Hong Kong’s history is based around global trade, so it was fairly likely that when the island returned to Chinese ownership two years ago, after 155 years of British rule, commercial life would carry on as normal. But predictions of a tough time from doom-mongers turned out to be accurate - even if the cause was economic rather than political - as Hong Kong’s economy suffered in the Asian crisis. For purchasing in Hong Kong, the situation has presented an opportunity - just as it did in the UK - for the function to raise its profile not only by cutting costs but also by creating value, increasing the recognition of a valuable discipline. “More companies now have positions building on the success of strategic purchasing managers, departments of logistics or other positions of status in the company designed to formulate and achieve best value from the procurement process,” says Nigel Shipman, supplies director for the Hong Kong government. W K Poon, director of supply management for Motorola Semiconductors, agrees. “I have witnessed quite a rapid change in awareness of the significance of this function in Hong Kong as well as globally,” he says. Poon has been involved in procurement at Motorola for five years. “Procurement used to be part of the local factory operations [integrated circuit assembly and testing], where it couldn’t compare to engineering or manufacturing. But there has been significant change and it has become a core key global driver. It helps to contribute to the success of the company.” During the past two to three years, operations have been reorganised and the Hong Kong procurement team has grown from addressing just local manufacturing operations to becoming the centre for the Asia Pacific region. Instead of reporting to the factory operations, Poon reports to the global head of supply management. “We need a consistent and global strategy to be effective,” he says. “The focus is no longer just on local activity but on the global scene in the supply market.” The economic climate is pushing organisations in two directions. Currency devaluation means there is a need to be more competitive, while the climate is also producing lower-cost materials elsewhere in the region. This pressure is the driver for a focus on purchasing. But Richard Hawtin, head of contracts and purchasing for China Light and Power (CLP), says that starting with, in effect, a clean slate means that the focus for procurement from the outset must be right. “The difficult thing is the extent to which companies start addressing it,” he says. “Do they look at it with just the cost-cutting mentality that a number of organisations in the UK have, which means that it has a finite life? It also means blank cheques for a number of consultancies, particularly large ones. I am hoping that there are enough companies that seem to be taking the view of ‘no, if we are going into this, we are going into it for the long-term and do it properly, we don’t just do it for a bit of cost-cutting’.” The situation is not unlike that in the UK: the trouble is that many organisations do not see procurement as strategic. And if they do, the strategic purchasers tend to be drafted in from the UK or the US. “Locally, it’s tendering, tendering or tendering,” according to Richard May, managing director of PMMS Asia Pacific. “Or they belong to the international buying office of retailers or are part of global manufacturing groups.” He says the pervading atmosphere is an “archaic corporate awareness of procurement” that many express an interest in changing, only to fail to put their money where their mouth is and keep purchasing at the transactional level, with a reliance on tendering. But there are a few companies focusing their attention on what can be done. The skills of the local population are at the heart of the matter. “My company, as a good example, had to recruit internationally because there wasn’t the skill locally to do what they wanted at a strategic level for purchasing and supply chain management,” says Hawtin, who joined CLP last year. “But my company has made it very clear that it doesn’t want to have to do this again. It accepts that it has to do it for me, but it is looking for a succession plan that sooner rather than later will bring a Hong Kong local into play as my successor, rather than having to go overseas again. That doesn’t exist at present. “Leaving aside the ability to poach a successor to me from another company in Hong Kong - because there’s probably only about a handful of top-flight purchasing people out there - quite genuinely, my company, along with a number of other companies, wants to see the skill base increase so it doesn’t have to go overseas - it can develop internally.” CIPS has shown its commitment to Hong Kong through its involvement in a new drive to wake up the government and the corporate community to the opportunities that exist. Although there is a Hong Kong Institute of Purchasing and Supply, CIPS is working with a rejuvenated Hong Kong Heads of Purchasing Network Group to drive the message home and support the territory’s 400 CIPS members. The group includes purchasers from firms such as CLP, Cable & Wireless, Hong Kong Telecom, the WPP Group, Cathay Pacific and Gammon Construction. Through an agreement with PMMS Asia Pacific, professionals can acquire the CIPS corporate award and CIPS graduate diploma locally, in contrast to the UK-focused distance learning option of the past. And others in the UK are helping, too. The University of Strathclyde has a deal with Hong Kong Baptist University for local delivery of its procurement management MSc and Newcastle Business School has a similar arrangement with Hong Kong