Unit 1 Hong Kong Business Environment -...

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1 Professional Development Programme on Enriching Knowledge of the Business, Accounting and Financial Studies (BAFS) Curriculum Technology Education Section, Curriculum Development Institute Education Bureau, HKSARG August 2008 Unit 1 : Hong Kong Business Environment Course 2 : Contemporary Perspectives on Management 2 Learning Objectives On completion of this unit, you should be able to: understand the recent and future development of the Hong Kong business economy; – describe the influence of the economic policies and business practices in the Mainland on the Hong Kong business environment; understand the implications of economic, technological, cultural, social, political and legal factors for business decisions; describe the drivers of globalization and its impact on business; and understand the development of world trade system.

Transcript of Unit 1 Hong Kong Business Environment -...

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Professional Development Programme on Enriching Knowledge of the Business, Accounting and Financial Studies (BAFS) Curriculum

Technology Education Section, Curriculum Development InstituteEducation Bureau, HKSARG

August 2008

Unit 1 : Hong Kong Business Environment

Course 2 : Contemporary Perspectives on Management

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Learning Objectives

On completion of this unit, you should be able to:– understand the recent and future development of the

Hong Kong business economy;– describe the influence of the economic policies and

business practices in the Mainland on the Hong Kong business environment;

– understand the implications of economic, technological, cultural, social, political and legal factors for business decisions;

– describe the drivers of globalization and its impact on business; and

– understand the development of world trade system.

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Unit OutlineBusiness Environment

Hong Kong Business EnvironmentEconomic Environment

Legal and Political Environment

World Trade Organisation (WTO)

Cultural EnvironmentEducationWorkforce

Technological Environment

GlobalizationGlobalization of MarketGlobalization of ProductionDrivers of GlobalizationInternational Trade Law

GDPMarket-Led PoliciesUnemployment RateInternational Financial Centre

CEPAGateway to China

Government and PoliticalLegal

Lifestyle

TelecommunicationInfrastructure

Links with China

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Business Environment

What is a Business? (Ebert & Griffin 2003, p.5)

• An organisation that provides goods or services to earn profits.

What is the business environment? (Ball el at. 2004, p.16)

• All the forces surrounding and influencing the life and development of a business– The external and uncontrollable forces – Economic,

Legal & Political, Cultural and Technological– The internal and controllable forces – e.g. Capital, raw

materials, staffing, etc.– The domestic and foreign business environments

Unit Outline

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Hong Kong Business Environment (1)

• Is Hong Kong a good place to do business?

• Does Hong Kong provide a favourablebusiness environment to both local and foreign businesses?

• What is the role of Hong Kong?

Unit Outline

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Hong Kong Business Environment (2)

Let’s take a look at the following important factors of Hong Kong business environment:

- Economic- Legal and political- Cultural- Technological

Unit Outline

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Economic Environment

• A separate economic system from China

• The freest economy– Ranked top amongst other countries in the ‘2007

Index of Economic Freedom’ released by The Heritage Foundation since 1995.[source: http://www.heritage.org/index/]

– Classified as an ‘Advanced Economy’ by the International Monetary Fund. [source: http://www.imf.org]

Unit Outline

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Economic Environment – GDP (1)

• GDP Per Capita– Converting GDP to U.S. dollars and then dividing it by

total population

• Comparable to other advanced countries

[Source: International Monetary Fund (http://www.imf.org)]

GDP per Capita in 2006

0.00

10,000.00

20,000.00

30,000.00

40,000.00

50,000.00

60,000.00

70,000.00

80,000.00

90,000.00

100,000.00

Luxe

mbo

urg

Norway

Icela

nd

Irelan

d

Switz

erlan

d

Denmar

k

United

States

Swed

en

Nethe

rland

s

Finlan

d

United

Kingd

om

Austr

ia

Cana

da

Belgium

Austr

alia

Fran

ce

German

y

Japa

nIta

ly

Singa

pore

Spain

Greec

e

Hong

Kong

SAR

New Z

ealan

d

Cypr

usIsra

el

Slove

nia

Portu

gal

Korea

Taiw

an Pro

vince

of C

hina

Country

GDP (US Dollars)

