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Country Commercial Guides for FY 2000:
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CHAPTER IV: MARKETING U.S. PRODUCTS AND SERVICES
For many American products and services, initial market penetration in Hong Kong does not require an investment of millions of dollars of company funds. Given that Hong Kong is a "free port" with virtually no duties or tariffs and that it has a wide ranging network of agents and distributors, a well-managed market penetration program with a moderate investment in market development is generally all that is required initially. The market for U.S. service firms is also quite open. Due to its open nature, however, Hong Kong is among the most competitive and price sensitive markets in the world. Companies considering the market should also be aware that the Hong Kong business climate is extremely fast-paced. Decisions are made quickly and companies need to be able to respond to inquiries immediately or they risk losing the market to faster moving suppliers.
Many American products and services do have a market in Hong Kong, and in many cases through Hong Kong to China. Many excellent agents and distributors for China are located in Hong Kong, although given China's size and diversity, it is usually necessary to work with different agents for different regions of China. Hong Kong companies are eager to talk to potential exporters and have a strong interest in representing good quality, competitively priced U.S. products from companies committed to the market. Commitment to the market is demonstrated in various ways but should include: quoting in metric, providing Chinese language material, responding quickly to inquiries, meeting relevant standards, and visiting the market for first hand understanding and building of relationships.
A. Distribution and Sales Channels
One of the best ways to sell products in the Hong Kong market is through the use of agents or distributors. It is also an excellent way of minimizing the initial investment in the market. As outlined below, there is a wide range of companies which can serve as agents or distributors for U.S. firms. Other options for pursuing Hong Kong's market are establishing an office or partnering. Companies looking to sell equipment needing long term maintenance or technical support or installation or who are seeking to become involved in infrastructure projects frequently seek to partner with local companies.
B. Information on Typical Product Pricing Structures (e.g. percent mark-up for products)
Hong Kong is a very open and competitive market. The actual markup varies depending on the product and the industry. Government contracts, for example, tend to be highly competitive with very thin margins or markups. Consumer goods, on the other hand, have higher markups due to the high local costs, particularly for retail space.
C. Use of Agent/Distributors; Finding a Partner
Working with agents and distributors in Hong Kong is very much like working with an agent in the United States. An agent takes orders in the supplier's name. Distributors act in their own name and may stock products purchased from the manufacturer for resale. The choice depends on the relationship with which the manufacturer/supplier is most comfortable and the nature of the business.
Hong Kong has no special legislation regarding agents and distributors. Virtually anything which both sides can agree to and put into a written contract is acceptable and enforceable, including restrictions on territory and a grace period for termination of the agreement. While not required by Hong Kong law, the more complex the contract, the more helpful legal counsel can be in drafting the text. Items that are often in the contract include:
- Discussion of exclusivity and sales territories (always a sensitive issue; business people should be careful about granting an exclusive agency too soon or in too large a territory if the agent is to cover beyond Hong Kong.)
- Discussion of proprietary information (theft of intellectual property is prohibited by local law, but prevention of piracy is always less expensive and more effective than post-facto legal action.)
- Levels of sales activity -- set specific targets and goals to qualify for maintaining or renewing the agreement
- Time duration
- Payment terms
- Quality control -- inspection -- verification
- Rule of law -- jurisdiction in the USA vs. Hong Kong (It is generally Hong Kong, but another location may be specified -- for arbitration, for example.)
- Covenants restricting activity following cancellation of the contract.
There are many types of agents and distributors in Hong Kong, ranging from those who simply stock retail stores with standard items to agents who provide sales, engineering and technical support for complex systems. It is common for a single company to deal in a wide variety of products in a particular sector. Agents and trading companies may be less specialized than companies in a large economy like the US, but the best ones are focused and have contacts in a general line of business.
D. Franchising
During the past decade, Hong Kong and the region have been catching on to the concept of franchising. With the rise in household income over the years, there has been growing demand for goods and services of a better, more consistent quality. The number of franchise operations in Hong Kong increased from 52 in 1992 to 111 in 1998. Nearly 80 percent of all franchise sales in Hong Kong are made by U.S. franchises. In addition to foreign franchises, there are also a number of home grown franchises such as fast food, frozen yogurt and herbal tea. The competition that foreign franchises have to face is not minimal, however, market demand continues to grow.
