5

Human Resource Management in Hong Kong

Andrew Chan and Derek Man

Introduction

To understand the current challenges and future prospects of HRM in Hong Kong, we take a historical perspective in this chapter and review Hong Kong’s wider cultural, social and economic context since the 1980s. We recount the unfolding of HR practices as the city evolved from an enclave economy to a metropolitan business and financial centre. According to recent statements by officials, the vision of Hong Kong is to re-position itself as the world’s most service-oriented, knowledge-based economy that capitalises on its strength in value-added producer services to complement the growth of the Chinese economy.

We agree with Budhwar, Schuler and Sparrow (2009) that HRM practices are largely driven by external factors – in Hong Kong, the most important factors are economic conditions, company size and the owner’s background and culture. In spite of much discussion over the aims of HRM in academic literature, we consider for the purpose of this chapter that HRM in Hong Kong comprises a set of practices followed by employers in order to maintain relationships with employees.

Preferences and shifts in company policies, regarding human power and succession planning, recruitment, training, performance evaluation and compensation management are predominantly determined by whether the owner’s business is prospering, struggling or merely surviving. In a free economy like Hong Kong, where more than 90 per cent of employers are small enterprises, HR policies and practices have a direct causal relationship with business realities. It makes sense, therefore, to maintain an optimum relationship with employees through versatile HR practices.

This chapter sketches a profile of the key features influencing the development of HRM in Hong Kong. For employers in Hong Kong, HRM refers to management practices used for regulating relationships with employees in sizable organisations, including Chinese family-owned business conglomerates, the Hong Kong civil service, quasi-governmental organisations and subsidiaries of foreign companies in Hong Kong. This chapter is organised into four parts. We first trace the development of HRM in Hong Kong during the last thirty-two years in order to explicate what happens in workplace employee relations today. We then account for the role of HRM in different business settings. This is followed by a discussion of selected contingent factors that impinge on the development of some key HR practices in the unique setting of Hong Kong. Lastly, we review the prospects and challenges facing HRM in Hong Kong today.

The Development of HRM in Hong Kong

Early Service-Base (1980s)

During the 1980s, growth of manufacturing in Hong Kong slowed as small-scale manufacturing companies faced protectionism from advanced economies and shortage of affordable land and factory space within the city. To maintain their cost advantage, these companies started relocating their labour-intensive production facilities to China where land and labour were inexpensive and abundant. Their logistics and support functions, however, were kept in Hong Kong. Thus small companies with a dozen employees in Hong Kong are able to comfortably oversee the running of a factory with several production lines and hundreds of workers in China. At the same time, Hong Kong gradually built itself up as a trade support centre. It became a hub for traders and business people looking for financial services such as seed money from merchant banks and help from investment banks for raising capital by initial public offerings (IPOs). Taking advantage of China’s open door policy, many companies engaged in re-export activities to and from China in the early eighties, and Hong Kong regained its role as a very active entrepôt.

The Sino–British Joint Declaration that announced the reversion of sovereignty over Hong Kong to China thirteen years later was signed in 1984. After that Hong Kong’s social, economic and cultural integration with China gathered momentum, which created uncertainty among the people and led to high emigration, causing a brain-drain of managerial and professional personnel to countries like Australia, Canada, New Zealand and Singapore, especially in the ten years between 1984 and 1994. This resulted in a widespread surge in real wages and increased costs in the service sector from 1986 onwards (Chen, 2000).

The completely different patterns of development in service and manufacturing sectors posed two HRM issues. First, as manufacturing companies split their operations between Hong Kong and South China, they needed a specific set of HRM practices to optimise employee relationships as they had to deal fairly in the midst of intricate issues of workplace diversity, pay differentials and differences between legal systems in the two places. Second, the thriving service sector demanded more skilled human resources than the residual labour-intensive manufacturing sector, and this created a scarcity of labour. A falling birth rate in Hong Kong, outward emigration by the middle class and tightened border controls on illegal entrants from China added to the problem (Chen, 2000; Chiu and Levin, 1993).