Unit Outline

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• Gross Domestic Product (GDP) Growth – Driven by thriving exports, vibrant inbound

tourism and strong consumer spending– An average annual growth at 4.9% in real terms in

the past two decades

Economic Environment – GDP (2)

[Source: Census and Statistics Department, the HKSAR Government (http://www.censtatd.gov.hk)]

GDP – Hong Kong (2004-2006)

At constant (2000) market prices Year

HK$ million Year-on-year % change

2004 1,509,915 8.6

2005 1,623,479 7.5

2006 1,734,280 6.8

Unit Outline

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Economic Environment -Market-Led Economic Policies

• Market-led economic policies– The government’s belief: “maximum support,

minimum intervention”– Removal of market restrictions and promotion of

fair competition– Prudent fiscal practice

• The surplus for fiscal year 2006-07 - HK$55.1 billion (3.7% of GDP)

• virtually no public debt

– Simple tax structure and low tax regime• The corporate profit tax rate – 17.5%

(China – 25%, Singapore – 18%, Japan – 30%)

• The salaries tax rate – 16% Unit Outline

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Economic Environment -Unemployment rate

• Unemployment rate– Declined to 4.3% in January-March 2007, the

lowest level since 1999

[Source: Census and Statistics Department, the HKSAR Government (http://www.censtatd.gov.hk)]

Unemployment rate & Underemployment rate

3.3

6.35.6

4.5

7 7.5 7.26

5.14.3

1.93 2.8

2.33.1 2.8

3.3 32.3 2.2

0

2

4

6

8

10

Qtr 11998

Qtr 11999

Qtr 12000

Qtr 12001

Qtr 12002

Qtr 12003

Qtr 12004

Qtr 12005

Qtr 12006

Qtr 12007

Time

Perc

enta

ge(%

)

unemployment rate

underemployment rate

Unit Outline

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Economic Environment -International Financial Centre (1)

• International Financial Centre– Characteristics of Hong Kong Financial Markets

• High degree of liquidity• Operation under effective and transparent

regulations• Stable monetary system

– Linked exchange rate system introduced in October 1983

• A level playing field with sound legal, regulatory, infrastructural and administrative framework

• Free flow of capital and information[Reference: The Financial Services Branch of the Financial Services

and the Treasury Bureau, the HKSAR Government]Unit Outline

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• International Financial Centre (Cont’d)

– Good Banking System and Support (As of May 2006)

• A three-tier system of deposit-taking institutions– licensed banks, restricted licence banks and deposit-taking

companies

Economic Environment -International Financial Centre (2)

• 76 of the 100 largest banks in the world have operations in Hong Kong

• Sector’s external assets – highest in the world

[Source: Monthly Statistical Bulletin, Hong Kong Monetary Authority; Quarterly Report of Employment, Vacancies & Payroll Statistics, Census & Statistics Department, the HKSAR Government]

Number of Reported Institutions (Feb. 2007) Licensed Banks 137 Restricted License Banks 30 Deposit-taking Companies 32 Representative Offices of Foreign Banks 85 Total Employment (Sept. 2006) 81,619

Unit Outline[Reference: The Financial Services Branch of the Financial Services

and the Treasury Bureau, the HKSAR Government]

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• International Financial Centre (Cont’d)

– A Buoyant Stock Market• The capitalisation

– At the end of April 20071183 listed companies in which 197 were listed on the Growth Enterprise Market (the 2nd board of the stock exchange)HK$14,274 billion

– The 8th largest in the world– The 2nd largest in Asia just behind Tokyo’s

• Equity funds raising – The 5th largest in the world– The 1st in Asia

Economic Environment -International Financial Centre (3)

Unit Outline[Reference: The Financial Services Branch of the Financial Services

and the Treasury Bureau, the HKSAR Government]

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Economic Environment -International Financial Centre (4)

• International Financial Centre (Cont’d)

– A Mature and Active Foreign Exchange Market • No regulation for exchange controls in Hong

Kong• Favourable time zone location enabling 24-hour

global foreign exchange dealing• In terms of turnover - The 6th largest market in

the world by the Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity (2004) (The Bank for International Settlements 2004)

Unit Outline[Reference: The Financial Services Branch of the Financial Services

and the Treasury Bureau, the HKSAR Government]

