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August, 2001 Hong Kong Should Expedite the Development of Modern Logistics |
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Earlier this year, the Airport Authority Hong Kong approved the resolution to build and operate a logistics hub at the southern business district of the International Airport. However, the tender for building and operating a similar hub at the eastern business district attracts no interest. This is the exact portrayal of Hong Kong's logistics industry: on one hand it marks a new development stage of Hong Kong's modern logistics industry. On the other hand it shows the future is full of obstacles and requires the full cooperation of all parties involved.
One of the Ways Out for Economic Transformation
Logistics is neither a new word nor a new concept. It is defined as the process of moving physical materials from the point of supply to the point of demand as required by customers. Logistics is actually a general term for warehousing, shipping and related industries and it existed since ancient times. In the last ten plus years, logistics has undergone constant changes and has been vested with new meanings. Compared with traditional logistics, changes in modern logistics take place in the followings: the dispersion of links and unitary operation have given way to a systematic and integrated approach to provide full-scaled one stop services. With the extensive use of information technology, advanced computer networks are utilized to process service requests. With the help of professional knowledge, skills and personnel, the functions of traditional logistics are integrated, expanded and upgraded.
It is safe to say that the development of modern logistics services in Hong Kong is urgently needed and all the prerequisites are already in place.
| (A) | Modern logistics is an upgrade of a traditional industry.
It is going to create a large amount of employment opportunities
and set an example for the economic transformation. Hong Kong has
long been a traditional logistics hub with pivotal geographical
location, advanced basic hardware facilities and especially extensive
client networks. It is an international trade and shipping center.
However, Hong Kong is facing increasing competition in traditional
shipping business. Loss of business is threatening its warehousing
and shipping industries because of the constant development and
expansion of the basic transportation and shipping facilities in
its service hinterland and the expensive fees it charges. It is
therefore very difficult for Hong Kong to attract customers by lowering
fees dramatically. All it can do is to increase competitiveness
by transformation, upgrade and development of high added value services.
The development of a modern logistics industry is the only way out.
It requires the creation of lots of positions with professional
knowledge and skills. In the meantime, it will also create non-skilled
positions in handling, delivery and loading and unloading, etc,
which will help to mitigate Hong Kong's structural unemployment
problem. A common issue with Hong Kong's economic transformation
is how to transform a traditional industry. It is believed that
the transformation from warehousing/shipping to modern logistics
can create employment opportunities and enhance added value by utilizing
information technology and increase technological intensity. It
is thus considered one of the ways out for Hong Kong's economic
transformation. |
| (B) | Modern logistics can cooperate with the development
of the new economy and ensure the success of e-commerce. The hallmark
for the new economy is the rapid development of e-commerce. However,
online trading is only one of the many steps of a transaction. The
key to the successful completion of a transaction and its competitiveness
lies in the prompt delivery of the goods to the customers, which
requires the establishment of a supply chain. It can be said that
the rapid development of modern logistics in the last several years
is a result of the popularity of e-commerce. The bust of the internet
bubble doesn't necessarily mean that the new economy and e-commerce
have come to a dead end. As a matter of fact, numerous surveys and
researches show that because of the lower costs and higher efficiency,
e-commerce still represents the direction for development of trade
in the future. Even with a slow start, the development of Hong Kong's
internet and e-commerce has picked up pace and is full of potentials.
But this requires the support of modern logistics. In other words,
modern logistics is one of the keys to Hong Kong's new economy. |
| (C) | Modern logistics can ensure Hong Kong of its suitable
position in international division of labor within economic globalization.
A major characteristics of economic globalization is the international
division of labor based on comparative advantage. In the early stage
of economic globalization, Hong Kong took advantage of the reform
and the open policy of the mainland to relocate most of its manufacturing
industries to the north and expand them while Hong Kong itself remaining
the command, management and logistics center for manufacturing and
the pivotal port for purchasing raw materials, parts and transshipment.
