Hong Kong Industry Profiles

Overview

• Hong Kong exports a wide range of audio-visual (AV) equipment, including a variety of parts and accessories that account for half of the total exports.



• According to the latest available figures, Hong Kong was the world’s largest exporter of sound recording apparatus, the second largest exporter of video recording/reproducing apparatus, and the third largest exporter of radio broadcast receivers and video cameras/recorders in value terms in 2009.



• Hong Kong AV equipment exports fell by 3% during January-May 2011. Exports to the Chinese mainland, which absorbs nearly half of the total exports, edged up by 2%. But exports to the US and the EU declined by 19% and 23% respectively.



• While the market for digital camcorders and cameras has expanded robustly, DVD recorders/players are expected to be gradually replaced by Blu-ray disk recorders/players in the next few years. As for the future, digital TVs with 3D effects and Internet surfing capabilities are among the industry foci for further development.
  

Industry Features

Hong Kong produces and exports a wide range of AV equipment. According to the latest available figures, Hong Kong was the world’s largest exporter of sound recording apparatus, the second largest exporter of video recording/reproducing apparatus (including DVD/VCD recorders/players), and the third largest exporter of radio broadcast receivers and video cameras/recorders (including digital cameras) in value terms in 2009.

The largest export item is parts and accessories, including parts and accessories for recorders, radios, microphones and speakers. Meanwhile, exports of finished items are mainly for domestic use, with audio and video recorders/players being the major items, including the Blu-ray disk and DVD disk recorders/players. Hong Kong also exports a wide range of radio products, such as simple radios, digital radios and car radios. Other export items include hi-fi equipment, headphones, microphones, TV sets, MP3/MP4 players, digital camcorders and digital cameras.

Most AV equipment manufacturers in Hong Kong are small- and medium-sized enterprises. Today, many companies have relocated their production facilities to the Chinese mainland to maintain cost competitiveness. Their offices in Hong Kong are mainly responsible for product development, quality control, management, marketing and logistic support. In the wake of the relocation, these companies have been re-classified as non-manufacturing establishments, despite the fact that they have manufacturing activities across the boundary.

The industry is characterised by heavy dependence on imported parts of key parts and components, especially integrated circuits like memory chips. Given its free port status and the advanced telecommunications infrastructure, Hong Kong allows companies to source freely worldwide. For other parts and components, such as printed circuit boards, transistors, diodes, LEDs, speakers, metal parts, plastics, connectors, gift-boxes and other packing materials, Hong Kong companies may source from other local manufacturers, or local enterprises on the mainland.

Apart from original equipment manufacturing (OEM), a large portion of Hong Kong companies have focused on original design manufacturing (ODM). These cover product design and development, mechanical drawing, software programming, tool-making and production, with buyers providing the industrial/conceptual designs only, such as cosmetic drawings and features. In some cases, industrial/conceptual designs may be undertaken by Hong Kong companies.

There are an increasing number of Hong Kong manufacturers adopting a strategy of higher degree of vertical integration to increase value-added, while enhancing automation to raise productivity. In addition to product design and development, tool-making, plastics injection moulding, metal parts manufacturing, production and/or quality assurance are all done under one roof.

The success of Hong Kong’s AV equipment industry also lies in efficient management. Against the fast changing markets, Hong Kong companies emphasise quick response to ensure effective marketing services to their customers, and to monitor the changing product trends. Moreover, due to the growing concern of quality conscious buyers, many companies have strengthened their quality assurance systems. This is evidenced by a large number of Hong Kong companies certified as complying with ISO 9000, which is an internationally recognised standard for quality management system.

Performance of Hong Kong’s Exports of AV Equipment ^

^ Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessarily reflect the export business managed by Hong Kong companies.

Hong Kong’s total exports of AV equipment fell by 3% during January-May 2011, after a surge by 12% in 2010. Exports of parts and accessories, accounting for over half of the total exports, fell by 5% in the first five months of 2011. Exports of TV cameras/digital cameras and audio/video recorders and players also declined in the period.

The Chinese mainland was Hong Kong’s largest export market, constituting nearly half of the total exports. During January-May 2011, exports to the mainland, of which the majority were parts and accessories for processing production, increased by 2% after a double-digit growth in the preceding year.

Exports to the US and the EU, however, declined by 19% and 23% respectively during January-May 2011. Sales to ASEAN also declined, although exports to Japan managed to grow by 17% in the period.

Sales Channels

Hong Kong manufacturers of AV equipment mostly produce on OEM and ODM basis for American, European and Japanese brand owners. Some of overseas buyers have set up offices in Hong Kong for direct sourcing. Hong Kong companies also sell to specialised importers and traders in North America and Europe, who may distribute the merchandise under their own channels or re-sell to their clients for further distribution. In any event, after-sale services are usually undertaken by overseas buyers, while Hong Kong suppliers provide technical support for repair and maintenance.

There are also a number of large Hong Kong companies marketing AV equipment under their own brand names, while smaller companies also sell their brand products to smaller importers and distributors in overseas market. Their sales network covers not only the advanced countries, but also emerging economies like Latin America and Eastern Europe.

