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The automobile industry in Hong Kong Essay

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Reasons for the problems encountered in the markets for automobiles

The automobile industry as witnessed by the Hong Kong enterprise presents a host of problems that affect all the players in the industry. Firstly, the increased demand for automobiles has elicited increased input demand for Automobile Parts and Components (APC).

Because Automobile parts and components are produced by over 50 different industries, the variation in the expertise will transmit the spill-over effects of the automobile production to APC suppliers. Because the major APC have been imported, the local products therefore fail to meet the needs of the market. In addition, most multinational automobile producers import key items for their own use.

Entry into the automobile supply chain has been made difficult for new comers to penetrate because the players operate like cartels. Thirdly, competition in the market has been intensified by the considerable relaxation of import tariffs on automobiles. In this context, due to the pressure to review own supply chains force the local and joint venture assemblers to improve product quality.

Alternatively, their desire to minimize costs can be achieved through sourcing from quality but competitive suppliers. To the surprise of the entire market, the pressure is being transmitted up the supply chain from assemblers to first, second and third-tier suppliers. Consequently, the supply chain is undergoing reshuffling, in turn creating breathing space for new but competent, competitive suppliers like Hong Kong enterprises.

Fourthly, the small local consumer market fails to support an automobile industry, impeding the development of the APC. Although most assemblers tend to work in collaboration with APC suppliers to develop new products, it is evident that assemblers will not source from suppliers who cannot meet internationally recognized technological levels. On the contrary, a number of Hong Kong manufacturers carry out R&D activities and their investment in automobile-related technologies is insufficient.

Statistically, few Hong Kong manufacturers comply with the recognized quality system requirements and standards, and therefore they lack a track record of supplying high-quality products to the automobile supply chain. Lastly, there is a lot of inadequacy of Hong Kong companies’ distribution networks in the Mainland and their marketing expertise in the auto parts sector.

In order to counter the above problems, certain measures are taken by the industry and some governments. Fundamentally, the APC industry has to possess strong R&D capability to develop innovative and reliable products. In order for Hong Kong SMEs to actively engage in R&D the solution should be found for their limited manpower and financial resources.

To improve the R&D capability of the industry, the Government should set up an APC R&D Centre. In addition to establishing the technology gaps, the center will outline the R&D challenges within the industry and unite the researchers in the industry.

The second solution to the above problems involves Hong Kong Trade Development Council. The council should actively promote the industry by organizing more auto parts exhibitions in the Mainland and establish a permanent exhibition centre. A locally assembled car using parts and components produced in Hong Kong should be displayed to elaborate the capabilities of their local industry.

As a result Hong Kong manufacturers will not only establish business contacts by participating in the exhibitions, but will also learn more about the latest technology and product trends. During the exhibitions the manufacturers will be able to meet potential business partners, both local and foreign-invested enterprises. Local enterprises should be able to understand the market better and form good relationships with assemblers and APC suppliers, thus, they can provide useful assistance to Hong Kong manufacturers in tapping the market.

In the automobile industry quality and reliability are essential benchmark to success, because a small defect may be a costly production problem in the supply chain. In this context, multinational automobile producers and international automobile dealers have established quality system requirements and standards, especially for APC suppliers.

Therefore, most automobile producers tend to source from suppliers who are able to comply with these requirements, making them first and second tier suppliers. To improve their competitiveness, Hong Kong manufacturers should strive to obtain certification on these standards. To cope with the needs and enhance the technology level of the industry, the Government should provide support to companies in the private sector to set up testing and certification facilities in Hong Kong.

Despite large automobile producers being very demanding towards APC procurement, the large scale producers make it compulsory for suppliers to compensate them for any losses due to commodity recalls and returns. To obtain orders from these large automobile producers, Hong Kong companies need to insure themselves against possible substantial claims.

On the other hand, the Government should negotiate with private insurance companies with a view to extending the coverage of product liability insurance they offer to include product recalls. In case such insurance covers are not available in the market, the government can intervene by setting up a Bureau for APC Product liability insurance.

Lastly, the provision of high quality products as well as the enhancement of technology levels hinge primarily on abundant supply of automobile technicians. At present, the Hong Kong Productivity Council provides APC training in design, manufacturing, engineering analysis and management systems.

The Vocational Training Council offers courses like motor vehicle maintenance and repair as well as oil pump, hydraulic motor, cylinder: their structure and maintenance. Apparently, a comprehensive training programme relating to automobile technology is missing in Hong Kong. To train up more automobile specialists, the Government should encourage local higher education institutions to organize comprehensive programmes on automobile technology and quality management.

Impacts of climate change on business activity

One of the common effects of climate change is its effect on income and farther on the business. According to Dell, Jones and Olken (2009), worldwide figures shows that a decrease of 8.5% per-capita national income on average occurs for every 1 degree Celsius rise in temperature. Although the temperature-income relationship is seen as a mere fluke, constant debate over the relationship has been deemed due to the other factors participate such as a nation’s institutions that drive prosperity to higher levels.

