Electronics Industry of Hong Kong - Case Study Example

Electronics Industry of Hong Kong Executive Summary Hong Kong is considered as one of the major exporters of electronics therefore, in this report; a business proposal of an electronic company in Hong Kong has been presented. Through industry analysis it has found that around 31 companies are offering electronic notebooks in Hong Kong however; none of them is offering customised notebooks. Therefore, we have proposed a plan to start a business of customised electronic notebooks in Hong Kong with the name ElectroPoint. Like other exporters of electronic notebooks in HK, we will not be exporting notebooks rather we will open our outlet in Hong Kong. The target market for our electronic notebooks will be the working professional, computer users and students. Our business will be different because we will offer electronic notebooks in bulk to business professionals at suitable discount rate. The electronic notebook, we are planning to offer, will be like a mini laptop but it will be more likely to be used as text book. The cover of the notebook will be customisable and the buyer will be given the option to get any image on the cover. Since the nature of our business is non routine, therefore, the organisational structure of our company will be organic with flat hierarchy and decentralised decision making. It has been proposed that electronic notebooks will be offered in the company’s outlets, which will be established in different regions of Hong Kong. Skimming pricing strategy will be followed because the life cycle of technological product is very short. To promote electronic notebooks, we will participate in international trade fairs, visit companies and we will also go for mass advertisements. As per our operational plan, the execution period of proposed business will start from July 2010 and we expect that our sales will start from the end of December 2010. The total invested capital for this business will be HK$5 million. Moreover, being a socially responsible organisation, we will develop green technology and comply with green policies. Company Formation and Objectives Company Overview The name of our company will be ElectroPoint and it will start its operations from Hong Kong. The company will start its operations from October 2010. The company aims to offer electronic notebooks to the companies, businesses, educational institutes etc at reasonable rates. We aim to start a simple business of selling electronic notebooks to professional people and students. We are not going to invest much in research and development as we will be at very initial stage of business. To keep our people in the right direction and for the long term success of our company, we have defined our vision and mission. Vision Statement Our company envisions becoming market leader in innovative electronics and technology Mission Statement We strive to lead in providing industry’s most advanced technology including electronic notebooks and software to our customers. Our highly skilled workforce seeks to satisfy the needs of our customers by translating our advanced technologies into value for our customers. Strengths and Core Competencies Our company will provide its services at large scale as well as at individual level The certified trainer of our company will provide software installation services We will also offer the discount for providing upgraded and latest models to our existing customers Challenge Hong Kong market is already popular for its cheap electronics item therefore; our company will surely face a challenging situations whilst creating its brand image and attracting customers Industry Analysis Overview of the Electronic Industry of Hong Kong The four regions including Hong Kong, South Korea, Singapore and Taiwan are considered as having the strong electronics industries and it is because of the strong export performance of their respective industries in the world market. Moreover, the multinational manufacturers of electronics products have been also using the commercial companies from these major regions as a low cost source for their products (Tilley, Conway & Williams, 1994). In a Market Research Study of Hong Kong's Electronics Industry (1994), it was found that Hong Kong electronics industry is attractive for the investors because of low cost manufacturing, aesthetic capabilities and consumer product trend identification however, it is unattractive because of lack of economies of scale or small scale manufacturing, less brand recognition, high dependence on repetitive skills, dependence on mature products and low technological innovations (WTEC, 1997). Today, the electronics industry of Hong Kong is considered as the largest merchandise export earner and in 2007, it accounted 50% of total exports of HK and exports rose by 11%. The major electronics products in demand in the Hong Market are multimedia products; IT related products, consumer electronics, digital products etc In the last few years, fewer investments were made in this industry. Competition Around 31 companies in Hong Kong are dealing in electronic Notebooks business such as Wah Fung Computer Services Ltd, Empyrean Cyber International (HK) Ltd, Lightec Industrial Ltd, TopTech (Hong Kong) Electronics and others (List of Companies, 2010).in addition, the industry also faces cross border competition. The entrance of various Asian companies into the electronics industry has threatened the Hong Kong electronics market; however, the Hong Kong industry is still popular because of its higher end consumer products. Most of the foreigners still prefer buying electronic notebooks, computers etc from HK because they perceive Hong Kong as a cheap market for such products. Starting an electronic notebook business is a good option however; Chinese electronic industry may pose a significant threat because it is a well-established and significant presence