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Companies rethink HK option

RISING rentals and wage costs are forcing an increasing number of multi-national companies to reconsider using Hong Kong as their regional base, well-known consultancies say.

The number of companies put off is still small, but experts warn it could be the beginning of a worrying trend.

KPMG Peat Marwick principal Gerald Hopkinson said yesterday: ''The level of costs has now been reached where some companies are saying 'no'. It is not going to be long before others start saying it is enough.

''Things will carry on very much as they are in terms of Hong Kong's desirability, but the presence of individual corporations will fall.'' The dilemma for many companies planning to enter the territory is highlighted by office rentals in Central, which are expected to rise as much as 40 per cent over the next year, to an average of $100 to $115 a square foot.

Unisys Corp, the US electronics giant, has decided to move its regional headquarters to Singapore because office rents there are about a quarter those in Hong Kong, while housing costs are some 50 per cent lower.

Mr Hopkinson said he had not encountered resistance to costs until about six months ago.

''It is very much apparent that the cost is figuring increasingly on companies' lists of considerations about moving here.'' An alternative for many companies, typically those wanting to use the territory to expand mainland investments, is to scale down the size of their proposed operation in Hong Kong.

One analyst, who did not wish to be identified, said the problem was being compounded because profit expectations from ventures into China were not always met.

He said: ''We have anecdotal evidence that there is growing disillusionment about profits. There has been euphoria about prospects for China. Some companies have got in there and found that it is not that simple.'' He mentioned the experience of some manufacturers whose profit expectations have been hit by distribution problems and by not being able to get the right price for their goods.

Coopers & Lybrand tax partner Nick Hammans said a recent survey by the accounting firm of 100 of Hong Kong's top 500 financial companies revealed that the main concern of one-in-four was spiralling property costs.

''We are finding that rising costs are increasingly causing a lot of companies to reconsider Hong Kong as the place to locate their regional headquarters.'' The Hong Kong General Chamber of Commerce has expressed its concerns to the Government about rising commercial rentals on several occasions.

Multi-national companies attempting to contain their accommodation and wage bills are increasingly considering locating their clerical and accounting back-office operations in China.

Price Waterhouse partner Kenneth Lam said: ''I think many multinationals would like to train mainland staff as middle and lower management. But it would take two or three years.

''But the mainland alternative is not without its problems. It is difficult to recruit qualified staff. They tend to change jobs more quickly, or staff need to be trained.

''Things that we might take for granted in Hong Kong, such as typing skills, might not be readily available.''