Capitalising on Institutional Diversity and Complementary Resources in Cross-Border Metropolitan Regions: The Case of Electronics Firms in Hong Kong and the Pearl River Delta

The opening of China during the last 30 years has resulted in tremendous cross-border economic activities of Hong Kong manufacturers in the Pearl River Delta (PRD). Economic activities in the Greater Pearl River Delta (GPRD) are embedded into global value chains and shaped by the specific ‘front office-back factory’ division of labour between Hong Kong and the Chinese mainland. This business model has facilitated the rapid industrialisation of the PRD and the transformation of the HK economy towards sophisticated manufacturing-related business services (FHKI 2003, 2007). More recently, the competitiveness of the business model has been put under strain by forceful challenges that change the business environment in the PRD: rising production costs, upgrading pressures, new regulations for export processing businesses, labour shortages, a more employee-friendly labour law, and environmental issues. Against this background, it is the purpose of this paper to present and discuss findings from two surveys of electronics firms in HK and the PRD conducted in 2007 and 2008. The research question is based on the agility hypothesis, that supposes that business in highly competitive environments depends on competencies and resources of firms to capitalise on formal and informal business practices alike to gain flexibility. The results of our analysis may help to better understand how the HK-PRD business model did develop and eventually may sustain its competitiveness in the face of new challenges. We began with the overview of our HK as well as PRD sample in order to figure out whether there are indeed strong needs embedded in the current business and political conditions for informal and flexible organisation of firms. After that, we focussed on “customer-producer relations” and “industrial innovation” on the other hand to clarify how firms operating in the GPRD transformed the needs for agility into different kinds of means and actions in these two areas to sustain their competitiveness in the global market. With respect to agile firm organisation in general, the findings of our research confirm the hypothesis about the interaction of informal arrangements and flexible firm organisation. Informal institutions for doing business in the GPRD are not going to become less important with further development and improvement of the Chinese legal system. Adequate application of informal factors within given formal constellations enhances the capabilities of firms to more flexibly react to the fast changes in the political and business environment to sustain their competitiveness in the global market.