HKPC New Industrialisation Unveils Hong Kong Manufacturing Industries Development Study Report

81% of Manufacturing Industries Yet to Embrace Smartification Solutions

7 Key Recommendations to Ignite New Momentum in Hong Kong Manufacturing HONG KONG SAR - Media OutReach Newswire - 16 September 2024 - Hong Kong Productivity Council New Industrialisation (HKPC New Industrialisation) announces key findings from the "Hong Kong Manufacturing Industries Development Study Report", jointly conducted by Deloitte China at the newly opened Future Manufacturing Hall. The study examines Hong Kong's manufacturing industry, analysing its current state, policies, expert interviews, upgrading projects of Hong Kong-based manufacturers in the Greater Bay Area (GBA), and corporate surveys. Aiming to foster community-wide understanding and jointly explore paths, directions, challenges and opportunities for industry advancement, the HKPC has put forward seven major action proposals to rejuvenate the new momentum of Hong Kong's manufacturing. Overview and Challenges of Hong Kong's Manufacturing Industry With the economic transformation, Hong Kong's manufacturing industry has ostensibly migrated overseas. However, the comprehensive survey results show that the headquarters functions of some local manufacturing enterprises remain in Hong Kong and have transformed into manufacturing services. In accordance with "New Productive Forces", proposed by the country in 2023, Hong Kong must develop high-quality green manufacturing and promote industrial innovation, upgrading, and transformation. Today, the development of Hong Kong's manufacturing industry is generally facing the following four major challenges:

1. Increasingly fierce competition: Fierce competition and saturation of the market has caused the manufacturing industry to face the challenges of declining market share and squeezed profits.
2. Global supply chain remodeling: Supply chain locations are affected by technical requirements, production costs and tariffs, making it more difficult to manage supply chains and companies.
3. Small order volume and customisation have become the new normal: Nearly seven out of ten (69%) of the companies surveyed agree that "lots of variety in fewer quantities" is a new trend in the manufacturing industry, requiring companies to quickly respond to costumers' needs. With customisation challenging traditional production models, Hong Kong can take this trend as an opportunity to develop new manufacturing models.
4. Sustainability is on the move: 67% of the companies surveyed have received or expect to receive requests from customers to incorporate green sustainability standards into their manufacturing processes, making green manufacturing or sustainability an essential issue.

Mr Alvis KONG, Partner of Deloitte China Strategy and Economic Advisory,remarked on the result, "As New Productive Forces has become an intrinsic requirement and an important focus of the country's efforts to promote high-quality development, and developed economies around the world are also laying out national-level industrialisation strategies, a new wave of technological innovation will provide opportunities for the transformation and upgrading of Hong Kong's manufacturing industry. To stimulate industrial innovation and enhance productivity, the HKSAR Government has been actively implementing policies and measures in the areas of finance, manufacturing and R&D, supply chain management, talent, etc., in recent years, with a multi-pronged approach to support the further development of the manufacturing ecosystem." Two New Trends of Customisation and Sustainable Development Unveil Hong Kong's High Value-added Headquarters Functions1) 81% of manufacturing companies surveyed have yet to adopt smartification solutions to cope with the increasing demand for customisation Only 19% of the companies surveyed have already introduced smartification solutions, 20% intend to do so, 8% use other traditional methods (e.g., enhanced publicity), and as many as 53% of companies surveyed said they have no way to deal with it. The data shows that although enterprises generally recognise the importance of customised small batch production, the application of smartification technology is still insufficient in practice. 2) 67% of enterprises have received or expect to receive requests from customers to incorporate green and sustainable development standards into their manufacturing processes Both expert interviews and corporate survey results show that sustainable development is a global consensus and a new trend. Enterprises need to adopt more environmentally friendly and sustainable technologies and methods in the production process, reduce their impact on the environment, and meet the increasing needs of consumers for green products, which has become an essential issue in the manufacturing industry. Green manufacturing requirements and demanded services cover a wide range of fields and technologies, including energy management and carbon emission reduction, international sustainable development certification and training, ESG reporting, assurance and rating, green finance, etc. 3) Prosperity of Hong Kong's high value-added headquarters functions Some of the surveyed manufacturing enterprises have retained high value-added functions in Hong Kong, such as R&D, supply chain management and finance. In terms of R&D, 31% of the companies carry out technology and product development in Hong Kong, and only 27% of the manufacturing enterprises have licensed their technology. In terms of supply chain management, 47% of the enterprises have global procurement in Hong Kong, and 46% have command and deployment of outbound manufacturing bases. As for finance, 59% of the companies conducted asset management and finance in Hong Kong. Mr Edmond LAI, Chief Digital Officer of HKPC,mentioned, "Smart solutions represent a new pathway for the development of Hong Kong's manufacturing. We encourage enterprises to add value and leverage complementary advantages with the GBA and other domestic markets to drive industrial innovations. Hong Kong needs to actively develop its headquarters economy, attract corporations to set up headquarters, and promote industrial diversification. In addition, green manufacturing is the future trend in global manufacturing. Companies can enhance their market competitiveness and reputation while achieving high-quality business development. The global demand for green manufacturing will become a new growth point for Hong Kong's service industry, encompassing a wide range of fields and significant technological requirements, presenting immense business opportunities." In-depth Analysis of Cases Summarises the "Three Major Directions and Ten Major Measures" to Lead the Development of New Productive Forces HKPC New Industrialisation conducted an in-depth analysis of more than 1,300 successful upgrading and transformation cases of Hong Kong enterprises and concluded that enterprises need to take "three major directions and ten major measures" to achieve the transformation and upgrading of the manufacturing industry to develop New Productive Forces. 1. Direction 1 - Pioneering new manufacturing models:

