SECTION 1SECTION 1

BUSINESS IN THE HONG KONG

ECONOMY

• Definition :

• Business is defined as any organized effort to produce goods or supply services demanded by people for the purpose of making a profit.

IntroductionIntroduction

• Business is defined as any organized effort

to produce goods or supply services

demanded by people for the purpose of

making a profit

Profits are the difference between a business’srevenues and its expenses. Profits reward theowners of businesses for taking the risksinvolved in investing their money and time.The prospect of earning profits is whatencourages people to open and expandbusinesses.

Basic InputsBasic Inputs

• Natural resources (land)

• Labour

• Capital

• Entrepreneurship

Definition of a successful Definition of a successful entrepreneur :entrepreneur :

Entrepreneurs typically own and run their businesses

with the goal of building significant firms that create

wealth and add jobs. Entrepreneurs are visionaries.

They identify opportunities and take the initiative to

gather the resources they need to start their

businesses quickly. Both managers and

entrepreneurs use the resources of their companies

to achieve the goals of those organizations.

Characteristics of a successful Characteristics of a successful entrepreneur :entrepreneur :

• need for achievement

• willingness to take risks

• creative

• shows initiative

• self-confidence

• enthusiastic and commitment

Entrepreneurial spirit contribute to Entrepreneurial spirit contribute to a successful manufacturing firm:a successful manufacturing firm:

• Be innovative - innovation e.g. be competitive in

the industry with creative product as services

• Making prompt decision/ flexibility - flexibility in

management is required especially when facing

shorter product life cycle, e.g. sourcing, dealing

with product lines have to responsive.

Entrepreneurial spirit contribute to Entrepreneurial spirit contribute to a successful manufacturing firm:a successful manufacturing firm:

• Willingness to take risk/ pro-active - to take up

niche opportunities e.g. auxiliary aid for the

elderly.

• Analytical thinking facilitates decision making, a

routine for owner-manager, who executes broad

range of duties e.g. design of layout, scheduling of

production

Entrepreneurial spirit contribute to Entrepreneurial spirit contribute to a successful manufacturing firm:a successful manufacturing firm:

• Strong need to achieve/ hardworking - quality

control is a routine of manufacturing environment.

Close supervision is required to ensure required

standard

The role of business in Hong Kong The role of business in Hong Kong economyeconomy

• Production of goods and services

• Provision of employment opportunities

• A major source of government revenue

• Improvement of living standards

• Economic Development• A Free Economy• GDP Growth• Economic Policy• Maximum Support,

Minimum Intervention• Prudent Fiscal Practice• International Financial Centre

• Financial Markets• The Banking Sector• Exchange Market• Stock Market• Economic Link with the

Mainland• Investments between HK

and China• China’s accession to WTO

The industrial structure in Hong The industrial structure in Hong Kong - Economic CompetitivenessKong - Economic Competitiveness

• Primary Production– ……..

• Secondary Production– ……...

• Tertiary Production– ………

(click the headline)

The industrial structure in Hong KonThe industrial structure in Hong Kongg

The industrial structure in Hong The industrial structure in Hong KongKong

Primary Production Meaning: refers to all the activities that directly utilize natural resources in the process of production

Components: e.g. agriculture and fisheries, mining and quarrying

Trend:

The industrial structure in Hong The industrial structure in Hong KongKong

Secondary Production

Meaning: refers to all the process of turning raw materials into finished goods or semi-finished goods

Components: e.g. manufacturing; construction; and the supply of electricity, gas and water

Trend:

The industrial structure in Hong The industrial structure in Hong KongKong

Tertiary ProductionMeaning: refers to all the provision of services:

Components: e.g. wholesale, retail and import/export trade; restaurants and hotels; transport, storage and communications; financing, insurance, real estate and business services

Trend:

Reasons:Reasons:

• During the past twenty years, many manufacturing factories moved to Mainland China, especially the Pearl River Delta area, to take the cost advantage.

• The remaining manufacturing sector moved towards more high-tech and changed to less labor-intensive operations. Manufacturing firms in Hong Kong employed more automation and mechanization.

Reasons:Reasons:

• The industries which provide supporting and value-added services to manufacturing (e.g. finance and banking, transportation, marketing, human resources, design, IT, etc.) are developing rapidly and still remain in Hong Kong.

• Incorporation of other value-added services (e.g. marketing and distribution) by manufacturing firms

Reasons:Reasons:

• Increased demand for services to support the manufacturing plants relocated to the Mainland

Should Hong Kong governmentShould Hong Kong governmentre-vitalize manufacturing?re-vitalize manufacturing?

• Arguments for

• Arguments against

Arguments Arguments for for ::

• Steady foreign exchange earnings from manufacturing sector

• stable job opportunity

• promote satellite enterprises

• foster a strong entrepreneurial spirit

• demand for services such as banking and financial services, consumer expenditure, etc. is subject to the growth (and fall) of other industries

Arguments Arguments againstagainst : :

• Against the positive non-intervention philosophy; would hurt the free price mechanism and lead to misallocation of resources

• market has indicated there should be a division of labour, with China, India and other countries providing labour and Hong Kong adding marketing, quality control and other high value-added service.

