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Investigation and analysis of the three major challenges and advantages of developing business in the GBA

HONG KONG, Dec 6, 2022 – (ACN Newswire via SEAPRWire.com) – The Hong Kong Export Credit Insurance Corporation (HKECIC) and the Hong Kong Trade Development Council (HKTDC) have, for the first time, jointly released a survey study (Hong Kong – the Business Platform to Capitalise on Greater Bay Area Opportunities in the Post-pandemic Era).

Dr Patrick Lau, Deputy Executive Director, HKTDC (L) and Terence Chiu, Commissioner, HKECIC (R)
Irina Fan, Director of Research, HKTDC

The report found that Hong Kong companies are facing three major challenges: low-price competition, unfamiliarity with the Mainland legal/regulatory regimes, and financing and customer credit risks. However, opportunities coexist alongside the challenges. The companies surveyed expressed that Hong Kong enterprises have considerable unique advantages in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) market, including Hong Kong’s brand reputation and capacity to bring in high-quality foreign products. As such, Hong Kong companies are advised to make good use of their advantages and use the GBA as a springboard to further develop the huge domestic sales market in the Mainland, while diversifying the risks of relying on the international market.

Terence Chiu, Commissioner, HKECIC, said: “The HKECIC and the HKTDC have jointly conducted a research study for the first time as many parts of the world, including Hong Kong and the Mainland, see economic and trade activities gradually restarting. Given the uncertainty in overseas markets such as Europe and the United States, the domestic market in the Mainland can provide another option for Hong Kong companies, with the GBA being the ideal springboard. The HKECIC has always attached great importance to the Mainland market and began to underwrite buyers decades ago, and indeed the Mainland is now our biggest insured market after the United States. Riding on the development of the GBA, we will continue to support Hong Kong companies to seize the opportunities offered through the dual circulation strategy that can help them develop their business in the Mainland market.”

Dr Patrick Lau, Deputy Executive Director, HKTDC, said: “With a GDP of about US$1.96 trillion and GDP per capita of over US$22,500, the Guangdong-Hong Kong-Macao (GBA) is clearly a bright spot for business growth amid challenging market conditions affected by the COVID-19 pandemic, geopolitical issues, interest rate hikes and inflation. The HKTDC has been strongly advocating the GBA, and our GoGBA digital platform has reached a viewership of more than 590,000 since its launch over a year ago, which demonstrates the business community’s keen interest in the GBA opportunity. The HKTDC is very pleased to work with the HKECIC to conduct this research to further understand the pain points and needs of Hong Kong companies in developing the GBA market, and to collect opinions from and brainstorm with industry experts so as to make the GBA opportunity accessible by more Hong Kong companies.”

In the third quarter of 2022, the HKTDC conducted a questionnaire survey on the “Greater Bay Area Domestic Market Development Strategy”, surveying 413 Hong Kong companies that have either started developing domestic sales in the GBA or are planning to do so. Over 95% of the surveyed companies said they are facing various challenges, particularly those related to the pandemic such as disruptions in supply chain and production/sourcing activities as well as stringent border control measures. Besides, declining orders from overseas markets and spiralling costs have also dented business development.

Almost 70% of the respondents have sold directly to the Mainland buyers. Based on the weighted average amount, sales to the Mainland buyers account for 37.5% of the overall average annual sales of the respondents. Among them, over 90% have sold to Guangdong Province/the nine the Mainland GBA cities.

Shenzhen, Guangzhou and Dongguan are top three GBA cities in which Hong Kong companies have most interest

The Mainland GBA cities in which the companies surveyed are most interested in expanding into include Shenzhen (73.8%), Guangzhou (68.8%) and Dongguan (43.6%). Hong Kong companies mainly plan to sell products manufactured or sourced by them in the the Mainland as well as goods purchased from abroad to the GBA.

For sales channels, most of them sell to the Mainland importers/wholesalers (48.2%) and other business-to-business (B2B) channels. Almost 40% also sell directly to the Mainland consumers through websites or third-party platforms. Less than 14% of the surveyed enterprises have so far embarked on using e-commerce and internet applications to directly develop the GBA market. However, 65.1% would consider using these e-commerce applications to explore the Mainland market directly in the future.

