However, the level of product design in this world leading manufacturing base is in stark contrast to its huge production capability. Enterprises in Shunde, especially SMEs, wishing to break into the international market need design companies to help them increase product value-added and brand image. Hong Kong design companies should find many opportunities in this market.

World-class Manufacturing Base

Shunde has developed itself into a strong manufacturing base with pillar industries such as home electrical appliances, electronic communications, machinery and equipment, textiles and garment, refined chemicals, pharmaceuticals and healthcare products, packaging and printing, furniture, and auto accessories manufacturing. All of these industries are of a sizeable scale, highly competitive and well known. They are typically characterised by large enterprises taking industry leader positions, and enterprises of varying sizes serving as specialised upstream, midstream and downstream players under a well-coordinated industrial organisational set-up. In the first half of 2004, the industrial output value of Shunde rose by 19.4% year-on-year to top Rmb66.6 billion.

Shunde is home to four listed companies, namely Midea, Kelon, Wanjiale and Keda, five well-known trademarks of China, six famous branded products of China, 15 state-class inspection-exempt products, and a number of provincial-level well-known trademarks and branded products.

The home electrical appliance industry of Shunde has developed very rapidly into a large, comprehensive industry featuring a myriad of famous brands. Dubbed as the "Kingdom of Home Electrical Appliances", Shunde accounts for one-fifth of China's total output of home electrical appliances. On average, a refrigerator rolls off the production line every 26 seconds in the city. In terms of daily output, Shunde produces some 10,000 air-conditioners and 100,000 electric fans a day. In terms of annual output, 11.3 million microwave ovens, 1.16 million electronic sterilisers and 18.85 million gas stoves are produced in Shunde every year. Today, the city is the world's largest production base for microwave ovens and electric fans. It is also the largest production base in China for refrigerators, air-conditioners, dish sterilisers and water heaters.

Prospects of Industrial Design Market

The status of development of the manufacturing industry dictates that of industrial design. At the early stage of development, the manufacturing industry was dominated by OEM (original equipment manufacturing) where the design of a product was basically made to order based on overseas buyer requirement or replicated from an existing design. OEM enterprises usually have a relatively small budget for industrial design work whose core functions are to enhance product appearance and feature as well as control production cost.

As the OEM model is gradually shifting to ODM (original design manufacturing) and OBM (original brand manufacturing) nowadays, new breeds of industrial design services such as marketing-oriented and strategic industrial design will be developed.

At present, the industrial design market in the Pearl River Delta (PRD) region is the fastest growing and most mature in the mainland. As a leading industrial city in PRD, Shunde is witnessing the rapid growth of industrial design which dates back to 1990 when Midea set up an industrial design institute there, marking the first of its kind in the city. In 1995, Midea set up a limited liability industrial design company to provide industrial design services to outside parties. This company is again the first of its kind in Shunde. In recent years, industrial design has developed rapidly and a large number of industrial design companies have sprung up across the city. The core of Shunde's industrial design force comprises the design departments or companies of large enterprises such as Midea, Kelon and Galanz, and some 20 independent industrial design companies operate in the city.

Compared to the scale of manufacturing industries in Shunde, the industrial design companies in the city are relatively small in number and scale, and are characterised by low profit margins and vicious price competition. The most important reason for this is the attitude of many entrepreneurs towards industrial design. Many of them still consider industrial design a piece of drawing and treat industrial designers as graphic artists who can turn photos and samples of foreign products into drawings with the aid of computer. Enterprises are thus reluctant to invest in industrial design. Another major reason is inadequate intellectual property right protection. Rampant copying remains the industry norm. As a result, enterprises are reluctant to spend large sums of money on industrial design.

Complementarity Between Shunde and Hong Kong

Over 70% of the product design techniques used in the PRD are either copied from overseas or acquired from places like Hong Kong. Original, indigenous design is generally lacking in the PRD. However, as more mainland products are set to go for higher value-added following China's WTO accession, more emphasis is being given to the quality of design, individualistic characteristics and brand image of the product. Design talent and new design concept are keenly sought after by Shunde's manufacturing sector. At present, the Shunde Polytechnic is the only post-secondary institution offering specialised design training in the city, while the industrial design company of Midea is the most established of its kind. The development of industrial design as a whole is still limited, resulting in a shortage of talent to meet the needs of the rapidly growing Shunde manufacturing sector. The city needs high-calibre designers who are familiar with the international market, good at avant garde design concepts, and understand the mainland culture and market well.

Many enterprises in Shunde are still mainly engaged in OEM. They carry out processing based on samples supplied from overseas and export finished products through Hong Kong. The city has just started to leverage on Hong Kong's advantage on design to shorten the brand building cycle and increase product value-added thereby boosting the overall manufacturing capability of the region as a whole. Under CEPA, Hong Kong's design services and Shunde's manufacturing sector can complement each other to create opportunities and help enhance the overall manufacturing capability of Shunde, Hong Kong and the PRD at large.

