Proudly made in Hong Kong … again
How COVID-19 is accelerating Hong Kong's re-industrialisation
By The HKIE Manufacturing, Industrial & Systems Division
Re-industrialisation refers to the development of high value-add industries and manufacturing processes that leverage AI, ML, IoT, robotics and data analytics to run smart production lines. A new engine of economic growth in Hong Kong called re-industrialisation has gained significant momentum since the Innovation and Technology Bureau’s establishment in 2015. The COVID-19 pandemic has now opened up new opportunities for products and services, which require our young engineers to equip themselves with new thinking, skills and creativity to help accelerate Hong Kong’s re-industrialisation.
Fourth Industrial Revolution (i4.0)
Over the last decade, a growing global trend has been transforming and revitalising ageing industries as part of the Fourth Industrial Revolution (i4.0). Hong Kong is one of many places seizing this opportunity to leverage further economic growth as industries utilise technology to add significant value to the manufacturing sector. In this process, everything in and around manufacturing operations—including suppliers, plant, distributors and even the product itself—is digitally connected to provide highly integrated value chains.
Hong Kong's industrialisation journey
Industrial development in Hong Kong has a long history, which began with boat building and shipping-related industries, with heavy industries emerging by the turn of the 20th century. Between 1945 and 1950, and utilised advanced machinery, modern management and technological know-how to prompt the growth of local spinning, weaving and garment industries. The subsequent rapid development of manufacturing in the 1950s was further catalysed by immigrant Chinese industrialists, mainly from Shanghai, such that by the 1960s, Hong Kong had become the primary export centre of manufactured products in East Asia.
In the 1960s and 1970s, industrialisation was the powerhouse driving Hong Kong's economic development. "Made in Hong Kong" became internationally recognised as a brand synonymous with a guarantee of reliable product quality. This saw the growth of Original Equipment Manufacturers (OEM), as Hong Kong became the production base of many overseas brands. Such labour-intensive and export-oriented industries then started to relocate their main production processes to the Mainland of China, amid Hong Kong's soaring land prices and labour shortages in the 1980s. Despite this, many companies retained their factory spaces in Hong Kong as administrative offices to help handle orders, export and financial matters which became a so-called “front shop, back factory” model.
As local manufacturing industries continued to wane in the 1990s, particularly the textile and apparel sector, Hong Kong's economic development became increasingly reliant on service sector industries. To help support the ailing industrial sector, the Government—under the free market principle—provided land at three Industrial Estates in Tai Po, Yuen Long and Tseung Kwan O to industries with new and improved technology and processes. To provide financial assistance, the Innovation and Technology Fund launched financing for innovative projects that would help revive manufacturing industries. Moreover, in 1998, industries were offered tax concessions on fixed assets such as plant and machinery for manufacturing and computer systems.
More recently, the traditional “front shop, back factory” model has begun to lose its lustre as Guangdong, Hong Kong and Macau embark on a new journey together within China's economic restructuring. This has seen Hong Kong's service trade with Mainland China surge, as the whole region migrates from low-end consumption goods to value-added electronics and machinery products as i4.0 began to gain traction.
Realising digital manufacture in Hong Kong
The 2016 Policy Address highlighted the potential i4.0 would have for the continued economic growth of Hong Kong. The Government then established a cross-bureau Committee on Innovation, Technology and Re-industrialisation to recommend practical measures to catalyse the re-industrialisation of Hong Kong, including support for local start-ups and tax deductions for R&D expenditure.
Dr Daniel Yip, Chairman of FHKI, noted, "Local manufacturing is a crucial factor to facilitate research activities, and re-industrialisation is key to turning Hong Kong into an internal innovation and technology hub of the GBA."
Given the current constraints of available land and labour in Hong Kong, the Government has continued to focus efforts to develop high value-added, less land-intensive manufacturing industries based on new technologies and smart production. Target industries include pharmaceutical, healthcare, biomedical and advanced machinery. The Government will act as an active promoter and facilitator of this transformation. This includes providing continued policy support, developing technology centres at key industrial areas (currently with occupancy rates above 90%) and helping fund local enterprises to train their staff in advanced technologies under the Re-industrialisation and Technology Training Programme.
