Hong Kong is a part of the Chinese territory and is deemed as special administrative region. The city is mainly famous across the world due to the tourist attractions, along with financial services and electronics industry. The PESTLE analysis of Hong Kong involves discussion on the country macro-environment factors and their implications for the businesses in the region.
About Hong Kong
| Fact/Figure | Information |
|---|---|
| Area | 1,106 square kilometers (427 square miles) |
| Population | Approximately 7.5 million |
| Population Density | 6,690 people per square kilometer (17,323 people per square mile) |
| GDP (nominal) | US$372 billion (2021) |
| GDP per capita | US$49,288 (2021) |
| Human Development Index (HDI) | 0.949 (very high) |
| Life Expectancy | 85.2 years (2020) |
| Literacy Rate | 95.7% (2016) |
| Official Languages | Chinese (Cantonese) and English |
| Largest Ethnic Group | Han Chinese (92%) |
| Currency | Hong Kong Dollar (HKD) |
| Government | Special Administrative Region (SAR) with a Chief Executive as head of government and a multi-party system |
| Chief Executive | Carrie Lam |
| Legislature | Legislative Council |
| Time Zone | Hong Kong Time (UTC+8) |
| International Dialing Code | +852 |
| Major Industries | Finance, trade, tourism, and shipping |
| Famous Landmarks | Victoria Peak, Big Buddha, Hong Kong Disneyland, Avenue of Stars |
| Major Airports | Hong Kong International Airport (HKG) |
| Famous Festivals | Chinese New Year, Mid-Autumn Festival, Dragon Boat Festival |
| Climate | Subtropical with hot, humid summers and mild winters |
| Major Sports Teams | Hong Kong national football team, Hong Kong Sevens rugby team |
| Internet TLD | .hk |
Political Factors
One of the ways political factors of a country effect businesses is through providing them with a stable business environment. In regions that experience intense conflict and political disturbances, organizations face difficulties in handling operations effectively. Businesses in Hong Kong have experienced the adverse effects from the protests in the city.
It has been reported that there were violent occurrences throughout the city between law enforcement and the public. These protests had slowed down the business activities in the region and disrupted the overall economic performance of the region. The social unrest had significant impact on the performance of all sectors, primarily the SMEs and retail sector (Toh, 2019).
Moreover, the trading difficulties between US and China arising out of the trade war between the two regions restricted the flow of goods and services. This combined with the effects of political turmoil had created an unfavorable environment for the export related activities in Hong Kong. The city has to deal with loss due to high tariffs and low trading opportunities.
The government regulations in Hong Kong pertaining to financial business set ups are strict, which makes it difficult for the organizations and startups. However, other businesses have been able to establish their operations in the city with relative ease. The low taxes also make it a favorable option for organizations.
Economic Factors
The economic condition in Hong Kong was also effected by the protests and social unrest in 2019. The impact of the instability was financially significant and the region reported economic slowdown, which has not been experienced in the last decade. The annual GDP declined while the retail sales have also indicated a downward trend due to lower spending (Lee, 2019).
The tourist segment was among the main contributors in the economic growth of the region. The violent situation in Hong Kong created a decline in the number of tourists, which in turn caused a decline of tourists from China. A large proportion of the tourists comprised of Chinese visitors and this decline had a negative effect on the overall economic stability.
Currently, the economy of Hong Kong seems to be progressing as growth of up to 5.5% is expected as the business activities would resume back to normal operations after COVID. Moreover, the inflation has not increased significantly, and unemployment ratio is also decreasing. These factors indicate positive recovery of the economy from pandemic effects.
The export sector is still facing some difficulties, however the growing Chinese economy is likely to have a positive effect on the region’s economic development. The three main areas that are expected to contribute in this regard as tourism, trade and real estate, thus making these industries a profitable venture for businesses.
Social Factors
The population in Hong Kong is decreasing and while the aging population is expanding. One of the reasons there was a change in the population statistics was the increase outflow of people to other areas. These population changes need to be considered while making business related decisions.
COVID and the strict restrictions on social interaction and traveling has caused a massive decline in consumer spending. The hospitality segment was impacted and some of the organizations such as Jumbo Kingdom had to stop their business operations (Wong, 2022). The retail organizations were also impacted by the pandemic and changing consumer behavior.
The consumers in the city have restricted their expenditure during the hostile situation in the city as the city was struggling to maintain economic stability. In addition, the pandemic further induced financial disturbances in the households. Due to the impact of pandemic on the Hong Kong economy and the economic downturn, consumer spending on retail has been low.
Technological Factors
Hong Kong has been able to establish itself as a technologically advanced and innovative region (Fung, 2022). Some examples of the technological advancements that have been the focal point include artificial intelligence and financial technologies. These domains have been changing the way businesses operates and the way the financial processes are being managed.
AI has particularly been integrated in the financial and e-commerce sector of Hong Kong. The technology is being used to manage trading and financial services. The technology also assists the employees in the banking segment to provide guidance to the customers based on the data analytics and its inferences. In addition, bio-technology is a growing tech segment in the region.
Legal Factors
The legal aspect of Hong Kong is supportive of business activities as it focuses on creating ease of trading and business for the organizations. The companies that have set up operations in the region have to follow the regulations imposed by the government. For instance, exports need to be made within the clearance guidelines.
Employment laws that are implemented in Hong Kong do not follow the similar pattern as followed by other countries such as the US. Organizations are not required to follow any specific criteria pertaining to work hours, however the leaves issued to the employees are specified in the legal framework.
Environmental Factors
There are different laws that have been developed to promote environment friendly behavior in the organizations. Some of these include air pollution control ordinance, Waste Disposal Ordinance and Hazardous Chemicals Control Ordinance etc. Environmental Protection Department is responsible for ensuring the implementation of sustainable practices.
Companies are encouraged to adopt eco-friendly business operations and EPD facilitates those process by providing the management with awareness about becoming green. It also provides all relevant stakeholders with information about environment laws and offers them compliance guides (Environmental Protection Department, 2023).
Conclusion
Hong Kong has been through political and economic issues that created a difficult business environment for its industries. At present the economic indicators of the country are progressing and the political scenario is somewhat stable. Furthermore, the region is recovering from effects of pandemic, therefore the external environment can be seen as moderately favorable.
References
- Environmental Protection Department (2023). Enforcement of Environmental Laws in Hong Kong. Retrieved from: https://www.epd.gov.hk/epd/english/laws_regulations/enforcement/laws_eflhk.html#:~:text=The%20main%20laws%20include%20Air,Ordinance%20and%20Product%20Eco%2Dresponsibility
- Fung, D. (2022). Innovation and Technology Industry in Hong Kong. HKTDC Research. Retrieved from: https://research.hktdc.com/en/article/MzEzOTIwMDIy#:~:text=Hong%20Kong’s%20innovation%20and%20technology,start%2Dup%20ecosystem%20is%20thriving.
- Lee, Y. N. (2019). 5 charts show how protests in Hong Kong have affected the city’s economy and stock market. CNBC. Retrieved from: https://www.cnbc.com/2019/12/26/hong-kong-protests-impact-on-economy-stock-market-in-five-charts.html
- Toh, M. (2019). These global businesses are feeling the heat from Hong Kong’s protests. CNN. Retrieved from: https://edition.cnn.com/2019/08/09/business/hong-kong-economy-protests-business/index.html
- Wong, M. H. (2022). Hong Kong bids farewell to Jumbo Kingdom, the world’s largest floating restaurant. CNN. Retrieved from: https://edition.cnn.com/travel/article/hong-kong-jumbo-kingdom-restaurant-farewell/index.html