The Small factories in Kwun Tong: Problems & strategies for development


Mok, Victor

TitleThe Small factories in Kwun Tong: Problems & strategies for development
PublisherSocial Research Center, the Chinese University of Hong Kong
Publication DateJune 1974
Keywords:Small business

Kwun Tong

Abstract/ Concluding Remarks:To a great extent, the successful industrialization of Hong Kong in the past twenty years is due to her active entrepreneurship. Even though at the very beginning there were already some large business concerns, few of them were industrial in nature. The rapid transformation of an entrepot into an industrial city must have been brought about by advances on a broad front. In every line of economic activity the individual could set out for a venture, there seemed to be an unlimited supply of initiatives from the small entrepreneurs. It was, indeed, a classic example of the Schumpeterian world. In this colorful history of industrial development, the process of the survival of the fittest, many small manufacturers did have great achievements. There is little doubt that their contribution to Hong Kong’s economic growth has been very significant.

As far as the scattered activities of the small entrepreneurs are concerned, the general pattern continues to be true. Hordes of small manufacturers are still flooding and clustering into industries where there seem to have a good opportunity at the time. This pattern of behavior certainly leaves no feasible avenue unexplored, but it is not without its misgivings. After some twenty years' of development, there are much more well-established large firms than before. In the manufacturing industries, even though small factories dominate in number, the large factories are of overwhelming importance in terms of employment, output and exports. These large factories are modern and efficient, have well-established connections here and abroad, and are in a much better position to weather a storm. With a large portion of the market already secured, the small factories can only mop up what is left. Competition is tense within their ranks. In good times, they may still be successful in carving off fragments in the market; it is in times of adversity that the real problem is revealed. Their high rate of failure shows deplorably so much of the duplicated ingenuity and efforts have gone to waste.

On top of this, they are also faced with the emerging change of Hong Kong's comparative advantage. Cheap labor, which was once an asset so valuable to their existence, has begun to vanish. The economic development of other regions in the world with cheaper labor, notably South Korea and Taiwan, has made their lot even more difficult. Needless to say, this will only aggravate in the years to come. Looking forward, it is necessary for Hong Kong's industries to move into products of higher quality and more capital-intensive categories. With their superior know-how, financial resources and bargaining power, the large factories are able to make the necessary adjustments, but the small ones are just not equipped to do so. If this process is allowed to take its natural course, we can foresee a growing' disparity between the large and small factories. Inasmuch as the economy requires complementarity among factories of all sizes and kinds, this development will have undesirable effects on overall economic efficiency. It can be argued that because Hong Kong is an industrial city and judging from past experience the market mechanism can be depended upon to weed out the inefficient ones. Unfortunately, this process is slow and painful, and usually resulting in heavy private and social losses. This kind of experience is not unfamiliar in Hong Kong; in the industrial sector alone, it has happened time and again. We need more positive attitude and policies.

There is no doubt that the small factories must be modernized. A growing economy needs a sector of modern small factories to provide modern goods and services, some of which the large factories cannot efficiently produce for reasons of scale and locality. This is complementarity in catering to various needs. In addition, the modernized small factories can supply better and cheaper outputs which are used as inputs for the large factories. The development of this kind of complementarity will in turn foster the process of modernization itself as both the large and small ones can benefit from taking fully their comparative advantage. In view of the current status of the small factories in Hong Kong, their transformation into modern ones and fuller integration with the modern sector are of great importance to Hong Kong's economic future.

It is unfortunate that so many small factories seem to be unaware of their precarious situation. Other surveys as well as ours have shown that many of them were seemingly satisfied with what they were and not enthusiastic about changes. We should not be haste to take this as a sigh of no problem. Rather, they were so busy occupied with their hand-to-mouth operations that they had little plans for the future. They lamented for assistance when deep-rooted difficulties materialized, but their problems were so complicated that piecemeal assistances were no solutions at all. What they really need are better coordinated services which will have mutually reinforcing effects on modernization.

Staley and Morse (21, pp. 352-353) have coined this idea as the Principle of Combinations and Interactions which says “… the productiveness of small manufacturing plants… depends on a combinational interacting factors. If a development program improves only one of these factors, the results maybe quite meagre, perhaps not worth the effort and expense. To improve a properly selected combination of factors may, on the other hand, prove highly effective. The yield, in terms of the development of the country, may then be much more than the cost". As far as specialists services go, there seems to be a sufficient supply in Hong Kong. Various official and semi-official bodies do provide courses and services in production, marketing, finance and management. But so many of the small manufacturers are ignorant or not interested either because these services are not designed to cater to their special needs or provided in such a way that it is doubtful whether individually they can have much real contributions to make.

Thus, to deal with the problems confronting the small factories, there must be more coordination of efforts. The best thing to do is to create a public body exclusively for this purpose. It should be understood at the start that it is not a "relief agency". For even though relief operations can help the small factories in overcoming their short-term problems, they might promote further proliferation which only compounds such problems in the longer run. The objective of this public body is to foster modernization and transformation as required by economic development.

For convenience, let us call this the Small Industry Division under the Commerce and Industry Department. Conceivably, there are three major functions to be performed by this Division. First of all and for its own purposes, this Division should have a research unit to conduct comprehensive surveys and studies on the various aspects of the sector of small factories, especially with respect to their present and future role in Hong Kong's economic structure. Based on these findings, the Division can then formulate programs and projects within the context of a proper perspective. The second job of this Division is the coordination of the existing assistance available to the small factories. It is in this that the Division can work with the other official and semi-official bodies in offering training programs, designing courses, promoting co-operation, providing technical service and financial assistance to the small manufacturers. In addition to providing information and counselling on the availability of these services, the Division should not refrain from embarking on projects of its own if they are lacking. This, of course, means that this Division should have a number of specialist units on technical management, marketing, and financial matters, which do not limit themselves to research activities. To go one step further, this Division could pioneer on certain projects focussing on factories. At the experimental stage, the number of factories involved is necessarily small, and in fact this is only a logical extension of what is already available. The Productivity Centre is currently performing the task of screening and reporting for the Government Loans Scheme; it is also a consultant agency on technical matters. The Division should enlist such expertise for its own operation, or perhaps even absorb into its own structure the section of the Productivity Centre which deals exclusively with the small factories. Starting with the approval of a loan, for instance, follow-up actions and other supplementary services should be forthcoming in order to maximize potential gains. From the standpoint of the Division, intensive care for concrete cases is the best way to test and reassess all its programs as well as in training its personnel. It will also inspire the cooperation and confidence of the participating small manufacturers in these services. On the other hand, the concerted efforts of financial assistance, technical advice, management training and other relevant activities will assure a much higher chance of success. It is only through the demonstration of successful examples that more initiatives can be encouraged to participate and efforts be channelled in the right direction so ,that the contribution of the small factories can be maximized in Hong Kong's further development.
NoteBibliography: leaves 42-43
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