The Hong Kong government at that time used various measures to address the critical issue of labour scarcity. These included the setting up of a quasi-governmental body, the Vocational Training Council, in 1982. The council was responsible for identifying human power and training needs and providing training in industrial, technical and management skills to the Hong Kong workforce. This was followed by expansion of tertiary education opportunities for secondary school graduates, with a target of placing 18 per cent of the eligible age group in degree or sub-degree programs. The government also launched successive labour importation schemes throughout the early 1990s for the purpose of addressing labour shortages in specific industries (Ng and Wright, 2002).

At the company level, more effective channels of recruitment were explored. Newspaper advertisements was the most often used recruitment method. Interestingly, Chinese newspapers were generally used for lower level employment while local English newspapers were used for senior level employment. This segregation has continued into the 2000s. Employment agencies became more popular, and executive search firms came to be used for top level vacancies, at least by larger companies, which also started to invest more in training and development in order to retain employees and reduce turnover. Relatively more structured succession planning and promotion from entry-level positions became slightly better accepted practices among private enterprises.

Kirkbride and Tang (1989) provided a general review of HRM practices in Hong Kong based on a survey conducted in 1988 of 361 companies. They concluded that HRM policies in Hong Kong were not very sophisticated compared with developed countries. In-house training focused narrowly on technical and vocational abilities while management skills received scant attention. Although formal appraisal systems were common, they were often accompanied by employee collusion and inadequate appraisal training. In terms of time spent on HR issues, respondents in that survey reported spending most of their time on recruitment, followed by employee relations, human power planning, pay administration, training and appraisal. The importance of recruitment again reflected the scarcity of labour in the society at the time.

Full Service-Base (1990s)

The 1990s saw Hong Kong successfully positioning itself as an international commercial, business and financial centre. The de-industrialisation of Hong Kong was followed by a re-commercialisation process that saw growth in financial, banking and business sub-sectors throughout this decade. According to government economists, more than 80 per cent of Hong Kong’s gross domestic product (GDP) comes from commercial and service-oriented activities, one of the highest percentages in the world. On the other hand, during this decade, manufacturing shrank below 10 per cent of GDP (Chen, 2000). Enright, Scott and Leung (1999) argued that Hong Kong focused on developing value-added producer services that supported production of goods and services by others, as opposed to consumption services. As producer services were subject to increasing returns to scale and attracted further services to cluster together, it became logical for more multinational corporations (MNCs) to choose Hong Kong as their regional headquarters. During the 1990s, more than 2,000 MNCs had regional offices or headquarters in Hong Kong, including more than 200 Fortune 500 companies.

Another feature of Hong Kong’s service sector is its external orientation, as a service hub for China and Asia. Repercussions of the 4 June 1989 crackdown on student demonstrators in Beijing haunted HR managers well into the 1990s in the run-up to reversion to China of sovereignty over Hong Kong. During this period, there still was considerable labour shortage in many sectors, and it was intensified by substantial outward migration of professionals and other workers. It was at this time that companies of all sizes began to provide more internal training and more promotion opportunities.

On a macro level, the government set up the Employee Retraining Board in 1992 to deal with the imbalance between demand and availability of workers for industrial and service jobs. As the business situation became more complex with globalisation, rapid environmental changes and increased competition, a closer partnership between HRM and firm strategy became more accepted, and this paved the way for HR managers to play a more strategic role in their organisations.

In 1995, the government established the Equal Opportunities Commission with the aim of protecting individuals against prejudices in terms of age, gender, religion, family status and physical or mental handicaps. Anti-discrimination ordinances on gender (1996), disability (1996) and family status (1997) were passed. These have implications for employers in areas of recruitment (such as newspaper job advertisements) and the provision of access to facilities and benefits in the workplace. This has kept Hong Kong’s labour regulations in line with international norms in terms of workplace amenities and employment standards.

HR practices have become more sophisticated to meet the needs of the increasingly services dominated economy. For instance, Ng (1997) noted that increased training and internal promotion were being provided to junior staff. Snape et al. (1998) found the use of performance appraisal to be more widespread in Hong Kong than in Britain, but that the process tended to be more directive and less participative in Hong Kong. McCormick (2001) rightly pointed out the need to use more term-based appraisals to suit the local collectivist and group culture.

