Up-grading and performance: the role of design, technology and business strategy in Hong Kong's electronics industry

Abstract

This study tests the hypothesis that companies who move away from the traditional Hong Kong business model by adopting ‘up-grading’ strategies enjoy superior performance. A set of 14 variables is used to capture the dimensions of strategy, encompassing the business, technology and design domains. The results of both comparative and configurational approaches show that there are indeed performance benefits to be had. The broader implication is that Hong Kong manufacturing firms are beginning to escape the ‘iron fetters’ of a business model originally imposed on them by both material and ideational constraints, and to reap performance benefits as a result.

Appendices

Appendix 1

A Measurement Model for Six Strategy Constructs

Fit measures	Standardized loading
Chi-square=451.9, Degrees of freedom=197, Number of parameters estimated=56; Observations per parameter estimated=366/48=6.5; Chi-square per df=2.29; GFI=0.900; TLI=0.914; CFI=0.926; RMSEA=0.060
Emphasis on efficiency
Construct reliability=0.87
I1 Operating the factor at full capacity	0.64
I2 Operating efficiency	0.90
I3 Efficiency in getting materials and components	0.83
I4 Reducing production costs	0.81
Product line breadth
Construct reliability=0.73
J1Offering a broad line of products	0.78
J2 Offering a wide variety of products	0.70
J3 Meeting the needs of all potential customers	0.57
J4 Selling to a small group of customers (deleted)
Price leadership
Construct reliability=0.78
K1Selling at low prices	0.80
K2 Pricing below other firms in the industry	0.92
K3 Being a price leader	0.43
K4 Offering a lower price for the same quality	0.56
Branding
Construct reliability=0.75
L1 Heavy spending on advertising	0.71
L2 Intensive marketing effort	0.85
L3 Building strong brand identification	0.56
Environmental scanning
Construct reliability=0.82
M1. Meeting customers to identify their future needs	0.64
M2. Doing market research	0.69
M3.Asking customers to assess the quality of our products	0.83
M4. Collecting information on the industry	0.77
Commodity/specialty products
Construct reliability=0.85
P1. Uniqueness of your products	0.78
P2. Targeting a clearly identified segment	0.80
P3. Offering products suitable for high prices	0.70
P4.Offering specialty products	0.79

Appendix 2

A Measurement Model for Two Strategy Constructs

Fit measures	Standardized loading
Chi-square = 34.8; Degrees of freedom = 13, Number of parameters estimated = 15; Observations per parameter estimated = 366/15 = 24.4; Chi-square per df = 2.68; GFI = 0.973; TLI = 0.987; CFI = 0.992; RMSEA = 0.068
China as a market
Construct reliability=0.97
N1 Selling electronic products in Mainland China	0.86
N2 Developing the Mainland China market	0.96
N3 Increasing sales in Mainland China	0.98
N4 Finding new customers in Mainland China	0.96
China for resources
Construct reliability=0.90
O1 Producing in Mainland China	0.82
O2 Using lower cost facilities in Mainland China	0.89
O3 Using cheaper labour and premises in China	0.90

Appendix 3

A Measurement Model for Zahra and Covin's ‘Technology Policy’ Constructs

Fit measures	Standardized loading
Chi-square = 222.1, Degrees of freedom = 51, Number of parameters estimated = 27; Observations per parameter estimated = 366/27 = 13.6; Chi-square per df = 4.36; GFI = 0.91; TLI = 0.94; CFI = 0.95; RMSEA = 0.096
Aggressive technological posture
Construct reliability=0.92
Q1 We try to lead the industry in technology, not follow	0.81
Q2 Our company seeks a reputation for being the first to introduce new technologies	0.89
Q3 Our technology development work allows us to enter new markets before our competitors	0.92
Q4 Our technology is more advanced than our competitors'	0.84
Process innovation
Construct reliability=0.92
R1 We aim to have a higher level of automation than competitors	0.84
R2 We spend more on up-grading our equipment than competitors	0.88
R3 Our production process is more advanced than our competitors	0.91
R4 Process innovation gives us a competitive advantage	0.81
New product development
Construct reliability=0.89
S1 We aim to introduce more new products than competitors	0.83
S2 We spend more on new product development than competitors	0.84
S3 We try to introduce products that are “new to the world:”	0.79
S4 Our new products give us a competitive advantage	0.82

Appendix 4

A Measurement Model for Three New ‘Technology Policy’ Constructs

Fit measures	Standardized loading
Chi-square = 309.3, Degrees of freedom = 62, Number of parameters estimated = 29; Observations per parameter estimated = 366/29 = 12.6; Chi-square per df = 4.99; GFI = 0.90; TLI = 0.90; CFI = 0.91; RMSEA = 0.105
Original equipment manufacture
Construct reliability = 0.83
T2 We rely on our customers for product design	0.55
T3 Our most important products are designed by customers	0.71
T4 it is not our strategy to design our own products	0.82
T5 OEM is more important to us than ODM	0.87
Original design and manufacture
Construct reliability = 0.92
U1 We rely on our own product design capability	0.82
U2 Our most important products were designed by ourselves	0.92
U3 In-house product design is an important part of our strategy	0.92
U4 ODM is more important to us than ODM	0.71
U5 We spend more than competitors on in-house product design	0.76
Imitation/competition-based technology development
Construct reliability = 0.81
V2 We design products by modifying competitors' designs.	0.53
V3 We improve on competitors designs for our products	0.60
V4 Competitors' product design shows us the way	0.84
V5 Imitating successful product designs from other companies is our strategy	0.91

Appendix 5

Measurement Model for the Performance Constructs

Fit statistics for the three factor model shown below: GFI = 0.910, TLI = 0.926, CFI = 0.945
	Standardized loadings	Construct reliability
Satisfaction with the achievement of strategic objectives
W1.We are very satisfied with the overall performance of our enterprise	0.823	0.87
W2.We are very satisfied with our performance compared with our competitors	0.881
W3. We have been very successful in achieving our strategic objectives	0.801
Effective adaptation
W4. Our company does a good job in anticipating problems	0.796	0.88
W5. We do a good job of keeping up with changes	0.854
W6. Our company implements changes very quickly	0.826
W7. When emergencies occur, this company copes very successfully	0.730
Financial performance (very poor performance = 1, average = 4, excellent performance = 7)
W8. Total sales	0.805	0.93
W9. Total profits	0.847
W10. Growth of sales 2000–2002	0.915
W11. Growth of profits 2000–2002	0.937