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Economic Environment -International Financial Centre (5)

• International Financial Centre (Cont’d)

– Rapid Development in the Derivatives Market(As at May 2006)

• Fully electronic• Four types of futures product

– Index futures, stock futures, interest rate futures and bond futures

• Two types of options– Index options and stock options

Unit Outline[Reference: The Financial Services Branch of the Financial Services

and the Treasury Bureau, the HKSAR Government]

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Economic Environment -International Financial Centre (6)

• International Financial Centre (Cont’d)

– Continued Development of the Debt Market• No restrictions on foreign borrowers tapping the

domestic debt market

Outstanding Amount of Hong Kong Dollar Debt Instrument (Dec. 2005)

US$ billion

Exchange Fund Bills and Notes 16 Private sector debt instruments 69 Total 85 [Source: Hong Kong Monetary Authority]

Unit Outline

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Economic Environment -International Financial Centre (7)

• International Financial Centre (Cont’d)

– Open Insurance Market• 174 authorised insurers – 87 Hong Kong

incorporations & 87 multinational incorporations(As at June 2006)

• The sector can benefit from the CEPA agreement (to be explained later)

Unit Outline[Reference: The Financial Services Branch of the Financial Services

and the Treasury Bureau, the HKSAR Government]

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Economic Environment -Links with China

• Economic links with the Mainland China

– Gateway to China

– Closer Economic Partnership Arrangement (CEPA)

Unit Outline

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Economic Environment -Gateway to China (1)

The Mainland China• Becoming the “global factory”

– Many companies set up their manufacturing operations in China, especially in the Pearl River Delta (PRD) economic zone

• One of the most attractive markets in the world– A multitude of business and investment

opportunities for both product and service companies in the China market.

Unit Outline

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Challenging Corner 1

What are the major reasons that the China market is so attractive to many foreign companies?

Unit Outline

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Challenging Corner 1 (solution)

Possible reasons:– Rapid annual economic growth at averaged 7-8%– Ranked 3rd in the world merchandise trade in 2005

[Source: WTO]

– 2nd to the USA in terms of GDP based on purchasing-power-parity (PPP) valuation of country GDP in 2005 [Source: WTO]

– The most populous country in the world – 1.29 billion people = 1/5 of the world’s population

– Continuous reform and liberalisation of the Mainland economy after her entry into the WTO

– First-mover advantages / Late-mover disadvantages– Improving business infrastructures and networks– Abundant in labour and land resources– Low operating costs (labour, land, etc.)

Unit Outline

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Economic Environment -Gateway to China (2)

• The Pearl River Delta (PRD) economic zone– The leading manufacturing centre in China– The zone is formed by 9 cities :

• Guangzhou (the provincial capital), Shenzhen, Foshan, Zhuhai, Jiangmen, Zhongshan, Dongguan, four districts and counties of Huizhou and four districts and counties of Zhaoqing.

[Source: Invest Hong Kong, the HKSAR Government]Unit Outline

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The Pearl River Delta (PRD)• More and more multinational enterprises (MNEs)

and small-to-medium enterprises (SMEs) set up their operations in the PRD.

• What is the role of Hong Kong?

Economic Environment -Gateway to China (3)

Unit Outline

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Economic Environment -Gateway to China (4)

The Role of Hong Kong• Becoming a business platform for MNEs and SMEs with

manufacturing operations in the PRD

• Participating in a new ‘Pan-Pearl River Delta’ trade block with nine Chinese provinces

• Important pivot for a local or foreign company to:– channel her China investment;– source China-made products; and– coordinate her operations in PRD zone.

Why Hong Kong is the most important gateway to China?

Unit Outline

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Reasons:–Attractive business environment:

• Escalating business opportunities in China• Better services offered in Hong Kong:

– Good logistics and transportation with infrastructure linkage to the PRD

– Talented and committed workforce• Tax treatment• Free flows of capital and information• Well-established banking and financial systems• Lower production and labour costs in PRD• Good geographical location of Hong Kong proximity to

PRD• Transparent legal system

Economic Environment -Gateway to China (5)

Unit Outline

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Challenging Corner 2

Can you think of some factors that may hinder Hong Kong from further development as the business hub in Asia?