Polytechnic University for its masters programme. Another element that will help in upping the ante is a concerted effort to appoint a chair in purchasing at a Hong Kong university. The hunt for funding is continuing. But Alan Harrison, general manager of airline purchasing for Cathay Pacific, says the concerns are not just over improving the talent pool through a combination of investment and commitment from firms, the tertiary education system and the government. An important issue is brand positioning of procurement. “It needs to be repositioned,” he says. “Companies in general haven’t elevated the purchasing function above the functional box, so it is not recognised as important; it is not attractive to bright graduates and undergraduates. I believe that the name purchasing does us a great disservice.” Harrison wants to see the wider adoption of terms such as supply management, external resource management and “the overused” strategic supply management. Moving away from the transactional baggage of the past will, he says, provide a more intuitive understanding of procurement’s role. Actions not words While terminology is important, actions are arguably of greater value and the development of procurement in organisations such as Motorola sends out clear signals. Hawtin is doing the same at CLP: with a programme designed to improve procurement skills in a 30-strong department and create a more commercially aware organisation in areas such as engineering and IT, procurement will gain recognition and a position to sustain progress. At Cathay Pacific, Harrison is driving a focus on skills development, standardising processes, tools and techniques at all levels. While none of his eight senior procurement staff is local, he wants to see that change and plans to use these more experienced people to train local staff in the 50-strong procurement team. Realising procurement’s potential While there is clearly a need to improve, it does not mean there is not good practice going on in Hong Kong. K K Poon, purchasing and supplies manager for Hong Kong’s Mass Transit Railway Corporation, is well aware that many organisations have yet to treat procurement as seriously as they should, but his is not one of them. “There aren’t many people who are not concerned about costs, but people still need to realise the full potential of strategic procurement and its importance in reducing costs and generating value,” he says. MTR has two main sectors. The first, and longest-established, is the urban network. Last year, the company carried 794 million passengers over 43km of route track covering 38 stations. The second element is the airport express service to Chek Lap Kok, the new international airport that opened in July last year. During the remainder of 1998, the service carried four million passengers over the 34km of track, covering seven stations. In his 20 years at MTR, Poon has seen an increase in outsourcing and a shift towards the buying of services rather than goods, in common with the rest of the world. For escalator maintenance, for example, the service is provided by the systems supplier. And because of Hong Kong’s shrinking manufacturing base, there is a heavy reliance on global suppliers. “We have a greater reliance on our neighbours from around the world,” he adds. But a large part of outsourced production goes to areas such as coastal China, Malaysia, Thailand and the Philippines. In terms of procurement’s relationship with the rest of the business, Poon and his 60-strong procurement and shipping team has adopted a model of influencing as part of a team rather than a “regimental” and “policing” approach. “We really have to focus on what we can achieve and either have to collaborate to get things done or get them done through team output,” he says. But even with purchasing output linked in to business objectives, a major success factor is the ability of staff to “massage and manage customer expectations”, he adds. “Our challenge is really about being able to exploit the global market through the deployment of technology. And to do that we need a solid and flexible approach and therefore the skills and people needed to achieve that,” says Poon. “We want people who are really talented and able to acquire adequate core skills to perform global supply chain management tasks and help them to increase the productivity through the deployment of technology.” This point is crucial. Because so much of Hong Kong’s purchasing past has been tactical and paper-pushing, the new opportunities presented by better technology and electronic commerce mean that if purchasing is not strategic, those in the profession could find themselves out of a job. The government’s Nigel Shipman has aggressive plans for electronic tendering to be in place by January next year and is not alone in wanting to exploit technology. PMMS Asia Pacific’s Richard May is concerned that if the opportunity to raise purchasing’s profile and make progress sustainable is not grasped, many of the estimated 10,000 involved in procurement could have an uncertain future. But Hong Kong has a major factor in its favour: its work ethic and commitment to education. “When Hong Kong catches on to something and believes in it, its work ethic and focus means it can catch on quick,” says Cathay Pacific’s Alan Harrison. “There is a thirst for learning and it’s a good environment. That’s one of the advantages of the culture and education that I haven’t come across elsewhere,” he adds. If senior management recognises the value of procurement, invest in training and shift the focus to skills rather than just paper qualifications, Hong Kong could see its local purchasers become global leaders.