Hong Kong is entering a new era of the rejuvenation of manufacturing, says Dr Daniel Yip, Chairman of the Federation of Hong Kong Industries. He talks to Nicky Burridge about the move towards high value-added production and upgrading to “Industry 4.0,” amid problems brought by the pandemic and the U.S.-China trade war
Photography by Calvin Sit
Dr Daniel Yip, Chairman of the Federation of Hong Kong Industries (FHKI), is on a mission to change people’s perceptions about manufacturing. “People think the manufacturing industry in Hong Kong is dying. They think a lot of factories have moved to China, so there is not much left here. We hold a different view,” he says. The federation, a statutory organization that supports Hong Kong’s industrial and commercial sectors, is working to reinvent industry in the city.
Yip points out that the most valuable part of manufacturing is not the physical assembly of goods, but rather product design and the development of intellectual property. “It is not important if the product is made in Hong Kong or made in China. The most important thing is how you develop your product, how you engineer it and how you innovate, and that is still happening here,” he says.
In fact, he believes we are entering a new era of the rejuvenation of industry in Hong Kong. “Some people think reindustrialization means relocating factories back to Hong Kong, but it really means how can we improve and advance our overall industrial systems, including design, engineering, production, and even using state-of-the-art technology to market products.”
A key part of this rejuvenation is “Industry 4.0,” or the transformation of traditional manufacturing using the latest technology to enhance productivity. Yip believes the development of smart manufacturing will not only improve Hong Kong’s industrial systems, but will also help to overcome some of the challenges it has previously faced as a manufacturing centre, such as high labour costs and a shortage of land.
“Industry 4.0 is the technique for the re-engineering of the manufacturing process using the latest 5G, cloud computing or artificial intelligence (AI) technology,” he explains. “If we are able to use sensors and AI algorithms to monitor production speed and quality, it enhances productivity.”
The Hong Kong government is actively promoting reindustrialization and the adoption of Industry 4.0, as part of its focus on innovation and technology. It has allocated HK$2 billion for a new Reindustrialization Funding Scheme to provide match funding for manufacturers setting up smart production lines in the city. It has also established Precision Manufacturing Centre in Tai Po and Advanced Manufacturing Centre in Tseung Kwan O, with a factory in the Yuen Long Industrial Estate in the process of being converted into a microelectronics centre. The three centres will provide agile production facilities for companies looking to incorporate technology into their manufacturing or testing processes.
Yip says the federation is also promoting smart manufacturing to its members, working in conjunction with the government, universities, research centres and the Hong Kong Productivity Council (HKPC), the body tasked with helping businesses introduce more efficient technology, to encourage its adoption. “We want to provide the most up-to-date information to our members to help them upgrade their overall capacity,” he says. It is leveraging the expertise its automation group has in this area by hosting seminars for other manufacturing groups to learn how they can incorporate the technology into their own operations, as well as working with HKPC to offer study missions and training on Industry 4.0.
A second-generation engineer
Yip, who has worked in manufacturing for over 30 years, describes himself as being a second-generation engineer. After completing a Bachelor’s degree in Mechanical Engineering at Rutgers University in the United States, he went on to do an MBA, before returning to Hong Kong and working as an engineer at electrical appliance manufacturer G.E.W. International Corporation, which was founded by his father. He slowly worked his way up through management, eventually taking over as managing director.
Around 10 years ago, he obtained a Doctorate from the University of Warwick in the United Kingdom in engineering management. “It gave me an insight into the practical and the academia side of things. I have an engineering background, a bit of a management background and a little bit of an academic one, so I have a spectrum of different perspectives,” he says.
Yip joined the federation in 1995 as a member of the electrical products group, one of 32 different industry groups the federation represents. He gradually moved up the ladder and was elected chairman of this group, followed by the elected deputy chairman of the federation eight years ago, and now chairman – a post that is elected by the heads of the 32 different industry groups. He says: “It is a great experience to be chairman as through the influence of the federation, I can work closely with my team to enhance the impact Hong Kong industry has on society. It is a great honour to be the chairman.”
He spends around 70 percent of his time on his role as Managing Director of G.E.W., setting the company’s strategy, monitoring its key performance indicators, and assisting with product development concepts to ensure the company meets future market demands. The other 30 percent of his time is spent at the federation, where he liaises closely with his six deputy chairmen, working to promote industry in Hong Kong through a combination of advocacy, creating networks, and offering services to members in areas such as brand upgrading, talent development and product certification.
Yip says one of the aspects of his role as federation Chairman that he likes the most is working with different partners, such as the government, universities and research centres, to help promote and rejuvenate industry. “Everybody wants to help, but they don’t understand the actual problems that industry is facing. By communicating with them, we can have a very beneficial effect.” He gives the example of the Dedicated Fund on Branding, Upgrading and Domestic Sales, which originally offered companies up to HK$1 million if they were expanding into the Mainland and HK$1 million if they were expanding into the Association of Southeast Asian Nations (ASEAN) countries. “But some manufacturers felt they did not have the resources to expand into two huge markets at the same time. They told FHKI it would be more flexible if they could have HK$2 million to invest in either the Mainland or Southeast Asian markets. We advised the government and they changed the funding policy swiftly.”