Unfamiliarity with operation of the Mainland domestic market is biggest pain point for Hong Kong companies

Many survey respondents said they encounter various difficulties in expanding sales in the GBA, such as the Mainland market being flooded with cheap products (36.8%) and an unfamiliarity with the Mainland laws and regulations/product standards (35.8%). Some Hong Kong companies also mentioned issues relating to financing and customer credit (25.9%), including the lack of information on the credit background of the Mainland clients, capital shortage (23.5%), and the high risks of sales on credit (22.0%).

In addition, most Hong Kong companies would demand the buyer to make an advance payment (57.9%) or they would choose to bear the risks themselves (43.6%) in managing accounts receivable in the Mainland domestic sales. There are also a number of Hong Kong companies which buy credit insurance (14.0%) either directly in Hong Kong or through banks in Hong Kong.

To deal with the challenges involved, the companies surveyed said they need various support services, including promotion activities targeting the Mainland markets to identify buyers (33.2%) and marketing strategies for the GBA/Guangdong Province (31.5%). They also need support for a variety of financing and risk management services.

Hong Kong enterprises have unique advantages

In addition to the questionnaire survey, the HKTDC also conducted in-depth interviews with nine selected Hong Kong companies and industry representatives to better understand the views of the trade on how to bolster sales in the GBA.

Irina Fan, Director of HKTDC Research, said: “Hong Kong companies should make more use of innovative technologies to map out e-commerce solutions and build integrated online/offline sales channels in regard to domestic sales in the Mainland, enhancing their production and operational efficiency to help them seize GBA opportunities in the post-pandemic era.”

The companies surveyed believe that Hong Kong possesses various advantages in developing the GBA domestic market, including the good reputation enjoyed by Hong Kong brands or Hong Kong products on the Mainland (48.4%), and Hong Kong being good at bringing in quality and trendy products from overseas (43.3%).

The report also showed that products that are “Made in Hong Kong”, “Made by Hong Kong” and “Designed by Hong Kong” are all well received in the Mainland market. As such, Hong Kong companies should formulate the right business strategy targeting the domestic market as part of their plan to develop the GBA market.

Domestic sales risk management is crucial

According to the report, enterprises engaging in domestic sales in the Mainland or exports are inevitably exposed to certain market and customer credit risks. As credit transparency in the Mainland is rather low, Hong Kong companies must take risk management seriously and seek professional services that can provide due diligence checks when necessary to find out about the business status and credit background of their clients. Apart from the option of avoiding sales on credit to clients, Hong Kong companies should also consider using such tools as credit insurance to strike a balance between market development and risk control.

References
– HKTDC Research Portal: http://research.hktdc.com/
– Hong Kong – the Business Platform to Capitalise on Greater Bay Area Opportunities in Post-pandemic Era: https://research.hktdc.com/en/article/MTIzNDA4NTczNw
– Photo download: https://bit.ly/3h5tFJM

About HKECIC

HKECIC was established in 1966 under the Hong Kong Export Credit Insurance Corporation Ordinance (Chapter 1115). Through the provision of export credit insurance services, HKECIC protects Hong Kong exporters who trade on credit terms with overseas buyers against non-payment risks and helps them conduct export business in a prudent manner. The HKSAR Government provides a guarantee of HK$55 billion for HKECIC’s contingent liability.

About HKTDC

The Hong Kong Trade Development Council (HKTDC) is a statutory body established in 1966 to promote, assist and develop Hong Kong’s trade. With 50 offices globally, including 13 in The Mainland China, the HKTDC promotes Hong Kong as a two-way global investment and business hub. The HKTDC organises international exhibitions, conferences and business missions to create business opportunities for companies, particularly small and medium-sized enterprises (SMEs), in the the Mainland and international markets. The HKTDC also provides up-to-date market insights and product information via research reports and digital news channels. For more information, please visit: www.hktdc.com/aboutus. Follow us on Twitter @hktdc and LinkedIn.

Media enquiries

HKECIC
Corporate Communication Division
Gina San
Tel: +852 2732 9998
Email: gina.san@hkecic.com

HKTDC
Corporate Communication & Marketing Department
Kate Chan
Tel: +852 2584 4239
Email: kate.hy.chan@hktdc.org

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