Long before China became the go-to destination for foreign manufacturing, there was Hong Kong. During the 1960s and 1970s Hong Kong was a low-cost center for manufacturing and the electronics industry’s window into the vast market that was China. Although Hong Kong’s role has changed significantly since China opened its doors to foreign trade, it is still a hub for electronics companies.
“Hong Kong has moved from being an industrial manufacturing center to a service-oriented region,” said Kent Pang, director of sales for Southeast Asia for independent distributor Smith & Associates of Houston. “It is still a gateway for many [electronics] companies.”
Prior to China joining the World Trade Organization, Hong Kong was the first stop for many electronics companies that wanted to sell into the vast and quickly-growing Asia-Pacific region. Smith opened an office there in 1997. Although much of Hong Kong’s manufacturing and procurement has moved to the mainland, Hong Kong remains a center for sales and logistics. Smith, for example, has consolidated its central inventory for Asia, logistics, hubbing, testing and quality control in Hong Kong.
Like many Western companies, Smith approached China with a “global plus local” strategy. One of the advantages Hong Kong has for foreign businesses is a diverse population: citizens from the Americas, the EU and India have settled there. “Early on there were companies that wanted to set up [sales] offices in Hong Kong to reach China but they did not understand the Chinese culture,” Pang said. “[Multinationals] were looking for local people that understood the Chinese culture and its business practices.” Hong Kong remains a resource for those kinds of individuals. “We hire local people that understand the cultural differences and the languages,” Pang said. Even within China, different languages are spoken and different cities have become hubs for manufacturing. “That’s why we set up different branches in China, and we use local people that provide our local service,” Pang explains. Smith also has offices in Shanghai and Shenzhen.
The influx of Western companies has changed some aspects of business relationships in the Asia-Pacific regions. For example, Pang said, quality is becoming almost as important as price for many of its Asian customers. “In the past I would say pricing is they key criteria, but now Chinese OEMs are trying to sell their products in different parts of the world [outside of China]. So lead times and quality are becoming more important.” What hasn’t changed is the Chinese practice of conducting business face-to-face. “In certain cities it is a good practice to set up branch offices nearby,” Pang said. “Customers will always need something the next day and [distributors] have to be ready. Being nearby also means we can take a few hours out of the day to visit customers.”
However, the region has remained notoriously price-sensitive. Independent distributors such as Smith have more latitude on pricing than authorized distributors. While many customers go to Smith initially to save costs, the distributor has expanded its service offerings in an effort to build long-term relationships.
“For us it is important to understand each customer is different,” said Pang. “We need to understand their culture and their business and see what their strengths are or their problems on the purchasing side; and we try to understand their supply chain and their customers. If you are solving their problems then you can build a relationship. We are quite willing to invest in equipment or people to provide services such as testing, labeling or flexible payment terms,” he added. “If it is a reasonable request we will provide it.”
As an independent distributor, Smith sources components from OEMs and EMS providers selling excess inventory as well as from component makers. Smith acknowledges sourcing from the open market increases the risk of acquiring counterfeit components. The distributor’s Hong Kong lab was its first to achieve ISO 17025 accreditation, and its Hong Kong hub is part of HOKLAS, a voluntary accreditation process. Smith is also a member of C-TPAT, a voluntary security program and has completed the U.S. Customs Importer Self-Assessment (ISA) program.
“As an independent we play a different role [than authorized distributors,]” said Pang. “We try to provide services for customers when [authorized distributors] are unable to.” For example, independents will match a company trying to sell components with a buyer that is looking for those parts. “Supply and demand never match up,” said Pang. “We can provide a range of services for our customers from buying [their] excess to finding inventory their other partners don’t have.” The key, he said, is providing customers with information they can’t get anywhere else. “It could be we see a customer that wants to sell some less-expensive CPUs and we alert another customer they are available. Or we’ll have inventory that they can use in the event of a shortage. We make the call with some information—something that is happening right now—and bring that information to our customers.”
At the same time, a certain level of uncertainty keeps the electronics market dynamic. “Nowadays I’d say the market is getting more interesting,” said Pang. “We don’t know what product our customers will develop next year so the challenge is finding talent in the market that’s willing to learn. There may be a technology they’ve never had before and we can help train and keep talent in the marketplace. We’ve dedicated a lot of resources to the [computer] market as it has changed from desktops to notebooks and laptops to tablets. We always have a group of people that are willing to learn and be prepared for what happens next year.”