Hong Kong is known as the city of life. In order to start a business in Hong Kong we must analyze the five environmental factors. These factors include the cultural and social environment, the political and legal environment, the economic and technological environment, and the competitive environment. Understanding the uncontrollable environments is essential in the formation of a new company in a foreign land.

Hong Kong territory is divided into three parts of Southeast Asia; they are Kowloon, Lantau Island, and Hong Kong Island. The terrain ranges from hilly to mountainous. The climate is "tropical monsoon, with cool and humid in the winter, hot and rainy from spring to summer, and warm and sunny in the fall." Hong Kong’s current environment situation is high "air and water pollution from rapid urbanization". It is often referred to as the "City of Life", because of the extremely fast-paced way of living.

As of July 1998, the population of Hong Kong is 6,706,965. Eighteen percent of the population is 0-14 years of age, 71% is 15-64, and 11% is 65 and older. 95% of the population is Chinese; British, Indian, North American, Filipino or other Asian background makes up the other 5% of the population. The primary languages spoken are Chinese (Cantonese dialect), and English. Most people learn to speak English for job security. The majority of the population (92.2%) has received some form of education. The predominant religions are Buddhism, Confucianism, and Taoism.

The native people of Hong Kong follow Confucianism as a guide for social behavior and religion. It emphasizes respect, duty, loyalty, sincerity, and courage. This shapes the world of the Chinese. Their first duty is to their family. There is a deep respect for hierarchy. Confucius taught that humans were unequal. Age and rank are respected. The young must respect elders, and, in turn, the elders must reward the younger for good work. The Chinese respects the advice of their elders. Everyone is taught that the family is reliable, and a source of identity, protection, trust and strength. Many children live with their parents through marriage. The woman usually moves in with the male and his parents. The Chinese want harmony in all matters. They avoid confrontation, interrupting others, raising their voices, and displaying impatience. Humility and modesty are also teachings of Confucius, and the Chinese try to follow them.

Gifts are given to express friendship, to symbolize hope, and to show appreciation. They are tangible evidence of sincerity. They avoid giving flowers, and clocks, which both symbolize death. Personal displays of affection bother the people of Hong Kong, but good friends are often seen holding hands or linking arms. Winking, eating in front of others, blowing ones nose, and chewing gum are all viewed as impolite.

This lifestyle affects the lives of the children living in Hong Kong. They attend school, and some of them work. Entertainment for children includes popular toys such as Pokemon, electronic toys, video games, Hello Kitty, Snoopy, Furby, Disney characters, and more. Pokemon, "shorthand in Japanese for Pocket Monsters", is not only a craze in Hong Kong, but also in many other places. It started out as a video game, became a cartoon, and has escalated into miniature toys, card games, electronic pets, and more. These toys are for young children and teen, both boys and girls. Electronic toys are the favorite toys of pre-teens across the world. They include kiddy computers, electronic learning toys, electronic animals, and more. Video games have also captured the heart of young children, and young adults. There are many types of different video games; learning, fantasy, adventure, theme and strategy are just a few. Hello Kitty, a toy designed 25 years ago for young children, has become a favorite again for young children and young adults. The craze started when it became part of McDonald’s promotions. Snoopy was also redeemed this way. Furby is a fun, little animal that has its own language, can talk to other furbies, and interacts with pre-teen children. The popularity of Disney animation and toys, with people of all ages, has sparked talk of a theme park opening in Hong Kong. Nightclubs and movies are also popular among young people.

The people of Hong Kong work long hours in a fast paced environment. Their concept of leisure is laziness. Their relationships in business are based on trust and respect. They like to have a relationship with the people they are doing business with. When they are constructing a new building a feng shui man must be consulted first. The feng shui consults the Earth Dragon, over which flows Heaven-Earth-Air currents. He looks at the currents to determine which part of the dragon a building would rest on. If the building rests on its back, that position is ideal. If the building rests on its neck or head, the currents would not be good; if it rests on its eyeball, a new location must be found. Once built, the interior of the building must be aligned to prevent bad spirits from coming in.

Punctuality is key in all business practices, even if it affects the quality of goods being produced. Cash is often exchanged as an act of gift giving, and is not viewed as a corrupt business practice. Business cards are given frequently. They are to be handed over using two hands. It is then expected, out of respect, for the person receiving it to review it for a few seconds. Business dress is formal at all times. Gifts are given to neighboring businesses to show respect for them.

These details just scratch the surface of the culture in Hong Kong. But they show how important this environment is if you are planning a business in this part of the world.

POLITICAL & LEGAL

The most important procedure when starting a company in Hong Kong is the registration of the business. All businesses must obtain a Business Registration Certificate. Businesses must register with the Inland Revenue Department within one month of the start of the new company. The registration must also be renewed annually.