Advantages of Hong Kong Design Services

With a long history of development and a large number of design talents with exposure to Europe and the US, Hong Kong design services have achieved a high level of sophistication. Hong Kong designers are well capable of turning design concepts into viable commodities.

Hong Kong design is well known for keeping pace with international product design trends, especially gifts, watches and clocks, small home appliances and electronics. In particular, furniture and decor designs are updated very quickly.

Hong Kong design also excels in the areas of market standardisation, product certification and IPR protection. In terms of design workflow and concept, Hong Kong designers are good at blending corporate branding and image building with design planning and market strategy in the process of formulating product strategies.

Compared to their foreign competitors, Hong Kong design companies have the advantage of cultural and language affinity. They also better understand the needs of mainland companies and tend to be well received by them. Thanks to close ties with overseas counterparts and thorough understanding of the European and US markets, Hong Kong designers are generally well versed in Western design concepts and enjoy advantages in designing products for export.

As for mainland design enterprises, compared to their Hong Kong counterparts, they are obviously better positioned to address the needs of indigenous enterprises because of their understanding of the local culture and mentality, local enterprises and local market.

Major Target Customers of Hong Kong Design Companies

Hong Kong design companies wishing to break into the Shunde market have three major target customer groups. First, local manufacturing SMEs eyeing the global market. This group of exporters is relatively small in size and therefore cannot afford to have a dedicated product design department. They need the help of experts. Second, manufacturing FIEs operating in the city. Third, foreign companies breaking into the mainland market which need the professional help of Hong Kong's product design companies when marketing their products in China.

Local Adaptation a Must

Hong Kong design companies must understand the local market conditions in Shunde better in order to tap the market.

The industrial structure of Hong Kong differs significantly from that of Shunde. While Hong Kong design practitioners are less familiar with mainland enterprises and market conditions than indigenous designers, they excel in innovativeness. As such, Hong Kong design companies and local design companies have different roles to play in the Shunde market. The locals have had more opportunities to work on home electrical appliances while Hong Kong industry players do not have much practical experience in that area. In Hong Kong, product design and development costs represent a significant investment. In Shunde, low-cost market development is the rule. For instance, products which emphasise functionality and versatility such as ordinary home appliances involve a very low design cost. The advantages of Hong Kong design are therefore not apparent when applied here. On the contrary, Hong Kong design is a big plus for high value-added products such as mobile phones and digital cameras.

As China continues to improve its legal system, efforts have been stepped up to combat IPR infringement following its WTO accession. However, the illegal activities of certain enterprises to make quick money such as passing off and copycat will likely remain a major problem for Hong Kong design companies operating in the mainland.

Design should follow the trend of environmental protection. The environmental factor and pollution prevention measures should be taken into consideration at the product design stage. Green design means consuming less materials and energy, reducing emission of toxic substances, and facilitating the recycling and reuse of parts and components.

Promotions should be proactively carried out to convey a positive image of industrial design enterprises. In general, a company should spend more than 5% of its investment on product development. Enterprises in Shunde tend to spend lavishly on product advertisements but are rather frugal when it comes to product design. Their expenditure on product design represents less than 0.1% of that of advertisement. Hong Kong design companies entering the Shunde market should actively promote their professional expertise and design capability.

The visionary concepts embodied by Hong Kong design and the pragmatism of Shunde's manufacturing sector complement each other. This model can be replicated across the PRD.

Shunde Opens "Green Channel" for Hong Kong Companies

Shunde and Hong Kong have developed strong economic ties over the years. According to statistics, more than 1,200 Hong Kong-invested projects have been set up in Shunde to date. Actually utilised investment from Hong Kong amounts to over US$1.8 billion, accounting for 70% of the city's FDI. This explains why Shunde places a lot of emphasis on CEPA implementation. For instance, it has introduced a series of supportive policies to reduce the development cost of Hong Kong companies investing in the city. According to the set of guidelines on preferential basic land fees in industrial zones released in February 2004, enterprises reaching a certain level of investment are eligible for preferential land fees. Newly established industrial enterprises with investment exceeding Rmb20 million will be granted technology subsidies. Technology projects with state or provincial recognition and funded by supervisory departments will receive the equivalent amount of subsidy from district finance authorities. A reward scheme will be launched to promote inward investment. Cash prize in proportion to the actual investment amount will be awarded to the referrer of the project or directly to the investor concerned. Moreover, a centralised one-stop service is now available where Hong Kong companies can apply for all the required approvals through a single window.

Hong Kong companies, especially professional design companies, interested in investing in Shunde, may contact the foreign economic division of the Shunde Economic and Trade Bureau to submit an application for approval. Details are also available at http://www.sdet.gov.cn; tel: (86)(757) 22831208, 22831209, 22831211.