It also remains the most important global purchasing center for
products such as clothes, toys, etc. Therefore, only with the development
of modern logistics can Hong Kong fully utilize its advantages to
satisfy the dramatically increased logistics needs that come with
economic globalization. |
| (D) | Modern logistics can fulfill the requirements of modern
business management, help increase efficiency and lower costs. Traditional
business operation often results in running its own logistics related
business and therefore a lack of focus on its core business and
increased operating costs due to inventory stockpiling. Modern business
operation will outsource logistics to the third party logistics
services companies in order to reduce purchasing staff, lower inventory,
cut costs and obtain goods supply with minimum time lapse. Outsourcing
logistics business further divides the work and leads to more professionalism
and integration in the working procedure, enhances efficiency and
added value and increases competitiveness. Only with the development
of modern logistics and third party logistics services can the requirements
of business management reforms be fulfilled. |
Recent Developments and Difficulties Ahead
Although Hong Kong is a traditional logistics hub, due to the slow start of the development of e-commerce and other constraints, only after the financial crisis when the government began to promote economic transformation did modern logistics become the center of attention and was slowly gaining popularity.
In the last couple of years, there are more and more Hong Kong companies building or planning to build modern logistics facilities to provide a variety of logistics services. Logistics companies in Hong Kong can be roughly divided into three categories. The first category covers the traditional logistics industry transformed from warehousing, shipping and express delivery companies. They are establishing inventory management and logistics services by extending and expanding their businesses and adding computer and internet facilities. In the second category, some enterprises with greater logistics needs spin off their logistics divisions and expand the business to include delivery services for other businesses. The third category includes companies specializing in logistics, or third party logistics services. Multinational logistics management companies often solely or jointly own these companies. It is estimated that the number of such companies is only around ten. Besides doing logistics business in Hong Kong, some of them carry out the business globally, for example in Asia and other regions, especially in mainland by taking advantage of operating ports, trade, channels and other transportation and shipping businesses.
In the near term, the development of logistics in Hong Kong cannot be considered slow. However, by studying the periphery, making horizontal comparison and judging from current situation, it can be shown that competitions and difficulties lie ahead.
Competition mainly comes from neighboring regions. Because of the overwhelming benefits from modern logistics, neighboring countries and regions have jumped to an early start and commended a substantial lead in its development. For example, Singapore started building its logistics business ten years ago. It has become the manufacturing base for many multinational companies. It has the geographical location similar to Hong Kong's and the basic facilities necessary for logistics. On top of these, the incentive system is very attractive. As a result, many multinational companies set up their bases in Singapore and make it a regional logistics hub for some products. It is estimated that Singapore leads Hong Kong by ten years in logistics and it has already become the largest logistics hub in the region. Taiwan and the Philippines are also devoted to developing logistics business by opening up and providing incentives to attract express delivery companies to set up shipping centers in them. The development of logistics in the Pearl River Triangle has also picked up pace and made tremendous progress. Thus, Hong Kong is facing increasing competition in logistics business.
The major difficulties facing Hong Kong's plan to develop logistics are: local traditional logistics industry is lacking of elements necessary in modern logistics such as experience, personnel, etc. Because of the small local economic scale and limited market volume, manufacturing industry, while having the greatest needs for logistics, has relocated most of its production overseas. Its logistics service needs are facing possible replacements. Some of the production factors necessary for developing logistics in Hong Kong command higher premiums and their supplies are limited. The local transportation market is not yet completely open and the link-up between different transportation facilities is far from perfect. Therefore, although Hong Kong enjoys certain advantages in its development of modern logistics, it still needs to charge ahead in the competition and come up with solutions for the broad range of difficult tasks.
The Direction for the Development
Modern logistics incorporates a wide range of businesses and as a result, the cooperation, coordination and joint efforts of all the parties involved are absolutely necessary in order to realize the goal of building a global logistics hub in Hong Kong. Besides the main support from private institutions that also serve as the main operators, the government should play an important role as well. Based on the current situation and the experience from other regions, the Hong Kong government should focus on the following tasks:
| (A) | The government should properly position itself and
make good on thorough planning. Hong Kong's logistics comes under
the jurisdiction of the Economic Services Bureau. The Bureau is
currently conducting research on the development plans and policies.