Sceptics may view Hong Kong as a far from ideal manufacturing base. Still, it may surprise them to know that an Italian company, which previously had its production lines in Mainland China and East Asian countries, decided to leverage new technologies and relocate its production to Hong Kong. Established in 2013, NiRoTech Limited (NiRoTech) is an intelligent security product manufacturer. Escalating labour, land and other costs in Mainland China and other East Asian countries prompted the company to move in 2018 to a fully automated, digitalised manufacturing line in Hong Kong. NiRoTech's 10,000 sq ft factory is situated in Yuen Long with a 54-meter U-shaped production line leveraging state-of-the-art technologies.
Mr Roberto Leone, Managing Director of NiRoTech, explained, "After confirming to set up operations in Hong Kong, we sought help from Hong Kong Productivity Council (HKPC) to realise intelligent production." With the support from the Innovation and Technology Bureau and funding from the R&D Cash Rebate Scheme of the HKSAR Government's Innovation Technology Commission, HKPC's technical team oversaw all processes from technology R&D, design, planning to machinery assembly, adjustment and testing. After two years of joint efforts, NiRoTech and HKPC successfully launched the intelligent production line in February . The line has 12 robots and a series of self-developed, customised, mechanical and automatic devices that leverage loT, real-time monitoring, machine vision, computer-aided design, AI and big data analytics. Leone added, "Today, we can proudly say our overall production capacity has already increased by 50%, and this is only the first step of what promises to be a long and successful journey."
The collaboration of NiRoTech and HKPC serves as a valuable case study for industrialists on how to integrate i4.0 into production lines to enhance efficiency, thereby elevating confidence in establishing high value-added manufacturing facilities in Hong Kong. The comprehensive policy support and HKPC's professional consultative services look set to attract a growing number of Hong Kong manufacturers into re-industrialisation by setting up smart manufacturing plants locally and taking Hong Kong industries into a new era.
NiRoTech's hi-tech production facility
U-shaped production line
COVID-19 impact on industrial transformation to “next normal”
The COVID-19 pandemic has sent shockwaves throughout the supply chain, causing disruptions, rising demand for medical supplies, greater urgency of community preparedness and the emergence of new consumption patterns that disrupt the way we live, work and conduct business. This “next normal” era has driven governments and enterprises to seek alternative strategies to survive the global economic downturn and build a competitive edge to kickstart post-pandemic economic recovery.
Hong Kong has a homogeneous economy with a strong service sector in which financial services, trading and logistics, tourism, and professional and producer services are the traditional mainstays. These Four Key Industries account for over half of the city's GDP and 45% of local employment. The pandemic has seen demand for tourism and many consumer services plummet due to travel bans and lockdowns, forcing Hong Kong to look at transforming traditional economic sectors and exploring new business opportunities to help revive economic growth amid the current internal and external challenges. The shortage of facemasks at the pandemic's onset highlighted the importance of having a strong local manufacturing base and how the manufacturing sector can help trigger business activities, create jobs along the broader value chain and enhance local economic resilience.
Besides COVID-19, greater trade complexities between Mainland China and the US coupled with rising manufacturing costs in Mainland China over the past two decades have led many Hong Kong manufacturers to consider industrial transformations to enhance their competitiveness and sustainable growth strategies. A recent study conducted by the Federation of Hong Kong Industries (FHKI): Made by Hong Kong—The Way Forward for HK Industries, documents significant industry concern in this regard. This study, which surveyed over 230 Hong Kong-funded manufacturing industries, showed a significant number of respondents are looking at strengthening technology R&D (57%), strengthening product design (59%) and brand building (47%). The portion of respondents looking to strengthen technology R&D has almost doubled compared to the 2015 survey.
The FHKI survey findings are a clear indication that small and medium-sized Hong Kong manufacturers are eager to expand their business to include producer services along the value chain and engage in higher value-add economic activities thereby leveraging their strong historical manufacturing knowledge. Moreover, most manufacturers surveyed (over 80%) are currently in the production phase between Industry 2.0 and 3.0.