However, a survey of more than 1,000 medium and large companies in 1991 showed that only 33 per cent employed full-time HRM personnel. Of these, 3.9 per cent were appointed at a strategic job level (HKVTC, 1992). Two subsequent large scale surveys in 1995 (see Tang, Lai and Kirkbride, 1995; Cheung, 1998) conducted by the Hong Kong Institute of HRM showed the limited influence of HR in Hong Kong companies on strategic issues such as human power planning, changes in work culture of the organisation and the introduction of new technologies. These two surveys showed that while HRM was becoming more important, it still played a limited role in a strategic sense. This perception has since changed, as we shall see later.

Restructuring Phase and a Time of Turbulence (2000s)

In 1997, Hong Kong reintegrated with China as a Special Administrative Region, retaining its laws and institutions. The Asian Financial Crisis of 1997 struck a huge blow to Hong Kong’s externally oriented service-based economy. The post-1997 crisis environment in Asia was one of rapid globalisation. Traditional inter-firm relations were reshuffled, and the industrial environment became highly competitive (Kidd, Li and Richter, 2001). Other complex issues also emerged. Labour importation schemes were introduced to bring more skilled labour into Hong Kong to address the brain-drain before the hand-over. Seeing that the political environment was stable after the hand-over, emigrants started returning to Hong Kong. Unfortunately, the financial crisis and a depressed property market created a very unfavorable situation for employment. The outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003 further aggravated the problem. The seasonally adjusted unemployment rate increased from 7.2 per cent in the fourth quarter of 2002 to 8.7 per cent in May–July 2003. HRM faced tremendous challenges during this phase.

Companies in Hong Kong painfully adjusted to this new business environment with revised HR measures (Cheung et al., 2000; Fosh et al., 1999). They became more cautious in recruitment and moved towards performance-based compensation. Companies also needed to address new HR issues. The Mandatory Provident Fund (MPF) scheme was introduced in 2000. Under this scheme, both employers and employees are required to contribute to employees’ retirement benefits. It was a belated government response to the call for provision of basic employee benefits for the general labour force. Similar schemes have been set up much earlier in other Asian countries such as Malaysia (in 1951) and Singapore (in 1955). However, the MPF in Hong Kong has retained features of high risk and a privatised nature (Ng and Wright, 2002). At the same time, its introduction in the midst of an economic downturn drew criticism that it represented an extra burden on the cost of running a business. Due to a tougher business environment with increased competition and operational costs, organisation downsizing, employee retrenchment and labour disputes became more common phenomena. Chu and Siu (2001) reported how some small companies in Hong Kong faced the crisis by first cutting staff development funds and wages, using layoffs only as the last resort, in order to try to prevent employee morale from declining. On the other hand, industrial conflicts in large companies were still notable. The more prominent ones were the pilot pay dispute at Cathay Pacific Airlines in 1999 followed by labour disputes, pay cuts and redundancies at Pacific Century CyberWorks Ltd in 2002.

Being majority Chinese, who are mostly industrious, versatile and resilient, the people of Hong Kong are well known for their ability to survive even under great economic turbulence. With the passing of SARS in 2003 came a time of economic recovery. However, organisations, having survived the down time with a reduced labour force and the cutting of numerous jobs, were now more reluctant to go back to the previous mode and scale of operations. They were much more cautious in hiring and tried to have fewer people doing more. This put greater emphasis on selecting the right employees and expanding their job scopes through training and development. The bottom-line has become the key issue and HRM is viewed as more of a strategic tool to enhance company performance. The concept of strategic HRM has become much more prevalent, especially in large and multinational corporations. More companies adopted strategic HRM than traditional HRM. Training was often provided to employees to address changes in products, new technology and organisational re-engineering. Results-oriented performance appraisal with targets to meet was more widely used at all levels of staff. There was also more outsourcing of HR functions, particularly in training, development and recruitment. This amply reflected the vibrant environment and the adaptation of HRM to be tied to the bottom-line.

