Business management

Question 1

Role and importance of the business sector

Answer 1

1. Providing employment opportunities: the business sector provides many employment opportunities for Hong Kong people
2. Producing income: Hong Kong people earn most of their income by providing services to local and foreign customers
3. Earning foreign exchange to pay for imports: by exporting goods and services to foreign customers, Hong Kong earns foreign exchange to pay for its imports
4. Serving the Mainland: Foreign firms regard Hong Kong as a stepping stone to the Mainland market. Hong Kong helps Mainland enterprises raise capital
5. Raising government revenue: The Hong Kong government earns a large sum of revenue from the business sector, enabling it to spend more on social services and infrastructure development

Question 2

Recent developments of Hong Kong economy - closer economic relationship with Mainland

Answer 2

1. CEPA
   - To reduce or eliminate barriers on substantially all the trade in goods between the two sides
   - To achieve free trade in services through reduction or elimination of substantially all discriminatory measures
   - To promote trade and investment facilitation

• HK enjoys zero tariff and preferential treatment
• HK enjoys a first-mover advantage in entering the Mainland market

2. Trading partners with Mainland: flow of goods / services
3. Flow of investment: foreign direct investment, a funding centre for Mainland
4. Flow of people

Question 3

Recent developments of Hong Kong economy - globalization

Answer 3

• Globalization is the process of moving towards a more integrated and interdependent world economy, a series of economic, technological, cultural, social and political changes which led to the increasing integration and interdependence of people and firms around the world

1. Keen competition: business firms in HK face competition from foreign firms
   - Many firms expanded their markets overseas, global competition has become more intense
   - Business firms in HK face competition in the local market and overseas market
   - There is a greater mobility of factors of production between countries
   - Local firms compete with foreign firms for capital and talent

Firms can:
- develop their own brand names to differentiate their products from competitors
- set up joint ventures with foreign companies to increase competitiveness
- specialize in the production of goods and services in which they have a comparative advantage and export them to other countries
- expand their business to other countries to make their brand or company international

2. International flow of capital and information: firms in HK can explore new markets in other countries and sell their products to foreign buyers / firms in HK can diver diversify their investment around the world and raise capital in other countries
3. Global sourcing and outsourcing: firms in HK can save on costs by global sourcing of inputs and outsourcing of production processes
   - Outsourcing: the act of a company contracting out a production process or a business function to another company
4. Technology transfers: firms in HK can reduce production costs as technology transfers from other countries can improve their production techniques and labour productivity

Question 4

Recent developments of Hong Kong economy - increasing international cooperation

Answer 4

1. WTO
   - Promote free trade and serve as a forum for multilateral trade negotiations and dispute settlement
   - Enforce rules of trade and arbitrates trade disputes between members
   - Impose trade sanctions if member fail to comply with the rules and decisions of WTO
2. APEC
   - Forum for high-level government-to-government dialogues and cooperation on trade, investment, economic growth and other economic issues in Asia-Pacific region
   -Decisions reached by consensus among member countries, commitments made undertaken on voluntary basis
   - Support sustainable growth and prosperity

Question 5

Characteristics of HK economy

Answer 5

1. Lack of primary industry
2. Concentration on tertiary industry
3. Dependence on external trade
4. Free market economy
5. Simple taxation
6. Free flow of information

Question 6

Factors affecting business decisions

Answer 6

1. Economic factors: a country with a stable economic environment attracts firms to make investments
2. Physical factors: a favourable physical environment with well-developed infrastructure attracts firms to make investments
3. Technological factors: these factors help business reduce production and distribution costs and explore new markets
4. Social and cultural factors: social factors affect the labour supply and worker productivity / cultural factors affect the taste and preferences of customers
5. Political and legal factors: the laws and regulations imposed by governments have a direct impact on the business environment and the firm’s decisions.