Occupy Central

A bit of civil disobedience won't overturn firms' calculations

Politicians claim Occupy Central will cause a business exodus, but the reality is very different

PUBLISHED : Wednesday, 04 June, 2014, 10:08am
UPDATED : Thursday, 05 June, 2014, 5:29am

Balderdash comes in many forms but sinks to new lows when politicians seek to tell the world how business will be affected by politics.

You see this all too often. For example, in many countries you find ruling parties claiming that businesses will take flight if the opposition wins an election; yet this rarely happens.

Then we have the kind of bleating that's being aired right now in Hong Kong, to the effect that if the Occupy Central plans go ahead, businesses will shift their headquarters out of the city and business confidence will plummet.

Besides anything else, these statements display a worrying lack of confidence in Hong Kong's underlying strengths, combined with a curiously exaggerated idea of the impact of what will almost certainly be a limited amount of civil disturbance. However, there is always a danger that dire warnings of disruption will themselves undermine confidence and create a self-fulfilling prophecy.

We all know why politicians are so fond of alarmist political statements, but they really need to get a grip, because business leaders are made of much sterner stuff than excitable propagandists. Decisions about locating business premises are usually multifaceted and revolve around pragmatic considerations of needs.

The idea that political activity is somehow a major consideration is plain daft, even though there are obvious reasons why this may become a factor.

In April, the Boston Consulting Group produced an interesting study showing, among other things, that the United States was re-emerging as one of the most competitive places for manufacturing and that "reshoring", or relocating manufacturing back from places like China, was gaining traction.

The study looked at what companies are actually doing as opposed to what they say they would do.

The political chatter providing a background to this study is interesting. The opposition Republican Party has spent the entire period of the Obama administration declaring that the president is "anti-business" and imposing taxes (they are obsessed by taxation issues) that are squeezing businesses out of the country.

Moreover, every move to enhance benefits for the workforce, such as increasing minimum wages, is decried as being another nail in the coffin for American business. Yet the evidence for these claims is clearly missing.

Yet again we see a gap between political rhetoric and reality, so let's consider what really influences business location decisions.

First up are questions of costs, because businesses do not just need to pay for labour; they also need to consider cost of premises, cost of utility supplies, transport costs and so on. Once these are factored in, the cost benefit of moving production overseas starts to shrink, especially in places like China, where input costs have soared well above inflation.

Added to this are what might be considered to be intangibles that have a habit of becoming very tangible. Most prominent are considerations of convenience and familiarity. American companies are, understandably, most familiar and most comfortable in their own country.

In order to establish production facilities, let alone headquarters overseas, a very substantial case needs to be made for cost savings. But even this is not enough, because companies prefer operating in places where there are high degrees of certainty, ranging from certainty over the rule of law to certainty over things such as power supply and infrastructure provision.

In Hong Kong, a place that touts itself as a regional centre, there is very little international or indeed domestic interest in establishing new production facilities but a great deal of interest in operating in an environment governed by rules and regulations matching international standards, with a record of impartial enforcement.

Second, Hong Kong has achieved critical mass in key sectors such as banking and finance plus distribution and ancillary services. Once a cluster has been established, it expands with ease.

Is it really being suggested that international businesses will up sticks because of public protests of a kind widely experienced in all developed countries?

Of course, if political instability accelerates, businesses may well be concerned, but a single act of civil disobedience is unlikely to be crucial. Are the alarmists really suggesting that Hong Kong has reached this stage of chaos?

Corporate decisions, unlike government decisions, have to be pragmatic, not least because they are ultimately judged by tangible and measurable results.

Governments, unfortunately, have more leeway to engage in fanciful decisions. As for politicians, well, the tenuous connection between their rhetoric and reality is hardly a secret.

Stephen Vines runs companies in the food sector and moonlights as a journalist and broadcaster