The following are a list of licenses and certificates that are required in order to operate a toy manufacturing company:

1. Business/ Branch Registration Certificate
2. Certificate of Approval for Furnace, Oven and Chimney
3. Registration of Boilers and Pressure Vessels
4. Recognition of Suspended Working Platform Worker Training Course and Specified Crane Operator Training Course
5. Certificate of Origin and Factory Registration

In Hong Kong there is no minimum wage. The economic forces of supply and demand essentially determine the wages. Wages are usually calculated on hourly, daily, monthly, or piece rates. Wages are often very low for the hours that the workers put in each pay period.

The benefits that the employees receive are very similar to the benefits most American employees would receive. There is a New Year bonus, which is equal to one month’s extra pay. In addition there are medical allowances, subsidized meals, good attendance bonuses, paid rest days (vacation), subsidized transport, and free or subsidized accommodations.

On July 1, 1997 Hong Kong, which was formerly a British colony, was handed over to China. When this happened there arose a lot of concern within the business world of what would happen when Communist China takes over Hong Kong. Some people felt that it would be good for Hong Kong, while others frowned upon the deal.

Although there is not a consensus on this issue many people feel that the change will be mutually beneficial. According to Asian Business magazine in 1993, 72% of business executives felt positive about China’s future. Most business people are very optimistic about the future because they feel that there will be high opportunities and low risk in Hong Kong¹. Many executives are confident because they believe that their clients will not trust the Mainland Chinese and will continue to rely on them¹. Another reason executives are very confident is because Mainland China can tap into one of the world’s largest capital markets. This would provide strength to those companies and go along way toward westernizing them.

Just as there are people who look forward to the change there are also people who are not optimistic about the state of business in Hong Kong. Many of the Chinese people are so nervous they have sent billions of US dollars out of the colony and the demand for foreign passports and visas is soaring. Some people agree that the change will be good for the big businesses. However it will hurt small businesses because they less of a chance of being financed by international banks. This would leave them uninsured against political uncertainty. Also large businesses are in a better position to establish good relationships with senior government leaders. This support would provide them a short cut to success in doing business with China⁵.

At present time, economic conditions are very interesting for Hong Kong. This is due to China's assimilation of the former British territory. The agreement signed by China and the UK on December 19, 1984 resulted in China's takeover of Hong Kong, creating the Hong Kong Special Administrative Region (SAR) of China on July 1, 1997 ⁴. One problem is that China and Hong Kong are based on different economical systems. China is a communist country, which in business terms means that their government has a strong influence in almost every aspect of commerce. Hong Kong on the other hand, enjoys a capitalist system. "Its open economy is built on free trade, free enterprise and a level playing-field for business." The country has even been labeled as "the freest marketplace in the world". The law of supply and demand drives all fair market prices.

China has stated that it will incorporate a "one country, two systems" approach for the takeover of Hong Kong⁷. So the country will enjoy autonomy in all matters except for foreign and defensive affairs⁷. This is very important for the future of business commerce in Hong Kong. The merge should supply Hong Kong with cheaper resources, while China enjoys the benefits of owning one of the busiest market places in the world.

Historically, economic conditions for the country have fluctuated, especially in recent years. The real GDP (Gross Domestic Product), a major indicator of economic conditions, "…grew a remarkable 8% in 1987-88 and a still strong 5% in 1989-97. The widespread Asian economic difficulties in 1998 hit this trade-dependent economy quite hard, with GDP down 5%.²" Fortunately, economic conditions in Asia have been improving in the past year. The country is also highly dependent on international trade. According to the World Trade Organization, "Hong Kong ranked as one of the leaders in world trade." ³ The reason for this is because the country is so small (1,092 square kilometers) that it's natural resources are limited ⁴. So everything from food to manufacturing material must be imported from foreign countries.

Here is a profile list of Hong Kong's economic accomplishments:

1. More than 80% of GDP derived from services.
2. World's 9^th largest exporter of services, second only to Japan in Asia.
3. Second largest stock market in Asia; fourth largest banking center.
4. Most popular tourist destination in Asia.
5. One of the world’s most prolific film and entertainment industry. ⁵

Economic conditions for the toy market in Hong Kong have been adversely affected by the takeover by China. In the toy industry "…the average number of persons employed has fallen over the years as a result of rising labor costs, increased process automation, and the shift of labor-intensive production process from Hong Kong to China." ⁵ The manufacturing labor force in Hong Kong represents 9.2% of the entire working population. One possible influence China might have is the immigration of Chinese citizens into Hong Kong. This will cause a problem because there will be a large supply of cheap labor. The consequence could mean higher unemployment rates for the natives.

