Research Korner: Hong Kong Logistics Industry

Hong Kong Business Logistics: External Environment Analysis By PESTEL

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), Bibliography Chan, F., Ng, J., & Wong, B. (2003). Shipping and logistic law. Hong Kong University Press. 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. Leung, K. (2009). Tough times ahead for Hong Kong. Retrieved August 11, 2009, from CILT World: http://web.ebscohost.com/. Lewis, R., & Trevitt, R. (2000). Business for advanced gnvq. Nelson Thornes. Ling, W. S. (2004, April). Globalization and competition for a "World City" status between Hong Kong and Shanghai in China. Retrieved August 11, 2009, from Hong Kong Baptist University: http://libproject.hkbu.edu.hk/trsimage/hp/01013726.pdf. Logistics Industry Training Advisory Committee. (2006, August). Logistic industry. Retrieved August 11, 2008, from The Government of the Hong Kong Special Administrative Region of the People's republic of China: http://www.hkqf.gov.hk/media/RC_publicity_ITAC_logistics_e.pdf. 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

Hong Kong Business Logistics: External Environment Analysis By PESTEL

Hong Kong Business Logistics: External Environment Analysis Logistic industry is considered as one of the four pillar industries i...

Case Study of the Hong Kong Logistics Industry

Hong Kong Government Logistics Polices Existing logistics policies are established by Hong Kong Government: -          Hong Kong-Zhuihai-Macau Bridge, which is planned to link to the second export cargo sources in PRD, to provide an alternative transshipment way and speed up the transshipment time between factories and Hong Kong terminals. -          Hong Kong Logistics Park, which will be located halfway between Hong Kong International Airport and the container terminals, to facilitate the cargoes to using different transportation modes. -          Digital Trade Transportation Network (DTTN) system is a unified electronic trade platform, to provide to the logistics stakeholders in Hong Kong to exchange their information seamlessly and efficiently. -          Closer Economic Partnership Arrangement (CEPA) It is an arrangement to promote the economic development, strengthen trade and investment co-operation between Hong Kong Government and China in different areas. The cooperation areas within CEPA directly affect the Hong Kong logistics industry are included: customs clearance facilitation, small and medium enterprises, electronic business promotion, commodity inspection and quarantine. -          Hong Kong Logistics Development Council It is an organization to implement the policies set up by the Steering Committee on Logistics Development. It co-ordinates the Hong Kong logistics development issues, and handles the joint projects between the government and commercial sectors. -          Hong Kong & Greater Pearl River Delta Business Council It is a joint conference between Hong Kong and nine regions of PRD. Their major responsibilities are to monitor and take part the development of different joint projects between Hong Kong and Great Pearl Delta River Region.                            Except Hong Kong-Zhuihai-Macau Bridge not confirm the construction details, the other projects mentioned above are scheduled and implemented.   Policies Evaluation There are different approaches for strategy formulation, each of them are for different circumstances. “BCG Matrix” is the portfolio approach to corporate strategy, while “Porter’s Competitive Model” approach is for industry or business competition evaluation. Thus, Porter’s Competitive Model” is suitable for this case and selected to evaluate the effectiveness of Hong Kong Government logistics policies. By considering five forces in Porter’s Model, some policies could be complied with the forces: - New Entrant Barrier        The DTTN is just launched to the stakeholders in Hong Kong. If it        could be introduced and integrated with the manufacturers and Chinese  official organizations in the PRD region, the cargo sources would be tied up  by Hong Kong logistics facilities. They must use the Hong Kong logistics  services to export their cargoes to the destinations.  However, the responsible party - Hong Kong Logistics Development Council  has no any schedule to promote this electronic platform to the PRD region.   - Determinants of Supplier Power The Hong Kong & Greater Pearl River Delta Business Council has established new facilities to enhance the cargo flows at various cross-border control gateways, such as a new boundary bridge and special customs clearance channels for cargo trucks. Under the negotiations by the Unit, a new automatic toll system will be launched during September 2006, the cross-boarder truck drivers will be able to pay tolls in PRD and Hong Kong’s electronic toll collection gates by means of same smart card, this could smooth the road traffic and facilitate the flow of cargo in both regions.        Hong Kong-Zhuihai-Macau Bridge is an alternative linkage between Hong  Kong and the second large export source – western part of PRD. It will  shorten the transshipment time by two or three days, to truck the cargoes to Hong Kong, instead of transshipping by small vessels right now. The supplier power will be greater by using the above moves, indeed their service quality and profitability will be improved.        - Determinants of Customer Power One of reasons why the shippers in PRD use the PRD logistics facilities to ship out their cargo is the complicated export customs clearance procedures through the Hong Kong entrance. Their cargoes are always stuffed in the cross-border check points, sometimes one whole day, in turn they could not catch the vessel they booked. Their shipment time then is prolonged. Under the implementation of Closer Economic Partnership Arrangement (CEPA), Hong Kong Government has negotiated with the Chinese officials to simplify their procedures, as well as speed up the clearance procedures in our own check points. This could smooth the cross-border traffic of the cargo trucks, and cope with the shippers’ requirement. Then CEPA could exert their influence to the customer power to improving their service standard.   - Threat of Substitute Services Many PRD shippers have complained that the handling fee of Hong Kong logistics services are too expensive to compare with that of PRD, it is almost double of the charge in the PRD logistics services, i.e. around USD100 for each laden cargo container. It is one of reasons why they choose the logistics facilities in PRD to ship their cargoes out to China, instead of using Hong Kong’s facilities. The operation unit of Hong Kong Logistics Development Council have contacted and negotiated with the concerned service providers such as carriers, airport and container terminal operators to deduce the charges as low as they could. This could enhance our competitive advantage from our direct competitors in the PRD region.          Unfortunately, Hong Kong Logistics Development Council could not  persuade some service providers such as container terminal operators to  lower their handling fee.                          Arguments There are favorable and unfavorable situations to implementing the polices mentioned above for the Hong Kong logistics industry: In the positive point of view, the policies could benefit the Hong Kong logistics development: - Build up the efficient distribution network between Hong Kong and the PRD regions. More alternative transport modes could be connected to the Hong Kong logistics facilities.   - Support Hong Kong as international transportation and logistics hub within Asia region. - Strengthen Hong Kong position as a gateway or spring board for foreign     investors to China market.   In the negative point of view, the polices may incur the disadvantages to the Hong Kong logistics industry: - The PRD region would replace Hong Kong position of international transportation and logistics hub. - The number of employee in the Hong Kong local logistics industry would be reduced as more Hong Kong logistics companies move to the PRD region. Then, the unemployment rate in Hong Kong would be increased.

Case Study of the Hong Kong Logistics Industry

Hong Kong Government Logistics Polices Existing logistics policies are established by Hong Kong Government: - Hong Kong-Zhui...

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