E. Direct Marketing
Over the years, Hong Kong has developed an efficient wholesale and retail network to cater to the growing consumption needs of a more affluent population. Supermarkets, large department stores, convenience stores and modern shopping centers have become increasingly popular. Shopping is a popular pastime, creating a need for a much wider selection of value for money merchandise. From the consumer standpoint, because of the convenience of having a wide selection of merchandise available in the retail market, direct marketing is not yet a well-accepted sales channel in Hong Kong. Recently there has been some growth in direct marketing through television, but mail-order and other forms of direct marketing are still very limited.
E-commerce looks to be ready to emerge in Hong Kong. The Government is moving on several fronts to try to make up for a slow start in promoting the development of electronic commerce. Its initiatives include a program to deliver government services on-line, the establishment of a community-wide public key infrastructure and a root certification authority, and new legislation to give legal recognition to electronic records and digital signatures. Plans are for government departments to offer services -- including voter registration, bill paying, and tax filing - on-line beginning in late 2000. The government hopes its use of electronic commerce will spur Hong Kong businesses and individuals to "go digital." Some merchants, including the Wellcome supermarket chain, now offer on-line shopping.
F. Joint-Ventures/Licensing
Joint-ventures or strategic alliances can be very helpful in entering the market, and are particularly important in competing for major projects. (For additional information on joint ventures, see Section VII below, Investment Climate.)
Licensing is increasingly common in the field of brand name product manufacturing and marketing.
G. Steps to Establishing an Office
Foreign companies are allowed to incorporate their operations freely in Hong Kong, to register branches, or to set up representative offices. There is no restriction on the ownership of such operations. Company directors are not required to be citizens of, or resident in Hong Kong. Reporting requirements are straightforward and not onerous. There is no distinction in law or practice between investment by foreign-controlled companies and those controlled by local interests. There are no disincentives to foreign investment such as limitations on the use or transfer of foreign currency, or any system of quotas, performance requirements, bonds, deposits, or other similar regulations. High labor and rental costs are the major disincentives to establishing a presence in Hong Kong although, as noted above, commercial rents have declined by 30-40 percent.
To incorporate or register an overseas company, the company should first file statutory declarations with the Registrar of Companies. It should then submit necessary documents to the Administration Section of the Companies Registry. Specific information on required documents can be found on the Companies Registry's web site http://www.info.gov.hk/cr/handouts/index.htm.
Companies seeking more information on establishing an office in Hong Kong may contact:
Overseas Companies Section Companies Registry 29/F Queensway Government Offices 66 Queensway Hong Kong Tel: (852) 2867-4655 Fax: (852) 2523-5629 Web site: http://www.info.gov.hk/cr
H. Selling Factors/Techniques
The major selling factors are the same as in the United States: price, quality, timeliness in delivery and service. Initial sales require more face-to-face contact as Asians generally place a premium on developing personal connections.
I. Advertising and Trade Promotion (including listing of Major Newspapers and Business Journals)
Many promotional vehicles are open to suppliers to introduce and develop their services in the Hong Kong market. These include:
- special trade fairs and exhibitions
- advertising in the media and other public relations activities
- holding seminars
- in-store promotions
- joint promotions with wholesale and retail outlets
Hong Kong is a major conference and exhibition center. Hundreds of international exhibitions are held annually. The Hong Kong Conference and Exhibition Center (operated by the quasi governmental Hong Kong Trade Development Council), has approximately 500,000 square feet of exhibition space, including 300,000 square feet added in a major expansion completed in the summer of 1997. A privately built facility, the International Trademart, opened in Kowloon Bay in early 1996 with 158,000 square feet of exhibition space. For more information about these exhibition facilities, please contact:
The Marketing Executive Hong Kong Convention & Exhibition Center No. 1 Expo Drive Wan Chai, Hong Kong Tel: (852) 2582-8888 Fax: (852) 2802-7284 The Hong Kong International Trademart No. 1 Trademart Drive Kowloon Bay, Hong Kong Tel: (852) 2620-2222 Fax: (852) 2620-2818Television is a widely used medium with an estimated daily audience of 2.25 million households out of a population of 6.8 million people. Hong Kong Television also reaches much of neighboring Guangdong Province in China, where it is very popular.
