Companies with manufacturing plants on the mainland are now entering the second stage of their development, according to Herbert Liang, president of the Chinese Manufacturers' Association of Hong Kong. This will be characterised by a move away from traditional labour-intensive industries, which produce basic products, and the adoption of new technology to improve a company's manufacturing capabilities. Hong Kong manufacturers have for a long time enjoyed the benefits of easy access to cheap land and labour in China. However, with growing competition from other low-cost manufacturing centres, companies on the mainland are having to improve the quality of their products and develop more value-added products. Mr Liang said they were doing this by moving into more technology-intensive industries. 'I call it the second step in development for Hong Kong manufacturers,' he said. Mr Liang said the first companies to relocate factories to China were in labour-intensive industries like plastics and textiles. He said while the trend towards making value-added products was mostly occurring among electronics and machinery manufacturers, traditional industries like watch and toy makers were also investing in new technology. However, with Hong Kong manufacturers' experience in low-end manufacturing, getting equipment and technical knowledge can be a problem for some companies. Fortunately, according to Mr Liang, the level of basic scientific knowledge in China is quite good. As a result, companies can find employees quite easily. Meanwhile, it might also be necessary to import some equipment and experience from overseas. Mr Liang says this is where joint ventures are important. Through joint ventures, like the one between local telephone maker S'Megga and AT&T, manufacturers are able to get technical as well as financial assistance. Another key source of technical assistance is the original equipment manufacturing (OEM) business. Under an OEM agreement, a company with a product that needs to be manufactured will provide the manufacturer with the product design and technical help. 'Manufacturers get experience from OEMs and can then develop their own products,' Mr Liang said. He said China had all the criteria to be used as a base for research work. This included human resources, educational background and supporting industries. However, another reason for doing development work in China is its domestic market, which is where many of the manufacturers want to sell their products. He said by being in China it gave them easier access to the marketplace - something China's manufacturing competitors could not offer. 'While Vietnam and Malaysia are big markets, they are not nearly as big as China,' he said.