in international market. Interestingly, the development in Hong Kong electronic industry was also brought by intensifying competition emerged from Asian market. Potential Customers and Demand Patterns The demand of electronic notebooks in Hong Kong seems to be growing as it is evident from the growth rate of its industry in the first quarter of 2010. The changing patterns of consumers are also contributing towards increasing demand of electronic notebooks such as internationalisation of businesses has increased the need of businessmen to carry portable electronic notebooks. One important thing before entering into this industry is that the consumers are becoming more demanding therefore, product life cycle in this industry is shortening, which is compelling electronic companies to become more responsive and adaptive in Hong Kong market. For the long term survival in electronic notebook business, innovation is very important. The potential segments for electronic notebooks in Hong Kong are the large organisations such as Bank of Hong Kong, Bank of East Asia, Ajiichiban, Baleno etc. Moreover, the higher educational institutions such as University of Hong Kong also appear to be our potential customers. Assumptions of New Venture To start up a customised electronic notebooks business in Hong Kong, few assumptions have been made. We assume that we have partnership with the manufacturers of electronic notebooks in Hong Kong and the aim of starting this business will be to start a retailing business for an existing manufacturer. Since we will offer customised covers, therefore, we will be also able to avoid copyright issues. It has been also assumed that tax rate in the industry is 15 percent. Therefore, starting a discounted customised electronic notebooks business in Hong Kong appears to be a successful business idea, as the demand of electronic products of Hong Kong is increasing in the international market. Porter’s Five Forces Analysis To analyse the attractiveness of Hong Kong electronics industry, Porter’s Five Forces analysis has been done. The Degree of Rivalry The degree of rivalry in Hong Kong’s electronic industry is very high because various national and international firms are operating there. Moreover, most of the companies are exporting their electronic products to the international markets. Threat of Entry The barriers to entry are very low in this industry that is why more and more companies are stepping down into this industry. Furthermore, the cost of starting business is not actually high as it depends on the scale at which the investor plans to start from. Threat of Substitutes Threat of substitutes is high in this industry because of the availability of various substitutes and intense competition among electronic products in this industry. Power of Buyers Buyers also have significant purchasing power in this industry because of the availability of large number of suppliers. Supplier Power Electronics industry of Hong Kong is characterised by high purchasing power when a new product is introduced in the market and low purchasing power when the products reach at the level of maturity. However, generally, suppliers have high purchasing power as most of the manufacturing brands of electronics are operating in Hong Kong and they have to rely on suppliers. The Management, Its Organization Structure and Staffing The following chart has been created by Charles Perrow to account for the difference between the tasks and technologies. In our case, task variability is high and task analysability is low, which means that our business can be categorised as “non routine work”. Non routine research technology is shown by the high tech research companies as these companies deal with high tech knowledge and no pre-packaged solutions to problems. Low Task variability High Low Task Analysability High Crafts work Non routine work Routine manufacturing Engineering production Organisational Structure Based on the nature of tasks and technology, the following organisational design is suitable for our company. Therefore, based on the theoretical concepts, the organic structure with decentralised authority and low formalisation has been recommended for ElectroPoint. Table: Non Routine Organisational Design Structural Characteristics Nature of Technology Standardisation Low Mutual adjustments High Specialisation Joint Formalisation Low Hierarchy of authority Flat Decision making authority Decentralised Overall Structure Organic The Organic organisational structure will enhance the interaction and associations of people at work. There will be five levels of organisational hierarchy including Company, Sector, Group, Division and Department. The divisions of the company will be responsible to sell its products in different regions. The departments will include the functional departments including manufacturing, marketing, sales, finance and logistics. The divisions will be given suitable authority however; they will be in touch with the departments to get important feedbacks. The divisions will be based on geographical access. The divisions will make up together to form groups including the consumer markets and corporate markets. The consumer markets will target the customers individually whereas; the corporate services will provide company-wide and wholesale services. To allow more empowerment and less authoritative structure, the semi-permeable lines will be drawn among the divisions for example; the people in sales will be also able to participate in finance matters to give their maximum input. Job rotation will be highly encouraged. Teamwork approach will be promoted in which the sales team will be designed which will have information about all other departments so that in front of customers both individuals and corporate customers can be communicated more effectively. Proposed Organisational Structure Management The organisation will be a private owned