As one of the largest centers in the world for Chinese language publications, the territory produces more than 700 publications, including some 45 Chinese newspapers, approximately 693 periodicals, and two English daily newspapers. Advertising agencies, including many of international standing, offer a full range of services.
Suppliers should provide technical catalogs in English, and desirably in Chinese, for distribution to agents and firms. Company brochures are particularly useful when visiting Hong Kong for the first time. English-Chinese business cards are also helpful.
Newspapers: Owen Jonathan, Chief Executive South China Morning Post South China Morning Post Publishers Limited 29/F, Dorset House, 979 King's Road, Quarry Bay, H.K. Tel: (852) 2565-2222 Fax: (852) 2565-5380 E-mail: scmphkh@attmail.com Web site: www.scmp.com David Wong, Director in Chief Hong Kong Standard Hong Kong Standard Newspapers Ltd. 4/Fl., Sing Tao Building 1 Wang Kwong Road Kowloon Bay Kowloon, Hong Kong Tel: (852) 2798-2798 Fax: (852) 2795-3027, 2795-3009 E-mail: standard@hkstandard.com Web site: www.hkstandard.com Trade Journals: Fred Armentrout, Publication Manager AmCham (Monthly) American Chamber of Commerce in Hong Kong 1904 Bank of America Tower Central, Hong Kong Tel: (852) 2526-0165 Fax: (852) 2537-1682 E-mail: amcham@amcham.org.hk James Leung, Executive Editor Asian Business (Monthly) Far East Trade Press Ltd. Block C, 10/F., Seaview Estate 2-8 Watson Road North Point Hong Kong Tel: (852) 2566-8381 Fax: (852) 2508-0197 E-mail: abeditor@hkstar.com Web site: http://web3.asia1.com.sg/timesnet/navigator/text/ab.html Felix Leung, Publisher Construction & Contract News (Monthly) Trend Publishing (HK) Ltd. Rm. 901 C.C. Wu Building 302 Hennessy Road Wan Chai, H.K. Tel: (852) 2802-6299 Fax: (852) 2802-6458 E-mail: trend@building.com.hk Web site: www.building.com Karen Mullis, Managing Director Far Eastern Economic Review (Weekly) Review Publishing Company Limited 25/F., Citicorp Center 18 Whitfield Road Causeway Bay, Hong Kong Tel: (852) 2508-4300 Fax: (852) 2503-2992 E-mail: review@feer.com Web site: www.feer.com Mrs. V.C. Davies, Director General Hong Kong Industrialist (Monthly) Federation of Hong Kong Industries 4/F., Hankow Center 5-15 Hankow Road Tsimshatsui, Kowloon Hong Kong Tel: (852) 2732-3188 Fax: (852) 2721-3494 E-mail: fhki@fhki.org.hk Web site: fhki.org.hk Thomas Tang, Executive Director Productivity News (Monthly) Hong Kong Productivity Council HKPC Building 78 Tat Chee Avenue Yau Yat Chuen, Kowloon Hong Kong Tel: (852) 2788-5678 Fax: (852) 2788-5900 E-mail: hkpcenq@hkpc.org Web site: www.hkpc.org Tom Gorman, Director Telecom Asia (Monthly) CCI Asia-Pacific 101, 1/F, Pacific Plaza 410 Des Voeux Rd West Central, Hong Kong Tel: (852) 2858-0789 Fax: (852) 2857-6309 E-mail: marketing@cci.com.hk Web site: www.cci.com.hkJ. Pricing Product
If possible, quote in metric, on a deliverable basis to Hong Kong (i.e. CIF or C&F rather than FOB). Hong Kong companies have many options, so American companies must make it as easy as possible to deal with them.
K. Sales Service/Customer Support
Some sort of local presence, whether it is a branch office or an agent or distributor, is very important in getting established in the market. Business in Hong Kong (and elsewhere in Asia) requires relationships which can only be developed with some sort of full-time presence. Prompt after-sales service is also crucial to succeeding in this very competitive market.
