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How Multinational Corporations are Embracing the Close Produce Model

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Hong Kong has faced significant challenges due to its unique position and circumstances in the international geopolitical landscape. The intense competition between the United States and China has led to a decline in communication and connection with international markets, resulting in reduced market freedom and increased outflow of international capital. Many multinational corporations that once chose Hong Kong as their base are now relocating elsewhere. Hong Kong is increasingly looking to Mainland China for development opportunities.

As one of the world’s three major financial centers, Hong Kong’s capital markets were once highly active, leading in Asia’s capital trading. However, a considerable amount of capital and institutions have withdrawn from the island. In November 2022, the Hong Kong Census and Statistics Department reported a decrease of 71 compared to the previous year, with 46 of them being regional headquarters. The number of companies established by countries such as the United States and the United Kingdom on the island has been consistently declining, with the number of U.S. companies dropping to 1,258, the lowest since 2004.

Hong Kong’s real estate market has contracted due to capital flows out, with property values declining. In 2022, housing sales fell by 40% compared to the previous year, reaching the lowest level since the 2008 global financial crisis. Mainland Chinese companies setting up regional headquarters in Hong Kong exceeded American companies for the first time in thirty years. As a result, foreign companies leaving Hong Kong may consider Singapore as a destination.

Singapore has been a competitor to Hong Kong in the Asia-Pacific region’s financial and commercial centers, and many multinational corporations are willing to give up their business in China. However, ANBOUND founder Kung Chan argues that Singapore’s role as an alternative to Hong Kong is not perfect. While Singapore offers an excellent business environment and efficient government services, it also has strong regulations and is not a geopolitical replacement for Hong Kong.

Chan emphasizes that there is no place that can truly replace Hong Kong, and Western companies preparing to leave Hong Kong must make structural adjustments instead of seeking multiple replacements worldwide. In the current world, Western companies preparing to leave Hong Kong must make structural adjustments instead of seeking replacements around the world.

Multinational corporations relocating from Hong Kong or the Greater China region may undertake structural adjustments, such as the “close produce” model. This model is characterized by a spatial production approach, influenced by complex factors and geopolitical costs. Companies need to deploy major component industries around the central market and productivity centers to create a production system that is as proximate as possible.

The term “close” has two aspects: spatial and social-environmental. Companies need to organize production in areas with minimal conflicts and contradictions. Deglobalization can cause disruption, but it also has enormous impacts. The form, timing, and location of these impacts determine the impact. The “reshoring” and “nearshoring” initiatives promoted by the United States are specific manifestations of the close produce model.

The Reshoring Initiative predicts 350,000 jobs will return to the US in 2022 due to American companies’ relocation, a record since 2010. This is over 50 times the number in 2010. Mexico, due to its proximity and membership in the North American Free Trade Agreement, is being a major destination for American companies, with the average share of Mexican goods in US imports reaching a record high in 30 years. This represents an increase of over 5% compared to the same period the previous year, surpassing Canada’s USD 210.6 billion and China’s USD 203 billion.

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