Unit Outline

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Challenging Corner 2 (solution)

Some possible factors: – High operation costs due to:

• High land costs and rents• High labour costs• High utility costs, especially the electricity tariff

– Deteriorating living environment • Pollution and other forms of environmental degradation

(water, air, energy and the waste disposal)

– High mobility of local workforce– Worsening English standard of the average

youngsters– Limited domestic market

Unit Outline

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Challenging Corner 3

Could you suggest some ways to enhance Hong Kong’s role as the business hub in Asia?

Unit Outline

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Challenging Corner 3 (solution)

Some possible suggestions:– Reduce business operating costs– Better infrastructure linkages to China (e.g. Hong Kong-

Shenzhen Western Corridor – will be completed in mid-2007 and Sheung Shui to Lok Ma Chau Spur Line)

– Improve advisory services for doing business in China and PRD

– Language proficiency• Biliteracy and Trilingualism (兩文三語)• Be conversant with written Chinese and English and be able to

speak fluent Cantonese, Putonghua and English

– Organising more trade fairs, exhibitions and international conferences

Unit Outline

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Economic Environment -CEPA (1)

• Closer Economic Partnership Arrangement between Hong Kong and the Mainland China– Signed on 29 June 2003– Full effect on 1 January 2004– A free agreement under WTO rules– Exceeding China’s WTO entry commitment when she became

a full member on 11 December 2001

• Provision of preferential access to China markets for:– Hong Kong-made products– Hong Kong-based service companies

Visit http://www.tid.gov.hk/english/cepa (the Trade and Industry Department of the

HKSAR Government) for more details

Unit Outline

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Economic Environment -CEPA (2)

Hong Kong-made Products• Zero tariff on Hong Kong-made products export to

the Mainland• Covering 1,407 categories of ‘Made in Hong Kong’

products

Unit Outline

For details: http://www.tid.gov.hk/english/cepa/tradegoods/trade_goods.html

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Economic Environment -CEPA (3)

Hong Kong-based Service Companies• Easier market entry for Hong Kong-based service

providers– Benefiting 27 service sectors by reducing or

removing geographical, financial and ownership restraints

– Applicable to any company if it• is incorporated in Hong Kong • has operated for 3 to 5 years (depending on the sector) • is liable to pay Hong Kong profits tax • employs 50% of its staff locally

For details: http://www.tid.gov.hk/english/cepa/tradegoods/trade_goods.html

Unit Outline

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Economic Environment -CEPA (4)

The Role of Hong Kong• Preferential market access and import tariff rules

are exclusive to Hong Kong• Benefiting both local and non-local companies.• First-mover advantage in doing business with

China through Hong Kong

Unit Outline

[Source: InvestHK of the HKSAR Government, Trade and Industry Department of the HKSAR Government and Hong Kong Trade Development Council]

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Legal and Political Environment

• Hong Kong is a Special Administrative Region (SAR) of China with effect on 1 July 1997

• The Basic Law – the constitutional document of the HKSAR

• One country-two systems– Hong Kong – Capitalist system– China – Socialist market system

• High degree of autonomy in all matters except foreign and defense affairs

• Clean and efficient government– Level playing field for doing business in Hong Kong

Unit Outline

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Legal and Political Environment -Government and Political Conditions (1)

Government and Political Conditions• Separation of Power:

– Executive:• Administration by the Chief Executive with the

support of the Executive Council– Major policy formulation and decisions

– Legislation:• A two-tier system of representative government• The Legislative Council at the central level

– Legislation, control of public expenditure and monitoring the Administration’s performance

• 18 District Councils at the district level– Giving advice on the implementation of policies in their

respective district areasUnit Outline

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Legal and Political Environment -Government and Political Conditions (2)

Government and Political Conditions• Separation of Power (Cont’d):

– Independent Judiciary• Headed by the Chief Justice of the Court of Final

Appeal• The highest court – The Court of Final Appeal • Other lower courts

– The High Court (including the Court of Appeal and the Court of First Instance)

– The District Court (including the Family Court)– The Magistrates’ Courts (including the Juvenile Court)– The Coroner’s Court– The Lands Tribunal, the Labour Tribunal, the Small