Riding the Next Wave (Beyond 2012)

Now Hong Kong’s economy relies primarily on services, comprising the four pillar industries identified by the Chief Executive in his policy address in 2007: finance, logistics, tourism, and information services (Tsang, 2007). Given the nature of these industries and their inter-dependence with the rest of the world, Hong Kong was by no means immune to the big waves created by the financial tsunami in 2008. The downgrading of US fiduciary instruments by Standards and Poor in 2011 further shocked the whole business world. Although nobody can predict for certain when and in what form the next big wave will strike, it must be accepted that the times are turbulent and that ripples and changes are here to stay. It is also predicted that new challenges in HRM will continue to emerge. The foreseeable challenges are, among many, changes that are brought about by increased globalisation and corporate transparency, continual legislative intervention and government policy involvement in employee welfare, changing demographics, an ageing population and the diversity of the workforce. All these changes will have significant and long-lasting implications for HRM in Hong Kong.

Continuing globalisation is generating more opportunities but also, at the same time, more competition and vulnerability. Hiring the right people and retaining talent are challenges given the mobility of the workforce. Job descriptions have to be much more flexible and dynamic. Employees have to constantly expand and upgrade their skill sets in order to deal with the latest developments in both knowledge and technology. Recruitment, training and development, remuneration and benefits all have to be strategically linked in order to attract and retain the right talent. Outsourcing and efficient utilisation of resources, particularly human capital management, has to be high on the priority list. A strong correlation has been found between human capital and economic development (Hart and Tian, 2009). Not only does HRM have to decide what functions are to be outsourced, but it also has to manage the expectations from the outsourced functions. It should, however, be cautioned that aspects of HRM like talent management and employee relations should not be outsourced.

Evidence of legislation, that is, government policy initiatives, affecting HRM has been very apparent and this trend is likely to continue. Launching of the Qualifications Framework (QF) in Hong Kong in 2008 stresses the importance of life-long learning. Organisations and professional bodies are taking the issue of training and development much more seriously. Licence and membership renewal for some professions is now contingent upon practitioners undergoing continued professional development (CPD) courses for a minimum number of hours per year. Such requirements have prompted HR managers to put in more thoughts into training and development programs that they may have to go through for accreditation by designated authorities. In the same year, the racial discrimination ordinance was promulgated to protect ethnic minorities, particularly the South Asians in Hong Kong. The minimum wage law in Hong Kong was introduced in May 2011. Controversies on operational issues like whether employees are entitled to be paid for lunch and rest time continue to be debated. On the one hand, increased operational cost is definitely an issue. On the other hand, organisations are also worried about their reputations as responsible and ethical employers. Another government initiative in the pipeline is the proposal for a privatised medical system. It is likely that medical benefits traditionally paid by employers will be shared by employees. The benefits program may be re-structured to operate on a cost-sharing basis. The percentage of compulsory contribution or the cap in the MPF scheme may also be amended to better protect employees’ retirement benefits. As a consequence, the cost of operations may go further up for employers.

We are also moving towards times of unusual demographics. On the one hand, the working population is ageing. On the other, the arrival of the new generation – Generation Y, Millennials, Netizens or whatever we call them – into the workplace has resulted in interesting dynamics and management issues. This is not to say that there never was in the history a generation gap and confrontations between different generations at the workplace, but the reality is that the gap or transition has never been so huge and multifaceted as it is now. Technological changes have brought about drastic differences in mentality, value systems and behaviours of the baby-boomers and Generation Y (Erickson, 2009; Hewlett, Sherbin and Sumberg, 2009). Communication, for one, is no longer relying on traditional means of face-to-face encounters. Instantaneous and electronic means of communication have revolutionised the way that recruitment and appraisals are done. More timely and spontaneous feedback has to be given. HRM work has to be undertaken by immediate supervisors and line managers also, implying the need for more training to be offered by the HR department. In addition, more generous career development opportunities have to be offered in order to retain the highly mobile and impatient youngsters.

We are indeed at a time and stage when we are facing unprecedented changes and challenges. While the role of HRM is to help a business succeed through its people, HR professionals must be able to ride the waves and survive the turbulence in order to carry out their missions and deliver results. They must possess the correct combinations of competencies in order to be recognised and taken seriously. According to a global Human Resources Competency Study (HRCS) conducted by Brockbank and Ulrich (2003), six competencies that deal with both people and business (namely, credible activist, culture and change steward, talent manager/organisational designer, strategy architect, operational executor and business ally) are required. The essence is that HR managers must go deeper into the business and be a real part of it. They must be able to understand the key drivers of the business, in addition to considering views of the employees. Its role in different business settings is, therefore, a fundamental concept not to be overlooked.

