Logistics Products and Services in Hong Kong: A Strategic Reference, 2007
ICON Group International, July 2007, Pages: 221
How to Strategically Evaluate Hong Kong
Perhaps the most efficient way of evaluating Hong Kong is to consider key dimensions which themselves are composites of multiple factors. Composite portfolio approaches have long been used by strategic planners. The biggest challenge in this approach is to choose the appropriate factors that are the most relevant to international planning. The two measures of greatest relevance to logistics products and services are “latent demand” and “market accessibility”. The figure below summarizes the key dimensions and recommendations of such an approach. Using these two composites, one can prioritize all countries of the world. Countries of high latent demand and high relative accessibility (e.g. easier entry for one firm compared to other firms) are given highest priority. The figure below shows two different scenarios. Accessibility is defined as a firm’s ease of entering or supplying from or to a market (the “supply side”), and latent demand is an indicator of the potential in serving from or to the market (the “demand side”).
Framework for Prioritizing Countries
Demand/Market Potential Driven Firm
Relative Accessibility
Accessibility/Supply Averse Firm
In the top figure, the firm is driven by market potential, whereas the bottom figure represents a firm that is driven by costs or by an aversion to difficult markets. This report treats the reader as coming from a “generic firm” approaching the global market - neither a market-driven nor a cost-driven company. Planners must therefore augment this report with their own company-specific factors that might change the priorities (e.g. a Canadian firm may have higher accessibility in Canada than a German firm).
Latent Demand and Accessibility in Hong Kong
This report provides a detailed overview of factors driving latent demand and accessibility for logistics products and services in Hong Kong. Latent demand is largely driven by economic fundamentals specific to logistics products and services. This topic is discussed in Chapter 2 using work carried out in Hong Kong on behalf of American firms and authored by the United States government (typically commercial attachés or similar persons in local offices of the U.S. Department of State). I have included a number of edits to clarify the information provided. Latent demand only represents half of the picture. Chapter 2 also deals with micro-accessibility for logistics products and services in Hong Kong. I use the term “micro” since the discussion is focused specifically on logistics products and services.
Chapter 3 is also a stand-alone report that I have authored. It covers proxy pro-forma financial indicators of firms operating in Hong Kong. I use the word “proxy” because the provided figures only cover a “what if” scenario, based on actual operating results for firms in Hong Kong. The numbers are only indicative of an average firm whose primary activity is in Hong Kong. It covers a vertical analysis of the maximum likelihood balance sheet, income statement, and financial ratios of firms operating in Hong Kong. It does so for a particular Standard Industrial Classification (SIC) code. That code covers “arrangement of freight and cargo transportation”, as defined in Chapter 3. Again, while “arrangement of freight and cargo transportation” does not exactly equate to “logistics products and services”, it nevertheless gives an indicator of how Hong Kong compares to other countries for a proxy adjacent category along various dimensions.
Chapter 4 deals with macro-accessibility and covers factors that go beyond logistics products and services. A country may at first sight appear to be attractive due to a high latent demand, but it is often less attractive when one considers at the macro level how easy it might be to serve that entire potential and/or general business risks. While accessibility will always vary from one company to another for a given country, the following domains are typically considered when evaluating macro-accessibility in Hong Kong:
Openness to Trade in Hong Kong
Openness to Direct Investment in Hong Kong
Local Marketing and Entry Strategy Alternatives
Local Human Resources
Local Risks
Across these domains, a number of not-so-obvious factors can affect accessibility and risk. These are covered in the Chapter 4, which is a general overview of investment and business conditions in Hong Kong. Chapter 4 is also presented from the perspective of an American firm, though is equally applicable to most firms entering Hong Kong. This chapter is also authored by local offices of the U.S. government, as is Chapter 2. Likewise, I have included a number of edits to clarify the provided information as it relates to the general strategic framework mentioned earlier.
