‘Never say never’: How two small Hong Kong firms survived COVID
An outdoor furniture maker that switched to making masks and a public relations firm say staying agile helped them survive COVID-19’s economic devastation.
Hong Kong, China – In February, as Hong Kong was beginning to feel the grip of its first wave of coronavirus infections, 33-year-old Albert Chen and his father, Tim, sat down to discuss the dire state of their family’s outdoor furniture business as the pandemic took hold.
“It was really scary. Sales were down around 50 percent from the year before,” Albert Chen told Al Jazeera.
“We were thinking of different ways to survive in this economy and dad suggested we buy mask-making machines in Taiwan, where we’re from, install them in Hong Kong, and have [them] run by our staff here.”
At the time, demand for protective gear was high in the face of a global shortage. The prices of the machines his father wanted to buy were about twice as much as they normally were.
“I remember my first reaction was” ‘Are you crazy?’”
Chen says he assumed COVID-19 would be similar to the SARS epidemic that swept through southern China in 2003, causing just a fraction of the global infections and deaths the latest pandemic has, and ending within a few months.
“‘Why would you invest all that money?’” Chen asked his father. “I was worried about it. I said: ‘What if COVID ends soon? What are you going to do?’”
His father ignored Chen’s protests, and a month after Tim Chen decided to go ahead with mask manufacturing, the World Health Organization (WHO) declared COVID-19 a pandemic. The disease was spreading quickly throughout Asia and the world, undermining entire industries and sending the global economy into turmoil.
COVID lockdowns to contain the local outbreak dealt a devastating blow to Hong Kong businesses, which had already been brought to their knees by six months of anti-government protests. That plus the effects of the US-China trade war pushed Hong Kong into its first recession in a decade. The economy shrank by 3.5 percent in the third quarter from a year earlier, its fifth straight contraction.
There are more than 340,000 small- and medium-sized enterprises (SMEs) in Hong Kong, altogether employing 1.2 million people, or about 45 percent of Hong Kong’s total private-sector workforce, according to official statistics.
According to Hong Kong’s Trade and Industry Department (TID): “[SMEs] vitality and business performance are of crucial importance to the development of our economy.”
The TID says it is difficult to measure the effect of the pandemic on Hong Kong’s SMEs because it is still ongoing,
But the department says it is clear that “Hong Kong’s economy has been severely hit by social unrest, the pandemic and international political situations.” In fact, total retail sales in the first 10 months of 2020 shrank by 27 percent compared with the same period last year.
To help businesses “cope with the pressure brought about by the economic downturn and alleviate their burden”, the government allocated more than 300 billion Hong Kong dollars ($38.7bn) in four rounds of funds and relief packages, the fourth round having been approved on December 21.
Some medium-sized firms, like Albert and his father’s, have been able to weather the storm and stay afloat by radically altering their business models.
For the Chens, that meant transforming their 22-year-old outdoor furniture company into a mask-making business, MaskLab, employing about 20 full-time staff and another 60-70 on a part-time basis.
They were able to capitalise on a key advantage: “We were already familiar with fabrics like non-woven polypropylene, used not only in outdoor furniture but also in masks, as both need to be water-resistant. So it was cheaper and quicker for us to get access to those fabrics compared to our competitors because we had existing supply chains,” Chen says.
Seize the moment
As coronavirus cases began to surge in March, countries around the world suffered a dire lack of protective gear. WHO chief Tedros Adhanom Ghebreyesus described the “chronic global shortage of personal protective equipment” as “one of the most urgent threats to our collective ability to save lives.”
Chen said, “Every single day, we were getting calls from traders and government procurers scrambling to get masks. That’s how we started. Our first big orders went to Italy, the United Kingdom and the United States.”
But as the wholesale, mass government contracts started to dry up, prices for masks started levelling out. Chen pivoted again, this time selling directly to consumers: “We quickly discovered that, especially in Hong Kong where people wear masks every day, that they were actively looking for colours.”
In late March, Chen signed the lease for an old garment warehouse, scrubbed it down and converted it into a workshop to produce masks his team can say are “proudly made in Hong Kong”.
On July 6, MaskLab’s new multi-coloured respirators, featuring ombre shades of pink and blue, sold out online in 10 minutes: “It was then we realised we’d reached product-market fit.”
In early December, Chen opened his fourth shop in one of Hong Kong’s most sought-after spots on Queen’s Road Central, opposite a sportswear store and within sight of the swanky Landmark mall.
The face mask industry in Hong Kong is highly competitive, with more than 100 companies scrapping it out for a market that likely will not be around forever; demand will probably plummet once the pandemic ends. To anticipate a potential expiry date, Chen signed just a six-month lease for his newly-opened store in Central.
Planning for the short term is something Chen said Hong Kong companies have had to learn, not just through COVID-19 but also because of the anti-government protests that brought the city to a standstill in 2019.
“The reason we’ve been able to open all these stores is because demand for retail spaces is low. I never thought in a million years there would be this many empty stores in Hong Kong. The lesson is: Never say never.”
Chen says he also learned the importance of preparing for rapid changes in the business environment.
“You can have things run smoothly and in a minute it can be brought to a screeching halt. You have to be nimble so that when anything goes wrong you can always pivot. If you have too many overheads you can’t change the way you are operating quick enough. In business, now, every week and day counts.”
Taking events virtual
That is a sentiment echoed by Davena Mok, director of A-Vibe, a public relations and digital events consultancy based in Hong Kong which employs eight people, including herself.
“All our clients – across the retail, hospitality, events industries – have cancelled so much, whether due to suddenly reduced or drastically cut budgets, or safety and risk-prevention decisions,” said Mok.
“Rather than having stability and us working on six- or 12-month contracts as in the past, we are focused on a month-to-month level, which equates to daily or weekly reviews and adjustments these past 18 months.”
Mok said her company has had a whopping 95-percent decline in its events and press calendar. For those events that have gone ahead, the team has re-tailored them to be online instead of physical.
In one case, a pop-up store had to be turned into an online store promotion, and an appearance with a UK-based designer was moved to an Instagram Live social media chat. An entire two-week international speaker festival was shifted to a digital programme.
Mok said the company made it through 2020 with no staff cuts and no losses by staying this “flexible and adaptable”.
For A-Vibe, that means giving staff more options to work from home, reducing office space and being up-to-speed with innovative technology solutions.
This outside-the-box thinking will be crucial as Hong Kong faces a fresh round of restrictions amid another surge in coronavirus infections.
The local government predicts that as the local outbreak “spreads widely and quickly, the business environment of the retail trade may deteriorate again in the near term”.
For Hong Kong’s businesses, this prolonged pressure will prove to be the ultimate test, as many try to change the way they operate in a bid to survive.
This article is part of Al Jazeera Digital’s ongoing series profiling small businesses around the globe that have survived market disruptions from COVID-19 as well as economic challenges unique to their countries. Click to read about small businesses in Tehran, Beirut, Mumbai, the central English town of Wigston in the United Kingdom and Islamabad.