The Role of HRM in Different Business Settings

Next we examine the HRM function and the unique sets of issues that HRM has faced in different business settings in Hong Kong. We characterise these changes by looking at a spectrum of relative degrees of HRM partnership that underpinned HR policies and practices – from strategic partnership on one end to pragmatic administration at the other. This relative continuum of HRM involvement in business strategy is attributable to the size and ownership of firms. We outline the contours of HRM partnership found in two types of firms in Hong Kong: small and medium enterprises, and multinational corporations.

Small and Medium Enterprises

As in other Asian economies, a dual labour market exists in Hong Kong (Ng and Wright, 2002), made up of a primary sector and a secondary sector. Large private firms, the civil service and the quangos constitute the primary sector while small and medium enterprises (SMEs) constitute the secondary sector. SMEs (with fewer than 100 employees in manufacturing and fewer than 50 employees in non-manufacturing enterprises) make up the majority of businesses in Hong Kong. In March 2011 there were about 299,000 SMEs in Hong Kong. They accounted for more than 98 per cent of the total business units and provided job opportunities to more than 1.2 million persons, about 48 per cent of total employment (excluding civil service). Most of the SMEs were in import/export and wholesale trade, followed by the retail industry. They accounted for more than 50 per cent of SMEs in Hong Kong and represented about one half of SME employment (HKISD, 2011).

Compared with the primary sector, HRM practices in the secondary sector are ad hoc, much less structured and less formalised. Because of the small size, these firms have lean regimens that are able to manage only the sheer essentials of what may be called the core HRM functions. According to Cheung (2001), most SMEs provide limited on-the-job training to their employees as these employees can move around easily in Hong Kong’s free labour market. To retain employees, firms generally resort to a high pay strategy. This decision partly leads to a high-cost structure in these firms, and it greatly reduces their competitiveness in times of economic adversity.

To summarise, HRM plays only a minimal role in the overall management of SMEs. HRM is mainly non-strategic and administration focused and has low influence on a firm’s operations as far as small companies in Hong Kong are concerned.

Multinational Corporations

In June 2010, 1,285 companies had their regional headquarters in Hong Kong (Hong Kong Census and Statistics Department, 2010). The majority of them came from the United States, Japan and the United Kingdom. China has moved upward in the list recently. The major lines of business were wholesale and retail trade, and business services.

In HRM, MNCs need to deal with expatriation, repatriation, adjustment and adaptation of home-based practices to blend with local norms and the particular laws and regulations of the host nation. As MNCs are relatively more experienced in managing HR globally, the role of their HRM functions is more strategically oriented compared with other companies in Hong Kong. Most often cited in literature are MNCs’ well-managed management training programs and their structured, performance-based reward systems (Dowling, Welch and Schuler, 1999).

Research has consistently pointed to the differences between HRM practices followed by foreign firms and local firms operating in Hong Kong (Tsui and Lai, 2009). For instance, Shaw et al. (1993) found that British and American firms were more likely than local firms to use formal performance appraisal and technically sound methods of job evaluation. Ng and Chiu (1997) found that British and American firms were more likely to adopt women-friendly HR practices. Ngo et al. (1998) extended the comparison to Japanese firms and found that they were more likely to adopt seniority-based compensation than local Hong Kong firms but had no differences in provision of training and development, or in retention-oriented compensation. Fields, Chan and Akhtar (2000) found that foreign firms tended to spend more effort on securing and retaining managers. Contrary to the above, McGraw (2001), however, found relatively minor differences between the HR practices of local and foreign firms and supported a global convergence of HR practices.

Contingent Factors Shaping HRM

At the beginning of this chapter, we referred to Budhwar, Schuler and Sparrow (2009) who suggested a way forward to research international HRM practices. There, the factors that affect HRM practices in any country or culture are categorised into national factors, organisational strategies and policies, and other contingent variables. As we trace the historical development of HRM in Hong Kong, three such contingent variables stand out as influential in shaping the present state of HRM practices: legal and institutional factors, the China factor and globalisation.