Arguments Arguments againstagainst

• The growth of foreign investment in manufacturing sector is healthy so at the moment there is no urgent need to revitalize the manufacturing sector in Hong Kong

• heavy demand services especially in the Mainland market and as a gateway to the Mainland China

Reasons for the growth of service Reasons for the growth of service sectorsector

• Growing affluence

• Business link between China and Hong Kong

• Exports of services

• Contraction of manufacturing sector

Factors affecting the operations of Factors affecting the operations of business in Hong Kongbusiness in Hong Kong

• Political & Legal factor

• Economic factor

• Socio-cultural factor

• Technological factor

• Competitors

• International legislation

• Physical factor

Risk of operating a business in Hong Risk of operating a business in Hong KongKong

• Dependence on international trade

• The susceptibility of Hong Kong business to world economic and political conditions

• Linked exchange rate

• Effects of local and international legislation

on Hong Kong business

China joining WTOChina joining WTO

Impacts on Hong Kong Businesses

Positive impactsPositive impacts

• Import tariffs are to be lowered significantly,

thereby reducing the costs of importing machinery

and equipment, raw materials to China

• investment policies are to made more transparent

and regularized. It removes many uncertainties of

investing in China

Positive impactsPositive impacts

• The present half-open service sector will gradually

be opened up fully, allowing Hong Kong

businesses to participate in telecommunications,

transport, and finance

Negative impactsNegative impacts

• After the regularization of investment policies, some

investors enjoying preferential treatment will lose

their advantages. In particular, with the gradual

reformation of investment policies, Hong Kong

businesses concentrated along the coastal region may

lose some privileges. Moreover, further opening up

will attract some foreign investment, especially

multinational corporation with sound finance

Negative impactsNegative impacts

• After the liberation of trade policy, together with

the improvement of port facilities and increase of

freight as well as enhancement of management

ability, demand for Hong Kong re-exports and

transshipment facilities will drop

Negative impactsNegative impacts

• Before China joins the WTO, many foreign

investors have taken advantage of Hong Kong as

the springboard to manage their business in china.

After China joins the WTO, the intermediary role

of Hong Kong businesses will inevitably be

reduced.

Government and BusinessGovernment and Business

• Technology

• productivity and quality

• funding

• physical infrastructure

• land

• human resources

• support for small and medium enterprises

• Export marketing and export credit

• helping business and services promotion

Other roles of governmentOther roles of government

• Regulator - e.g. regulations on environmental protection and consumer protection and employees

• Economic stabilizer - e.g. fiscal policies and monetary polices

• Customer - e.g. buy supplies and services

• Competitor - e.g. transports and exhibition

• Employer - e.g. civil servants

Business and Business and environmental pollutionenvironmental pollution

• Air pollution

• Noise pollution

• Water pollution

• Waste pollution

Important elements of an environmentImportant elements of an environmental protection programmeal protection programme

• Recycling

• conservation

• special machines, replace old equipment and materials

• modify production methods

Responses of businessResponses of business

• Conservation: practicing the most efficient use of resources to avoid wastage, e.g. fuel-efficient cars

• Use of environmental-friendly substitutes, e.g. paper bags in place of plastic bags

• recycling: reprocessing used items for further use, e.g. recycled paper

• pollution control: controlling the contamination or destruction of the natural environment. E.g. efforts to control air, land, waste and noise pollution

Social responsibilitySocial responsibility

• business is part of the larger society => not only advances the firm but also serves society

• be accountable to their stakeholders

Areas of responsibilitiesAreas of responsibilities

• Industry welfare

• Community welfare

• World welfare

Responsibilities to various partiesResponsibilities to various parties

• Employees

• shareholders

• creditors

• Consumers

• Government

• Community

Arguments for social responsibilityArguments for social responsibility

• Better image

• Better social environment

• System interdependence requires social

concern

• avoidance of government regulation

• changes public expectation of business

Arguments against social Arguments against social responsibilityresponsibility

• Profit maximization

• Government’s duty

• Lack of social skills and accountability

• Costs to society for social responsibility

Business ethics Business ethics

• Ethics are beliefs about what is right and wrong or good and bad in actions that affect others

• Business ethics is a collection of principles and rules of conduct based on beliefs about what is right and wrong business behaviour.

Popular ethical principlesPopular ethical principles

• Golden Rule

• Utilitarian Principle

Importance of business ethics and Importance of business ethics and social responsibilitysocial responsibility

• Interdependence

• Guidelines for proper behaviour

• Self-interest

Ethical Behavior

Internal Programs to

Resolve Ethical Problems

Appropriate Rewards and Punishments

Visible, Explicit Code

of Ethics

Ethics Training for Employees

Management Actions and

Attitudes

Ethics Review

Committees

ObjectiveObjective

• Objectives specify results and outcomes that someone believes to be desirable and worth achieving

Benefits of setting objectivesBenefits of setting objectives

• To focus organizational decisions and efforts

• to aid planning process

• to motivate people and stimulate better performance

• to assist in performance evaluation and control

Types of objectivesTypes of objectives

• Profit objective

• Sales objective

• Social objective

• Growth objective

Types of objectives with the stage of Types of objectives with the stage of economic and business developmenteconomic and business development

(i) Stage of economic developmentThe business objectives are varied with operational environment

• economic prosperity/stability will be matched with market growth or profit grow objectives

• economic recession/ fluctuation will be coped by consolidation, cost-cutting and survival objectives.

Types of objectives with the stage of Types of objectives with the stage of economic and business developmenteconomic and business development

(ii) Stage of economic developmentThe business objectives are varied with the stages development of the firm:

• younger and newly established firms tend to make themselves survival first and then adaptation

• established firms tend to be more aggressive in their objectives such as expansion in market, profit, sales and financially tend to take more risky project.

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