1. Implementing digital transformation
2. Enabling green manufacturing
3. Promoting flexible production of "Microfactory"

2. Direction 2 - Exploring new growth engines:

1. Optimising product development market
2. Expanding upstream and downstream industrial chain
3. Commercialising patents
4. Commercialising production technologies

3. Direction 3 - Realising value chain transformation:

1. Developing product design capabilities
2. Establishing brand diversification strategies
3. Expanding the scope of product or technology applications

Case 1: Decoding digital green production and realising the transformation of value chain The Hong Kong head office of a mold and injection molding product manufacturer is responsible for strategy and investment management, finance, personnel, innovation and R&D and supply chain decision-making management. It plays an important role in the Hong Kong headquarters economy and has production bases in the Mainland and Southeast Asia and aims to provide customers with precision injection molding parts and mold products with intricate technology. To develop a new manufacturing model, the company has successfully digitised the whole process, from product development to mass production. At the same time, it is also committed to building a green and low-carbon factory, producing products that meet international standards and customer corporate social responsibility requirements. At present, it has obtained several quality management certifications, achieving international standards of excellence. The company has expanded its upstream and downstream industrial chains in terms of exploring new growth engines, transforming from traditional molds to R&D and production of precision plastic products. In the process of realising the transformation of the value chain, "pull" production is adopted, and each order is taken as a starting point to automatically generate a production scheduling plan, supporting peripheral equipment, process requirements, material orders, etc., to achieve data transparency. It has improved its product design capabilities and expanded its product and technology application scope.Case 2: Launching the "Microfactory" flexible mode to allow enterprises moving forward at full speed with the torrent of innovation Garment manufacturers have made good use of the HKSAR Government's New Industrialisation Funding Scheme to set up a full-fledged digital knitted garment smart production line, with a focus on developingnew manufacturing models. To quickly respond to market customisation requirements, new production equipment was established in existing factories. The traditional production line was changed to a unit manufacturing mode for small batch and multi-style production, effectively increasing the output value of the existing production space and reducing inventory and material waste. The production line covers product design, digital simulation samples, engineering parameters and programming to smart production. The project's production capacity can reach 22 hours of operation per day, which will increase production capacity by 35% and reduce production costs by 40% compared with the current production line. HKPC New Industrialisation Proposes Seven Major Actions to Rejuvenate Hong Kong's Manufacturing Momentum Based on the above research, to plan the development strategies and to invigorate new momentum for Hong Kong manufacturing industry, HKPC New Industrialisation's recommendations for new industrialisation can be divided into three levels: 'Made in Hong Kong,' 'Headquarters Functions,' and 'Service Industry of Manufacturing.'

