Hong Kong Advantage

This former British colony represents a small but growing market. But, more importantly, it also offers a great base for business on mainland China, as well as Southeast Asia as a whole

Hong Kong has a unique relationship with China, existing as what is known as the Hong Kong Special Administrative Region. Established on July 1, 1997, when the U.K. ceded sovereignty to China, this special status runs until June 30, 2047, at which time Hong Kong will be fully integrated into the Chinese state.

Hong Kong has a population estimated by Euromonitor to be 7,327,000, and The World Fact Book estimates that in 2008 this broke down by age demographic to 12.6 percent in the 0–14 group, 74.4 percent in the 15–64 group and 13 percent 65+.

The World Fact Book estimates that in 2007 the GDP was $293.4 billion, real GDP growth was 5.8 percent and the per capita income was $42,000 per annum. But, while Hong Kong generally enjoys a stable financial environment, there are, as with many other countries, worrying signs that inflation is taking hold, with a rate, announced by the Census and Statistics Department of 6.3 percent in February of 2008. However, perhaps the most telling financial statistic is the estimate that in 2007, China accounted for 47 percent of the region's entire exports.

Hong Kong has a number of clear advantages as a base for doing business in mainland China. Its history as a business center means that intellectual property rights have a much greater respect than is sometimes the case on the mainland, as do business agreements. Hong Kong also boasts a large pool of business talent, and enjoys proximity to the mainland which allows for good distribution networks.

Another unique advantage enjoyed by Hong Kong in relation to trade with mainland China is the establishment in June 2003 of the Closer Economic Partnership Agreement (CEPA). The agreement covers three broad areas: trade in goods, trade in services and trade and investment facilitation. From the perspective of licensing, perhaps the most significant provision of the agreement is the one that allows all goods of Hong Kong origin to be imported into mainland China tariff free. Suppliers of services also enjoy preferential treatment in mainland China. Full details of the CEPA provisions can be found at www.tid.gov.hk/english.

All of which explains why a recent survey by the Hong Kong Trade Development Council found that 61.3 percent of overseas companies preferred Hong Kong as a base for trade with China to any of the major mainland cities such as Shanghai and Beijing.

That China is a hugely important market will be news to no one. Already ranked as the second-largest Asian licensing market, LIMA estimates that the Chinese market for licensed goods grew 87.5 percent between 2001 and 2005, from $600 million to over $1.1 billion. The attraction of licensed goods in the Chinese market is evidenced by the fact that the organizing committee for the 2008 Beijing Olympics has opened 500 stores in 70 cities across the country selling all manner of Olympic products. And sports as a licensed category seems set to grow, not only because of the Beijing Olympics, but also because of the 2009 East Asian Games in Hong Kong, followed in 2010 by the Asian Games in Guangzhou.

Although the Report on Hong Kong Trade In Services Statistics for 2006, compiled by the Census and Statistics Department, and the most recent report available, puts the value of royalties and license fees generated by companies based in Hong Kong at $258 million, representing a healthy 5.6 percent rise over the 2005 figure of $243.6 million, the 2006 figure still only represented 0.4 percent of Hong Kong's total service exports. Nevertheless, licensing is a growing business in Hong Kong and, in addition to the 100 or so licensing agents the Trade Development Council estimates to be operating there, major international licensors such as Mattel, The NBA and Warner Bros. have all established Hong Kong offices.

And while Hong Kong is an important base for business, not only in mainland China but in Southeast Asia as a whole, it should not be ignored as a licensing market in its own right. According to Euromonitor, sales of consumer electronics in Hong Kong rose from $1.09 billion in 2004 to an estimated $1.35 billion in 2008, while over the same period sales of soft drinks rose from $1.33 billion to $1.48 billion.

"One of the key trends in the Hong Kong market," says Bianca Lee, managing director for Greater China, South East Asia and India at Warner Bros. Consumer Products, "is an increasing tendency for licensors to work directly with retailers on the development and distribution of licensed products." Lee believes that this move toward DTR offers a number of advantages from the licensors' perspective. In particular, claims Lee, "it allows licensors to have more influence and control over the presentation of their products at the retail level." Nor does she believe that the benefits of DTR are confined to the licensor, she also believes that retailers benefit in as much as, "licensed products and promotions create a point of difference between the retailer and its rivals, and generates an excitement around the retailer's stores. Both of which are very valuable in an increasingly competitive retail market."

At the moment, Lee sees apparel and accessories as the biggest-selling product group followed by toys and games, with stationery in third place. Obviously toys and games as a product category appeals to kids, whereas stationery has a much broader appeal, attracting, "kids, teenagers as well as office ladies," according to Lee. Apparel and accessories appeal across the age groups with different licensed programs targeting different age groups. And, she believes, this represents the future direction of licensing in Hong Kong. "We expect," she predicts, "to see improved quality of licensed programs with increasing participation by retailers," adding, "character-licensed products have increasing appeal to adults and fashion-conscious consumers. This is the result, believes Lee, "of more licensed programs within fashion brands and quality retailers."

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