Manufacturers near or beyond phase 3.0 are more inclined to hard innovations such as strengthening technology R&D and management innovation with applied technology. Manufacturers in a less-advanced production phase tend to favour soft innovations such as product design and brand building, which are generally of lower cost. 10% of respondents reported they are currently considering relocating part of their manufacturing lines to Hong Kong to leverage its unique strengths, particularly IP protection and R&D capacity, when developing advanced manufacturing industries.
The increasing propensity for Hong Kong manufacturers to pursue industrial upgrades requires business realignment and the majority of respondents favour investing in upstream production services, which require industrial talents in technology R&D and product design. The “brain drain” of talent overseas is still a significant area of concern for such manufacturers. Regardless of where the manufacturing operations are carried out, talent acquisition is the biggest constraint for Hong Kong manufacturers to carry out corporate transformation. 58% and 41% of companies in Mainland China and Hong Kong, respectively, cited difficulties attracting the right talent.
Despite all its negative impacts, the pandemic has helped pave the way for knowledge-intensive industrial transition under i4.0, as traditional labour-intensive models could no longer meet current consumer expectations. Industrialists had to quickly rethink the entire production concept and shift focus to quality rather than quantity, with more flexible, customisable production lines and a more service-oriented approach. This shift helped facilitate a novel multi-style, low-volume production model to carry the industry forward. Under this novel approach, numerous manufacturers adopted robotic arms and cell production techniques to meet the market demand for a quick turnaround. This production model is well suited to the small-scale, high-value-added industries in Hong Kong.
Agility of HK manufacturers — facemask production
Hong Kong, which is heavily dependent on imported products, experienced unprecedented demand for facemasks in the pandemic's early stages. Customers were left queuing around the block outside shops and pharmacies, hoping to stock up on facemasks to protect themselves against COVID-19. Frustrated, many left empty-handed as there was insufficient stock to meet the massive surge in demand.
Using their collective expertise, five veteran industrialists established CareHK Limited (CareHK) as a local production facility for facemasks. Mr Tse, Director of CareHK, said, "With assistance from the Hong Kong Science and Technology Parks Corporation, we were able to set up our 8,000 sq ft factory in Tai Po Industrial Estate in just a month."
As soon as the factory was ready, CareHK started building up its team for operations. Tse explained, "Recruitment was a big issue, as it was challenging to identify suitable applicants from the local pool to fill up our vacancies." With the rapid changes to the local business environment, most Hong Kong manufacturing activities have long since shifted to Mainland China, leaving a shortage of suitability-skilled local talent capable of managing a factory.
One of CareHK’s five clean-room production lines
Embracing Hong Kong's entrepreneurial spirit, Tse and his team were determined to set up five fully automated production lines that could leverage intelligent production technologies. Mr Tse said, "Our factory is now operating in two shifts, and when all five production lines are in full force, we can produce up to 300,000 facemasks per day."
Mr Tse noted, "Operating a facemask factory is far from easy, and we are thankful for the tremendous support from HKSTP and the industries.” In fact, the Government also recognised the importance of producing facial masks in Hong Kong. Later in April 2020, the HKSAR Government unveiled the “Local Mask Production Subsidy Scheme” to facilitate local facemask production facilities. Under the Scheme, manufacturers setting up a production line capable of delivering at least 500,000 masks a month would be given up to HK$3 million in subsidies. Each subsequent production line in the same plant would be further subsidised by up to HK$2 million.
Robots to help fight the pandemic
O-Matic Intelligent Robot Limited (O-Matic) is a Hong-Kong-based company principally engaged in developing industrial and construction robots through intelligent technologies.
During the pandemic, it developed a robot in just nine days capable of checking for cracks in building drains for the Hong Kong Housing Authority (HKHA).
By the end of 2020, experts cautioned that the inadequate drainage systems in some Hong Kong public housing estates could become a cause for concern as COVID-19 outbreaks hit residential blocks. The maintenance of such drainage systems in common areas across the city is of the utmost importance in helping contain the epidemic. Before the Chinese New Year, HKHA approached O-Matic to see if it could rapidly develop a low-cost robotic solution to help check drainage systems in public housing estates.
Mr Carlos Lee, CEO of O-Matic, noted, "Thanks to our ample experience in construction robotic solutions, it only took us nine days to work out a solution to investigate defects in drainage systems in Hong Kong." He added, "With a camera installed in our self-developed cable robot, we can capture high-quality images of the drains in common areas, even from potentially dangerous aerial positions. These checks have been instrumental in helping HKHA identify any inadequate drainage systems or cracks in drainage pipes."
