Domestic Production: R&D, Software Development, Hardware Manufacturing

    Today, the hardware and software industries in Hong Kong still put emphasis on manufacturing. The two industries have not achieved the kind of global recognition textile/fashion, banking/finance, hospitality and aviation industries currently enjoy. The reality reflects Hong Kong’s dominant comparative advantages. Citizens have concentrated their human capitals in the traditional sectors when the scarcity of land restricts the development of the IT industry.

Hong Kong Hardware Industry

    Hong Kong's hardware industry is characterized by intense dependence on imported parts of key components. Companies in Hong Kong can source freely worldwide because of Hong Kong’s free port status. The sector produces broad range of IT equipment. The largest export item is computer parts and accessories, followed by computer peripherals, data storage units and computer sets. Although some hardware manufacturers in Hong Kong still maintain production and quality control of high value-added items in Hong Kong, most of them have relocated the labor-intensive process of their production to China.(27)

    IT and multi-media products continue to be the star performer in the market. The population of broadband application is increasing as wireless technology such as the Bluetooth and wireless LAN has been among the industry focuses. Meanwhile, DVD disk drives and LCD monitors have increasingly become the computer standard items. (28)

    An increasing number of Hong Kong manufacturers adopting a strategy of vertical integration to enhance value-added content to their products in recent years. Product design and development, tool-making, production and/or quality assurance are all done under one roof. Hong Kong companies place much emphasis on the collection of market intelligence in response to the short product life cycles of IT products. Moreover, a growing number of Hong Kong companies certified as complying with ISO 9000. (29)

Hong Kong's exports of IT equipment grew by 15% between January and July 2002. Export to the largest market China rose by 24%, for the liberalization of mainland's Internet and telecommunications sectors stimulated demands. Next, exports to the EU increased by 1%. Exports ASEAN increased by 34%. In particular, exports to Singapore increased by 14%. In the meantime, exports to the US and Japan declined by 16% and 21% respectively. (30)

Hong Kong's hardware exports have benefited from the tariff elimination brought about by the World Trade Organization (WTO)’s Information Technology Agreement (ITA). Customs duties on IT and related products, including a certain computer products and parts and components, have been eliminated among the WTO members and ITA participants since January 2000. As a WTO member, Hong Kong has been offered the tariff elimination on a most-favored-nation basis. Meanwhile, Mainland China also benefits from the tariff elimination. (31)

Industry Overview

 

Manufacturing 

Import/Export Trade

No. of Establishments 

280/35.89 

(Sep 2001) 

1,192/152.82 (Dec 2001) 

Employment 

2,705/346.79 

(Sep 2001) 

9,771/ 1,252.69(Dec 2001) 

Gross Output

HK$2,966 million/USD 380.26 million 

(2000) 

-- 

Industry statistics cover activities in Hong Kong only; 1 USD=7.8HKD

Source: Hong Kong Trade Development Council

Performance of Hong Kong's Exports of IT Equipment

 

2000 

2001 

January-July 2002

 

HK$Mn./USD Mn.

Growth% 

HK$Mn./USD Mn.

Growth%

HK$Mn./USD Mn.

Growth% 

Domestic Exports 

4,314/553.08

-14

3,204/410.77

-26

1,777/227.82

-3

Re-exports 

102,132/13,093.85

+23

111,544/14,300.51

+9

71,620/9,182.05

+16 

of Chinese Mainland Origin 

61,594/7,896.76

+22

65,999/8,461.41

+7

42,278/5,420.26

+15 

Total Exports 

106,446/13,646.92

+21 

114,748/14,711.28

+8 

73,398/9,410

+15

 

Total Exports by Major Markets

2000 

2001 

January-July 2002 

 

Share%

Growth%

Share%

Growth%

Share%

Growth%

Chinese Mainland 

32

+35

42

+38

44

+24

US 

17

+11

15

-3

12

-16

EU

17

+10

14

-9

12

+1

Netherlands

4

+15

4

+10

5

+43

Germany

3

+3

3

-3

3

+10

ASEAN 

12

*

10

-14

11

+34

Singapore

8

-6

6

-21

6

+14

Japan

6

+26

6

+5

5

-21

 

Total Exports by Categories 

2000 

2001 

January-July 2002 

 

Share% 

Growth% 

Share% 

Growth% 

Share% 

Growth% 

Computer Parts & Accessories 

70

+31

69

+6

62

+4

Computer Peripherals 

12

+1

10

-9

10

+10

Data Storage Units 

9

+65

10

+15

11

+28

Computer Sets 

6

-38

6

+8

6

-4

 

The numbers do not necessarily reflect the export business managed by Hong Kong companies because offshore trade has not been captured by ordinary trade figures

* Insignificant

Source: Hong Kong Trade Development Council

Hong Kong Software Development Industry

    According to Hong Kong Productivity Council’s “Hong Kong Software Industry Survey 1998,” the number of independent software vendors (ISVs) increasing from 500 in 1994 to 663 in 1997, The survey found approximately 55 percent of ISVs in Hong Kong employ from one to 10 people, and another 20 percent of ISVs have 11 to 20 employees.

    The survey found ISVs employed approximately 12,000 people in Hong Kong in 1997 in Hong Kong. The sample workforce in the survey indicated 27 percent in software development, 24 percent in technical support and 21 percent in sales and marketing. Close to 30 percent of ISVs achieved a turnover of less than HK$2 million in 1997; 19 percent earned between HK$2.1 to HK$5 million; and 16 percent had HK$5.1 toHK$10 million. (32)

    Hong Kong ISVs remain regional, with 82 percent of software and services provided locally. In 1997, only 8 percent of software and services was exported overseas and only 10 percent was exported to the Mainland. The ISVs can attract more business from local SMEs, the government and education sectors. Many Hong Kong software firms are recruiting in China. Twenty-two percent of the companies in the survey had a branch office in the PRC in 1997. The reasons of presence in Mainland China are lower cost, technical expertise and marketing support. (33)

Last Chapter

Next: IT Workforce

Harrison Chang
The Landscape of IT in Hong Kong
Information Technology Landscape in Nations
Kogod School of Business, American University