Overview

• Hong Kong has been chosen by many international licensors and licensing agents as the strategic base to expand their licensing business in Asia, particularly the Chinese mainland.
• Hong Kong offers clear advantages as an ideal platform for licensors, licensees, agents and manufacturers to get together, which include intellectual property rights protection, respect for business agreements, distribution networks, access to quality licensees, availability of industry talent, market sensitivity and close business connections with the mainland.
• According to the Licensing Industry Merchandisers' Association (LIMA), China is the world's fastest growing market for licensed goods, which has grown 87.5% from US$ 600 million in 2001 to over US$ 1.1 billion in 2005. China is now ranked as the second largest licensing market in Asia and one of the enormous potential retail markets.
• Sport properties become more promising in the global and Asian licensing market. The 2008 Olympics (Beijing), 2009 East Asian Games (Hong Kong), 2010 Asian Games (Guangzhou) and the 2010 World Expo (Shanghai) will stimulate licensing activities in/through Hong Kong.
• Hong Kong licensing companies are major players on the Chinese mainland. They are expected to play an increasingly important role in the mainland market, particularly after the implementation of the Closer Economic Partnership Arrangement (CEPA) agreement.
  

Market Characteristics

Hong Kong's licensing market began to take shape in the early 1990s. Despite a relatively short history of development, Hong Kong has grown into a highly developed licensing market in Asia. Similar to the global and regional pattern, characters/entertainment properties from the US and Japan are the most popular in Hong Kong.

Hong Kong consumers are very sensitive to the latest market trends and licensed products generally appeal to young consumers. Main categories of licensed products are food and beverages, toys, books, gift items, stationery, computer supplies and sales promotions for fast food chains and banks.

Services Providers

Hong Kong has relatively few home-grown brands and properties for licensing. Nevertheless, many international licensors, like Warner Bros., Mattel and the National Basketball Association have offices in Hong Kong. Many of these offices are regional headquarters of the company. Moreover, many famous foreign licensors have entrusted the exclusive rights to Hong Kong licensing agents to develop the business in Asia. Industry participants estimate that there are less than 100 licensors and licensing agents in Hong Kong. Many licensing industry participants are members of the Licensing Executive Society of China, Hong Kong chapter.

According to a TDC report on licensing business, among the overseas licensing companies surveyed, Hong Kong is considered the most preferred location for entry into or further development of their licensing business on the Chinese mainland (61.3% responses vis-a-vis 48.4% for either Beijing or Shanghai). Many of these companies are operating their licensing business on the mainland through Hong Kong-based agents, drawing on the latter's knowledge including ready access to licensees, and an ability and network to organise marketing activities in promoting properties on the mainland.

The TDC report also notes that more than twice as many overseas licensing companies would work through agents in Hong Kong (75%) than in Shanghai (35%) because Hong Kong agents can effectively smooth communication with other parties, including licensees on the mainland.

Exports

The significance of Hong Kong's licensing business lies in its status as a hub for licensing activities in Asia. Local business usually accounts for a small proportion of overall business of licensors and licensing agents.

• Sport properties become more promising in the global and Asian licensing market. The 2008 Olympics (Beijing), 2009 East Asian Games (Hong Kong), 2010 Asian Games (Guangzhou) and the 2010 World Expo (Shanghai) will stimulate licensing activities in/through Hong Kong.
• As major films are released in various markets simultaneously to maximize global buzz, international co-productions are becoming more and more popular and contributing to a rise of cross-border entertainment properties in the global licensing market.
• Licensing is becoming more a global business and is increasingly export-oriented. Industry estimates indicate that about one-third of total revenue of global licensed products are generated from overseas territories.
• The Internet is affecting the international licensing business. Characters, fads, brands and fashion trends now travel at hyperspeed among the globe, cutting short the time it takes to get a product from licensed concept to retail shelves.
• Non-traditional media (The Internet and mobile) play an increasingly important role for promoting new properties.
  

China as the rising star

While the global licensing market has been stagnant in the past few years, licensing activities are growing in Asia outside Japan -- the focus of development is the China market.

According to the Licensing Industry Merchandisers' Association (LIMA), China is the world's fastest growing market for licensed goods, which has grown from US$ 600 million in 2001 to over US$ 1.1 billion in 2005, i.e. an annual growth rate of 17%, which almost doubles the GDP growth rate. Despite a very short history of development, the huge size of the economy has made China the second largest licensing market in Asia.

Cartoon characters will remain a key driver of the mainstream market on the mainland, and there is good potential in children's products, apparel, toys and games, stationery for further developing their licensing business.

Turning to the 2008 Beijing Olympic licensing program, the BOCOG (Beijing Organizing Committee for the Games of the XXIX Olympiad) has contracted a number of companies to produce and sell the Olympic licensed products, including clothes, pins, toys, stationary articles, bags, handicrafts, silk products, porcelain, gold and silver products, as well as jewellery. Over 500 retail stores have been opened in more than 70 cities across the mainland. Mainland consumers have shown growing interest in the products, which are markedly innovative in their design.

Hong Kong-based licensing companies are major players on the mainland. Moreover, Hong Kong licensing agents are considered by many foreign licensors the most preferred partners to tap these emerging opportunities on the mainland.

Closer Economic Partnership Arrangement between Hong Kong and the Mainland (CEPA)

Among other provisions, CEPA further opens up the mainland market for Hong Kong products and the distribution business to Hong Kong companies. Since effective distribution is vital to the success of a licensing deal, Hong Kong companies that make use of the opportunities provided by CEPA to develop their mainland business will likely be sought after as distributors for foreign licensors, who prefer to work with distributors that offer adequate IPR protection and services in line with international practices.

Hong Kong manufacturers on the mainland who build their own distribution channels on the mainland or partner with a reliable Hong Kong-invested distributor can become even stronger candidates as licensees for popular foreign properties.

Hong Kong manufacturers/licensees can also benefit from CEPA, given that ALL Hong Kong-produced goods fulfilling the required origin rules - many of which are hot products for licensing - can now enter the mainland tariff-free.