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standard and need further processing (the rate depends on the operating standard of staff). To allow for this and avoid delay in the delivery of goods, the amounts of raw materials put into production usually exceed those actually required by 10% to 20%. The two precautionary measures together mean the quantity of raw materials purchased will exceed those required by orders by 20% to 40%. It is true the surplus raw materials can be put into production after the peak season, but the goods produced may not be able to fetch the same prices. If this has not been taken into account in the calculation of costs, losses may be suffered. If it is taken into account, costs of production may be higher than the levels which the market can afford, thus lowering the competitiveness of the products.
(6) To build new factories or expand existing industrial facilities in the Mainland will increase the demands for water, electricity and transport as well as a work force who are educated enough and can be trained within a short period of time, otherwise losses will be incurred.
(7) Not many factories are self-sufficient in all supplies and many have to import or depend on other factories for some of the component parts and fittings. A television manufactory, for example, may depend on import for the supply of electronic parts and other factories in the Mainland for the supply of metal or plastic cases. The quality of these component parts and fittings produced by other factories and the delivery and costs of them must fit in with its own production, otherwise the quality of the final products as well as the costs and time of delivery will be affected.
(8) Many factories in Europe, U.S., Japan, Hong Kong, Taiwan, South Korea and Singapore are in a better position than those in China. Except for wages, other costs of production in these countries are lower. In the next few years China should face the reality and find out ways and means of breaking through in order to compete with other countries for overseas markets.
(9) Inexpensive land and factory buildings seem attractive, but these advantages may be counteracted by the following---
(a) Because of the ever increasing population and development of industries, the value of land and the buildings on it in a developed country is ever increasing. The rates of appreciation for land and buildings may vary and are faster at one time than the other, but they are on the average higher than the inflation and bank interest rates, so many industrialists and businessmen would rather purchase their premises by instalments.
(b) Investments in the form of partnership in China are, however, subject to a stipulated period of a number of years. This means those investing in factory buildings will not be able to gain from the appreciation of assets and must allow for depreciation of them in calculating production costs. Because of such costs and interests and other factors, it may be more economical to rent rather than invest in factory buildings.
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(10) To protect her own industries, China has substantially raised tariffs on imports of final products while keeping tariffs on imports of machinery, spare parts and fittings at a low level. This is beneficial to the home sales of domestic products. But purchasing power within the country is rather limited. Hence the limitedness of her domestic market. What is more, most of the earnings are in renminbi—although there are more than thirty million ethnic Chinese living abroad, the number of them who are willing or able to remit money to relatives in the Mainland is limited. Thus even if the products are mainly to be sold in the home market, the costs of production must be kept low in order to gain wider acceptance in both internal and external markets.
(11) For foreign buyers purchasing goods from Southeast Asian countries, there are certain market relations and individual preferences for certain products: At present, the biggest buyers in terms of quantity are from the U.S., particularly those chain stores dealing in general merchandise and mail-order groups, the size of whose orders is truly amazing, but they are also very exacting as regards prices and there have to be certain relations and channels through which transactions may be made. The size of orders from European buyers are not so great but higher prices may be charged. However, they demand very good quality and again there have to be special channels. Due to various factors, it seems not easy for the organizations in China to directly conduct business with the overseas buyers.
(12) Another question about markets is the peak and off seasons for various products in different countries and the living habits, holidays, festivals and religious reliefs of their peoples. Even the different states in the U.S. have different demands and different peak and off seasons. And so do different countries in Europe. The situation in countries in the Middle-East is different from others in many respects, particularly the fact that millions go on pilgrimage every year in these countries. Market data on demands and peak and off seasons are extremely important and something which those inexperienced in the international markets will find it difficult to grasp. At present, it seems to be the case with the sales departments of many organisations in China.
