Planning to Operate in China How to capitalize on growth without losing control on local operations while having ability to manage business partners and responses from competitors. How to capitalize on growth fast enough, through building up capabilities or business from scratch, striking the balance between organic and other growth paths such as acquisitions, alliances How to capitalize on growth without overstretching resources and pushing up costs.

  19. Agenda • China’s Ascendancy: A Global Economic Force • Hong Kong’s Economy: Strong Growth Tied to China • Opportunities & Challenges: “Hong Kong Enterprises – Grow with and into China” Study • Recommendations for Hong Kong Companies to Seize the Growth Opportunities

  20. HK Companies Need to Redefine Clear Value Propositions and Business Models to Manage the Growth Challenges Innovative Approaches in Dealing with Obstacles for Operating in China Redefining Clear Value Proposition and Business Model Standardizing Processes, Establish Metrics and Infrastructure Managing Human Capital Managing Costs

  21. Key Questions for Companies Entering or Expanding in China Growth Challenges Questions to-be-considered Change - Identify Market Opportunity to Develop Right Strategy Do you understand the market, the competition and what differentiates success? What is the best strategy and positioning for your organization? What capabilities do you need, what is the right business model to secure these? What barriers do you foresee and how are these best tackled? How do you plan to scale up your business and business model? Do you understand how innovation and technology may transform the market? Is innovation a key input to your strategy? Are you exploiting innovation to drive sustained growth? Is your Information technology and business infrastructure capable of expanding to support your China operation? Is it flexible and cost effective? What capabilities do you require - processes, people, organization, technology - to deliver this strategy and win against the competition? How to acquire them? Does partnering offer an accelerated route to growth, who to partner with? How to maintain adequate control andstandards in your China operation? What role can business intelligence in establishing the required business infrastructure? Vitality - Drive Innovation and Technology to Achieve Growth - Develop Core Competencies to Sustain Growth

  22. Adopting the Right Business Models and Partnerships – in line with Global Best Practice – the Specialized Enterprise Manage to meet the needs of strategic components Gain economies of scale Specialized enterprise Enterprise Optimized Internal Specialization Begin using partners with low entry cost Ensure partners meet business requirements The location of most firms today Business Unit Optimized Traditional enterprise Internally Integrated Industry Networked External Specialization “Specialized Enterprises” assess each component of the business to determine where and how it should be managed. Source: IBM Institute for Business Value’s “The Specialized Enterprise”

  23. Eat or Be Eaten

  24. YCL Manufacturing Ltd. Hong Kong Companies – Integrate with China to Manage the Global Growth Challenges

  25. Hong Kong Companies – Accelerate the Growth into China to Tap the Vast Market

  26. China Companies –Embrace Modern Management Practice and Latest Technology to Grow Aggressively Beyond China

  27. Key Takeaways • About China – Exciting growth opportunity – Different from Hong Kong – Fast changing and constantly evolving – Big vision and ambition • About Us – Think big and long-term – Act now before too late – Rethink value and business model – Focus on competency and partner for growth

  28. Thank You "It is not the strongest species that survive, nor the most intelligent, but theones most responsive to change" Charles Darwin 1809-82

  29. Back-up Charts

  30. IBM in China 1980s: Strategic Experiment Invest to learn Establish presence in China (offshore operation, single city, sales only) 1990s: Strategic Investment Invest to prepare for growth Broader presence (multi-cities, multiple relationships, multiple line of business) 2000 to Present: Transformation Partner Invest to grow with the market Leverage on China’s strength (growth, revenue, cost, quality) 17 Branch Offices Over 5,000 employees 8 JVs & Wholly-Owned Subsidiaries 160+ Services Centers

  31. Industry Perspectives