Companies that Operate as Whole Subsidiaries in Hong Kong - Essay Example

Business Environment         Hong Kong is very well reputed amongst foreign investors, especially those residing in the U.S. It’s well rounded business environment (i.e. amalgamation of internal/external economic, technological, social,political, and infrastructural influences) is one of the major reasons for its success in the global economy. It is also the primary reason why foreign investors look to Hong Kong for lucrative investment opportunities. Its openness is one of the reasons why it is a favorite with all foreign investors. This is because the Government’s role in the running of the economy is minimal. “Hong Kong offers an unusually stable and efficient business environment with the modern infrastructure and telecommunications that could be expected of the world's 9th largest economy. The territory's economy could rightly be described as the most laissez faire economy in the world. The Government's policy is strictly non-interventionist.”(lowtax.net, n.d) This is why companies that operate as whole subsidiaries in Hong Kong are not even required to submit in their financial statements. Not only for companies, the economy is open enough for individuals looking for employment opportunities as well since 6-month work visas are easily accessible. “Bankers, accountants, lawyers, and other professionals who serve multinational firms have thrived in a community of local firms that has become increasingly transnational since the opening of the Mainland to foreign trade and investment in the late 1970s. This deep-rooted local familiarity with the needs of international business makes Hong Kong an easy place in which to find joint-venture partners and to find expatriate professionals.”(lowtax.net, n.d.) The laws governing British and Hong Kong company trust are the same; hence, businesses choosing to operate in Hong Kong are completely secure. Apart from this, the local businesses have long since adopted a cosmopolitan approach. This has enabled them to integrate exceptionally well with international businesses and this has led to the formation of foreign businesses network which is intermingled and co dependent on the local businesses as well. This collaboration has reaped profits for both foreign investors as well as the local companies. “There were 47,417 new local companies registered under the Hong Kong Companies Ordinance in the first six months of 2007, up 19.12% on the same period last year, 32 newly listed companies on the Main Board. The total number of live companies registered was 622,318.Companies Registry statistics show that 316 new overseas companies established a place of business in Hong Kong and registered under Part XI of the Companies Ordinance in the first half of 2007, up 12.46% on the same period last year. The total number of overseas companies stood at 7,854. At the end of June, 2007, there were 1,002 and 194 companies listed on the Main Board and Growth Enterprise Market respectively, with a total market capitalization of about HK$15.85 trillion.” (lowtax.net, n.d.) The recent statistics given above all prove that foreign companies view Hong Kong as a lucrative market. A major role played in painting this perception has been by the integration of Mainland China with Hong Kong that has opened up new opportunities for those looking to invest in Hong Kong. This is because China too is a rapidly growing economy and this has served to further strengthen the position of Hong Kong as well. Several Canadian based companies immediately set up their operations in Hong Kong, following this integration, viewing it as a golden chance for expansion. Competition has increased in Hong Kong, however, so has the drive to perform more efficiently and productively than the rest. Hong Kong on its own had been a leader as well. As statistics depict, “Hong Kong companies were the first in the world to move their manufacturing operations across the border to the Pearl River Delta (PRD), when China opened its economy 25 years ago. Today, the PRD is a manufacturing and export powerhouse, the fastest-growing region of China, and the fastest-growing economy in the world.”(hketo.ca, 2005) Apart from this the integration with Mainland China has offered, “Hong Kong’s manufacturing and service industries first mover advantage into the Mainland China market, ahead of and beyond China’s World Trade Organization commitments”.(hketo.ca,2005) This Closer Economic Participation Arrangement (CEPA) between Mainland China and Hong Kong has raised investor confidence to the extent that Hong Kong is touted as one of the world’s safest economies to invest in today. There are certain issues that are present. These include the relatively expensive jurisdiction. “Professional charges for initial incorporation may be US$1,400; and the provision in the first year of a registered office facility, nominee shareholders, nominee directors and nominee secretary costs US$1,300.” (lowtax.net, n.d.) These might be more than what investors may be looking to incur. However, apart from this initial cost of setting up, everything else is smooth sailing in terms of cost and a cost benefit analysis of any investment decision is sure to prove this fact as well. Property and accommodation for offices etc has risen considerably as well. However, this is mainly due to the fact that so many foreign businesses are choosing to set up their operations in Hong Kong, which essentially indicates at the popularity of the market in the international scenario. Investors are willing to incur jurisdiction costs and accommodation costs because of the returns on their investment which they can be sure to gain. If Hong Kong is juxtaposed against any other economy, even a developing country where the costs of setting up and accommodation/cost of labor may be comparatively less, it should be taken into consideration, that Hong Kong has a thriving local business community as well. This is very conducive to foreign businesses as it can collaborate and cooperate more easily than most local businesses in other countries are willing to do so. Apart from this, the openness of the economy itself i.e. minimal intervention by the state is an added incentive. Companies do not have to undergo close scrutiny and may even work their way around most laws since they are not strictly enforced. For a company that is looking to manufacture export goods, Hong Kong may provide easy access to all the raw materials required since what Mainland China produces is all for export. Local businesses therefore, have experience in exporting goods and hence, know what kinds of materials etc are required for such goods as well. Apart from this, any other foreign company that wants exposure in a thoroughly cosmopolitan and well connected economy would definitely choose to invest in Hong Kong. Bibliography 1) “Hong Kong Business Environment” Retrieved May 22, 2008 < http://www.lowtax.net/lowtax/html/hongkong/jhkben.html> 2) “Hong Kong-China economic integration creates new opportunities” Press Release, 2005. Retrieved May 22, 2008 Read More