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23 August, 2006 The Future Position of Hong Kong as a Regional Distribution Centre |
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EXECUTIVE SUMMARY
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The evolution of the distribution centre as part of the global economy highlights a trend for processes and logistics functions to migrate up the supply chain, signifying that distribution centre facilities provide many functions beyond a warehouse holding inventory. As always, the rationale is to minimise the inventory of shelf-ready product. Over time, there will be more widespread adoption of the practice of regional distribution via fewer but much more sophisticated regional distribution centres (RDCs). These RDCs provide integrated packaging and transportation solutions for imports and subsequent distribution within a region, performing a range of last-minute activities and added commercial responsibilities.
With its range of value-added services plus the rapidity and reliability of response, a modern RDC readily differentiates itself from a traditional warehouse. Nonetheless, the 'RDC concept' is still fairly uncommon in Asia, despite the fact that the region boasts several world-class airports and container ports. In the case of Hong Kong, only a few leading-edge companies have introduced RDCs.
Hong Kong is a prime choice for regional distribution for goods that are partly sourced from the Chinese mainland and partly sourced from the region. It is likely to be even more preferred if these goods are being distributed to Northeast Asia (South Korea, Taiwan, Japan). Hong Kong's advantages are less evident in the case where the goods are fully sourced and packaged within one production zone on the mainland, since there are a number of key ports (e.g. Yantian) and airports on the mainland with frequent and affordable air and sea connections to regional and international markets.
This report, through some case studies of Hong Kong-based companies, suggests that Hong Kong can be an ideal RDC location for easy and lower-cost movement and management of a number of high-value cargo or product groups, which may include specialised or high-value spare parts, electronic components, semiconductors, LCD/Plasma TVs and luxury fashion goods and accessories.
Specifically, it is estimated that, through comparisons with Singapore, Tokyo and Shanghai in quantitative terms, cost savings in using Hong Kong as an RDC would be in a range of 9-33% for aviation spare parts, 21-45% for semiconductors, and minus 2% to 9% for luxury goods. Such analyses, however, do not quantity the performance of each location in terms of ease of inventory movement, for example, customs clearance and cargo handling efficiency, which is a major advantage for Hong Kong.
The table below lists the strengths and weaknesses of Hong Kong, alongside a generic framework of the product group parameters.
Summary Analysis of Strengths/Weaknesses of Hong Kong as RDC
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Strengths |
Weaknesses |
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| Specialised / High-value Spare Parts | |
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| Electronics Components / Semiconductors, etc. | |
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| Small Consumer Electronics Goods | |
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| LCD/Plasma TVs | |
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| Luxury Fashion Goods | |
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Evidently, there is a large volume of trade and related high-value cargo moving through Hong Kong. While this may suggest that the market for RDC activity in Hong Kong is potentially very large, quantifying this potential market is far from straightforward. That said, provisional analysis indicates that the estimated potential market for RDC activity in Hong Kong servicing high-value cargo by air could exceed HK$30 billion, which is equivalent to over 2% of Hong Kong's GDP.
This new report is available at TDC's Retail Outlets. It can also be purchased through the TDC Bookshop section in the TDC's trade portal: info.hktdc.com.