Additionally, the understanding of the climatic effects on economic activity, quantified climatic effects is combined to result in the general national income net effect (Mendelsohn et al. 2000, Nordhaus and Boyer 2000). In the micro level certain factors contribute to climatic effects on agricultural production such as crime, mortality, cognitive performance and social unrest.

The effects of climatic change on economic activity can be viewed in the context that takes into account the historical temperature fluctuations for the last 50 years. Among the countries under study, the temperature’s effect on national effect is analyzed; leaning more on the aggregate outcomes rather than assumptions.

Consequently, the outcomes are both negative effects on economic growth for poor countries and an almost immaterial effect of the rich counties’ on economic growth. However, for poor countries there was little almost null effect of temperature on total output; a similar occurrence reported in rich countries in which no substantial effects on aggregate output was recorded.

Temperature effects on economic activity has been studied by Nordhaus and Boyer (2000) to include, but not limited to (a) affecting the level of agricultural yield and general level of activity, or (b) affecting investments and the country’s economic growth. As a result, the climatic effects on output in poor countries also result in altered rate of growth. The small effects through the multiplier effect result in to large consequences, the ‘chaos theory’ aims to explain the overall climatic effects on economic activities.

Lastly, an overview on the diverse effects of climate on countires’ economic activity has been seen to maintain a given pattern. A comparison between the resultant effects of hot years largely deter aggregate investment and in the industries lessening the cumulative effect on agricultural output. Generally in developing countries the effects results in decreased production of scientific publications and political instability.

Moreover the fisheries and aquaculture sector though often underreported and overlooked in both developed and developing countries experience the brunt of climate change as well.

Climate change may also offer win-win outcomes where adaptation measures improve economic efficiency and resilience to climatic change vectors. For example, this could include decreasing fishing effort to sustainable levels, decreasing fuel use and hence CO2 emissions, or reducing aquaculture dependence on fishmeal or oils (Dell, Jones and Olken, 2009).

Arguments for and against regulation of the economic system

Regulation of economic systems considers the public interest although the term ‘public interest’ is frequently evoked in legal and political discourse to justify the use of power, rather than the bureaucratic aberrations that are associated with the concept. However, not much is known as far as the phrase is defined; making it hard to determine which action it has to be taken.

In dispute of Feintuck’s (2004) study, many debates have fundamentally discussed the position of public interest as far as regulation is concerned. the orientation that determined the work through which Feintuck (2004) could research on was therefore limited to work of other scholars in the legal and professional fields.

Secondly, Feintuck perceives the misconception of the public interest has forced regulators to lack in protecting vital public values. Other scholars, in refute of this work have authored works that have not found much of public interest’s conception of the public interest. In Feintuck’s view

“the public interest is not evocatively value neutral. It privileges systems of market relations and thus tends to confirm and perpetuate existing social divisions and hierarchy (p.37). While many conceptions of the public interest are value laden, he notes that the values of this one are rarely explicitly articulated. He sees in the assumptions of this calculus “a crude majoritarianism and a legitimating of existing power relationships” (p.42).

Other scholars documenting on the regulation in UK and US have been based on judicial interventions differences in conceptions. On the contrary the general view of public interest the US and UK concept of public interest represents a missed opportunity.

Alternatively, there are legal, economic and scientific views of narrower consumer; thereby lowering the premise for the regulatory systems in the two countries. Rather, the regulation cutting across both jurisdictions would bear myopic concept towards public interest and in return an implementation of a market–oriented approach.

Secondly, the interpretation according to Feintuck’s perspective and influence on regulation concepts was tied to the scholarly works of lawyers and economists. Although most believe in the approach Feintuck adopted, his conceptualization of regulations is myopic compared to those of political scientists (Dell, Jones and Olken, 2009).

In contrast, Friedrich’s criticism on the regulation leaned on the financial aspects of the economy. According to his orientation, the expected relationship existing between the market and the state affecting the institutional regulation brought out the workings of the legal expertise. Further, the criticism established the difference between public expertise, knowledge in the procedural requirements, and public expertise, dealing in the private law.

Consequently, the central focus of the argument is chronologically classified resulting in ineffective market planning because the reasoning is one step behind the market. On the contrary the evident disadvantages of public expertise for government officials while trying to control economic fluctuations echoed with increased prevalence of frustrations and powerlessness. However, public reasoning has a given level of weakness compared to the equally but opposite weaknesses.

Away from the arguments and orientations taken, a conflict of interest exists between the interest of the public and free enterprises determined by the level of government involvement in overseeing production. However, most best-case scenarios point to the fact that consumers’ safety rests in the hands of the private sector players.

This trend is normally propagated by the fact that the government has been persistently inefficient in it operations while the corporate sector has been mandated with setting its own standards overruling the government reservations. Like all the other regulatory measure, the argument against this school of thought is the financial obligation that it lays on the funding committee in addition to the bureaucracy followed in its implementation (Hiller, 1990).

On the contrary though, government participation has been challenged by frustrating delays on regulations especially, measures aimed at reducing individual health hazardous situations. Moreover, the value of the regulatory measures are countervailed the complexity in the implementation of the government regulations and the costs forthwith that are eventually transmitted to the taxpayer.

