Overview

• According to latest available statistics, Hong Kong was the second largest world exporter of sound recording apparatus and video recording/reproducing apparatus (including DVD/VCD recorders/players), and the third largest world exporter of radios, video cameras and recorders (including digital cameras) in value terms in 2007.
  
  
• Hong Kong exports a wide range of AV equipment, more than 50% of which are parts and components. 
  
  
• In 2008, Hong Kong’s total exports of AV equipment declined by 5%, while exports to the mainland, of which the majority were parts and components fell by 4%. In the first half of 2009, Hong Kong’s total exports of major AV products to major markets experienced significant decline, except the Indian market.
  
  

• Due to increasing computational power, audio-visual equipment is getting more multi-functional and portable. Usually sleek and stylish, the latest portable media player often includes DV-camera, blue-tooth and GPS functions, which also supports multiple video formats and might even have gaming capabilities. Electronic gadgets for mobile TV and digital TV, blue-ray disc players and game consoles are also gaining popularity in mature markets.

Industry Statistics *

* Industry statistics cover activities in Hong Kong only.

Hong Kong produces and exports a wide range of audio-visual (AV) equipment. According to latest available figures, Hong Kong was the second largest world exporter of sound recording apparatus and video recording/reproducing apparatus (including DVD/VCD recorders/players), and the third largest world exporter of radios, video cameras and recorders (including digital cameras) in value terms in 2007.

The largest export item is parts and accessories, including parts and accessories for recorders and radios, as well as cathode-ray tubes and speakers. Hong Kong also exports a wide range of radio products, such as simple radios, radios with cassette recorders/players, radios with optical disc players and car radios. Other export items include video cassette recorders and DVD players, cassette and hi-fi equipment, headphones, microphones, TV sets, portable media players (CD/MD/MP3/MP4 players etc) 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. 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 & components such as integrated circuits (ICs), as well as deck mechanisms of optical disc players. Given its free port status and the advanced telecommunications infrastructure, Hong Kong allows companies to source freely world-wide. For other parts and components, such as printed circuit boards (PCBs), 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. 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 growing 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 ^

* Trade statistics for the year of 2007 is subject to re-classification.
^ 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.

The global economic downturn led to a widespread decline in demand for AV equipment in most markets. Hong Kong’s exports of AV equipment decreased by 5% in 2008 and 29% in the first half of 2009.

In 2008, exports of parts and accessories, amounting to over half of the total exports, fell by 3%, while exports of TV & digital cameras, audio/video recorders/players, TV receivers and radios all experienced decline. In the first six months of 2009, the downward trend in Hong Kong’s AV equipment exports worsened, only exports of semiconductor media, which made up about 8% of total exports increased by 7%.

The Chinese mainland was the largest export market, constituting over 40% of the total exports. In 2008, exports to the mainland, of which the majority were parts and accessories for processing production, fell by 4% after experiencing double-digit growth between 2002 and 2006.

In terms of markets, Hong Kong’s exports to the US and EU decreased by 21% and 35% respectively, while exports to the Chinese mainland were down by 30% and Japan by 27%. Only exports to India experienced an increase of 116% in the first half of 2009.

Sales Channels

Hong Kong manufacturers of AV equipment mostly produce on OEM and ODM basis for American, European and Japanese brands. Some of the major overseas buyers have set up offices in Hong Kong for direct sourcing. Hong Kong companies also sell to specialised importers and traders, 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 products to importers and distributors in overseas market. Their sales network covers not only the advanced countries, but also emerging economies like Latin America, Eastern Europe and various parts of Asia.

Industry Trends

Hong Kong continues to be a popular sourcing hub for higher-end AV equipment, despite facing increased competition from other Asian suppliers, especially from Chinese enterprises.

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.

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.

More Hong Kong’s electronic exporters are using the e-commerce platform to boost domestic and international sales and to provide after-sales support services.

CEPA Provisions

For trade in goods, since the implementation of the second supplement to CEPA in January 2006, all products of Hong Kong origin can be imported into the mainland at zero tariff. 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. 

List of goods entitled to CEPA zero tariff preference in 2009 is found here:
http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_2009.pdf

General Trade Measures Affecting Exports of AV Equipment

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 electronics and electrical appliances. 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 law on chemicals, REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals), was operational since June 2007. REACH requires registration of all substances and substances in articles manfactured in, or imported into, the EU market in quantities of 1 tonne or more per year. EU manufacturers and importers are also responsible for the collection, recovery and recycling of used products under the Directive on Waste Electrical and Electronic equipment (WEEE) and to restrict the types of hazardous materials in electrical and electronic equipiment under the Directive on the Restriction on the Use of certain Hazardous Substances (RoHS). 

The Chinese mainland has adopted similar 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 will be effective from 1 January 2011.

Product Trends

In recent years, due to increasing computational power, audio-visual equipment is getting more multi-functional and portable. MP3 and MP4 players are well received by consumers, while the latest portable media player is a MP5 player, which includes DV-camera, blue-tooth, GPS functions and expendable memory. It supports multiple video formats and might even have gaming capabilities. Usually sleek and stylish, some design is operated by touch-screen and sometimes in the form of a wrist-watch for easy carrying around.

Mobile TV is gaining popularity. The switch from analogue to digital broadcasting will be completed by 2010 in the US and for most EU member states. Sales of digital TV (DTV) related products, such as digital TV set-top boxes, high definition flat screen LCD and plasma display units are expected to increase. Various brands and models of VCD/DVD players with hard-disk recording functionalities are replacing disc and video cassette recording equipment on display shelves in international electronic retail outlets.

In many mature markets like the US, EU, Japan and major cities in the Chinese mainland, a wide range of other electronic gadgets including blue-ray disc players and game consoles are also in demand. Home entertainment related products such as speakers, decoders, amplifiers, wireless headphones and karaoke systems are becoming common in middle class households.