When it comes to the basics for doing business, Hong Kong has an excellent infrastructure ready to support commerce. "Over the last few years Hong Kong has upgraded its transportation and trading infrastructure, re-tooling for the 21^st century." As of 1998, the country has a new international airport and a new metro line². These new features set the table for the basics of an infrastructure designed to promote massive trading.

Hong Kong is ahead of its time when compared to the rest of Asia. There are plenty of business opportunities for "firms offering products or services for telecommunications, computers, biotechnology, industrial automation and environmental engineering…" ^3. Historically, this country has been on the cutting edge of technology. The following is a profile list showing Hong Kong's technological achievements and business capabilities:

1. Was the first major city in the world to have a fully digitized telephone network.
2. The highest rate of telephone penetration in Asia and third highest rate of business fax use in the world.
3. Boasts 14 satellite broadcasters uplinking signals to Asia. Local terrestrial, satellite and cable operators offer a combined service of more than 40 channels.
4. More than 100 Internet Service Providers. ⁴

This shows that Hong Kong is ready for the next trend in business…E-commerce.

Although it is not comparable to the United States, the business environment in Hong Kong is continuously growing more competitive. Because of this, the cost and ease of entering a particular market is much less than it is in the United States ⁵. But, a company entering the market in Hong Kong is competing not only with other Hong Kong businesses, but foreign companies, US industries in particular, that have invaded the Hong Kong market ⁶.

The Hong Kong Productivity Council (HKPC) along with the American company Unigraphics Solutions Inc, developed a program to help small to medium sized manufacturing companies become more competitive. HKPC hopes to achieve a greater level of competition in Hong Kong through access to the latest integrated design and manufacturing technologies.

Hong Kong businesses are also discovering the advantages of the Internet. These new innovations will be two of the main focuses of competition for Hong Kong in the future ².

When entering the toy market, a business has to analyze not only competition from other toy manufacturers, but also competition from other industries. In Hong Kong, parents spend money in many other industries that compete with the toy market. These industries range from candy to family vacations.

One major competitor with the toy industry is amusement parks. One of Hong Kong’s famous amusement parks and top tourist attraction, Ocean Park, has acquired a new attraction that includes two new panda bears . Also, The negotiations with Disney to build a theme park are underway . Many parents may opt to spend entertainment money for their children on these new facilities rather than invest then in toys. On the flip side, There has been a deterioration in many tourist attraction such as Repulse Bay. Reports of rubbish, filth, and lack of control may deter many Hong Kong consumers from attending these facilities .

Another industry in competition with the toy market is the movies. The film industry is still growing, though not at the rapid pace of the 1980’s. There is a strong market for movies in Hong Kong and children idolize heroes such as Jackie Chan. It would be wise to watch this market because it is in a similar price range as most toys .

The Hong Kong toy industry is the fourth biggest sector in the economy . Hong Kong also retains a high level of quality and expertise in toys. Due to the increases of competition in the toy industry, margins are becoming more stagnant. Hong Kong companies are trying to stay ahead of the competition by implementing the just-in-time theory of inventory and by discovering the advantages of the Internet.

Although there is a slight increase in competition from rival ports in southern China, they have a hard time competing with Hong Kong because of poor infrastructure. There is now competition with the United States company, Toys-R-Us, who signed a joint venture with Li and Fung Retailing, a privately held Hong Kong business .

Another strong competitor would be Vtech, a company that controls 80% of the world market of educational toys ¹. Some competitors have web sites where consumers can purchase their products through the Internet. Here are two Web sites of major competitors in the region.

http://www.toytw.com.hk/index.html

http://www.hopkwentoys.com/

Presently, our main objective is to research the uncontrollable environmental factors in Hong Kong so that we can have a better understanding of how to manipulate the 4 P’s. Because there is no set product at this point in time, the necessary resources are not known. Most dolls are made of plastic, so analysis of this industry may be beneficial. However, until we reach an agreement on our product we can only take into consideration how these factors will influence our business practices.

After a careful analysis of these factors, we have concluded that our company’s product can thrive in this environment. Our product, which will be a doll for a small child, has the ability to enter the market and flourish in this society/culture. We believe our product will succeed in this environment for a number of reasons. First of all, the Hong Kong economy is doing well in comparison to the rest of Asia. The citizens are more well off then their neighbors in the surrounding area (such as China). The unemployment rate is low, so families have money to spend. Despite the small size of Hong Kong, there is an extremely dense population. Due to the technological advancement of the area, we will be able to promote and distribute our product in a number of ways, for example, over television or the Internet. The political/legal environment is very business friendly; they have a "laissez-faire" attitude towards the local businesses because it is a capitalist market. The only problem is the competitive environment, which will be cutthroat. There are many toy manufacturers in the area that are already well established (i.e. infrastructure). But we feel confident that our company will come up with a quality product that will ensure our place in the toy market.