ENG-1992 — Page 21

THE HONG KONG-CHINA PHENOMENON

manufacturers felt the pressures of rising land and labour costs affecting their com- petitiveness. The migration of the territory's manufacturing base across the border proceeded apace. Today, with some four-fifths of local manufacturers having transferred production to the mainland, Hong Kong is said to be responsible for more than 80 per cent of the foreign investment in Guangdong province. Some 60 000 Hong Kong people, now managing factories and other investments in southern China, are responsible for much of the cross-border traffic increase, while between three and four million workers in southern China are directly or indirectly employed by Hong Kong firms.

With well earned pride, Hong Kong can share the credit for transforming what was a relationship of suspicion and ignorance on either side of the border to what is now emerging as perhaps the single greatest economic takeoff in world history. Hong Kong manufacturers have benefited enormously from the proximity of Guangdong. The cultural and linguistic similarities they share with China have enabled them to take full advantage of what can seem a somewhat daunting environment for other foreign investors. In initial forays into the Chinese market many foreigners have lacked the patience required to forge the relationships and trust considered so important by their Chinese joint venture partners or other counterparts. Sharing a cultural heritage and language despite their differences, Hong Kong investors have an understanding of how their mainland partners think, as well as what their counterparts might appreciate from them to make ventures successful. Modern technology, new manufacturing techniques, and different financial and managerial skills have added to the speed with which landscape and attitudes alike are changing.

This successful pattern is perhaps best illustrated by a concrete example.

A prominent businessman of my acquaintance, managing director of a major toy manufacturing company, has long considered himself fortunate to call Hong Kong home, having come from China with his parents in 1950. Just two years old then, he grew up in Hong Kong feeling little personal identification with his native land. In 1976, he and a friend joined forces to go into business on their own. With the company's growth and rising production costs, a move into China clearly emerged as the only viable alternative for the firm to remain competitive. Ironically, having been born in China and raised in Hong Kong, his first return visit to China was not until his initial trip in search of industrial space and a new factory in 1984.

With some 300 000 square feet of factory space and operations in eight Guangdong locations today, the company's success is clearly evident. Early negotiations over where and how to set up the first operation, however, were a test of patience and persistent negotiating skills, as the government offices, departments and officials with the authority to offer attractive investment terms had to be identified.

In retrospect, the negotiating process for this first factory may have been faster had my friend opted to set up in Shenzhen or one of the other Special Economic Zones (SEZs) in Guangdong. With toy manufacturing a highly seasonal business, however, the more restrictive environment and higher costs of the SEZs were inappropriate to the company's needs. During the peak June-September buying period, it employs some 2 500 workers in its manufacturing and assembly operations. In Dongguan, the ability to negotiate directly with the local danwei (work unit) enables the firm to reduce or expand the labour force with relative ease. An agreement with the danwei also allows for payment of overtime directly to workers, an arrangement that provides important incentives to the work force. With the direct payment system the firm employs, practiced by some 70 per cent of Hong

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