Hong Kong Soars

Seated in a nondescript office in Hong Kong, 1,500 workers are turning the wheels of the global economy. Without leaving their desks, these merchandisers at Hong Kong--based trading outfit Li & Fung connect the far-flung dots of today's international manufacturing system. They make sure that Victoria's Secret gets its bras, American Eagle Outfitters its T shirts and Disney its stuffed Winnie the Poohs. One moment, workers in Hong Kong are haggling with fabricmakers for the best price of denim, and the next, they're ensuring that a shipment of teddy bears gets to U.S. stores on time or searching for the right factories to sew up a hot fashion line.

Thousands of transactions for customers in Chicago, New York or London flow through their computers each day to be relayed to suppliers in Bangladesh, Vietnam and South Korea. William Fung, Li & Fung's group managing director, calls this intricate logistical dance "borderless manufacturing." You might think that an activity without borders could be managed from anywhere, and maybe it could. But in practice, the global supply chain has a headquarters, and it is in the Chinese special administrative region and former British colony whose economic demise has been trumpeted more times than Paris Hilton has hit a party.

Hong Kong may still be polluted, cramped and expensive, but somehow or other it continues to reinvent itself. Almost 10 years after the Brits returned Hong Kong to China, the city remains a top regional base for scores of international companies as well as a magnet for overseas capital. Foreign direct investment (FDI) in Hong Kong totaled $33.5 billion in 2005 (the most recent figures available). In Asia, only mainland China has attracted more FDI in recent years. Close ties to the booming mainland continue to drive the economy, which grew 8.6% in 2004 and 7.3% in 2005. For 2006, the final figure is expected to be 6.5%. That success is partly due to the fact that Hong Kong is home to a cluster of firms such as Li & Fung, which help orchestrate the production and flow of goods supplied by factories in the developing world to multinational retailers. Hong Kong, says Dennis Cicetti, group managing director of product-sourcing firm William E. Connor & Associates, is "the command and control center" for much of world trade, particularly for thousands of factories in southern China that gush forth consumer goods. Although Hong Kong has relatively few factories and a population of just 7 million, only 10 nations see more trade travel across their borders. The city is "totally underappreciated," says Merle Hinrichs, chairman of Global Sources, a Hong Kong publisher and provider of Internet-based product-sourcing and marketing services. "It is important for reasons that have been taken for granted."