A prerequisite for planning is proper positioning and we believe
the goal is for Hong Kong to build the largest logistics hub in
Asia. To achieve this, we must cooperate with the Pearl River Triangle
region to build "the Great Logistics Hub", which in turn will bring
into play the regions' comparative advantages, foster strong competitiveness,
and become the all important favorite factor to attract multinational
companies to set up manufacturing bases in the Pearl River Triangle.
Hong Kong should adopt a two-pronged approach for this goal. On
one hand, it should conduct research and planning on a high level
with the Pearl River Triangle's government. On the other hand, it
should begin planning for Hong Kong under the guidance of "the Great
Logistics Hub". In consideration of the involvement of land planning,
human resources, e-commerce, import and export regulations, etc.
in modern logistics, it is necessary to set up a cross-departmental
organization under the authority of the chief officials to include
all the decision-making officers in each department, conduct comprehensive
planning and make policies. Once the direction is set, the more
important thing is to secure the guarantees of policies |
| (B) | The government should speed up the construction of
basic facilities. In terms of hardware, it should make sure the
shipping facilities have the right capacities and supporting system.
Because the major customers of Hong Kong's logistics industry are
from overseas, especially from the mainland and foreign countries,
special attention should be paid to the linkage between Hong Kong
and the mainland when building the shipping facilities. The goal
is to speed up the construction of the linkage facilities between
the two regions, consolidate the through transport by sea, land
and air, and develop the linkage system for similar or dissimilar
shipping methods. In this regard, the urgent task is to build a
bridge connecting Hong Kong and the West Bank of the Pearl River.
Moreover, the relevant institutions in Hong Kong can consider investing
in shares or swapping shares with logistics companies in the Pearl
River Triangle in order to strengthen the cooperation and labor
division to achieve greater mutual benefits. The other thing it
should do is to expedite the development of the logistics district.
The operation of the traditional logistics industry in Hong Kong
is too decentralized to meet the needs of modern logistics. Therefore,
the government's planning division should designate a special district
to the building of the logistics hub according to the requirements
of logistics business for large operating area, convenient transportation
and avoidance of urban districts with all efforts. This not only
solves the problem facing the industry, it create the cluster effect
as well. With respect to the software, the main task is to encourage
the use of information technology in the traditional logistics industry
and quicken the training of logistics management personnel. This
requires the cooperation and promotion of the IT and human resources
departments. |
| (C) | The government should further open the market and
simplify the procedures. As the freest economic entity in the world,
the degree of openness of Hong Kong's market is undoubtedly high.
But there has always been exception: namely the aviation policy.
Based on the industry survey and horizontal comparison, the openness
in the aviation rights in Hong Kong has already lagged behind, which
include the goods aviation rights that are closely related to the
development of logistics. Consequently, some expressive delivery
companies left Hong Kong to set up their Asia Pacific headquarters
or regional business centers in places with more open aviation policies.
With respect to simplifying the procedures, the things to do include
relaxing the requirements of customs declaration and clearing and
simplifying the procedures. In this respect, the approval provisions
for many non-sensitive or low sensitive air transshipments were
rescinded last year. Currently, the most urgent task is to simplify
the multiple customs clearing procedures for the transshipments
of goods between Hong Kong and the mainland. |
| (D) | The government should encourage the investments in
modern logistics to transform and upgrade the traditional logistics
industry and attract the businesses of multinational logistics companies.
Besides a convenient business environment similar to the one provided
for other industries, stronger support should be given to such a
must-have industry that has tremendous potentials. The support includes
designating lands with favorable terms to private institutions for
the initial development of the logistics hub, providing tax incentives
for related research and development, and providing financial assistance
to SMEs for IT and its training purposes. The main goal is to promote
investments by attracting the investments from multinational logistics
companies. These methods have been used by Hong Kong's major competitors
and neighboring regions. Failing to provide them will result in
disadvantages for Hong Kong. |