O-Matic’s robot on the roof
O-Matic’s robot investigating drainage systems
Mr Lee explained, "As our factory is situated in San Tin, Hong Kong, we were able to respond very quickly to HKHA's request. We are proud to play a role in helping stop possible transmission of the virus by adopting state-of-the-art technologies." The success of O-Matic demonstrates the importance of revitalising manufacturing in Hong Kong and of how such advanced automation technologies improve accuracy, efficiency and help avoid the need for manual labour in dangerous working environments.
Industrialists' views on talent development
Unlike the labour-intensive Hong Kong manufacturing back in the 1960s and 1970s, the tremendous manufacturing changes over the past few decades, especially in terms of technical complexity and system design, have built demand for skilled knowledge workers. Subsequently, knowledge workers in manufacturing have become highly sought-after by manufacturers worldwide, who frequently have to offer generous immigration benefits to help attract overseas talent.
Industrialists from various industries note that talent shortages are a major obstacle as they upgrade their product R&D, industrial automation and manufacturing systems. In the FHKI study, a textile company expressed that hiring data analysts, programmers, colour managers and specialists in UI/UX had been extremely challenging as they attempted to upgrade their traditional production lines. Some advanced electronic manufacturers in the electric vehicle industry have also indicated that similar shortages for electrical engineers have appeared upstream of the industrial chain, especially on product R&D and industrial design. Environmental industries also face a shortage of industrial engineers in various fields, including product design, production line design, R&D in recyclable materials and waste energy conversion.
There is a need for engineers to expand their academic horizons and upgrade themselves to meet modern manufacturing enterprise needs. In addition to technical expertise, engineers should now also understand specific consumer trends and capture and analyse user preferences to support the R&D of new products. Companies may have to rely on Joint Development Manufacturing (JDM) projects when talent lacks these cross-disciplinary skills. This often means partnering with foreign engineers to work on user experience design, with local engineers in charge of the back-end production. Although JDM projects may help alleviate talent shortages, the time cost for cross-communication can be high.
The manufacturing industry has also expressed concern about local graduates' readiness to meet employer expectations in actual manufacturing operations. Whilst it is understandable for universities to prioritise scientific research, the industry is also eager to collaborate with them in offering learning and training opportunities alongside classroom education—especially in terms of research commercialisation and vocational experience—to better equip students to take up careers in advanced industries. In 2020, FHKI announced the launch of Global Research Enrichment and Technopreneurship (GREAT), a new degree programme in partnership with the College of Science at City University of Hong Kong. The programme aims to help students better understand industrial landscapes by participating in internships in FHKI member companies in the early stages of their study, thus better equipping them to realise re-industrialisation in Hong Kong effectively.
Advancements in technology have driven industries throughout Hong Kong to evolve and become faster, smarter, less reactive and more predictive. Amid i4.0, modern technology has paved the way for more intelligent and efficient processes in both industrial and service sectors. The IoT is transforming industrial engineering, bringing new capabilities that facilitate timely remote process monitoring, control and predictive maintenance. Likewise, Future Talent 4.0 requires broad knowledge and skill sets in product and industrial engineering, including engineering economics, quality engineering, engineering science and mathematics, engineering communication and information technology to meet these new demands of i4.0. Aside from traditional manufacturing and industrial knowledge such as system modelling and optimisation, today's manufacturing engineers must also be able to leverage big data and automation to facilitate agile production. All of this requires a breadth of transdisciplinary understanding, which has led to talent shortages emerging in STEM, especially in industrial engineering. In the face of this skilled-talent shortage, Hong Kong is now bolstering both education and vocational training to build a pipeline of creative industrial talents.
Upskilling Talent 4.0
To get local talent upskilled for the new engineering roles emerging in i4.0, Hong Kong's tertiary education institutes now offer a wide range of engineering programmes as university, applied education and vocational training programmes. These trans-disciplinary programmes emphasise the integration of intelligent manufacturing systems, modelling and optimisation, AI, industrial big data, industrial IoT, automation and robotics, management analytics and advanced manufacturing technologies.
