16 October 2018
The Hong Kong Monetary Authority manages a capital reserve in the trillions of dollars but it never lets local asset management firms take part. Photo: HKEJ
The Hong Kong Monetary Authority manages a capital reserve in the trillions of dollars but it never lets local asset management firms take part. Photo: HKEJ

How we can better support the Hong Kong brand

Electric cars have become an increasingly common sight on the roads of Hong Kong in recent years, many of which are Tesla.

Tesla has impacted the automobile industry worldwide, but most Hong Kong people are unaware that Tesla and SolarCity (subsidiary company of Tesla) have been reporting net losses for a decade since their conception.

Were it not for the multitude of subsidies they have received from the US government through a plethora of ways and means, Tesla may not have reached its current level of success.

Hong Kong has always been a zealous believer in the free market and its fair process of selecting winners. Government officials tend to prevent accusations of colluding with the private sector by avoiding allocation of resources for specific industries.

Even when the government introduces industry-specific funds, applicants always have to swim through a sea of red tape which has deterred many bright and hopeful entrepreneurs. This bureaucratic culture may be one of the reasons Hong Kong never had our own Elon Musk.

Taking a step back, how may Hong Kong people support Hong Kong brands? As consumers, the easiest way available is to buy local products and services that are good in quality. The author of this article uses earphones and briefcases that are designed in Hong Kong.

Customer feedback and cash help local products perfect themselves. This means of support is strictly in line with the philosophy of the free market.

Since Hong Kong people can support local brands, should the government similarly support local brands through procurement? There is a strong moral case for spending Hong Kong people’s tax dollars on Hong Kong businesses.

Regrettably, Hong Kong acceded to the Agreement on Government Procurement of the World Trade Organization (often abbreviated as WTO GPA) on May 20, 1997, which requires the government to provide indiscriminate and equal treatment for domestic and foreign suppliers and service providers for open and fair competition.

As Hong Kong’s economy is mostly comprised of small and medium-sized enterprises, they often have a hard time competing with foreign big brands.

Even when a selected few new local suppliers or service providers do excel and make themselves competitive against foreign firms, government officials tend to play safe and end up picking the big brands for government procurement, leaving the local firms begrudged.

Take the Hong Kong Monetary Authority for example, which manages a capital reserve by the size of trillion dollars; the HKMA never let the local asset management firms take part, stifling the local industry’s development. Despite using renowned and international brands, the real rate of return is only 2.7%, leaving much to be desired.

Since Hong Kong is already bound by the GPA, is there anything that can be done? One thing that can be done is to emulate the US government’s “Small Business Set Aside” policy, which prioritizes small businesses in the process of government procurement.

According to the US procurement policy, where the contract value is below US$700,000 and that the government can reasonably expect at least two small businesses contenders (known as the Rule of Two), the winning bidder must be a small business. For projects that exceed US$700,000 in contract value, 23% of the contract value must be awarded to small businesses.

Under this requirement are more sub-goals for disadvantaged small businesses like women-owned small businesses or service disabled veteran-owned small business, totaling 16 percent of the whole contract.

As small businesses often lack the capital to invest and expand abroad, beneficiaries of small business preference are often local citizens, employees and employers alike.

The European Union also gives preferential treatment to small businesses in regulation executions, finance and procurement. Politically, there is a case to be made for tipping the balance toward small and medium-sized enterprises.

For all economies, small and medium-sized enterprises hire more than big corporates; evidently supporting and encouraging small and medium-sized enterprises benefit a greater number of people.

Take Hong Kong for example, small and medium-sized enterprises make up 98 percent of the total business units and account for about 46% of total employment (excluding the civil service).

If Hong Kong can stipulate preferential treatment for small and medium-sized enterprises when it comes to government procurement through promulgated legal stipulations, civil servants will no longer feel the need to pick products or services provided by big corporates as a means to avert risk.

Meanwhile, local small and medium-sized enterprises are bound to benefit and gradually grow in market environment. When Hong Kong’s entrepreneurs and small and medium-sized enterprises are rewarded for their hard work, they will have the financial means and motivation to pursue excellence.

If this can turn into a sustainable virtuous cycle, we can expect our Hong Kong brands to attain international acclaim like Tesla.

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Savantas Policy Institute

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