Competitiveness survey: Hong Kong businesses assign increasing importance to economies of scale while quality remains top priority

Hong Kong – Nearly half of Hong Kong businesses attributed their competitive advantage to “economies of scale”, up sharply from 33% last year. The latest Grant Thornton International Business Report (IBR) issued by Grant Thornton Jingdu Tianhua surveyed medium to large privately held businesses in Hong Kong. Businesses were asked to consider ten factors contributing to competitive advantage in the current climate. The findings indicated that 49% of Hong Kong businesses identified economies of scale as the “strong” and “very strong” source of competitive advantage, while product/service quality continued to top the league table, jumping from 69% in 2010 to 74% in 2011. The ranking for ethical business practices, however, dropped from second to sixth.

Daniel Lin, managing partner of Grant Thornton Jingdu Tianhua, said, “Hong Kong businesses attribute their competitive advantage first and foremost to ‘product service/quality’, followed by ‘workforce skills’ and ‘cost management’. In recent years, ‘product/service quality’ has consistently been the highest ranked factor. This year, we see ‘workforce skills’ edging from third to second place, whereas ‘cost management’ has jumped from sixth to third place. This reflects that, under an inflationary environment, businesses are very conscious of the efficiency of a skilled workforce and managing costs effectively.”

Economies of scale enhance competitive edge

The survey reveals a significant increase in the number of businesses identifying economies of scale as a source of competitive advantage. This is consistent with the IBR results on the number of Hong Kong and mainland Chinese companies planning merger and acquisition (M&A) activity, as announced in mid February. According to the IBR survey, more M&A plans by Hong Kong and Mainland companies are in the pipeline and, in particular, 22% of Hong Kong companies are considering expanding their businesses through acquisitions in the next three years.

“The survey results reflect that, as the impact of the financial crisis in Asia gradually subsides, quite a number of the companies are now preparing earnestly to expand their businesses through M&A opportunities,” explained Daniel Lin. “This will help them utilise economy of scale and talents appropriately as a way to mitigate the impacts of rising costs and to boost competitive edge.”

Business ethics allows no compromise

Hong Kong businesses no longer identify ethical business practices as a top competitive advantage, with this factor taking the largest dip from 68% in 2010 (ranked second) to 57% in 2011 (ranked sixth).

Daniel Lin comments, “This drop does not mean that businesses are compromising on business ethics, but it is not seen to be as key to competitive advantage, when compared to other factors. In fact – ethical business practices can be a strong differentiator in the marketplace, but businesses need to have  confidence in their corporate governance structure and policy to capitalise on this. Strengthening corporate governance structure and fortifying internal controls on a timely basis can help businesses to reduce and guard against any potential risks.”

“The current Code on Corporate Governance Practices was launched in 2005, outlining the basic requirements for corporate governance standards. In view of the increasing challenges faced by local and foreign business environments, the Stock Exchange of Hong Kong issued a review consultation paper last December, aiming to raise level of the Code’s principles. Hong Kong companies should consider taking this opportunity to review their corporate governance strategy and work out a sustainable and effective one, to increase corporate value and maintain competitiveness,” added Daniel Lin.