organisation and a partnership. The number of partners will be three or more depending on the number of investors willing to partner. The partners will select the director and CEO, and to resolve agency problems, they will have limited authority to participate in decisions. Staffing In order to attract skilled people, the ads will be published in the newspapers and on the website of the company. Moreover, through word of mouth, technical people will be attracted. The HR department will be responsible to hire the staff. Market competitive salaries will be offered to the employees and the policies will be also developed which will be employees friendly. Decision Making and Flow of Information As evident from organisational structure, the structure of company will be organic and decentralised. It means that less authoritative culture will be promoted. The important strategic goals and decisions will be made by the management team including director, CEO and head of each function. This team will be recognised as Senior Management Team (SMT) and whenever SMT meeting takes place on important decisions, minutes of meetings on relevant matters will be shared with staff and feedback will be also taken. Since the feedback of operational staff is very important therefore, monthly meetings will be organised in which operational staff will share its performance and issues with SMT. We aim to establish an organisation which will be transparent therefore, information will be shared with staff and information will flow from top to down however, information on strategic decisions might not be shared with everyone. Product/Service Strategy Product description The product for which this business proposal has been designed is electronic notebook. This notebook is different from other notebooks because it allows the users to record information on electronic pages rather than traditional pages. The information can be text, images, sketches, drawings, graphs etc. The information from electronic notebook will be easier to read, write, navigate and record. Rather than using a pen or pencil, the information can be put in through a keyboard, mouse, microphone, sketchpads etc. A software will be used which will determine the look and feel of electronic notebook. Furthermore, we will offer customised notebooks, in which the buyer will have the option to get any image, picture, print on the cover screen. It will be especially useful for companies, which can get their logos printed on them. Moreover, university students can also get their pictures, celebrity figures etc printed on them. Why People Need This Service? ElectroPoint is planning to serve middle to high income group segments. Since the needs of business people and students are changing and the traditional notebooks are not easily portable and they cannot be kept safe for a longer period, therefore, we are planning to offer discounted offers to the companies and educational institutions. The specific target market for our customised electronic notebooks will be companies, educational institutes, individual professionals, students and computer users. Marketing Plan Market Description The electronics industry of Hong Kong is regulated by Hong Kong Electronics Industries Association, which is a non profit and non government regulatory body. The electronics industry of Hong Kong can be categorised into four groups including consumer electronics, security electronics products, personal electronics and electronic parts and components. The target market for our customised electronic notebooks will be general public such as students and working professionals. Product The product we are going to offer is customised electronic notebook. It will be just like a mini laptop however, it will have more functions to be used as a text book. Moreover, the buyers will have the option to get the customised cover option. The core product will be a computer based product however, the other features will include small size, high portability, data software etc. Price Although we are entering into an entirely new market however, we will adopt the price skimming strategy. The reason for selecting this strategy is the product life cycle in our industry. Since technological products’ life cycle is usually very small therefore, our major aim is to earn revenue as much soon as possible. The typical price of an electronic notebook is around $70 therefore, in the first year, we will offer the price of HK$600. A discount of 10 to 15 percent will be offered based on the volume of order. Place The market of Hong Kong will be divided into various geographical segments and company’s divisions will be created to target all those geographical segments. Promotion In order to promote our products, we will also make visible participation in trade fairs, like other electronic companies in Hong Kong. The national and international trade fairs where we will participate will include Hong Kong Electronics Fair, Electronica, CES Show, COMDEX and Japan Electronics Show. We will also promote our products by making strong partnerships with other Hong Companies to establish relationships with the buyers. We also consider ecommerce as a strong promoter of our business and for this we will establish our online website. Apart from providing catalogues and promoting material online, we also aim to use online platform to communicate with our customers on logistics arrangement and data exchange. We will also provide software for electronic notebooks which the customers can download online. It will also enhance the customer services of our company. Sales Channels Our electronic notebooks will be manufactured in Hong Kong and for the first one year, we only plan to sell out our products in Hong Kong. Most of the manufacturers in Hong Kong market produce products for reputed brands of other countries. Our business will be different because we will open our office in Hong Kong, which