The other aspect that he enjoys is nurturing the younger generation. “We have to educate young people because industry has been ignored in Hong Kong for quite a long time.” He adds that young people still think manufacturing happens in an unpleasant environment that is very dirty, noisy and hot, when in reality factories are now clean and air-conditioned, and key parts of modern manufacturing, such as developing software and other technologies, do not take place in a factory at all. As a result, the federation is working to rebrand industry to help it appeal to the younger generation, using social media to promote its activities so that young people are more likely to read about them.
The federation also puts a strong emphasis on helping young people acquire the skills future industry will need, particularly in areas such as software engineering, microelectronics devices, such as sensors and Internet of Things, data analytics and AI techniques that can be used in design and engineering. It works closely with the Vocational Training Council to ensure students are up to date with the latest industry requirements. It has strong links with City University of Hong Kong and the Hong Kong Polytechnic University, helping to design internship programmes and offer industry experience to students.
“We have to educate young people because industry has been ignored in Hong Kong for quite a long time.”
Challenges and opportunities
Like many other sectors, industry has been adversely impacted by the COVID-19 pandemic. “Manufacturers are facing issues in several areas. One problem is that customers are cancelling orders, which is creating cashflow problems, and in turn leading to companies making people redundant,” Yip says. He adds that although Hong Kong is not a big centre for physical manufacturing, it is estimated that around 500,000 people are employed in support activities, such as logistics, shipping, and import and export businesses.
The federation has been appealing to the government for help on behalf of its members, and it welcomed the Employment Support Scheme and the SME Loan Guarantee Scheme. It also held meetings with the Hong Kong Export Credit Insurance Corporation, as many members were not receiving payment for orders they had shipped, due to companies overseas going bankrupt. These discussions led to the introduction of the “100 percent credit limit top-up scheme.”
But Yip points out that even before the pandemic, industry had already been facing a tough 24 months due to the U.S.-China trade tensions, which saw the U.S. impose tariffs on the majority of goods imported from China. As a result, the federation has been putting efforts into helping its members diversify away from the U.S. and instead explore opportunities in Southeast Asia and Mainland China. “We try to identify new markets and how to approach those markets,” he says.
The federation has been hosting seminars on different ASEAN countries, such as Thailand and Vietnam, and lobbying the Hong Kong government to introduce incentives to help companies move into new markets, such as the recently expanded Dedicated Fund on Branding, Upgrading and Domestic Sales.
The Greater Bay Area (GBA) is another area the federation is encouraging its members to explore. Yip points out that members typically think of the GBA in terms of manufacturing, but with 70 million people and the highest domestic consumption purchasing power in China, it is also an important market. “You don’t have to go to Thailand or Indonesia, your market is next to you,” he says. With this in mind, the federation recently set up virtual exhibition platform to help members exhibit their products to potential buyers in the GBA.
Yip received a Bachelor’s degree in Mechanical Engineering from Rutgers University in 1987, and an Engineering Management Doctorate degree from the University of Warwick in 2008.
“You have to diversify your risk into new markets and invest smartly in new products to keep ahead of competitors.”
Adapting to change
Yip says accountants have an important role to play in helping companies set up operations in new countries, particularly in terms of understanding the local tax regime and getting to grips with transfer pricing rules if they have factories and a head office in different jurisdictions.
He adds that at its recent seminar on Thailand, the federation invited accountants from KPMG to talk members through the country’s tax regime. “In the future, we will hold a seminar with the Big Four accounting firms on the development of the free trade zone in Hainan province, looking at the best way companies that already have operations in China can leverage the tax benefit,” he says.
The challenge of adapting to changing markets is something Yip has experienced first-hand at his own company. He remembers losing business during the global financial crisis, which hit shortly after G.E.W. began expanding into the Mainland, and coincided with the enforcement of new labour laws that increased the company’s labour costs by around 40 percent. “It was a very difficult moment and one I won’t forget. On the one hand, we were losing business because of the global financial crisis, on the other hand, the Chinese business was slowly improving. It was an important turning point.”
He also led the transformation of his company from being an original equipment manufacturer, to an original brand manufacturer, as the former became increasingly competitive due to the additional manufacturing capacity in China. This change reduced the company’s reliance on the U.S. as a market, going from accounting for around half of its product sales 15 years ago, to only a small percentage now. As a result, it has not been significantly impacted by the U.S.- China trade tensions. “Riding on the growth of the Chinese domestic consumption market and starting to use e-commerce almost 10 years ago means we are not suffering so much. I want to share my story with members. You have to diversify your risk into new markets and invest smartly in new products to keep ahead of competitors. I am not the only one, there are many success stories and we try to use these case studies to help our members,” he says. He adds that it is important to keep an open mind and be willing to work with young people, as they have a different perspective on future technology.
Yip’s two jobs keep him busy, and he admits he does not have much time for cultivating hobbies. “I go jogging a little bit, and spending time with my family and my dog is very important to me.”