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In this connection there were made some personnel changes and Festo Hong Kong has a new marketing team now. As mentioned above Festo presses towards its presentation in every world market and it wants to strengthen its positions especially in Asia now and to be presented in all three segments (low-, middle- and high-end markets) (see Appendix 2). Festo has a chance here to come up with a brand-new local product, the price of which will allow Festo to increase its market share and to win 25% of it (see Appendix Productportfolio).

Know-how is one of the strongest points of Festo. There is a number of products’ local versions for many regions all over the world which due to the locality of materials, HR could compete at those markets. Festo has its experience in the field of R&D. The development of a new product will allow Festo to strengthen its position in Asia and to prove once again its originality comparing to any other producers. ? Pneumatic market continues to show potential. Sales in the Asian market for pneumatic equipment continue to show potential for growth (25% growth till 2006 is expected).

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However, mounting price pressures and the likely moderation of Asian economic growth in the medium term mean that suppliers of pneumatic equipment must focus their competitive strategies to maintain margins. Technical innovation and interaction with customers to produce complex pneumatic systems are rising in importance. At the same time, falling prices are generating a need for volume production in order to gain economies of scale, which is driving consolidation between leading firms. Suppliers must choose where to position themselves on the price vs. quality continuum.

The automation of production processes is sustaining strong demand for pneumatic equipment, and as secondary producers automate production, pneumatic systems are increasingly penetrating new application areas. Equally, users of the large installed base of pneumatic equipment are being encouraged to invest in new products by the constant upgrading of pneumatic technology. The combination of electronics with pneumatics and the creation of intelligent products, which are both faster and permit precise electronic control, is spurring replacement demand and contributing to the market’s appeal to new users.

Suppliers to the Asian market for pneumatic equipment compete in an intensely competitive environment. Growth in this market for valves, accounting for the largest share of sales across all product markets, is expected to be driven by favorable economic conditions, by the continuing popularity of solenoid valves, and by the rising availability and use of intelligent valves. Meanwhile, similarities can be drawn between the market for filter regulator lubricators (FRLs) and the market for cylinders. In both product areas, revenue growth is being impacted by falling prices.

While demand for FRLs is being driven by growing demand for pneumatic systems, it is being constrained by price reductions caused by competition and the sale of products in a modular format. Hong Kong manufacturers produce both industrial machinery and parts. Initial development of the industry was prompted by a rise in local demand. Industrialization in the Chinese mainland since the early 1980s has provided an added boost to Hong Kong’s machinery industry, which is the most wished market segment for Festo (constant demand, periodic deliveries of spare parts etc).

Large manufacturers have started automation in producing standardized parts. Automatic tool handling and computer numerically controlled workstations are being adopted. Most of them have also set up production facilities in the Chinese mainland to take advantage of the lower production costs or to target the domestic market of China. Hong Kong-made machines are price and quality competitive. Prices are lower than those of Japan and Europe. Hong Kong manufacturers are able to handle small batch and large variety of designs at shorter delivery lead-time.

Competition among Hong Kong manufacturers is increasingly keen. In addition, manufacturers have to compete with other Asian competitors such as Taiwan in the medium-level market, and with Chinese mainland enterprises in the lower-end market. And this is where Festo should start its strategy – to help local Hong Kong machine producers to compete at their market. As Hong Kong manufacturers mainly carry out the assembling of machine parts, material and component costs on average account for the largest share of total cost of production.

Major parts are imported from Japan and Germany, including mechanical parts (e. g. pneumatic & hydraulic mechanisms and compressors), electrical parts (e. g. process cooling & heating equipment), and electronic parts (e. g. temperature, pressure, distance and time controls). Many Hong Kong manufacturers have tried to improve their product competitiveness by using higher quality components and precision parts, incorporating programmable or computer control features and enhancing safety features.

They are looking for opportunities to diversify their products, particularly towards higher quality and performance. And namely quality is one of the strongest points of Festo. Quality and performance. Energy saving and environmental friendly are risingly important in designs of new machines. This environmental aspect also a very important role in the Festo strategy, not to mention that Festo has been certified according to the Standard ISO 14001 which confirms that Festo products are environmental friendly.

In this regard, several developments of new machinery and techniques are note-worthy. And Festo must take part in these developments of new local pneumatic systems for machinery which would satisfy the local needs. Hong Kong has “… a long history of producing metals and plastics parts for machinery and equipment. We have long carved a niche as a producer of high quality and hi-precision parts for sophisticated products, such as computers, printers, audio-visual equipment, home electronics, and automated machines.

We have been extremely successful in enhancing the competitiveness of our products, through carrying out mass production in places with lower operation costs such as the Mainland and other neighboring economies, and through enhancing the value-added content of the products. Hong Kong manufacturers supply critical parts and components to top-notch international brand-name manufacturers, and have captured a significant share of the global market” [7].

Taking into account the major trends of this market segment Festo should study the demands of the most important machine producers and develop a universal local product which, however, may have a number of versions with small differences according to the special needs of customers (see Appendix 3). As mentioned above Hong Kong was the most important entrepot for the Chinese mainland. “About 25% of the mainland’s foreign trade is handled via Hong Kong, comprising products sourced on and destined for the mainland.

As reflected in Hong Kong’s merchandise trade statistics, in 2003, 60% of re-exports were of China origin and 44% were destined for the Chinese mainland” [8]. Hong Kong is the largest source of overseas direct investment in the Chinese mainland. The Chinese mainland is one of the leading investors in Hong Kong. It is estimated that there are over 2,000 mainland-backed enterprises registered in Hong Kong, with total asset exceeding US$ 220 billion. Over 100 mainland-backed and state-owned enterprises are listed on the main board of the Stock Exchange of Hong Kong and its growth enterprise market (GEM).

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