I interviewed Matthew Gollop who discussed HK’s Evolving Role as Regional/Global Supply Chain Hub.
It’s good to speak with you today, Mat. Are you in the Shanghai area right now?
I’m actually in Singapore at the moment. We have three offices. Hong Kong’s our headquarters, we have a Shanghai office, but today I’m in Singapore.
Great. I look forward to hearing your views on trends as far as Hong Kong being in a global hub for global sourcing. Before we start, can you provide a brief background of yourself?
Absolutely. Just in summary, ConnectedGroup is a regional executive-recruitment-and-search business. We operate across those three locations that I mentioned, and we run about 70 to 80 staff. I run the group out of the Hong Kong office, but I also oversee our manufacturing-sourcing-supply chain division, which predominantly recruits in Asia, really from manufacturing, all the way through the supply chain, though predominantly between manufacturing and sourcing office. We work on opportunities from upper-mid to senior level. I personally work on the more senior searches. Location-wise, quite a lot out of Hong Kong but also southern China in the east, so Shanghai, and then in some outlying production offices. We recruit into Bangladesh, Cambodia, Vietnam, and then also looking at some emerging markets, like Myanmar as well.
Thanks. Can you talk about the trends you see as far as Hong Kong being a global sourcing hub?
I think probably the key trend that we’ve seen over, really if you look over the past five to ten years, there’s been a bit of a cycle, so we’ve seen organizations migrate sourcing offices from Hong Kong and move them to either southern China or Shanghai, depending on the nature of the product base and their manufacturing base. Part of the drive for that is obviously cost. I think the salary costs in those locations on average are lower, and that was a major driver. Also, to be closer to manufacturing partners.
More recent, really more so in the past two to three years, is a return of some of those offices or individuals back to Hong Kong for a number of reasons. We’ve seen at the senior level particularly, if you’re talking about expatriates, talent, the cost of having those individuals on the ground somewhere like Shanghai is actually more expensive than in Hong Kong. The cost of schooling in China, international schooling, is much higher than Hong Kong. Individuals need car drivers; the expectation for an expatriate package is much higher, so that’s been a major factor.
What we also see is that whilst the operational level of staff is technically adept in China and very capable of dealing directly with China-based manufacturers, what they struggle to do is transcend the cultural boundary between the Chinese operation and the overseas operations. If you have a merchandising sourcing manager in Shanghai trying to deal with a supplier in Bangladesh, all of a sudden, the advantages you previously had evaporate very quickly, and it’s very hard to do business, to gain the necessary advantages.
What we see is a sort of migration of more of the strategic office back to Hong Kong; what’s coming back is a smaller, leaner operation where you have more regional capability, more strategic capability. Then, left on the ground in China is a lot of the technical capabilities; quality, production management remains on the ground because that’s where the cost savings can be gained. That’s kind of the general trend we see.
The market volumes are increasing; i.e., the product-shipment volumes have been going up but slowly to both the U.S. and to Europe more recently. What we then see as a result of that is a continued focus on Asia as a sourcing hub. Organizations, however, are tending to look at how they can achieve more with less and how they can really drive efficiencies through the supply chain because of the increasing cost of salaries, particularly in China. It’s not just a China issue; if you look at even emerging markets like Bangladesh, Vietnam, Philippines, Cambodia, they’re all suffering from the same rapid increase in cost. And China still offers the better quality, greater technical capability, and the capacity that is never going to be matched by other locations.
We see this sort of diversification into emerging markets mainly in the soft line sectors, but mainly apparel; that is starting to grow into accessories and leather goods, where people like Coach have set some standards. Fundamentally, organizations realize that the cheaper cost of the locations that we’re talking about is not necessarily going to be the long-term advantage, and as a result, they’re trying to drive much greater efficiencies through the supply chain.
What we’re seeing is the shift from China back to Hong Kong or a greater emphasis on Hong Kong as the global, or certainly, regional sourcing hub. And in that location they try to identify the type of talent that can bring value to their manufacturing partners. The type of skill sets we’re looking for, really, are those people who can go out and consult with the manufacturing partners, really focus on the value chain rather than just the supply chain, and increase efficiencies as a way of sharing in cost reductions on the ship moving forward.
Regarding from a talent angle, do you have any recommendations for companies regarding the trends that are happening as far as salary and packages? What are some differences between Hong Kong and Shanghai in terms of the talent angle?
I think the key…there are a couple of factors there. If you look at the sourcing space, where I probably spend most of my time talking to talent, what I would say is that they’re still very heavily reliant on a candidate universe of overseas talent at a leadership level. We see expatriates running the sourcing operations in that kind of general-management capacity or in seating leadership roles in larger organizations.
For those types of individuals, China is probably a less attractive location. Shanghai compared with Hong Kong tends to be a less attractive location just because the ease of living in Hong Kong is greater, and the cost of education, ease of securing education is a challenge for expatriate families. For them, Hong Kong very often seems to be a more attractive place. I very often see expatriates do a two- or three-year stint in Shanghai or in China and then gravitate back to Hong Kong.
As I said, cost of package in general, higher taxes. Whilst you can make the savings as you move down the gradings in the organization, certainly at senior level, we’re seeing that differential. I think the relative cost of living in Hong Kong has become more competitive, so I think organizations need to look at how they structure a strategic office out of Hong Kong and whether that would just be purely China-focused in terms of the manufacturing base or particularly when you’re looking at a regional global hub here; certainly, you need that capability with a mind-set to think across various locations.
You can definitely make some savings there, at senior level. I think the market has become more and more localized. You’ve got quite a mixture of talent at senior level, some of whom are operating off of more complex expatriate packages, which will include housing and education as a part of the puzzle. And then you have others who have localized and are operating off of purely a cash package. My advice to companies is to take a big view of the market and be prepared; there will be quite a disparity between the low end and the high end when we talk about leadership roles within this space. I think in both locations, there is, of course, a pool of localized talent, and, certainly, there are some great leaders both in the mainland and Hong Kong, but that pool is significantly smaller at senior level than the expatriates that we talk about.
I think, also, what I find is that the salaries in China are still rising at a faster pace compared to Hong Kong, and I think that organizations are finding that maybe when you look at the relative * (6:07—unclear) manager-grade individual in China to Hong Kong, salaries are getting closer; plus, the experience level relative to the grade is higher in Hong Kong than it is in China. There seems to be a deeper learning in Hong Kong from individuals that you’d hire. They spend longer in the organizations that they work for, so, therefore, the learning is more ingrained. You can spend a similar amount of money but get a greater return on investment out of an individual.
Again, I think that for particularly around supply chain sourcing and merchandising type roles, Hong Kong still has that attraction. But on the technical side, we’re certainly seeing companies either maintaining their own technical teams in China or maintaining a very small management capability there and then outsourcing to external vendors.
Thank you, Mat, for sharing today.
No problem at all. If there’s anything else I can tell you in the future, please, just let me know.
About Matthew Gollop
Executive recruitment business leader - specialist in regional HR search