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The Best Of Times(HKTDC Enterprise, Vol 06,2007)

Time Capsule



Hong Kong Enterprise celebrates its 40th anniversary year with a review of the industries that have made Hong Kong the leading international sourcing centre, beginning with watches and clocks.

If the global watch and clock market can be likened to a timepiece, then Hong Kong is a critical gear in its movement, contributing the driving force that makes the device tick.

As the world's second-largest exporter and major mid-range supplier of watches and clocks, Hong Kong boasts a time-honoured timepiece industry that has thrived and prospered in the past four decades.

Setting the scene was a series of events that led to the industrialisation of Hong Kong, beginning with the end of the civil war on the Chinese mainland in 1949.

As a result, many industrialists and workers migrated to Hong Kong, providing an influx of capital, business skills and a vast labour supply conducive to the development of industries such as watches and clocks.

The watches and clocks industry started to take shape in the territory in the 1960s, although minor production activities might have existed even earlier, according to Hong Kong Watch Trades and Industries Ltd chairman Tse Wai Hang.

"Hong Kong manufacturers began to manually produce components and parts, including wrist bands, straps and cases, in the mid-1960s," he recalls. "By the late 1960s or early 1970s, local manufacturers had started to produce complete watches as well, sourcing movements externally."

The world's timepiece industry was then led by Switzerland and Japan, both of which produced mechanical watches until Seiko of Japan launched the world's first quartz model in 1969.

Quick to see the potential, Hong Kong industrialists diversified into producing quartz watches in the 1970s, buying quartz movements from countries such as Japan.

Local manufacturers were also busily upgrading technology during this decade, introducing new skills and equipment from Europe and the US, Tse adds.

"They went on study missions to European centres such as Switzerland to learn more about watch-making technology and machinery," he explains.

"They also bought machines from these countries and automated their production processes, boosting output and improving quality to the point that even Swiss manufactories placed orders for Hong Kong watch components and parts."

By then, the industry had earned a reputation for its excellent range of products, including mechanical watches with steel cases as well as quartz and digital watches.

Orders were so large some factories even operated three shifts around the clock and the value of Hong Kong's watch and clock exports rose accordingly, joining clothing, toys, electronics, and jewellery as Hong Kong's key mainstream industries. "The watch and clock industry really boomed in the 1970s to become a significant player in the global timepiece market," Tse remarks.

Hong Kong finally overtook Switzerland and Japan in 1979 to become the world's largest watch exporter in terms of quantity, and it has since consistently commanded a leading position in the world league of timepiece exporters.

The industry entered a challenging new era shortly after the Chinese mainland opened to foreign investment in 1978, when many Hong Kong watch and clock companies began to move their labour-intensive processes to the mainland to take advantage of cheap land and labour in areas such as Shenzhen and other parts of the Pearl River Delta region. "These advantages enabled Hong Kong manufacturers to expand their production scale and offer more competitive prices," Tse explains.

He adds that Hong Kong became known for quality, competitive prices, world-class production technology and facilities, efficiency, trustworthiness and punctual delivery.

"Buyers from all over the world were happy to do business with Hong Kong," Tse reminisces. "The industry was also actively promoting innovation and nurturing new talent in the 1980s."

Hong Kong's ongoing technology enhancement gathered momentum in the 1990s, enabling manufacturers to strengthen their production capabilities. "Hong Kong manufacturers began to produce quartz movements in the late 1990s," Tse notes.

Meanwhile, technologies such as computer-aided design (CAD) were introduced to improve the design of complete watches and clocks, dial faces, watch cases and related components while reducing time and costs involved.

Three-dimensional, computer-aided industrial design (CAID) and rapid prototyping technologies were also used to enhance design capabilities, smoothing the progressive diversification of the OEM-based industry into ODM in the 1990s.

Technology was likewise applied in marketing. "Manufacturers established corporate websites and began to conduct business online," Tse says, noting that some companies were already handling enquiries, processing orders and exchanging information with buyers directly over the Internet.

In addition, a growing number of companies acquired ISO 9000 quality management certification to meet the growing concerns of quality-conscious buyers.

Development continues apace in the 21st century, which has seen Hong Kong manufacturers increase investments in modern production technology to enhance quality and productivity.

