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Lance Hattendorf
BC 303 - Statistics
Lance Hattendorf
SID# 20110202
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Hong Kong Foreign Owned Export Business Analysis Report
Lance Hattendorf
Introduction
Situated at the edge of the Asian Pacific, between China and Oceana, since
modern trade, the deep water port of Hong Kong has always been an important part of
linking Asian trade with the rest of the world. With English colonization and the
development of China’s “One country, two systems” doctrine, Hong Kong has been
Hong Kong. These advantages include a competitive tax rate, flexible and educated labor
market, a high standard of rule of law, and the freest economy in the world (The Heritage
Foundation, 2010).
For foreign owned companies wishing to organize and develop in Hong Kong,
structure the foreign company decides to establish, Hong Kong does not restrict or
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Hong Kong Foreign Owned Export Business Analysis Report
Lance Hattendorf
require local participation in ownership or management, differentiating itself from many
Although there are a few business structures available to the foreign enterprise,
just like Western nations, there exist many different types of companies, depending on
the product, revenues, market viability, etc. The purpose of this analysis is to determine
which wholly owned foreign enterprise (WOFE) exporter type, operating in Hong Kong,
is the most lucrative. Therefore, for the purpose of this analysis, the exact business
structure is not important, as much as the form of the foreign exporting structures
following is designed to define the research question, discuss analysis procedure, define
the subjects and document the viability between these three distinct structures.
Research Goal
Kong for the past two and a half years, I’ve had business dealings with many types of
Hong Kong, particularly exporting through this bustling Asian port to the mainland
Chinese market.
At the beginning of the quarter, when a research question was posed, it struck me
that having insight into which WOFE exporting type was the most successful would be
valuable to know, not to mention the information gleaned from the research process. The
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“Concerning the different forms of exporting structures, agency, distributorship, market
subsidiaries (subsidiary) in Hong Kong, which are the most lucrative for sales?”
substantially without entirely invalidating the original viability of the research. The
success of Hong Kong as a port has created many problem in establishing statistical
tracers, among these are population tracking and therefore, sample tracking. Several
determinate factors has caused this evolution, among these are: a lack of ability to
identify exact company form due to market freedoms in Hong Kong, little amount of
available research on companies that went out of business, with so many exporting
A major challenge has been to identify and gather enough information for
preliminary analysis and inference between the different types of exporters. The sources
of information on the different companies have come from the Inland Revenue
Department of the Hong Kong SAR, Hong Kong General Chamber of Commerce, Hong
Kong Trade Development Council, Hong Kong Exporters Association and the Hong
Kong stock exchange – Hong Kong Exchanges and Clearing Limited (HKEx).
subsidiaries, and the opening up of the population to both foreign and domestic, each
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Lance Hattendorf
distinct group can be represented with stratified random sampling, thereby forming them
into three distinct strata. This also solves the problem of an unknown population and the
unknown sample size. By sampling an even number of units in each strata, indeterminate
profitability components of the companies, the profit margin, return on assets, and return
on equity, comparing the profitability attributes of each sample within the strata, and
finally determining the mean of each attribute of each strata, we can infer the success
level of each type of business. Although it is possible that the sampling attributes will
conflict, I believe the nature of financial reports will show a coherent trend for each
strata.
Exporter Defined
Foreign companies have several different ways of breaking into foreign markets
depending on a variety of factors. Chief among these factors is whether the subject
to focus on domestic sales. For the unwilling exporter, the various ways to handle their
foreign market sales include the use of an export trading company (ETC), using an export
management corporation (EMC), and piggybacking. The use of an ETC is a very simple
solution for the unwilling firm as the ETC is an intermediary company that will purchase
the firms products and then resell them to a customer in a foreign country. An EMC is
another type of intermediary that acts as an agent for the exporter that while it does not
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Lance Hattendorf
take title to the firm’s products, it does gain a commission on the sale of the products to
customers in the foreign country. Piggybacking is a choice for an unwilling export firm
that involves a supplier setting up manufacturing in the foreign country and the exporting
then piggybacks their products through the suppliers manufacturing facility (Pierre &
Stewart, 2008).
Like the unwilling exporter, several options present themselves for the willing
exporter, or a firm actively seeking foreign markets in which to become involved. These
Agency
strategic one. The agent is normally a small firm already physically located in the foreign
market that simply acts as a representative of the exporter. An agent will not take title to
the firm’s products but will receive a commission for the sales in the foreign market.
Several factors for the use of an agent for foreign market expansion are considered by the
exporter:
1) For potentially small sales with moderate or no growth potential (no more than 5
2) When the product has been specifically designed to meet the needs of a particular
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5) Items that do not need much after-sale servicing
6) The exporter is not likely to develop into a dominating presence in the market, but
8) When the company does not demand a premium pricing strategy due to a top tier
market strategy
9) When the firm wishes to exert control over its foreign pricing, marketing and
delivery strategy.
