International Trade

International Trade Introductuion Hong Kong, the pearl of Asia has been the center of trade and finance in Asia since the early 20th century. In a short history of about 150 years, Hong Kong has become the source of growth for many nearby economies. In a certain sense, it can be even said that it is a merchant city founded and managed by businessmen. Traditional hongs or trade houses of Hong Kong were the pillar of the economy. Jardine Matheson and Hutchison were major hongs that led the economy and the Hong Kong & Shanghi Bank were the financier of these hongs and has today grown to become one of the largest bank in the world. These firms were the critical factors of the growth for Hong Kong’s economy.

Their role however has changed overtime. They are no longer the de facto leaders of Hong Kong as they were in the mid 1800’s. Their role has diminished as Hong Kong grew to become more international, and the 1997 handover to the People’s Republic of China has further altered their position. Some hongs that adapted well to the changing times prospered while others either went bankrupt or become stagnant. Background on Hong Kong Economy The territory of Hong Kong is located at the mouth of the Pearl River, a little southwest of the Guangdong Province of the PRC. Hong Kong was ceded to the British after the Opium War in 1842.

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Many believe that the British hongs were behind lobbying the British government into fighting the Chinese Government and the settlement of the island. Kowloon was annexed in 1860, and the New territories were leased for 99 years in 1898. In 1984, the British and the PRC government agreed that Hong Kong as a whole would return to Chinese soverienty in 1997. However, a system of one country two systems were also agreed upon where Hong Kong would retain its status as a free port, with it’s laws remaining unchanged for 50 years. It’s main emphasis is to preserve Hong Kong’s laws and economic freedom, thus to enhance the position of Hong Kong as a economic center. The Large British owned hongs were originally trade and warehouse companies established by the British in the early days of Hong Kong colonialism, they have since grown in to major commerical conglomerates. They hold interest in cargo handling, manufacturing, real estate, and even retailing. They are the engine of the Hong Kong economy. Since Britain took over the port city in 1842 to use as a gateway to the Chinese markets, the business of Hong Kong had been business, and the power was held by the hongs. The first traditional hong was the Jardine Matheson.

It was once seen to be more influential than the colonial government but nowadays it has become a minor player compared to Li Ka Shing’s Hutchision Whampoa. Li Ka Shing, the Chairman or Taipan of Hutchision Whampoa, became the first Chinese to own a traditional hong. Li’s drive and business ability helped foster Hutchision into a global conglomerate. Hong Kong Bank grew from a small trader’s bank into one of the Top ten banks in the world today. Jardine Matheson Jardine, Matheson & Co.

was founded by 2 Scottish merchants, William Jardine and James Matheson in Guangdong in 1832. It was an opium trader that were the pioneers into the China trade. Eventually James Matheson takes control from 1836. It played a key role in the founding of Hong Kong and became the first to purchase land from the colonial government in 1842. Jardine expanded into other trade products in other Asian countries like Japan and South East Asian countries and also enters the ship/cargo handling industry and the real estate business.

After World War II, Jardine moved their head office from Shanghi back to Hong Kong and it offically goes public in the Hong Kong Stock Exchange in 1961. The 1970’s saw Jardine forming many ventures and aquisitions such as the joint venture with the Robert Fleming of UK to create the Jardine Fleming & Co., a holding company the aquires many foreign and local firms and diversifies Jardine’s business. The mid- 1980’s saw some mismanagments and misguided aquisition especially after the 1984 Sino-British announcement on the return of Hong Kong. Jardine wanted to diversify more abroad in fear of the Chinese takeover because their relations with the PRC was not good. It aquired the British construction giant Trafalgar House and ther various retail chains in Europe so that Jardine could emphasize more in Europe, but these investments would turnout to be disappointing in the future. The current taipan, or CEO is Alasdair Morrison.

He has tried to undo many past mistakes and to rejuvenate the 160 year old hong. Morrison has sold off many losing companies and has a greater emphasis on profitability. The management has been changed to more aggresive and experienced managers such as Ronald J. Floto who previously worked as Kmart Corp. and is known for his turn-around ability.

But most importantly, Morrsion has been trying to improve ties with Beijing. He realises that the China market as an indespenable location and has tried repeatly to mend the differences made by the previous taipans. Today, the Jardine Matheson group is a multinational enterprise that operates in over 30 countries and employs some 160,000 people. It is divided into eight core companies : Jardine Pacific(general trading), Jardine International Motors(Car dealership), Jardine Fleming, Jardine Lloyd Thompsion(Insurance), Jardine Strategic, Dairy Farm(supermarket and convenience stores), Hong Kong Land(Commerical property), and the Mandarin Oriental(luxury hotel chain) . Last year’s sales were US$11.2 billion and a operating profit of US$190 million was made. The profits fell 34% from last year, and share prices have fallen almost 60% since it moved its primary listing from Hong Kong to Singapore.

The main problem with Jardine is that it needs to use its large cash resources to boost market shares in existing profitable businesses and make aquistions in core business while assests in Asia are still cheap from the Asian crisis. It also needs to refocus on Asia, because it is where it’s main expertise and connections are, but the controlling family, the Keswicks with only a 4.9% share are reluctant to invest heavily back to Asia and especially China. The Keswicks have held control through cross ownership to build a financial defense against hostile takeovers. Li Ka Shing has tried but failed to take over Jardines in 1988 but many still believe that Li has not given up but is rather waiting for an opportunity. Although the current taipan, Morrison is trying to shape up Jardine again, many are doubtful as long as the Keswicks still retain the controlling shares. Jardine Matheson has had a astonishing past, but many fear that the golden days of the past are over for them.

Hutchison Whampoa John D. Hutchison Company was founded in 1828. Being one of the first major traditional hongs in Hong Kong, it had made vast investments in port facilities and other infrastructure projects in the colony. In the 1960’s, in an effort to revitalize the hong, John Douglas Clague, the last British CEO of Hutchision made huge investments in not only in Hong Kong but also abroad. It reoragnized itself to the Hutchision International and up til the early 1970’s, many believed that Hutchision would indeed make a comeback as a dominant firm in the colony. However, losses started to occur from 1973, and being overstretched and short in liquidity it lost the favors from its investors and creditors(most importantly the Hong Kong Shanghi Bank). Eventually the Hong Kong Bank would step in to take up 33% of Hutchision International and within 2 years merge with a subsidary, the Wham …

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