Legal and Institutional Factors

The free market principles underlying the economy, coupled with the weak bargaining power of labour unions and the Chinese culture of paternalism engendered what Ng and Wright (2002) talked of as institutional permissiveness in the workplace. Institutional permissiveness refers to loose and informal regulatory institutions in the labour market that help maintain harmonious industrial relations. This is reflected in the relatively weak legal regulations. The Hong Kong government has so far regulated the labour market and employment mainly through the Employment Ordinance of Hong Kong. Although we see an increasing trend of government involvement, intervention is still on the mild side, compared with most Western countries. Introduction of the MPF scheme and the minimum wage law seem to be the strictest regulations introduced thus far.

According to government statistics, there were 824 registered trade unions in Hong Kong in 2010. Of these, only 107 unions had declared a membership of more than 1,000 (Registry of Trade Unions, Hong Kong Labour Department, 2011). The role of trade unions in Hong Kong has remained weak. Snape and Chan (1999) offer three reasons for this: the small size of establishments in manufacturing and private sector service organisations, cultural resistance of workers towards joining unions and openly challenging their employers, and employers’ hostility towards unions.

Surveys have shown that the role of unions in pay negotiations in the private sector has been limited (Cheung, 1998, 2001; Tang, Lai and Kirkbride, 1995). Instead of work-related issues, unions engage mostly in activities outside of the workplace, such as organising recreational and social activities, and providing educational and health services to members. However, collective bargaining has become more common after the Asian Financial Crisis. Several high-profile strikes were reported in large private companies, such as the cases of Cathay Pacific and PCCW Ltd mentioned earlier. Ng (1997) suggested that this may signal a change in the way that conflicts between firms and employees are handled, as a more Western-style adversarial approach is adopted. The consequence of institutional permissiveness in HRM is that managers can adopt a set of highly versatile and relatively flexible HR practices based on individual employment contracts (Cheung et al., 2000; Ng and Wright, 2002).

The China Factor

The economic and political development of Hong Kong is closely linked to China. This factor affects HRM development through labour supply and opportunities for businesses of all types. Two waves of immigration from China have provided the needed labour in Hong Kong at crucial moments (Chen, 2000). The first wave of immigrants came to Hong Kong in the early 1950s, when the Communist Party came to power. The huge influx of refugees brought capital and entrepreneurial skills. This generation of immigrants formed the source of labour throughout Hong Kong’s industrialisation in the following decade. The second wave of immigration during the 1970s, consisting of illegal immigrants, provided a large pool of cheap labour to Hong Kong at the time of its rapid industrialisation.

The China factor has also been influential in attracting MNCs to Hong Kong. In order to tap into the huge China market for their products, MNCs have often opted to set up their headquarters in Hong Kong in order to test the waters. These MNCs brought with them new HRM skills and procedures. Local companies benefit from their presence by imitating these HR practices. Indeed, some researchers suggest that MNCs may have been the major impetus towards increasing personnel sophistication (Budhwar, Schuler and Sparrow, 2009).

Globalisation

The effect of globalisation on Hong Kong may be much stronger than elsewhere because of its externally oriented and open economy. To enhance its legitimacy as a global business partner, Hong Kong has adopted international industrial regulations and set up human rights watchdogs such as the Equal Opportunities Commission. This commission has mainly adopted a non-coercive approach, focusing on conciliation and public education rather than invoking its statutory power to issue enforcement notices against non-compliance (Ng and Wright, 2002).

Globalisation has opened Hong Kong to external market forces, and its influence in directing HRM development in Hong Kong was particularly crucial in the 1980s and 1990s. In the early 1980s, Hong Kong’s manufacturing firms moved their operations first into Southern China and then to Southeast Asia. At that time, this development solved the labour scarcity problem. In hindsight, we suggest that this may have slowed down the development of HRM in Hong Kong, especially in terms of training and skills development. In the 1990s, facing a fast changing global market, firms had to be adaptive, fast to change and efficient. Globalisation resulted in China becoming the global production site, supporting Hong Kong’s service role. In our view, China’s entry into the World Trade Organization in 2001 has clearly provided an impetus for any firm to use more developed HR practices and will accelerate the need for high-quality employees in the foreseeable future.