Distributorship
The distributor, like the agent is located in the foreign market. Unlike the agent,
however, it will purchase the products from the exporting firm, therefore take title to the
goods, and resell them for a profit. Characteristics of a distributor is that there are two
sets of invoices, on e an international invoice between the exporter and distributor, and
one from the distributor and final customer. Because the distributor takes title to the
domestic sales)
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6) When the firm estimates it will not be more than a minor market presence
7) When the exporting firm wishes to deal in export sales with a single customer
8) If the customer does not require direct control over its foreign pricing, marketing
or delivery strategies.
Subsidiary
in developing its own subsidiary in a foreign country to produce, market, and/or sell its
incorporated by the exporting firm and the export invoice is generated by two legal
entities that are part of the same corporation. A market subsidiary is a good choice for
1) For potentially considerable sales and market growth (more than 25 percent of
domestic sales)
4) For firms that expect a long relationship in the foreign market with the
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Lance Hattendorf
8) When the company wishes to retain control of its foreign pricing, marketing, and
The previous definitions were provided to display the inherent risks in associating
similar properties to each group of samples. Those definitions as outlined, for example,
show that because of the characteristics of the different business entities, subsidiaries will
necessary, then to analyze other properties within the sample groups (strata). For example
as seen in the chart below, the mean revenue in and of itself will not give the full detail of
success of each of the strata. For this reason, we have also included profit margin, return
on assets (ROA), and return on equity (ROE). With the combination of the financial data
with stratified random sampling, we should be able to identify trends to aid in the goal of
this research.
$5,599,667
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$1,778,787
$2,000,000
$1,000,000 $298,791
$0
Agency Distributorship Subsidiary
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Hong Kong Foreign Owned Export Business Analysis Report
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Data
The table below represents financial data gathered for the samples in each strata,
Agency
Company Name Symbol Revenue Profit Profit Margin ROA ROE
Zhongpin, Inc. HOGS $829,700 50,740 6.12% 7.6 18.9 1
Golden Dragon Holdings, Inc. GDHI $12,605 -312 -2.48% 2.1 -1.2 1
Ocean Sky International Ltd. O05 $54,068 1,409 2.61% 3.6 6.7 2
Mean Total $298,791 17,279 2.08% 4.43% 8.13%
Distributorship
Company Name Symbol Revenue Profit Profit Margin ROA ROE
First Pacific FPAFY $4,280,000 427,400 9.99% 5.7 25.1 1
Multi Chem MULT $504,000 -423,000 -83.93% -3.9 -72.3 1
SiS Technology 0529 $552,360 13,400 2.43% 2.9 8.2 1
Mean Total $1,778,787 5,933 -23.84% 1.57% -0.13
Subsidiary
Company Name Symbol Revenue Profit Profit Margin ROA ROE
Compellant Technologies CML $1,368 26 1.89% 0.6 2.3 1
EMC Corporation EMC $155 15 9.59% 5.7 9.8 1
Ace Limited ACE $157 29 18.39% 3 15.2 1
Mean Total $5,599,667 231,667 9.96% 3.10% 9.10%
1=financial data gathered from Yahoo Finance
2=financial data gathered from HKEx
As we can see, as predicted, the subsidiary strata not only have higher revenue,
but also seems to have a higher profit margin. Based on this data, our question is can the
revenue and profit help determine the success of the business structure? To do this we
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Hong Kong Foreign Owned Export Business Analysis Report
Lance Hattendorf
Company X Y X-X̅ Y-Y̅ ̅ ̅
(X-X)(Y-Y)
Zhongpin, Inc. $829,700 50,740 136987.46 42994.83 5889752820.37
Golden Dragon Holdings,
Inc. $12,605 -312 -680107.54 -8057.17 5479739836.85
Ocean Sky International Ltd. $54,068 1,409 -638644.54 -6336.17 4046558274.36
First Pacific $4,280,000 427,400 3587287.46 419654.83 1505422519279.92
Multi Chem $504,000 -423,000 -188712.54 -430745.17 81287016408.81
SiS Technology $552,360 13,400 -140352.54 5654.83 -793670246.74
Compellant Technologies $1,368 26 -691344.54 -7719.37 5336742031.57
EMC Corporation $155 15 -692557.24 -7730.27 5353652181.49
Ace Limited $157 29 -692555.94 -7716.37 5344015604.51
Total $6,234,413 $69,707 1612022310586.62
Mean $692,713 $7,745
sx, sy $3,905,169 $603,172
The scatter chart below shows the correlation between revenue and profit for the samples
with the calculations for the coefficient of correlation and coefficient of determination.
500,000
400,000
300,000
200,000
100,000
0
-100,000 $0 $500,00 $1,000,0 $1,500,0 $2,000,0 $2,500,0 $3,000,0 $3,500,0 $4,000,0 $4,500,0
-200,000 0 00 00 00 00 00 00 00 00
-300,000
-400,000
-500,000
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Hong Kong Foreign Owned Export Business Analysis Report
Lance Hattendorf
Summary
As we can see, even though there is a positive association between the revenue
and profit of the subject companies, the association is very weak. This weak relationship
Resources
Hong Kong Exchanges and Clearing. (2010). Retrieved September 5, 2010, from
http://www.hkex.com.hk
http://home.swipnet.se/~w-10652/Hong_Kong_business_FAQ_1.html
The Heritage Foundation. (2010). 2010 index of economic freedom. Retrieved August 6,
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