L. Selling to the Hong Kong Government
The Government Supplies Department (GSD) is the central purchasing, storage and supply organization for the Government of the Hong Kong Special Administrative Region, serving over 80 government departments and certain non-government organizations. The GSD normally purchases by open tender, with decisions based on compliance with tender specifications, competitiveness in price, back-up service and delivery. The GSD gives no preference to any particular source of supply from any country or organization. GSD spent US$644 million in 1998, with American products winning around 37 percent of the total procurement contracts (about US$238 million). Hong Kong joined the WTO Agreement on Government Procurement in June 1997. Tenders are now covered by the Agreement on Government Procurement of the World Trade Organization (WTO GPA), and a Review Body on Bid Challenges has been set up by the Government to handle challenges made against alleged breaches of the WTO GPA. Invitations to open tender are published in the Government of the Hong Kong Special Administrative Region Gazette and in selected Hong Kong newspapers. Tender notices are also published on the Internet in the GSD Home Page (http://www.info.gov.hk/gsd). Tenderers usually have about six weeks to prepare their offers. Tenders normally have a 90-day validity period unless otherwise indicated. Payment is usually effected by check or telegraphic transfer within 30 days upon acceptance of the goods. Contract awards with the names of successful tenderers and contract sums are published monthly in the Government Gazette and on the Internet.
For information about a subscription to the Government of the Hong Kong Special Administrative Region Gazette contact:
Information Officer Publications Sales Section Information Services Department 28th Floor, Siu On Centre 188 Lockhart Road Wanchai, Hong Kong Tel: (852) 2598-8197 Fax: (852) 2598-7482The GSD maintains lists of registered suppliers for issuing tender invitations. Any company not currently registered with the GSD wishing to be considered for inclusion in these lists may apply in writing to the Director of Government Supplies. Companies are required to provide basic information about their organizations and the goods they offer, such as the business registration certificate, company profile, annual report and product catalogues. The GSD evaluates this information and those companies that are found acceptable will be included on the lists.
The U.S. & Foreign Commercial Service at the US Consulate General in Hong Kong office regularly reports on government tenders. These reports are available via the NTDB. For information call the U.S. Department of Commerce at 1-800 stat-usa.
Companies seeking more information on the GSD are encouraged to contact:
The Director of Government Supplies Government Supplies Department 10/F, North Point Government Offices 333 Java Road North Point, Hong Kong. Tel: (852) 2231-5100 Fax: (852) 2510-7904 Website: http://www.info.gov.hk/gsdM. Protecting your product from IPR Infringement
The best protection for an American company is to aggressively market in Hong Kong. By using a good local agent, American manufacturers or suppliers can make their product legally available. Dealers have a strong incentive to stop any piracy, and with good local connections, have a better chance of making that happen than an American company which is not actively participating in the market. The chief law enforcement body for Intellectual Property Rights (IPR) is the Hong Kong Customs and Excise Department. However, protecting copyrights or trademarks takes vigilance, and even with the U.S. Government vigorously pressing Hong Kong on this issue, enforcement is still dependent on reporting incidents of product piracy to the authorities and, in some cases, providing evidence in court. For more information on intellectual property legislation and registration, see Section VII. G, below.
N. Need for a Local Attorney
Hong Kong follows the Common Law System and disputes which cannot be resolved between the interested parties are commonly pursued through the court system. Attorneys are needed for most court processes and are extremely expensive.
O. Performing due diligence, checking Bona Fides of Banks, Agents and Customers
To research potential customers and business partners, U.S. businesses can check with the Hong Kong Government's Companies Registry or consult with banks and credit agencies both in the United States and Hong Kong.
All businesses must register with the Hong Kong Government's Companies Registry. Information available to the public is limited to: date of registration, names of major shareholders/directors and investment capital. The Companies Registry is located at:
12/F., 66 Queensway Government Offices Hong Kong Tel: (852) 2867-4570 Fax: (852) 2869-6817Other sources include Dun & Bradstreet and Kroll Associates, and publications such as "Key Decision - Makers in Hong Kong Businesses 1997" by the Dun & Bradstreet Corporation or "Guide to Hong Kong Companies" by Thornton (1996). Contact information for major banks and trade associations is included in Section X, Appendix E. Contact information for Dun & Bradstreet and Kroll Associates is provided below:
Dun & Bradstreet: Credit Services 17/F, Warwick House West Taikoo Place 979, King's Road Quarry Bay Hong Kong Tel: (852) 2516-1111 Fax: (852) 2811-0053 Kroll Associates (Asia) Ltd.: Suite 1701-1702 Central Plaza 18 Harbor Road Wanchai Hong Kong Tel: (852) 2884-7788 Fax: (852) 2568-8505
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[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.
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