They have also continued to develop better technologies for die-casting, mould-making, plastic manufacturing, metal stamping, surface finishing and plating.

For example, metal injection moulding, which is especially suitable for production of stainless steel cases, bands and buckles of complex shapes, has been applied to sophisticated designs.

Tse notes that while there is still a huge market for quartz watches, mechanical movements are making a comeback in the face of environmental concerns.

"However, while the local industry makes quartz movements it does not make mechanical movements, using mostly Swiss and Japanese mechanical movements for complete timepieces," he explains. "But the industry is working on an HK$60m project to develop Hong Kong's first mechanical movement."

The three-year project that began in 2005 will undoubtedly further boost the fortunes of the industry, which Tse says is a significant force both in Hong Kong and on the mainland.

"There are an estimated 1,500-1,600 Hong Kong watch and clock manufacturers employing more than 20,000 staff in Hong Kong and 700,000-800,000 workers on the mainland," Tse reckons.

They produced total exports of watches and clocks (including complete products as well as parts and components) worth almost HK$47bn in 2006, up 1.8% from the previous year.

Most timepiece exports from Hong Kong are battery-powered wrist watches, ranging from analogue to digital, metal to plastic, fashion to classic, standard to jewellery, and novelty to sport models.

Complete clocks, including alarm, wall and travel versions, make up a smaller portion of the exports and round out Hong Kong quality-oriented catalogue.

"Our watches and clocks are second only to the Swiss in terms of quality, design and appearance," Tse claims.

"Our designs are on a par with European standards but our prices are lower, so Hong Kong products are well-liked by international buyers."

Hong Kong also exports a variety of parts and components of watches and clocks, such as assembled movements, cases, watch straps, dials and parts for watch cases and bands.

"Most of the watch components and parts in the world are made by Hong Kong manufacturers - even many Swiss companies use Hong Kong components and parts," says Tse.

More than three-quarters of Hong Kong's timepiece exports are OEM, but the industry continues to diversify into ODM to enhance competitiveness and a number of companies have even launched brands such as ODM and Trixie that have been well-received internationally.

Similarly, several Hong Kong companies have also acquired their Swiss counterparts or Swiss brand names to extend their marketing and distribution networks and gain access to better technology and designs.

However, Tse stresses that Switzerland and Japan are not only competitors but also customers and suppliers. "We supply them with inexpensive parts and components," he observes, noting that Hong Kong exports about HK$4bn worth of products - mainly components and parts - to Switzerland annually and buys Swiss movements in return.

Hong Kong is currently the second-largest buyer of Swiss movements in the world after the US, and also serves as a retail and wholesale window to East Asia for Switzerland.

Tse says Hong Kong has also been long-term partners with Japan. "We bought a lot of quartz movements from Japan in the 1970s and 1980s and still buy movements from Japanese companies, although most of them are now made in areas such as the mainland and Sri Lanka," he explains. "On the other hand, Japan also buys components and parts from Hong Kong."

Nor is he concerned by the robust growth in timepiece exports from Asian countries like Korea in recent years.

"Hong Kong manufacturers have coped well by moving upmarket, improving quality, enhancing design and production capability and providing quick responses," Tse believes. "The industry also benefits from sophisticated supporting industries locally and across the border."

Indeed, the biggest competition for Hong Kong will increasingly come from indigenous Chinese factories. "But at the same time, we also need their support as they can handle low-cost processes for us," Tse acknowledges.

Other challenges may also be looming. "Prices of raw materials have been rising in the past two years, and the labour supply is getting tighter on the mainland," he concedes.

However, he insists the industry is rising to these challenges. "We keep enhancing our machinery, technology and design capability by creating stylish, fashionable models," Tse notes. "We seek to build our own brands and vertical integration, and also have the advantages of guaranteed high quality and modern management."

Looking ahead, he predicts continued growth for the Hong Kong watch and clock industry as both the global and mainland economies are healthy. "In addition, CEPA aids the sale of Hong Kong brands on the mainland," Tse says, referring to the Third Phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III), which exempts all Hong Kong-origin products from mainland import tariffs. "All in all, the Hong Kong watch and clock industry's prospects are bright."

Having stood the test of time for the past 40 years, Hong Kong's watch and clock industry clearly has excellent reasons to look forward to even better times in the decades to come.