1 INTRODUCTION & METHODOLOGY 1
1.1 What Does This Report Cover? 1
1.2 How to Strategically Evaluate Hong Kong 1
1.3 Latent Demand and Accessibility in Hong Kong 3
2 LOGISTICS PRODUCTS AND SERVICES IN HONG KONG 5
2.1 Latent Demand and Accessibility: Background 5
2.2 Latent Demand: Market Composition 5
2.3 Latent Demand: Dynamics 6
2.3.1 Airport 7
2.3.2 Port 8
2.3.3 Highways and Roads 8
2.3.4 Railway 8
2.4 Accessibility: The Structure of Competition 9
2.4.1 Key Players 9
2.5 Accessibility: Key Factors 10
2.5.1 Foreign Investments 10
2.5.2 Foreign-Trade Zones and Free Ports 11
2.5.3 Hong Kong Partners 11
2.6 Accessibility: Market Entry 11
2.6.1 Partnerships and Joint Ventures 11
2.7 Key Contacts 12
3 FINANCIAL INDICATORS: ARRANGEMENT OF FREIGHT AND CARGO TRANSPORTATION 14
3.1 Overview 14
3.1.1 Financial Returns and Gaps in Hong Kong 15
3.1.2 Labor Productivity Gaps in Hong Kong 18
3.1.3 Limitations and Extensions 18
3.2 Financial Returns in Hong Kong: Asset Structure Ratios 19
3.2.1 Overview 19
3.2.2 Assets - Definitions of Terms 19
3.2.3 Asset Structure: Outlook 22
3.2.4 Large Variances: Assets 23
3.2.5 Key Percentiles and Rankings 26
3.3 Financial Returns in Hong Kong: Liability Structure Ratios 41
3.3.1 Overview 41
3.3.2 Liabilities and Equity - Definitions of Terms 41
3.3.3 Liability Structure: Outlook 43
3.3.4 Large Variances: Liabilities 44
3.3.5 Key Percentiles and Rankings 47
3.4 Financial Returns in Hong Kong: Income Structure Ratios 60
3.4.1 Overview 60
3.4.2 Income Statements - Definitions of Terms 60
3.4.3 Income Structure: Outlook 63
3.4.4 Large Variances: Income 64
3.4.5 Key Percentiles and Rankings 67
3.5 Financial Returns in Hong Kong: Profitability Ratios 82
3.5.1 Overview 82
3.5.2 Ratios - Definitions of Terms 82
3.5.3 Ratio Structure: Outlook 84
3.5.4 Large Variances: Ratios 85
3.5.5 Key Percentiles and Rankings 88
3.6 Productivity in Hong Kong: Asset-Labor Ratios 103
3.6.1 Overview 103
3.6.2 Asset to Labor: Outlook 104
3.6.3 Asset to Labor: International Gaps 105
3.6.4 Key Percentiles and Rankings 108
3.7 Productivity in Hong Kong: Liability-Labor Ratios 123
3.7.1 Overview 123
3.7.2 Liability to Labor: Outlook 124
3.7.3 Liability and Equity to Labor: International Gaps 125
3.7.4 Key Percentiles and Rankings 128
3.8 Productivity in Hong Kong: Income-Labor Ratios 141
3.8.1 Overview 141
3.8.2 Income to Labor: Outlook 142
3.8.3 Income to Labor: Gaps 143
3.8.4 Key Percentiles and Rankings 146
4 MACRO-ACCESSIBILITY IN HONG KONG 161
4.1 Executive Summary 161
4.1.1 Government Intervention Risks 161
4.1.2 Infrastructure Situation 162
4.1.3 Macau Economic Scene 163
4.1.4 Pearl River Delta - Hong Kongs Hinterland 163
4.2 Political Risks 164
4.2.1 Nature of Political Relationship with the United States 164
4.2.2 Major Political Issues Affecting the Business Climate 164
4.2.3 The Political System 164
4.2.4 Macau Political Scene 165
4.3 Marketing Products and Services 165
4.3.1 Distribution and Sales Channels 166
4.3.2 Use of Agents and Distributors/Finding a Partner 166
4.3.3 Franchising 166
4.3.4 Direct Sales 167
4.3.5 Joint Ventures/Licensing 167
4.3.6 Steps to Establishing an Office 167
4.3.7 Selling Factors/Techniques 168
4.3.8 Advertising and Trade Promotion 168
4.3.9 Pricing Product 172
4.3.10 Sales Service/Customer Support 172
4.3.11 Selling to the Government 172
4.3.12 Protecting Your Product from IPR Infringement 173
4.3.13 Need for a Local Attorney 173
4.4 Trade Issues 173
4.4.1 Customs Valuation 174
4.4.2 Trade Regulations and Standards 174
4.4.3 Membership in Free Trade Arrangements 176
4.5 Investment Climate 176
4.5.1 Openness to Foreign Investment 176
4.5.2 Conversion and Transfer Policies 177
4.5.3 Expropriation and Compensation 177
4.5.4 Dispute Settlement 178
4.5.5 Performance Requirements and Incentives 178
4.5.6 Right to Private Ownership and Establishment 178
4.5.7 Protection of Property Rights 179
4.6 Transparency of the Regulatory System 180
4.6.1 Efficient Capital Markets and Portfolio Investment 180
4.6.2 Political Violence 181
4.6.3 Corruption 182
4.6.4 Bilateral Investment Agreements 182
4.6.5 OPIC and Other Investment Insurance Programs 182
4.6.6 Labor 182
4.6.7 Foreign Trade Zones/Free Ports 183
4.6.8 Major Foreign Investor Firms 183
4.7 Trade and Project Financing 185
4.7.1 General Availability of Financing 186
4.7.2 How to Finance Exports/Methods of Payment 186
4.7.3 Types of Available Export Financing and Insurance 186
4.7.4 The Asian Development Bank 187
4.8 Travel Issues 187
4.8.1 Travel Advisory and Visas 188
4.8.2 Business Infrastructure 188
4.8.3 Temporary Entry of Goods 188
4.8.4 Country Data 189
4.9 Key Contacts 189
4.9.1 U.S. Consulate General Trade-Related Contacts 189
4.9.2 U.S. Commercial Service Offices in China 190
4.9.3 American Chamber of Commerce and U.S. China Business Council 192
4.9.4 Hong Kong Trade or Industry Associations in Key Sectors 192
4.9.5 Hong Kong Government Offices Relating to Key Sectors and/or Significant Trade Related Activities 198
4.9.6 Hong Kong Market Research Firms 203
4.9.7 Licensed U.S. Commercial Banks in Hong Kong 206
4.9.8 U.S. Contacts in Washington 208
4.9.9 U.S. Market Development Cooperator Organizations Represented in Hong Kong 208
5 DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS 212
5.1 Disclaimers & Safe Harbor 212
5.2 Icon Group International, Inc. User Agreement Provisions 213
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