Students of industrial engineering and engineering management programmes are introduced to the decision analytics approach, which allows them to explore predictive and prescriptive analytical tools, statistical models, machine learning algorithms, simulation and creative modelling. These are all critical tools to help them pursue careers in the modern economy.
The talent of tomorrow also needs exposure to domain-specific knowledge in engineering management and logistics management. This covers a wide range of functions, including operations planning and scheduling, transportation systems and policies, supply chain management, quality control, product design and management of technology and innovation.
The overall aim is to produce graduates with strong analytical skills who can develop simulation models to facilitate design decision-making and enhance modern enterprise operations. Talent 4.0 will be able to provide optimal solutions to decision challenges that exist in logistics, production and service operations which are all driven by real-time, real-world data. They will do so by leveraging cutting-edge engineering knowledge, computational, experimental and analytical techniques to plan, design, implement and improve technology-based manufacturing and operations systems. As well, these strengths will see Talent 4.0 become tomorrow's engineers, consultants and analysts in leadership roles across a wide range of industries.
In 2020, following recommendations from the Task Force on Promotion of Vocational & Professional Education & Training, the Education Bureau launched a pilot scheme to catalyse the development of Applied Degree Programmes (ADPs). ADPs aim to provide even greater scope for vocational-oriented programmes that lead Talent 4.0 into the careers of the future. Under the Study Subsidy Scheme for Designated Professions/Sectors (SSSDP), selected tertiary institutions will each develop an ADP by modifying the programme structure and curriculum of an existing degree programme to create a strong industry element in a discipline with current workforce demand. This scheme is scheduled for launch in the 2022-23 academic year.
Creative thinking in engineering
Despite the evolution of i4.0, primarily spurred by technological advances, employers today are hiring talent based more on their innate human capabilities than on technical skills that help them manipulate machines. The most sought-after talent skills include analytical and critical thinking, innovation, creativity, technology design, complex problem solving, social influence and emotional intelligence.
The new era of design thinking in engineering, as with many other sectors, helps foster new ways of thinking to build these employer-most-valued skills and boost creativity among engineering graduates. The approach has seen rapid growth since 2005, so much so that design thinking may soon be recognised as a foundational science for engineering, alongside Physics, Chemistry and Biology.
HKIE nurtures engineering talent
HKIE has launched its Engineering Graduate Training Program, which provides a structured training scheme to offer graduates professional development opportunities and achieve their goal of becoming a professional engineer. In line with the HKIE belief that a professional engineer can best develop the qualities they require by integrating theoretical knowledge and practical skills, the Scheme helps graduates transition from academia to industry, providing them with practical industry skills. This hands-on, learn-by-experience approach allows graduates to apply their engineering knowledge, develop technical solutions, manage engineering projects and nurture their professional acumen with Continuing Professional Development (CPD) credits.
Talent 4.0 fuelling future industries
Innovative training programmes continue to further advance the skill sets and emotional intelligence of Hong Kong's future talent. The nurturing of design thinking through such programmes empowers engineering graduates to leverage creative practical approaches to tackle complex engineering challenges by understanding the human needs behind them. These skills equip Talent 4.0 to fill the engineering roles of tomorrow—brainstorming innovative ideas and prototyping and testing these ideas—to innovate the engineering solutions for the future.
Ir Dr Eric Liu, Chairman of the MI Division, notes, "Looking at the future of i4.0, the re-industrialisation of Hong Kong in a completely new technology-driven format, is creating amazing opportunities for engineers to innovate and upgrade traditional manufacturing industries by adopting new technologies, such as AI and IoT, for smart manufacturing."
This new powerhouse of local engineering talent, driving i4.0, will help secure Hong Kong's future, working even more collaboratively with the Mainland of China. This symbiotic alliance emerging from a newly evolved “front research, back production” ecosystem will see Hong Kong increasingly focus on the R&D and global distribution of final products. With this re-industrialisation, a growing number of manufacturing industries, such as NiRoTech, are likely to relocate their production lines back to Hong Kong—celebrating the “Made in Hong Kong” label … again.
Acknowledgement
This article is developed with the contribution from the Federation of Hong Kong Industries (FHKI).