Lastly, another argument against regulation is their level of inefficiency when being implemented in large corporations; with the financial and legal strength to overlook the requirements of the regulation. That potential civil and criminal penalty is classified as business risks means they can be broken-even against the anticipated profit of violated law in the private sector (Dell, Jones and Olken, 2009).

Similarly, response to government regulation is linked with one, lobbying legislators to amend regulations that reduce profitability, and two, circumventing the regulators to jurisdictions that condone illegal production of harmful goods.

Economic impact of the London 2012 Olympics on the UK economy

The economic impacts are according to Ison, & Wall (2007) study on the economic impact of the London 2012 Games “will vary significantly across different sectors of the U.K economy.”

Secondly, the tourist industry will be the main benefactors of the business sector, from hosting the Olympic Games, as academics such as Preuss argue that the Olympic are seen as “catalysts for driving tourism” (Preuss, 2004:46). Tourism is important to the economy because money from the visitors helps many large and small businesses and their relevant employment in the hotel industry, restaurants, and tourist attractions to name but a few.

Thirdly, the Games only create short-term employment with a low benefit to the population.” (Preuss, 2004:247). It is true that the Games generate many jobs before and during the games, for example in the bid team, the construction of the facilities and volunteers during the event.

What however, is the employment legacy impact of the Olympic Games and who do these jobs go to? Many academics propose the need for an employment initiative alongside the Olympic Games to maximize the employment benefits for local people who may not have the relevant skills for the long-term jobs created by the Olympic.

The third impact is that London will achieve business legacy that is crucial in creating an overall positive economic legacy for the city. It is vital to recognize this opportunity and the research suggests that the best way to achieve a positive economic legacy in terms of business is through cooperation and networking.

Another visible form of legacy is that of urban redevelopment. Past cities such as Barcelona have used the Olympics as a catalyst for urban redevelopment. London 2012 provides the perfect opportunity to redevelop part of the city which desperately needs regenerating. The research has raised a number of issues involved in the Olympics as a form of urban redevelopment for London.

Although returns may be associated with the visitors, other critics argue that the Olympics do not have many positive benefits for the local population; instead even costing an average urban citizen (Hiller, 1990 in Essex and Chalkley, 1998:191). As such, cities ought to take this into consideration when planning for an Olympics.

Consequently, the focus of the world media on these cities before and during the event could potentially reveal weaknesses and deficiencies. There is a lot at stake for these cities and any negative coverage, along with problems in the organization of the event, could create a negative image.” (Essex, & Chalkley, 1998:594)

In the future potential investors or tourists could put off by the negative image. So there is need to create a positive image during the Games particularly as “the Olympic Games boasts of an estimated reach of 3.9 billion television viewers.”

Measures should be taken to ensure sustainable long term economic benefits by ensuring coverage from the Olympics to attract foreign investment and business into the city for a lasting economic legacy. Small businesses also benefit from the Olympics, because many local businesses are used in staging the Olympics, both directly and indirectly as multiplier and ‘trickle down’ effects are created.

There is a risk however that tourist numbers are overestimated, which can lead to problems of oversupply during and after the Games leading to cut backs in the tourism sector as a result of overspending in the years leading up to the Games and lower than expected income since the Games.

This is taken up by Feintuck (2004) who believes that “large visitor numbers may be disruptive in relation to the city’s ‘carrying capacity’…leading to an increase in the construction of hotels for the event to satisfy the duration of the Olympics but would leave a lasting legacy of underused hotels.”

As well as the risk of oversupply, Preuss (2004:52) argues that some visitors who often times visit the city would be put off by the Olympic Games and try another destination at the time of the Olympics there is therefore a risk that these tourists will find a more preferable destination and continue to visit their new destination and neglect to visit the Olympic host city in the future.

In conclusion, the impacts of the games despite the value they add should not be perceived to be of greater importance than policy. Instead, the Games ought to be employed as a lever or catalyst in the similar position as with direct implications. In consequence, urgent attention should be warranted for employment issues and larger scale skills in addition to Games-specific initiatives. Therefore, the employment initiatives aim at ensuring that the Games are not a timely source of temporary employment.

References

Dell, M, Benjamin, J and Benjamin O (2009) “Temperature and Income: Reconciling New Cross-Sectional and Panel Estimates,” American Economic Review Papers and Proceedings.

Essex, S and Chalkley, B (1998) Olympic Games: Catalyst of urban change, Leisure Studies 17 p187-206

Feintuck, M (2004) The Public Interest In Regulation. Oxford: Oxford University Press,

Griffiths, A. and Wall, S (2008) Economics for Business and Management: 2nd edition FT/Prentice Hall

Ison, S. and Wall, S (2007) Economics 4th edition, FT/Prentice Hall

Mendelsohn, R, Wendy, M, Schlesinger, M and Natalia, A (2000) “Country-specific market impacts of climate change,” Climatic Change 45(3-4): 553-569,

Nordhaus, W and Boyer, J (2000) Warming the World: The Economics of the Greenhouse Effect, Cambridge, MA: MIT Press,

Preuss, H (2004) The Economics of staging the Olympics; A comparison of the Games 1972-2008, Cheltenham: Edward Elgar

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