Claims Tribunal and the Obscene Articles TribunalUnit Outline

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Legal and Political Environment -Government and Political Conditions (3)

Government and Political Conditions• Principal Official Accountability System

– Implemented in July 2002– Designed for being more responsive to public concerns– Added 11 political appointees (secretaries) for running the 11

policy bureaus (12 bureaus with effect from 1 July 2007)

• Free, open and safe society• Well established respect for human rights and the

rule of law• Independent courts• Very low risk of terrorism

[Refer to the GovHK’s Website for more information on the organisation structure of the HKSAR Government, http://www.gov.hk/en/about/govdirectory/govstructure.htm]

Unit Outline

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Legal System• The constitutional framework – the Basic Law

– No change for 50 years since 1 July 1997

• Stable and mature based on the rule of law (common law)– Separate legal system from Mainland China’s under

the principle of ‘One country, two systems’– Independence of the Judiciary– Fundamental to the Hong Kong’ success

Legal and Political Environment -Legal System (1)

[Refer to the Department of Justice’s Website for more information on all ordinances in force, http://www.legislation.gov.hk]Unit Outline

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Legal System• Arbitration

– One of the world’s major arbitration jurisdiction to support on mediation and arbitration

– Hong Kong International Arbitration Centre (established since 1985, http://www.hkiac.org/ )

– The Hong Kong Arbitration Ordinance (Chapter 341 of the Laws of Hong Kong)

– International reservoir of specialist knowledge to promote dispute settlements in Hong Kong

Legal and Political Environment -Legal System (2)

Unit Outline

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Cultural Environment

• Densely populated city – about 6250 people per km2 (the 3rd most populous in the world following Monaco and Macau)[Source: United Nations World Population Prospects (2004 revision), the United Nations]

• Official languages: Chinese and English

• No religious restriction

Unit Outline

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Cultural Environment -Education

• Education characteristics– Well educated

– Progressive expansion in the post-secondary education opportunities to 60% of the senior secondary school leavers by 2011

[Source: Hong Kong Monthly Digest of Statistics April 2007, The Census and Statistics Department, the HKSAR Government]

Proportion of the population of aged 15 or over having attained secondary or higher education (%)

Aged 15 - 44 94.1

Aged 45 or over 51.4

Overall 74.6

Proportion of the population of aged 15 and over having attained education in degree course (%)

Overall 15.4

Unit Outline

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Cultural Environment -Workforce

• Skilled and high quality workforce– Computer-literate– Resilient– Flexible– Entrepreneurial– Well educated and adaptable workforce– Harmonious labour relations– Transparent and straightforward immigration

procedures for skilled personnel and professionals

Unit Outline

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Cultural Environment -Lifestyle

• International lifestyle– Stimulating, dynamic and cosmopolitan lifestyle– World-class private and public health services – Convenient and fast transportation– Food paradise with massive choice of cuisine– Residential rentals are in line with other

cosmopolitan cities

Unit Outline

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Technological Environment -Telecommunications System

• Sophisticated Telecommunications System– Fully digitised system– Liberalised market (De-regulation since 1995)

– Highest telephone density in the world• 54.5% of population (as at June 2006)

– High penetration rate of mobile service subscribers• 127% of population (as at June 2006)

• 14% of population using 3G service– Highest penetration rate of broadband services in

the world• 24% of population (as at June 2006)

• Affordable charges and high bandwidth of broadband services

[Source: the Telecommunications Authority, http://www.ofta.gov.hk]Unit Outline

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Technological Environment -Infrastructure: Transportation (1)

Infrastructure - Transportation• The largest international air cargo handler in the

world – A throughput of 3.4 million tonnes in 2005

• Asia Pacific's Transportation and Logistics Hub– A free port– Strong support services in telecommunications,

legal, and finance– Ideal geographical location

• Close to the major economies in Asia• A major centre for the Pearl River Delta’s export

– Natural deep-water harbourUnit Outline

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Technological Environment -Infrastructure: Transportation (2)

Infrastructure - Transportation (Cont’d)

• World Class Container Port (Kwai Chung)– The most efficient and the 2nd busiest (just behind

the Port of Singapore) container port in the world in 2005

– Handled about 23.5 million TEUs (20-foot equivalent units) of containers in 2006

– ~80 international shipping lines connecting to over 500 destinations worldwide

Unit Outline

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Challenging Corner 4

Gary Minor is a young strategic analyst for XYZ, a rapidly growth US manufacturer of toiletries. He is now looking for an opportunity for expanding the business into Hong Kong. However he is still hesitating over whether Hong Kong is a good market place for a foreign company to do business.

