Growth enterprise market
Many Hong Kong manufacturers have tried to improve their product competitiveness by using higher quality components and precision parts, incorporating programmable or computer control features and enhancing safety features. They are looking for opportunities to diversify their products, particularly towards higher quality and performance. And namely quality is one of the strongest points of Festo. Quality and performance. Energy saving and environmental friendly are risingly important in designs of new machines.
This environmental aspect also a very important role in the Festo strategy, not to mention that Festo has been certified according to the Standard ISO 14001 which confirms that Festo products are environmental friendly. In this regard, several developments of new machinery and techniques are note-worthy. And Festo must take part in these developments of new local pneumatic systems for machinery which would satisfy the local needs. Hong Kong has “… a long history of producing metals and plastics parts for machinery and equipment.
We have long carved a niche as a producer of high quality and hi-precision parts for sophisticated products, such as computers, printers, audio-visual equipment, home electronics, and automated machines. We have been extremely successful in enhancing the competitiveness of our products, through carrying out mass production in places with lower operation costs such as the Mainland and other neighboring economies, and through enhancing the value-added content of the products.
Hong Kong manufacturers supply critical parts and components to top-notch international brand-name manufacturers, and have captured a significant share of the global market” . Taking into account the major trends of this market segment Festo should study the demands of the most important machine producers and develop a universal local product which, however, may have a number of versions with small differences according to the special needs of customers (see Appendix 3).
As mentioned above Hong Kong was the most important entrepot for the Chinese mainland. “About 25% of the mainland’s foreign trade is handled via Hong Kong, comprising products sourced on and destined for the mainland. As reflected in Hong Kong’s merchandise trade statistics, in 2003, 60% of re-exports were of China origin and 44% were destined for the Chinese mainland” . Hong Kong is the largest source of overseas direct investment in the Chinese mainland. The Chinese mainland is one of the leading investors in Hong Kong.
It is estimated that there are over 2,000 mainland-backed enterprises registered in Hong Kong, with total asset exceeding US$ 220 billion. Over 100 mainland-backed and state-owned enterprises are listed on the main board of the Stock Exchange of Hong Kong and its growth enterprise market (GEM). There are currently 26 Chinese banks and seven representative offices operating in Hong Kong. The Bank of China is now the second largest banking group in Hong Kong after HSBC. Hong Kong is also a key offshore capital-raising centre for Chinese enterprises.
“By the end of 2003, 258 mainland companies (including H-shares, red-chips and other overseas registered Chinese companies) were listed in Hong Kong with a total market capitalization of US$ 217 billion, or 31% of Hong Kong’s total market capitalization. Total funds raised by these companies amounted to US$ 100 billion. The listing of two Chinese insurers PICC and China Life is a major recent success. ” . Another advantage is low-cost labor. This is what helps when discussing costs.
Most Hong Kong manufacturers have set up plants in the Chinese mainland to take advantage of the lower production costs or to target the domestic market of the Chinese mainland. While an increasing number of machinery manufacturing plants are being relocated to the Chinese mainland, machinery manufacturers in general have been slower than other sectors in setting up offshore plants because of the more capital-intensive nature of the industry. And Festo must be one of those who use this advantage.
Festo is currently building a plant in China and it may use all the advantages of already existing handling scheme (production in China and distribution via Hong Kong). Festo won’t be the first one but anyway among the first who develop their business this way. Moreover “the Chinese mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) was concluded in June 2003. The mainland will apply zero tariff to 273 imported goods, including certain machinery products, of Hong Kong origin from 1 January 2004.
The mainland will also apply zero tariff to imported goods of Hong Kong origin other than the 273 products not later than 1 January 2006, subject to applications from manufacturers and approvals of responsible authorities from both mainland and Hong Kong” . 4. Competitor analysis: advantages, disadvantages, our risks, our chances. More than 50 competitors are active in the Asian market for pneumatic equipment. A substantial number are smaller firms operating in their domestic markets on a regional basis.
An upper tier of the market contains four larger and internationally focused participants (incl. Festo): Festo, Metal Work, SMC and Parker (see Appendix 4) . Additional firms operate on an inter-Asian basis, but have yet to attain the market share of those in the first tier. Competition between firms in all areas of the market is intense. The standardization of many products means that price is the principle method of distinguishing between products. Delivery, the author observes, is also crucial. Competition may become less price focused as customers place greater emphasis on expertise.
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