Hong Kong Business Logistics: External Environment Analysis
Logistic industry is considered as one of the four pillar industries in Hong Kong (Logistics Industry Training Advisory Committee, 2006). The logistics industry in Hong Kong is consists of air transportation, sea transportation, traditional freight forwarding and the emerging 3PL industry. Air and sea transportation industries perform the major of logistic functions that have helped to transformed Hong Kong into a transportation hub for Asia, while 3PL is considered as the sub-set of the entire logistics industry that is currently under developed (Rioni, 2002). However, the logistic industry of Hong Kong is facing different challenges due to globalization and technology that must be considered by the government of the city, in order to ensure that their dominance in the global logistic market will be maintained (Logistics Industry Training Advisory Committee, 2006).
PESTEL Analysis
In addition to the Political, Economic, Social and Technological influences which affect any industry, it is also important to focus on the physical environment and legal environment in order to analyze the status or condition of a given industry in a given period of time (Lewis & Trevitt, 2000). Because of the fact that the environment is changing and these factors can help industries to focus on what to do in order to ensure good flow of resources, together with the good relationship or connection between the stakeholders.
Table 1 PESTEL Analysis of Hong Kong Logistics Industry
Political Factors
· Closer Economic Partnership Arrangement (CEPA)
· good relationship with China.
Economic Factors
· low import and export volumes of seaport and airport in Hong Kong and South China;
· negative GDP growth period of buyers’ market;
· economic boom in China which result to increasing competition with Shenzhen, China;
· high land transport cost and terminal handling charges.
Social Factors
· awareness towards safety and health policies.
Technological Factors
· GPS
· Automated Transport and Decision Support System (DSS).
Environmental Factors
· huge consolidated world city base;
· unique geographical location;
· green trade war.
Legal Factors
· government and the public has the authorities to build and operate the harbor;
· Trade bloc.
Political
In terms of political factor, the relationship of Hong Kong with Mainland China is considered as the biggest aspect. In the past, in spite of the special status of Hong Kong, its ships are not permitted in order to undertake maritime transport and towage services between the ports of Mainland China (Chan, Ng, & Wong, 2003). However, this situation had changed after the Mainland and Hong Kong Closer Economic Partnership Arrangements (CEPA) was signed on June 29, 2003. This is the first free trade agreement that ever concluded by the said two territories. CEPA had been able to open new opportunities for Hong Kong, which particularly focus on opening a huge markets for Hong Kong goods and services, at the same time enhance the already closed economic cooperation and integration between Mainland and Hong Kong (Trade and Industry Department, 2005). As a result, it had helped to create more healthy relationship with Mainland. However, although the said openness has affected Hong Kong in positive manner, it had affected Hong Kong in negative manner in the economic matter, primarily the issue of increasing competition from the neighboring regions (Trade and Industry Department, 2005). The economic boom of Mainland enables the country to improve its transportation facilities including ports. As a result, In 2008, the consolidated container throughput of Shanghai and that of Pearl River Delta (PRD) soared by 148% nd 142% compare in 2003. This is somewhat high compare with the 20% increase in Hong Kong. There have been different comments that due to the rapid growth of the economy of Mainland in recent years, the demand for inbound and outbound freight services has been enormous, however, Hong Kong, on the other hand, has failed to seize the opportunity to acquire a bigger market share (THB 2009).
Economic
However, due to the global financial crisis, Hong Kong logistic industry is being affected. In December of 2008, the export volumes out of China (which is the manufacturing base of Hong Kong) had dropped by 9% in terms of local currency. Thus, the export and import volumes of all the seaports and airports in Hong Kong and South China have recorded negative growth figures. Aside from that, during the first half of 2009, the main buyers’ market including US and Europe are continuing to report negative GDP growth figures quarterly (Leung, 2009). Above all, two of the important factors which affect the competitiveness of the Hong Kong port are the high land transport cost and Terminal Handling Charges. The current charge levels are considered as too high and are causing some cargo to move away from Hong Kong (Hong Kong Shippers' Counci, n.d.l).
Social
On the other hand, as of now, the entire country is facing different problems regarding outbreak of different diseases like the past SARS and the recent A(H1N1), which have affected and still affecting the flow of products and the schedule of different passenger and cargo airlines and ships. According to Hong Kong Airport Authority in March of 2003, the passenger traffic has decreased by 14.4% yearly to 2.51 million, while cargo volume declined by 11.8% by 237,000 tones (The University of Hong Kong, n.d.).