Assuming that you are a business development consultant for the TDC of Hong Kong. Your task is to convince Gary that Hong Kong offers a favourablebusiness environment for XYZ to do business here.

– What are the factors to support your advice?

Unit Outline

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Challenging Corner 4 (solution) (1)

Possible factors:• Favourable economic environment

– A free economy• Free trade and free market with minimum political interference for

business

– Steady economic growth• Good purchasing power: tiny Hong Kong offers huge market for

consumer products

– Low inflation• 2004’ (-0.4%), 2005’ (+1.0%), 2006’ (+2.0%) based on CPI

[source: The Census and Statistics Department, HKSAR Government]

– Stable exchange• Linked Exchange Rate System at the fixed exchange rate of HK$7.80

to US$1

– International financial centre• Good support on solving problems in taxes, capital raising, repatriation

of profits, accounting practices, currency exchange, etc.

Unit Outline

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Challenging Corner 4 (solution) (2)

Possible factors (Cont’d):• Favourable economic environment (Cont’d)

– Gateway to China• Close to China and the PRD (Good manufacture base: relatively low

production cost and abundant supply of labour)• The CEPA (Zero tariff on exporting HK products to the mainland and

greater flexibility to access mainland market)

– Excellent transportation infrastructure• Airport (Integrated logistics services in PRD and ranked 5th & 2nd as

the world's busiest airports by international passenger traffic and cargo traffic respectively) [Source: Airports Council International]

• Container port (Deepwater seaport, the 2nd world's busiest container seaports in terms of TEUs and major hub port served by some 80 international shipping lines with some 500 container liner services per week to over 500 destinations worldwide) [source: Hong Kong Port Development Council]

Unit Outline

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Challenging Corner 4 (solution) (3)

Possible factors (Cont’d):• Efficient and clean government with stable political

environment and mature legal system– Independent Commission Against Corruption (ICAC)

• Established since 1974 promoting anti-corruption business culture in Hong Kong

– Effective and efficient police force • Low crime levels providing a safe living and business environment

– Hong Kong International Arbitration Centre• Established since 1985 operating under The Hong Kong Arbitration

Ordinance (Chapter 341 of the Laws of Hong Kong)[Reference: The Bilingual Laws Information System, the Department of Justice, the HKSAR Government http://www.legislation.gov.hk]

• Prime centre in Asia for the resolution of business disputes

Unit Outline

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Challenging Corner 4 (solution) (4)

Possible factors (Cont’d) :• Favourable cultural environment

– Official languages• English: The linkage language of international business• Chinese: Critical for doing business in China• Promotion of biliteracy and trilingualism

– Well-education and high quality workforce• Easily adapt to change, good business ethic and good attitudes toward

work & time• Culture of life-long learning & harmonious labour relations

Unit Outline

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Challenging Corner 4 (solution) (5)

Possible factors (Cont’d) :• Favourable cultural environment (Cont’d)

– International lifestyle• Mixture of eastern and western culture• Stepping-stone to do business in Mainland China (e.g. Foreign

companies usually have difficulties in dealing with Guanxi ‘關係’ - an important Chinese business element)

• Leading technological environment– Sophisticated telecommunications system

• Telephone (De-regulated since 1995 low charges for IDD calls)• Mobile (3G technology – providing services of wide-area wireless voice

telephony and broadband wireless data)• Broadband services (185 Internet Service Providers (ISPs) as at June

2006 and highest broadband penetration rate in the world good opportunity for e-business)[Source: The Office of the Telecommunications Authority, the HKSAR Government]

Unit Outline

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Globalization

• The shift towards a more integrated and interdependent world economy [Hill 2006, p. 6]

• Two components:– The globalisation of markets– The globalisation of production

Unit Outline

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Globalization of Market

• In the past – distinct and separate national markets.