Promotion via participation in trade fairs is an effective way for Hong Kong companies of AV equipment to explore market opportunities. Important trade fairs include the CES Show held in the US, CeBit Fair in Germany and the Hong Kong Electronics Fair organised by the Hong Kong Trade Development Council (HKTDC). Business missions organised by the HKTDC to the Chinese mainland and other emerging markets also provide opportunities for Hong Kong companies to establish connections with potential buyers.

Industry Trends

Hong Kong is a popular sourcing centre for higher-end AV products, notwithstanding the keen competition from less advanced suppliers in the low-end market segment. Nonetheless, there is increasing competition from local Chinese enterprises. In fact, the Chinese mainland has a well established industrial base for domestic electronics items and poses obvious threat to Hong Kong exporters in the international market, especially in OEM production.

Against this background, Hong Kong companies have enhanced their value-added. While maintaining their OEM production, they have focused more on ODM business, rendering increased value-added services to overseas customers. Although this would normally require more investment in aesthetic and technical designs than OEM production, developing ODM business is deemed to be an important strategy for Hong Kong’s electronics companies to enhance their competitiveness. The most important attribute of their success is their product design and development capability, while knowledge of world product trends and consumer preferences in different markets is also their edge.

On the other hand, the fast changing consumption pattern has resulted in low inventory levels in major export markets, requiring quick response for inventory replenishment. Product life cycles have also shortened amid the advancement in technology, leading to the need for more frequent changes to product features and cosmetic designs in order to lure consumers. In this respect, Hong Kong companies are well known for their adaptability and responsiveness to the rapidly evolving consumer tastes and technological changes. They have constantly upgraded their capability in product and aesthetic designs. Some companies also re-engineer their procurement and production management systems, in a bid to shorten delivery lead times.

CEPA Provisions

Since the implementation of the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III) in January 2006, all products of Hong Kong origin can be imported into the mainland at zero tariffs. According to the stipulated procedures, products which have no existing CEPA rules of origin will enjoy tariff-free treatment upon applications by local manufacturers and upon the CEPA rule of origins being agreed and met.

Detailed information, as well as the origin rules for electronics items, is available from the following hyperlink: http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_2011.pdf

General Trade Measures Affecting Exports of AV Equipment

Most electronics exports of finished items and certain parts and components are subject to relevant safety requirements. For instance, certain electronic products sold to the US have to be in compliance with the safety requirements of UL/ETL listing or equivalent. Likewise, products exported to the EU have to comply with relevant safety directives, including those of low voltage electrical equipment, and have to carry a CE-mark to show their compliance. With regard to electromagnetic compatibility (EMC), products sold to the US require compliance with FCC standard, while EU’s CE-mark has also required the compliance with relevant EMC directives. As for sales in the Chinese mainland market, most electronic products have to be in compliance with the safety and other requirements of a unified compulsory product certification system known as 3C (China Compulsory Certification or CCC).

Hong Kong exporters should be attentive to the growing popularity of green concept in the marketplace. Especially in Europe, consumers are generally conscious of environmental protection. Not surprisingly, the EU has adopted a number of directives for environmental protection, which may have an impact on the sales of electronic products. These include the restrictions on batteries and accumulators that contain mercury, as well as the Directive on Waste Electrical and Electronic Equipment (WEEE) implemented in August 2005, and the Directive on Restriction of Hazardous Substances (RoHS) that came into effect in July 2006.

The European Union law on chemicals, REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals), came into effect in June 2007. REACH requires all companies manufacturing or importing chemical substances into the EU in quantities of one tonne or more per year to register these substances with the European Chemicals Agency.

The Chinese mainland has adopted similar environmental protection regulations. These include the already effective Management Methods on Prevention and Control of Pollution Caused by Electronic Information Products since March 2007 and the Management Methods on Prevention of Waste Electronic Equipment Pollution on Environment since February 2008. The regulation on recycling and treatment of waste electrical and electronic equipment has also come into effect since 1 January 2011.

Product Trends

Digitalisation is the major development trend in today’s AV equipment sector. One of the prominent areas is digital imaging. In particular, the market for digital camcorders and cameras has expanded robustly. Advanced features like high-resolution video recording and GPS functions are increasingly added to standard and compact models. Some leading players are focusing on the development of high-end products, such as camcorders with 3D video recording capabilities and digital SLR cameras with specialised functions for professional photographers.

Spurred by the growing popularity of high-resolution video entertainment, DVD recorders/players are expected to be gradually replaced by Blu-ray disk recorders/players in the next few years. Nonetheless, demand for complementary audio systems, such as high quality speakers, decoders, and amplifiers for home theatre sound effect will continue to enjoy steady demand.

On another development, demand for large-screen TVs making use of LED display is rising rapidly. As for the future, digital TVs with 3D effects and Internet surfing capabilities are among the industry foci for further development.

Other growth products include radio receivers for digital audio broadcasting (DAB) and digital satellite TV receivers, which are in demand in markets where relevant services are provided.