By Michael Hung, CEO of Core Solutions Limited
For decades, Hong Kong has been called “The Gateway of China.” That title makes sense, considering the city has the highest concentration of trade-related businesses in the world. According to recent government figures, Hong Kong handled a whopping US$648 billion in trade in 2006 alone!
In 1994, I moved from the US to Hong Kong (where I was born) and started a software company with my business partner. We figured the Internet technology (IT) market in the region was still at its infancy, and that we should take advantage of being an early mover. And, since we were in Hong Kong, what better field to specialize in than trade?
There are 100,000+ companies currently involved in the trade industry, so it’s safe to say that there is huge potential for success. With this in mind, we set out to develop tools targeted to trading firms (as well as buying agents and factory owners) to help them streamline their operations and service their overseas customers. Little did we know what we’d be up against.
The Culture Factor
In Hong Kong, you can easily find large and successful businesses that have little or no IT infrastructure (desktop computers do not count). While there are exceptions, in general Hong Kong businessmen are more likely to invest in expensive equipment or constructing factory buildings than in software.
The Cost Factor
IT fans will be amazed at the amount of manual data re-keying that exists throughout companies’ supply chains. The phrase “I’d rather hire more people to re-key the data” is not uncommonly heard. The cost of employing clerical staff in Hong Kong is much lower than that of most developed countries. Businesses in Hong Kong and China are so closely linked that any clerical work that becomes expensive in Hong Kong is at risk of being moved to China. To our chagrin, the standard sales pitch of increasing staff productivity or reducing staff costs does not usually work in Hong Kong.
The Family Factor
Several years after starting our business, we learned that the vast majority of the trading firms are small, family-run businesses with an average of five employees. Though many of these firms have done well over the years, most of them embrace the notion that, “if it ain’t broke, don’t fix it.” As such, it is likely that these firms would not invest in intangibles that offer no immediate return. We quickly realized that our market had shrunk by orders of magnitude.
The Competition Factor
With all of this said, things have started to change in recent years. For a long time Hong Kong was the de-facto route for sourcing products from China. Then China joined the World Trade Organization (WTO). China’s easing of trade regulations, the mainland’s improved English skills and the mere fact that it’s faster to fly to and from China have caused more and more corporate customers (e.g., large retailers and manufacturers) to source products from and contract with Chinese factories directly. Facing this pressure, some trading firms began to switching gears from offering pure trading and merchandising services to more value-added services, including: product development, production management, quality management, logistics and finance.
Many of the firms that were successful in the transformation have seen their businesses grow exponentially. And to our benefit, IT is increasingly being viewed as an integral part of supply chain management, as well as attracting and retaining customers. Today, our sourcing and supply chain management software is used by some of the largest trading companies, buying agents and retailers around the world. After 12 years and many mistakes, we are still learning all of the factors involved in becoming successful entrepreneurs, but at least now things are starting to get exciting around here.