• Recent trend – merge into one huge global marketplace.

• Converging tastes and preferences of consumers in different countries to some global norm.

• Selling of Standardised products

– Examples: Coca-cola, Sony, McDonald’s, HSBC

Unit Outline

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Globalization of Production

• Source products from different locations around the world.– Reasons:

• Take advantage of national differences in the costand quality of factors of production (labour, land and capital).

• The top factor to compete in the present business world - Cost

• Low production cost with reasonable quality – a way to improve competitiveness of a manufacturer

A pair of sports shoes (e.g. Made by Nike – a famous US brand)Made in USA?

Probably in China or Indonesia

No way∵Low production cost

Unit Outline

57

Drivers of Globalization

• The Decline of Trade Barriers• The Decline of Investment Barriers• The establishment of the World Trade

Organisation (WTO)– A mechanism for dispute resolution and the

enforcement of international trade regulations

• The Role of Technological Change– Computers– Telecommunications– The Internet– Transportation technology

Unit Outline

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Challenging Corner 5

There is always a debate on the merits and demerits of globalization.Do you agree that the benefits of globalization outweigh the costs? Give reasons to support your view.

Demonstrations by the Korean farmers during the 6th Ministerial Conference of the WTO in

Hong Kong (13-18 December 05)[Source: http://www.anti23.org/foto]

Impoverishment? or Prosperity?

Unit Outline

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Challenging Corner 5 (solution)

Some suggestions:

[Source: Hill 2005, pp. 24]

Creation of jobs

Companies move to countries with fewer labour and environment regulations (Like China & Vietnam?)

Increase in consumer income

Wage rates of unskilled workers in advanced countries decline (Like HK?)

Stimulation to economic growth

Destroys manufacturing jobs in many advanced countries

Lower prices for goods which benefit consumers

Cons of Globalization:Pros of Globalization:

Unit Outline

60

International Trade Law

• No international lawmaking body corresponds to the legislatures of sovereign nations

• Multilateral treaties and conventions– A collection of treaties and international agreements

• United Nations Treaties Collection [http://untreaty.un.org]

• International Law Division, Department of Justice, the HKSAR Government [http://www.legislation.gov.hk]

– All the treaties that are in force and are applicable to the Hong Kong SAR

• The World Trade Organisation (WTO)

Unit Outline

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World Trade Organisation (1)

• An official international organisation for– liberalising trade– national governments to negotiate trade

agreements– settling trade disputes – operating a system of trade rules

• Established on 1 Jan 1995 after the successful completion of the last and largest General Agreement on Tariffs and Trade (GATT) round, which was the Uruguay Round which lasted from 1986 to 1994

Unit Outline

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World Trade Organisation (2)

• Maintenance of a stable environment conducive to international trade

• 150 member-countries as of 11 January 2007 • HQ – Geneva, Switzerland• Recent developments:

– Non-Tariff Barriers identification and reduction• E.g. Government procurement policies, export subsidies,

administrative fees on imports, border taxes, etc.

– Trade in services– Intellectual property protection

• Inventions, creations and designs

Unit Outline

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World Trade Organisation (3)

• The Doha Agenda– The most recent international trade negotiation between

nations– Agreed in the 4th Ministerial Conference in Doha in December

2001– The original deadline 1 Jan 2005 for reaching an overall

agreement was missed– The 6th Ministerial Conference held in Hong Kong from 13 to

18 December 2005 aiming for a successful conclusion of the Doha Round in 2006

– The subsequent unofficial target of the end of 2006 was unsuccessful

– Suspended the negotiations in July 2006 – Aiming at a breakthrough in 2007 but no significant

movement yetUnit Outline

64

Summary

Now, you have come to the end of the unit. You should be able to:– understand the recent and future development of the

Hong Kong business economy;– describe the influence of the economic policies and

business practices in the Mainland to the Hong Kong business environment;

– understand the implications of economic, technological, cultural, social, political and legal factors for business decisions;

– describe the drivers of globalization and its impact on business; and

– understand the development of world trade system.

65

References (1)

• Ball, DA, McCulloch Jr, WH, Frantz, PL, Geringer, JM & Minor, MS (2004), International Business: The Challenge of Global Competition 2004, 9th edition, McGraw Irwin, New York.