will also use for direct sourcing. The international electronic companies will be able to contact us through our office. We will try to attract specialised traders and importers from America and Europe, who will be permitted to distribute our products under their own channel. The post sales services will be also provided by the companies which will import the products and it will be demanded in the contract. The idea is that our network will not only cover the Hong Kong market but also the international economies. Financial Plan The start-up expenses for ElectroPoint are as follows: Sources of Capital  Partners     Investment Requirements  5,000,000     Total Requirements  5,000,000     Start-up Expenses       Company development 300,000 Personnel 200,000 Capital Expense 800,000 Consultation Services 100,000 Promotion 20,000 Total Start-up Expenses 1,420,000 Revenue Forecast               Sales Forecast for Three Years Year 1 Year 2 Year 3 Price 600 700 800 Number of expected sales 500 600 720 500 units sale first year 270000         420000         576000         Expected growth of 20% per year               Total Revenue 270000 420000 576000 Profit and Loss projection for 3 years         Year 1 Year 2 Year 3 Sales 270000 420000 576000 COGS 100000 126000 154800         Total Revenue 170000 294000 421200         Operating Expenses       Company development 300,000 - - Personnel 100,000 110,000 120,000 Capital Expense 100,000 110,000 120,000 Consultation Services 20,000 30,000 40,000 Promotion 20,000 30,000 40,000 Total Operating Expenses 540,000 280,000 320,000         Profit before Tax -370,000 14,000 101,200 Tax (15%) 0 2100 15180 Net profit 370,000 11,900 86,020 Projected Balance sheet           Assets Beginning Projected Year 1       Cash 10,000 70,000 Accounts receivable     Prepaid Expenses 1000 1500 Total Current Assets 11,000 71,500 Fixed Assets     Technology 4,389,000 3,838,500 Furniture 50000 60000 Noncurrent Assets 550,000 660,000       Total Assets 5,000,000 4,630,000       Account Payable 0 40000 Retained earnings   -370000 Owner equity 5,000,000 4,960,000       Total Equity 5,000,000 4,630,000 Operation Plan Execution Period Tasks July August September October November December Selection of Location  Development of website  Staffing and recruitment  Advertising  Manufacturing  Sales  Location Our proposed location to open our office and manufacturing plant in Hong Kong is at Pilkem Street as some other technological companies are also operating there. Legal Environment There are no specific legal requirements to operate in this industry. Personnel The total number of staff required to start of our business will be about 10 including the support only. However, skilled labour for manufacturing will be hired from August 2010 onwards. Corporate Social Responsibility Since we are planning to operate in Hong Kong market therefore, we need to follow all the laws and policies implemented by electronics Industry Association in Hong Kong. Importantly, the world electronics industry has caught the sight of environmental, labour rights and safety organisations (Brown, 2009). To comply with green policies is not only a requirement for us but to ensure our long term survival in this industry, we should consider these laws very seriously. The green technology will allow us to establish a good position in the Hong Kong market. There are certain areas as identified by Hong Kong electronics industry association where the improvements can be made to come up with green technology and these areas include (Hong Kong Electronics Industry Association, 2005), “Waste control measures and systems, Monitoring on materials and components suppliers, New production process technologies and equipments, e.g. lead-free soldering, Quality and reliability enhancement, Testing of components, Management practice and ERP upgrade”. The benefit of using this technology will be that it will create a benchmark in Hong Kong electronics industry thereby, increasing barriers to entry. Secondly, we will be able to gain market shares by introducing environmental friendly technology. Thirdly, we will be able to develop unique and higher quality products. Fourthly, in the long run, we will be able to reduce our energy costs and waste controls. Moreover, green technology focus will also enhance the image of our company and provide a clean and healthy environment to the workers. Bibliography Brown, G. (2009) Global Electronics Industry. [Online] Available from: http://mhssn.igc.org/EHSToday-Sept09_GBrown.pdf [Accessed 2 July 2010]. Chan, B. K. (2005) Green Manufacturing – A Challenge and An Opportunity for Our Industry. [Online] Available from: http://www.wefonline.org/docs/wef_london/15-02-02_Chan.ppt [Accessed 3 July 2010].Bottom of Form Encyclopedia of the Nations. (n.d.) Hong Kong - Industry. [Online] Available from: http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Hong-Kong-INDUSTRY.html [Accessed 2 July 2010]. Jones. (2008) Organizational Theory, Design and Change, 5/e. [Online] Available from: http://books.google.com.pk/books?id=ke-23_hm6qAC&dq=organizational+structure+for+manufacturing+company&source=gbs_navlinks_s [Accessed 3 July 2010]. HKTDC. (2008) Profiles of Hong Kong Major Manufacturing Industries. [Online] Available from: http://info.hktdc.com/main/industries/t2_2_11.htm [Accessed 2 July 2010]. List of Companies. (2010) List of Companies in Hong Kong. [Online] Available from: http://mt.list-of-companies.org/Hong_Kong/Office_School_Supplies/Notebook/ [Accessed 14 July 2010]. Tilley, J. K., Conway, P. P. & Williams, J. D. (1994) Hong Kong, Singapore and Taiwan - Electronics Industry Capabilities: A View from the United Kingdom. [Online] Available from: http://sunzi.lib.hku.hk/hkjo/view/41/4100151.pdf [Accessed 2 July 2010]. WTEC. (1997) Hong Kong's Electronics Industry. [Online] Available from: http://www.wtec.org/loyola/em/03_03.htm [Accessed 2 July 2010]. Read More