1. Developing "Microfactory" according to local conditions: It is suggested that the Government plans for "Microfactory" sites suitable for key industries, reviews the existing industrial sites and buildings, and encourages enterprises to make good use of I&T resources to develop green and smart manufacturing in Hong Kong, increase the unit output value of space, and develop customised production with agile new manufacturing models. The "Microfactory" can also promote cutting-edge technology research, accelerate the pilot scale-up, new product research and development, and new technology implementation.
2. Strengthening the functions of the Hong Kong headquarters: It is an effective strategy to attract high value-added companies to stay in Hong Kong by strengthening Hong Kong's headquarters functions. The Government provides preferential tax and investment incentives to attract high value-added headquarters functions to stay in Hong Kong, including technology and product R&D, intellectual property application/licensing/management, financing and asset management, global procurement, offshore manufacturing command center, etc. This will consolidate Hong Kong's status as an international financeing, trade, transport and innovation and technology center, and at the same time, allow them to become the headquarters of Mainland enterprises for overseas business and promote cross-border e-commerce, connecting the Mainland with overseas markets.
3. Cultivating the Intellectual Properties (IP) industry: HKPC will work with stakeholders in expedite the establishment of WIPO Technology and Innovation Support Centers (TISC) and recommends that the HKSAR Government introduce and enhance policies to support the IP ecosystem (from creation, application, commercialisation, trade to professional services) to develop Hong Kong into a regional IP trading center.
4. Developing green manufacturing services: Establish, strengthen and coordinate the development of green manufacturing-related services, such as green manufacturing certification and management, ESG compliance, energy efficiency optimisation, green financing products, carbon neutrality certification and trading, etc., to provide one-stop green manufacturing services for local, domestic and overseas markets.
5. Accelerating recruitment of technical talent: It is suggested that the Government strengthens the existing talent import policy and introduces diversified technical talent with practical experience. In addition to high-end scientific research talents, it is also necessary to attract diversified technical talents with practical experience and consider including them in university courses, to accelerate the demand for talent in the manufacturing industry, enhancing the competitiveness and innovation ability of the industry.
6. Creating a large language model of the manufacturing industry: It is suggested that the Government promotes cooperation between industry, academia and research to jointly develop a large manufacturing model ManufacturingGPT, combining the latest AI technology to provide more efficient and smarter solutions for the manufacturing industry. Business associations shall encourage enterprises to share big data to help train the large language model to open up ManufacturingGPT as a scientific research platform to accelerate the development of local smart manufacturing technology.
7. Promoting a new image of the manufacturing industry: Enterprises have to make good use of the Government's innovative technology resources to optimise the factory environment through new manufacturing models, provide high-quality employment opportunities, take into account environmental protection and occupational safety and other elements, introduce gamification production management, and cooperate with stakeholders from all walks of life to promote and reshape the new image of the manufacturing industry, and attract and nurture young talents to enter the industry.

Mr LAI summarised, "HKPC is committed to fueling the new momentum of Hong Kong's manufacturing industry. Through the first 'New Productive Forces' demonstration platform in Hong Kong, we would like to showcase 'Hong Kong Got Industries', usher in a new era of 'Made in Hong Kong' and lead Hong Kong to become a model for the future of manufacturing. The nation's 'New Productive Forces' industrialisation strategy provides us with an opportunity for transformation and upgrading, and technological innovation will become the engine of our development. Through reform and upgrading, technological innovation will be the core of value enhancement, and the inherent advantages of Hong Kong's manufacturing industry will lay the foundation for the development of new industrialisation." The Hong Kong Manufacturing Industries Development Study Report was conducted from March to July 2024, in which 288 manufacturing companies in Hong Kong completed the survey. The survey report will be available for download from HKPC's website in due course: https://www.hkpc.org/zh-HK/about-us/hkpc-publication/industry-support. Please click the link to download the photo: https://shorturl.at/d4g71Hashtag: #HKPC

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The New Industrialisation Development Centre, established in mid-2023, provides an exchange platform for all sectors to learn about and master the latest technological solutions, with all-round services including testing and certification, certified new industrialisation courses and Government funding consultation, and more. This will drive and accelerate the realisation of new industrialisation in Hong Kong and other cities of the Greater Bay Area, speeding up the formation of new productivity. To promote the high-quality development of new industrialisation and the digital economy, HKPC New Industrialisation has also established "Celesphere", dedicated to combining metaverse, Industry 4.0, artificial intelligence and human-machine interface technologies to further promote industrial metaverse applications and their adoption, optimising product life cycles, enhancing enterprise productivity and competitiveness, and jointly driving and implementing new industrialisation. For more information, please visit the webpage of "HKPC New Industrialisation": https://u.hkpc.org/HKPC-NewInd-EN. About the Hong Kong Productivity Council The Hong Kong Productivity Council (HKPC) is a statutory body established in 1967 to drive productivity excellence in Hong Kong enterprises through world-class advanced technology and innovative services. As a market-oriented applied R&D institution, HKPC promotes the New Industrialisation of Hong Kong and the Greater Bay Area through innovation and technology, achieves New Productive Forces development, and comprehensively promotes Hong Kong to become an international innovation and technology hub and a smart city. It also provides a full range of innovative solutions to enhance business productivity and business efficiency, reduce operating costs, and enable enterprises to maintain a competitive advantage in local and overseas markets. HKPC actively collaborates with the local business community and world-class R&D institutions to develop applied technology solutions to create value-added for the industry. Through product innovation and technology transfer, we have successfully commercialised R&D results and created business opportunities. Over the years, HKPC's world-class R&D achievements have been widely recognised, and many local and overseas awards have been awarded. HKPC is also committed to providing real-time and appropriate support to SMEs, and start-ups, and providing a variety of future skills development courses to enable enterprises and academia to master the latest digital and STEM technologies, so as to enhance talent training and enhance Hong Kong's competitiveness. For more information, please visit HKPC's website: www.hkpc.org.