• Daniels, JD, Radebaugh, LH & Sullivan, DP (2007), International Business-Environments and Operations, 11th edition, Pearson Prentice Hall, New Jersey.

• Deresky, H (2006), International Management-Managing Across Borders and Cultures, 5th edition, Pearson, New Jersey.

• Ebert, RJ & Griffin, RW (2003), Business Essentials, 4th edition, Pearson, New Jersey.

• Hills, C (2005), International Business-Competing in the Global Marketplace, 5th edition, McGraw-Hill, New York.

• Hong Kong Trade Development Council (2003), Why Hong Kong as a Business Platform? A Survey of US Companies in the Pearl River Delta. Retrieved 3 May, 2007 from http://www.tdctrade.com/econforum/tdc/tdc030702.htm

• International Monetary Fund, World Economic Outlook Database - April 2007 Edition. Retrieved 3 May 2007 from http://www.imf.org/external/pubs/ft/weo/2007/01/data/index.aspx

66

References (2)

• Lee, PT (ed.) (2001), Hong Kong Reintegrating with China-Political, Cultural and Social Dimensions, Hong Kong University Press, Hong Kong.

• Li, KW (2006), The Hong Kong Economy-Recovery and Restructuring, McGraw Hill, Singapore.

• ‘Made in Hong Kong’, Hong Kong Industrialist, Jan 2007, pp. 30-33.

• Madura, J (2001), Introduction to Business, 2nd edition, South-Western College, Ohio.

• The Bank for International Settlements (2004), Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity. Retrieved 3 May 2007 from http://www.bis.org/triennial.htm

• Yan, X & Tam, CW (2004), Further Cooperation between Hong Kong and the Mainland’s Telecommunications Sector under the CEPA Framework, The Internet and Telecom Association, Hong Kong.

• Yeh, AGO, Sit, VFS, Chen, G & Zhou, Y (ed.) (2006), Developing a Competitive Pearl River Delta-in South China under One Country-Two Systems, Hong Kong University Press, Hong Kong.

67

References (3)

• Airports Council International - the official Website. Retrieved May 2007 from http://www.airports.org

• Census and Statistics Department, the HKSAR Government – the official Website. Retrieved May 2007 from http://www.censtatd.gov.hk

• Department of Justice, the HKSAR Government – the official Website. Retrieved May 2007 from http://www.doj.gov.hk Economic Development and Labour Bureau, the HKSAR Government – the official Website. Retrieved May 2007 from http://www.edlb.gov.hk

• Education and Manpower Bureau, the HKSAR Government – the official Website. Retrieved May 2007 from http://www.emb.gov.hk

• Financial Services and the Treasury Bureau, the HKSAR Government – the official Website. Retrieved May 2007 from http://www.fstb.gov.hk

• GovHK – the portal of the HKSAR Government. Retrieved May 2007 from http://www.gov.hk

• Hong Kong International Arbitration Centre – the official Website. Retrieved May 2007 from http://www. hkiac.org

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References (4)

• Hong Kong International Airport – the official Website. Retrieved May 2007 from http://www.hongkongairport.com

• Hong Kong Port Development Council – the official Website. Retrieved May 2007 from http://www.pdc.gov.hk

• Hong Kong Shippers' Council - the official Website. Retrieved May 2007 from http://www.hkshippers.org.hk

• Hong Kong Trade Development Council - the official Website. Retrieved May 2007 from http://www.tdctrade.com

• Invest Hong Kong, the HKSAR Government – the official Website. Retrieved May 2007 from http://www.investhk.gov.hk

• Telecommunications Authority, the HKSAR Government – the official Website. Retrieved May 2007 from http://www.ofta.gov.hk

• United Nations – the official Website. Retrieved May 2007 from http://www.un.org

• World Trade Organisation – the official Website. Retrieved May 2007 from http://www.wto.org

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Further Reading

• 方便營商的環境: 財政司司長辦公室工商服務業推廣署施政方針, 工商服務業推廣署 1999

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End of the Unit

EndEnd--ofof--unit Assessmentunit AssessmentThis is the end of Unit 1.

Please go to the Unit Assessment before attempting

the next unit.