Future Prospects of HRM in Hong Kong

The last part presents a point–counterpoint discussion about the future of Hong Kong and the implications for the future of HRM. Economic swings dictate HRM activities in corporations, big or small. Familiar tactics like salary cuts, redundancies, lay-offs, early retirement schemes, downsizing and corporate restructuring prevail. Insolvencies are not uncommon and, therefore, HR practitioners have been busy looking at ways to rationalise human power, minimise expenses and freeze hiring in order to sustain a low-cost operating environment.

Many HR practitioners are dealing with downsizing programs, budget cuts, salary cuts and early-retirement schemes. They are fine-tuning appraisal and performance management and putting very few resources into training and development. However, there are exceptions. Some employers hire aggressively, for example, in financial services, insurance, transport and logistics, information systems and property development. Broadly speaking, medium- and long-term HR planning should consider the declining birth rate and a greying population. Measures such as labour re-training, continuing education, importation of skilled labour, experts and professionals and the luring of investment emigrants are becoming standard steps.

Closer Economic Ties with China

Hong Kong has almost fully transformed into a truly metropolitan service economy and the HR scene in Hong Kong companies presents the corresponding new challenges. While Hong Kong retains the distinctive ‘one country, two systems’ for 50 years to 2047, Hong Kong will continue to offer businesses incentives like a low tax base, a liberal environment for movement of capital and freedom of exchange of information. As in other metropolitan economies, high value-added activities will continue to replace low value-added activities. Hong Kong’s strength is that it has established itself as a regional centre and one of the most service-oriented economies in the world, with producer services that support Hong Kong’s offshore production operations. In 2011, Hong Kong’s services sector accounted for more than 90 per cent of its GDP. The physical process of production of manufactures will play a less prominent role in Hong Kong’s GDP.

These trends constitute important signals to HR practitioners and their senior policy makers and strategists. Given that de-industrialisation of Hong Kong has materialised, Hong Kong must continue to focus on value-added producer services and related activities. Similar changes have been experienced in cities like New York and Tokyo. The outward relocation of manufacturing activities does not represent a ‘decline’ of this sector as far as Hong Kong capitalists are concerned. Hong Kong is a metropolitan business centre that provides value-added services and Hong Kong-based service providers, and offices of multinationals should be geared up to reap the first-mover advantage. Opportunities to compete for providing financial, business and professional services to China are highly likely to be available to Hong Kong-based companies. Markets there tend to be fragmented by China’s restrictions on foreign firms. As the regulatory environment changes and service sectors open up further, Hong Kong firms and their HR functions are advised to concentrate on even higher value services and attract, hire and retain employees in the fields of banking, finance, accounting, consulting and other similar activities.

A Knowledge Workforce for a Knowledge Economy

Given the importance of knowledge-intensive and the highest value-added activities in businesses, HRM priorities should be to allocate even more resources for supporting these activities. To help businesses meet their needs, university education should focus on training personnel for logistics management, process engineering, information systems, finance and management. We suggest to HR practitioners that the skills that will be in greatest demand are those involved in managing organisations, coordinating across borders, generating and processing information and communicating with international partners. For Hong Kong firms and their HR managers, the strategic focus should be on identifying long-term human resources’ needs. If they are to compete in the knowledge- and information-dominated economy, they had better become highly efficient in information processing. They must begin by knowing what staff they need, with what skills, how they can find and retrain them as needed, and how they can motivate them to work more effectively and raise their awareness of the need for life-long learning of skills for future roles. In-house career counselling and advice about training needs and opportunities will be very much needed.

Useful Websites (as of January 2012)

Government Departments

Hong Kong Government	www.gov.hk
Labour Department	www.info.gov.hk/labour
Government Information Services	www.info.gov.hk/isd/index.htm Department
Hong Kong Trade Development Council	www.tdc.org.hk
Employees Retraining Board	www.erb.org
Vocational Training Council	www.vtc.edu.hk

Non-government Organisations

Hong Kong Management Association	www.hkma.org.hk
Hong Kong Institute of Human Resource	www.hkihrm.org Management

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