If only Hong Kong people understand these problems and prepare detailed and comprehensive plans before entering into cooperation with Mainland China, prospects for development should be good. Because of the rapid development in the Mainland and other Southeast Asian regions, there are, however, fears that Hong Kong may be eliminated or replaced by some special regions in China or some Southeast Asian cities. Fortunately, there are certain factors unique to Hong Kong which contribute to its prosperity
(1) The political, economical, social and geographical conditions in Hong Kong are such that people have little motive to rise in rebellion but would work contentedly. Hong Kong people are the most pragmatic and law-abiding in the world. It does not require the kind of welfare system
Page 182 of 233
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standard and need further processing (the rate depends on the operating standard of staff). To allow for this and avoid delay in the delivery of goods, the amounts of raw materials put into production usually exceed those actually required by 10% to 20%. The two precautionary measures together mean the quantity of raw materials purchased will exceed those required by orders by 20% to 40%. It is true the surplus raw materials can be put into production after the peak season, but the goods produced may not be able to fetch the same prices. If this has not been taken into account in the calculation of costs, losses may be suffered. If it is taken into account, costs of production may be higher than the levels which the market can afford, thus lowering the competitiveness of the products. (6) To build new factories or expand existing industrial facilities in the Mainland will increase the demands for water, electricity and transport as well as a work force who are educated enough and can be trained within a short period of time, otherwise losses will be incurred.
(7) Not many factories are self-sufficient in all supplies and many have to import or depend on other factories for some of the component parts and fittings. A television manufactory, for example, may depend on import for the supply of electronic parts and other factories in the Mainland for the supply of metal or plastic cases. The quality of these component parts and fittings produced by other factories and the delivery and costs of them must fit in with its own production, otherwise the quality of the final products as well as the costs and time of delivery will be affected. (8) Many factories in Europe, U.S., Japan, Hong Kong, Taiwan, South Korea and Singapore are in a better position than those in China. Except for wages, other costs of production in these countries are lower. In the next few years China should face the reality and find out ways and means of breaking through in order to compete with other countries for overseas markets.
(9) Inexpensive land and factory buildings seem attractive, but these advan-
tages may be counteracted by the following---
(a) Because of the ever increasing population and development of indus- tries, the value of land and the buildings on it in a developed country is ever increasing. The rates of appreciation for land and buildings may vary and are faster at one time than the other, but they are on the average higher than the inflation and bank interest rates, so many industrialists and businessmen would rather purchase their premises by instalments.
(b) Investments in the form of partnership in China are, however, subject to a stipulated period of a number of years. This means those investing in factory buildings will not be able to gain from the appreciation of assets and must allow for depreciation of them in calculating production costs. Because of such costs and interests and other factors, it may be more economical to rent rather than invest in factory buildings.
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Page 182 of 233
325
(10) To protect her own industries, China has substantially raised tariffs on imports of final products while keeping tariffs on imports of machinery, spare parts and fittings at a low level. This is beneficial to the home sales of domestic products. But purchasing power within the country is rather limited. Hence the limitedness of her domestic market. What is more, most of the earnings are in renminbis-although there are more than thirty million ethnic Chinese living abroad, the number of them who are willing or able to remit money to relatives in the Mainland is limited. Thus even if the products are mainly to be sold in the home market, the costs of production must be kept low in order to gain wider acceptance in both internal and external markets.
(11) For foreign buyers purchasing goods from Southeast Asian countries, there are certain market relations and individual preferences for certain products: At present, the biggest buyers in terms of quantity are from the U.S., particularly those chain stores dealing in general merchandise and mail-order groups, the size of whose orders is truly amazing, but they are also very exacting as regards prices and there have to be certain relations and channels through which transactions may be made. The size of orders from European buyers are not so great but higher prices may be charged. However, they demand very good quality and again there have to be special channels. Due to various factors, it seems not easy for the organizations in China to directly conduct business with the overseas buyers.
(12) Another question about markets is the peak and off seasons for various products in different countries and the living habits, holidays, festivals and religious reliefs of their peoples. Even the different states in the U.S. have different demands and different peak and off seasons. And so do different countries in Europe. The situation in countries in the Middle-East is different from others in many respects, particularly the fact that millions go on pilgrimage every year in these countries. Market data on demands and peak and off seasons are extremely important and something which those inexperienced in the international markets will find it difficult to grasp. At present, it seems to be the case with the sales departments of many organisations in China.
If only Hong Kong people understand these problems and prepare detailed and comprehensive plans before entering into cooperation with Mainland China, prospects for development should be good. Because of the rapid development in the Mainland and other Southeast Asian regions, there are, however, fears that Hong Kong may be eliminated or replaced by some special regions in China or some Southeast Asian cities. Fortunately, there are certain factors unique to Hong Kong which contribute to its prosperity
(1) The political, economical, social and geographical conditions in Hong Kong are such that people have little motive to rise in rebellion but would work contentedly. Hong Kong people are the most pragmatic and law- abiding in the world. It does not require the kind of welfare system
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