ABSTRACT
In 1978, China began to experiment with economic reforms and the ‘open door’ policy. A number of new development areas, such as the Shenzhen Special Economic Zone, were set up to encourage foreign investments (Wong and Chu, 1985; Phillips and Yeh, 1989). This has substantially affected the development of Hong Kong and the Pearl River Delta (PRD) region. Many Hong Kong industries began to set up branch plants or to undertake subcontracting processes in China. A gradual ‘regional division of labour’ between Hong Kong and China’s new development areas, especially the PRD region, began to take shape (Sit and Yang, 1997). This was quite common among labour-intensive industries such as garment, toys and electronics that were seeking to sub-divide their production processes by shifting labour-intensive production processes which can utilize unskilled labour to the neighbouring PRD in China. Outsourcing arrangements were quite often used to ensure operational efficiency and management control in Hong Kong. Many of these subcontracting arrangements were based on personal contacts because many people in Hong Kong have originated from the PRD (Leung, 1993).
