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Hong Kong, Taiwan lead procurement in mainland

By GUO JIAN'ER (1)
Updated: 2003-03-14 10:17

Hong Kong and Taiwan investors are snapping up increasingly bigger business deals in China as many multinational retailers boost procurement in the country famous for its low-price and high-quality commodities.

With superior product design and greater experience in foreign trade, they are leaving their mainland counterparts behind in the race to win procurement orders.

"Hong Kong and Taiwan businesses were our major direct suppliers for the US$12 billion worth of commodities purchased in the mainland last year," said Kenny Chen, director of administration for Wal-Mart's global procurement centre in Shenzhen.

"None of the domestic private enterprises has been able to secure orders from Wal-Mart's global procurement centre in Shenzhen since it was established last February," Chen added.

With China's attractively-priced goods flooding the international market, retail giant Wal-Mart moved its global procurement centre from Hong Kong to Shenzhen and set up several branches last year in such booming cities as Shanghai and Dongguan, the country's manufacturing hubs.

"The main reason for Hong Kong and Taiwan businesses being our major direct suppliers here is that they can fulfil Wal-Mart's jumbo procurement orders, which are usually hundreds of thousands of pieces per order," said Chen, adding that few mainland companies could afford to take on such huge orders by themselves.

"In addition, mainland companies are still inferior to their Hong Kong and Taiwan counterparts in product design and innovation," he added.

Of the US$12 billion worth of products that Wal-Mart sourced in the mainland last year, the Shenzhen centre was responsible for US$5 billion, with the remaining commodities ordered directly by the US headquarters, according to Cui Chiqui, managing director of Wal-Mart's global procurement division for Greater China and North Asia.

The Pearl River Delta (PRD) - a regional base for Hong Kong and Taiwan investors - accounted for 50 per cent of the US$12 billion figure, Cui said.

He added that Wal-Mart sourced more than US$2.3 billion worth of products in Dongguan alone, which accounted for 12 per cent of the city's total exports.

"It should be noted that the orders of US$12 billion consisted of two kinds - direct procurement and indirect procurement," Chen said.

Direct procurement means purchases by the global procurement centre in Shenzhen, in which mainland enterprises have not broken through. Indirect procurement refers to orders placed by the US headquarters through importers, Chen explained.

"Many mainland enterprises, with the help of importers and distributors, are indirect suppliers to Wal-Mart," he said.

Obviously, the mainland companies, a part of whose profits are shared with middlemen, are less price-competitive with Hong Kong and Taiwan manufacturers who supply directly.

Attracted by the far cheaper labour force and other beneficial production factors in the mainland, Hong Kong as well as Taiwan companies have been moving their manufacturing bases there since the mid-1980s. Most of them relocated to the PRD and the Yangtze River Delta areas over the years.

"Hong Kong business people, with factories in the mainland and offices in Hong Kong, are familiar with the ins and outs of international trade and have established solid trading partnerships over the years with many multinational companies like Wal-Mart," said Pansy Yao, assistant chief economist for the Hong Kong Trade and Development Council.