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Supply chain strategy in Asia: Why use Hong Kong as a regional trading hub.

Supply chain strategy in Asia: Why use Hong Kong as a regional trading hub

Rising geopolitical uncertainty, growing opportunities in Southeast Asia, and the emergence of regional partnership agreements are driving both Western and Chinese companies to diversify their supply chains. As companies grow across multiple Asian jurisdictions, one key consideration is deciding where to base a regional headquarters to hold assets and manage trade transactions.

In this article, we explore Hong Kong’s benefits as a strategic operations hub and the use of bonded warehouses in a regional supply chain model.

Why should you still consider Hong Kong?

In recent years, the reputation of Hong Kong as an attractive location for regional operations has declined, partly due to previous political tensions and the repercussions of the pandemic. But there are compelling reasons why Hong Kong remains a compelling choice for a regional base (see, “The Hong Kong Advantage” for more details):

  • Strategic location neighbouring China: Hong Kong’s proximity to mainland China, a vast market with over 1.4 billion consumers, offers clear advantages. Businesses can establish a presence in China with greater ease, facilitating trade, manufacturing, and logistical operations.
  • Well-developed Infrastructure: Hong Kong is a well-established international trade and transportation centre. Its infrastructure includes a modern international airport, one of the world’s busiest ports, and a comprehensive network of highways and railways. This robust infrastructure ensures efficient movement of goods and personnel, minimising logistical challenges.
  • Business-friendly environment: Setting up and operating a business in Hong Kong is relatively straightforward. The government provides a clear and transparent regulatory framework, promoting ease of doing business. Additionally, Hong Kong is a leader in technological advancements, providing companies with access to modern solutions to optimise operations.
  • Competitive tax system: Hong Kong’s tax system offers significant benefits for international companies. The corporate tax rate is capped at a competitive 16.5%. Profits generated outside of Hong Kong are exempt from taxation, and there’s no withholding tax on dividends or interest payments. This translates to cost savings and increased profitability for businesses.
  • Multilingual environment: Hong Kong fosters a multicultural and multilingual environment. English, Mandarin, and Cantonese are all widely spoken, allowing for clear communication with local authorities, business partners, and clients. This eliminates language barriers and facilitates smooth business interactions.
  • Stable legal system: Hong Kong operates under a common law system based on British principles. This independent legal framework provides businesses with a high degree of stability, transparency, and predictability when resolving legal matters.
  • Simplified visa options: Hong Kong offers various visa programs to attract skilled professionals and international talent. This streamlined visa process allows companies to easily recruit and retain a diverse workforce for global operations and collaboration.

Companies can leverage Hong Kong’s advantages by establishing a regional bonded warehouse. This allows for streamlined storage and distribution of goods, saving time and money. Utilising a bonded warehouse environment enables efficient inventory management and supply chain optimisation.

Bonded warehouse solution via Hong Kong

Bonded warehouses operate under the supervision of Hong Kong’s Customs and Excise Department and allow companies to defer payment of duties on these goods until they are sold.

These warehouses are particularly appealing for companies that want to make their supply chain more resilient and responsive, and there are many other advantages:

  • Streamlined customs procedures with no import/export duties or VAT.
  • Lower logistics costs as goods can be stored for distribution across the ASEAN region.
  • Improved cash flow because duties are not paid until it enters its final destination in ASEAN.
  • Greater efficiency in the supply chain as goods can be stored closer to customers and to manufacturing sites in the region.

Bonded warehouses solve one of the biggest challenges of international trade, where costs are incurred because goods are sourced in one region and later ‘re-imported’ to the same location. We recently helped a client with exactly this challenge; goods were purchased from suppliers in China, shipped to a warehouse in Europe and then some were sold to customers back in China. Using a bonded warehouse allows the client to service its customers in China much faster and at a lower cost, as well as creating inventory and cashflow efficiencies. This allowed the company to grow its profits in Hong Kong while minimising its tax liability and capital investments in China. You can read more about bonded warehouses here.

Seamlessly managing ‘order to cash’

Our support to clients encompasses essential functions such as receiving and processing customer orders, coordinating shipments, and managing payment issuance and collection.

To facilitate these operations, Acclime leverages its Enterprise Solutions, which are pivotal in streamlining processes. Acclime is a certified Microsoft partner, and we implement Microsoft Dynamics 365 Business Central for our clients, a robust business management platform designed for SMEs. This comprehensive system includes diverse modules covering accounting, finance, trade, treasury and manufacturing, enabling our clients to digitise their operations and drive business growth in China and across the APAC region.

In addition, our warehouse management solution further enhances our clients’ supply chain efficiency. By seamlessly integrating our ERP system with a Warehouse Management System (WMS), we create a cohesive interface that ensures smooth data flow and synchronisation between the two systems.

Acclime is here to help you 

At Acclime, we specialise in helping international companies design and execute their Asia expansion strategy. Through our first-hand experience, we have witnessed the multitude of advantages that businesses can acquire by utilising Hong Kong as their operational hub. Reach out to us today to discuss how we can facilitate the expansion of your business in the Asia-Pacific region.

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About Acclime.

We are a premier provider of professional formation, accounting, tax, HR & advisory services in Hong Kong, focusing on providing high-quality outsourcing and consulting services to our international clients in Hong Kong and throughout the region.

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