Technological
Technology is one of the most important factors which influence the growth and decline of any industry in the world. As of now, application of technology in any industry and business is considered as a must because of the fact that we are already in the information era, where in information is being considered as one of the most important resources that can be used by the company to ensure their position in the market. Primarily, Automated Transport and Decision Support System (DSS) is being used in the container terminal sector in order to manage the space as well as the allocation of different resources including the transportation and the human resource. On March 7, 2002, the Intelligent Transport Services (ITS) was introduced which linked different recent technological advancement including mobile access devices, GPS, differential global positioning system (DGPS), geographic information system (GIS) and wireless digital data communication, together with the distribution network which focused on capturing, manipulating, analyzing and displaying spatial data (International Mail Centre of Hong Kong Post).
Environmental
On the other hand, in terms of environmental factors, it can be said that Hong Kong has its advantage with Mainland China and other countries in the world. Hong Kong had formed a huge and consolidated work city based which made the city to maintain its global city status against Mainland China (Ling, 2004). As a result, it made Hong Kong to have a geographic location advantage, together with the fact that Hong Kong had already established its economic condition in the world.
In addition, Hong Kong is also focusing on the different activities and strategies that will help to strengthen their geographic locations including the different facilities inside the territory. One of this is the construction of the Hong Kong-Zhuhai-Macao Bridge (THB 2009).
Above all, it is important to include the aspect of being “green”. As of now, people around the world, including the different organizations, both governmental and non-governmental to focus on the different activities that would help to lessen hazardous gases that is causing global warming or climate change. One of the important aspects to consider is the possibility of the green trade war.
Legislative
However, due to the fact that the government of Hong Kong is in great control over the establishments and buildings of different ports in the city, it can limit the development of transportation industry. On the other hand, legislative aspects have a great impact over the success of Hong Kong logistics. As a matter of fact, in spite of the proliferation of port facilities in the PRD, some of the PRD cargoes still choose to route through Hong Kong because of its comprehensive and frequent liner shipping schedules, free port status, efficient customs procedures and convenience in intermodal transport system (THB 2009).
Aside from that, it is also important to consider the different regulations that are being implemented by different international organizations or known as the trade bloc. Trade bloc aims to organize a common market in order to promote harmonious and balanced development of economic activities as well as closer relationships among the Member States. This help to strengthen the negotiation to the different external parties. As a result, customs procedures and external tariffs are usually the same and internal trade among the members is usually free. This include: European Union (EU), North American Free Trade Agreement (NAFTA), Common Market of South Treaty (MERCOSUR) (Winstar 2009),
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Hong Kong Shippers' Council. (n.d.). Logistic 05. Retrieved August 11, 2009, from Hong Kong Shippers' Council: http://www.hkshippers.org.hk/pdf/chairman_message_e0105.pdf.
International Mail Centre of Hong Kong Post. (n.d.). A Seminar on "The Application of Automatic Vehicle Locationing in Logistics and Vehicle Fleet Management". Retrieved August 11, 2009, from International Mail Centre of Hong Kong Post: http://www.hkctl.vtc.edu.hk/hkctl/servlet/ctlGetFile?file=/hkctl/public/bulletin/HKCTL_Newsletter%20Issue%209_5-8.pdf.
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Rioni, S. G. (2002). Hong Kong in focus. Nova Publisher.
THB 2009, Challenges Faced by Hong Kong as a Maritime and Logistics, Retrieved August 11, 2009, http://www.thb.gov.hk/eng/legislative/transport/replies/maritime/2009/200906101.
The University of Hong Kong. (n.d.). Industry Report: Logistics industry. Retrieved August 11, 2009, from The University of Hong Kong: http://www.acrc.org.hk/sars/industry.asp?doc=logistic.
Trade and Industry Department. (2005). Mainland and Hong Kong Closer Economic Partnership Arrangements. Retrieved August 11, 2009, from The Government and Industry Department: http://www.tid.gov.hk/english/cepa/cepa_overview.html
Winstar 2009, Import Regulations of Hong Kong’s Major Trading Partners, Retrieved August 14, 2009, http://winstar-logistics.com.hk/en/support/rule/introducation.htm
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