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Logistics Industry in Hong Kong Opportunities and Challenges

Waiman Cheung, PhD

Director

Asian Institute of Supply Chains & Logistics

Case Study of an Electronics Company

• The Company has been involving in the selling of

consumer electronics, security systems and electronic

components for over 30 years.

• It has a sales, marketing and procurement office in Hong

Kong.

• Of the products offered, the Hong Kong office is

responsible for the procurement of components for its

projectors and TVs.

• Facilities - At the moment, the Company has a small RDC in Hong

Kong, while a large RDC in Yantian Bonded Logistics Park of

Shenzhen. In future, the Company is looking to stream line its RDC

operations in Hong Kong, while expanding its Yantian RDC.

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Business Model

• The Company is one of the leading projectors producers in the

world, which gained worldwide reputation.

• The Company has a simple business model:

The sales provide a forecast of projector demand;

The Company would then source the components required

from its >150 vendors from all over the world and the

components are stored at its RDC;

The components, gathered in bulk amounts, are then fed

into its production lines and processing plants in China,

Indonesia and N. America.

• The finished products are sold worldwide, with major markets in the U.S.,

Japan, Middle East and Africa – 2/3 of the finished goods are shipped by

air, while remaining 1/3 are shipped by sea.

Customers

The Company

RDC

Vendor Vendor Vendor

Factory Factory

RDC

Components

Components

Finished

goods

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Shifting of RDCs locations

• Over the years, the Company has been moving its distribution centre to and from Hong Kong:

Before 2003: RDC initially built in Hong Kong;

2003 – 2007: RDC moved to Futian Free Trade

Zone mainly due to cost concerns;

2007 – 2009: RDC moved back to Hong Kong

to shorten its lead time during the economic

booms;

Since 2009: RDC moved to Yantian Bonded

Logistics Park in response to the financial

crises (though air cargo is still shipped through

HKIA due to the much stronger infrastructure).

• While the cost in Shenzhen is lower in general,

Hong Kong’s freeport status and connectivity stand out,

attracting especially shippers who are time sensitive but less cost conscious.

Futian Yantian

2003 2007

2009

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Global Economics

Source: International Monetary Fund

P.S. *Developing Asia excludes Japan, Hong Kong, Singapore, Korea and Taiwan

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Asia Economics

Source: International Monetary Fund

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Economies’ Share of World

GDP, %

At market exchange rates

Emerging Economies’

World Scale, 2010% Real GDP per Person

GLOBAL FORCE 1: POWER SHIFT

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GLOBAL FORCE 2: VOLATILITY

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0

100

200

300

400

500

600

700

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

India Import

China Import

Vietnam Import

Turkey Import

Thailand Import

Australia Import

Germany Import

UK Import

Japan Import

US Import

http://www.worldbank.org/

GLOBAL FORCE 3: GLOBALIZATION

The World Is Flattened

Buy Everywhere, Sell Everywhere

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International Monetary Fund's World Economic Outlook (WEO) Database, April 2011 Edition

Vietnam 87.9%

UK 29.9%

China 68.6%

India 64.2%

USA 21.1% Japan 15.8%

World is Revolving around US

GDP Growth in 5 years

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Hong Kong is the Optimal

Regional Logistics Hub

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2)

Green

Lanes to

PRD

1)

Inter-modal

Logistics

Infrastructure

3)

Participate in

Asian FTAs

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Supply Chain Opportunities

4) Fast Response

Logistics and Agile

SC Models

5) Global Freight

Procurement and

Hedging Centre

6) Move security

measures upstream

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Supply Chain Opportunities

What does this mean for The supply chain?

DEMAND

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Regional Distribution Centre

• Distributing finished goods, or parts to the region for companies

• RDCs effectively reduce inventories, improve SC flexibility and reliability

• All RDCs offer value-added services. Common ones include:

• Packaging & repacking

• Labeling & re-labelling

• Quality check

• Documentation & customs clearance

• Compliance & Modifications

Key Concept and Services Involved

RDC

Country 1

Country 2

Country 3

Manufacturer / Wholesaler / Retailer

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Factors for RDC Location Selection Factors

Costs

Land/rental cost

Labour cost

Operating costs

Public Services

Government support and policy regime

Customs clearance and tariff systems

Taxes and charges arrangement for the industry

Legal system

Infrastructures and Location

Public infrastructures, e.g. seaport and airport

Availability of appropriate RDC facilities

Connectivity/connections

Geographical Location

General Environment

Operational flexibility

Availability of logistics professionals

Efficiency of business environment

Supportive services

• The Study Team has identified a list

of critical factors for RDC location

selection.

• Location selection factors are

carefully chosen based on literature,

brainstorming sessions with

expert advisors, and extensive

stakeholder engagement exercises

locally and abroad.

• Individual shippers or 3PLs may

have different priorities for each

factors when selecting an RDC

location.

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1.0

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5.0

6.0

7.0

8.0

9.0

Land/Rental

Cost

Labout Cost Land

Availability

Government

Support

RDC

facilities

Quality

Labour

Customs Infrastructure Connectivity

Hong Kong

Shenzhen

Guangzhou

Shanghai

Singapore

Taiwan

Seoul

Competitive Factors Comparison

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Land/Rental

Cost

Labout Cost Land

Availability

Government

Support

RDC facilities Quality

Labour

Customs Infrastructure Connectivity

Taiwan

Seoul

Competitive Factors – TW & SO

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Cost

Labout Cost Land

Availability

Government

Support

RDC facilities Quality

Labour

Customs Infrastructure Connectivity

Shanghai

Taiwan

Seoul

Competitive Factors – TW, SO & SH

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Land/Rental

Cost

Labout Cost Land

Availability

Government

Support

RDC

facilities

Quality

Labour

Customs Infrastructure Connectivity

Shenzhen

Guangzhou

Shanghai

Competitive Factors – GZ, SZ & SH

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