Hong Kong Industry Profiles

Overview

• The mainland and Hong Kong agreed in October 2005 to further liberalise the mainland market for Hong Kong companies under the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III). Under CEPA III, the mainland agreed to give all products of Hong Kong origin, including footwear, tariff-free treatment starting from 1 January 2006.

• Hong Kong produces a wide range of footwear suitable for indoor and outdoor activities. The industry is particularly strong at manufacturing women's shoes, including dressing shoes and casual shoes of real and synthetic leather such as boots and mules. Some companies specialise in men's casual shoes, like boat shoes, moccasins, loafers and canvas shoes, while others in sports shoes. Meanwhile, more companies are paying attention to children’s shoes.

• Following an 18% increase in 2010, Hong Kong's footwear exports saw further growth of 7% in the first five months of 2011. Re-exports, accounting for almost all footwear exports from Hong Kong, grew in line with total exports during January-May 2011, while domestic exports plummeted by 83%.

• Hong Kong footwear companies, such as Le Saunda, Mirabell, Staccato, and Joy and Peace, are enthusiastic about brand development. They sell their branded products through their own retail outlets and by means of franchising or joint ventures with local partners in some markets, including the Chinese mainland. In addition, some footwear companies also explore niche markets with their own brand products, for instance, Dr. Kong Footcare in health footwear.

Industry Features*

*Industry statistics refer to production in Hong Kong only.

The latest official statistics show that there were a total of 10 footwear manufacturing establishments hiring 40 workers as at 2010. The majority of footwear manufacturers have set up offshore production facilities on the Chinese mainland to reduce operation costs and stay competitive, leaving only limited capacity in Hong Kong to meet small orders. Some manufacturers, after relocation of production facilities offshore, are classified instead as import-export establishments. At the end of 2010, there were altogether 1,440 import/export establishments hiring 5,940 workers.

Hong Kong produces a wide range of footwear suitable for indoor and outdoor activities. The industry is particularly strong at manufacturing women's shoes, including dressing shoes and casual shoes of real and synthetic leather such as boots and mules. Some companies specialise in men’s casual shoes, like boat shoes, moccasins, loafers and canvas shoes, while others in sports shoes. Meanwhile, more companies are paying attention to children’s shoes, like funky boots with embroidery, shoes with cartoon characters, rubber boots and school shoes.

Performance of Hong Kong’s Exports of Footwear^

Note:

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

Following an 18% increase in 2010, Hong Kong’s footwear exports expanded further by 7% in the first five months of 2011. Re-exports, accounting for almost all footwear exports from Hong Kong, grew in line with total exports by 7% during January-May 2011, while domestic exports plummeted by 83%.

Playing a leading role in Hong Kong’s footwear exports, the US took up a 35% market share in the first five months of 2011. After soaring by 22% last year, footwear exports to the US edged down by 2% during January-May 2011. Trailing the US were the EU and Japan, accounting for 21% and 9% of Hong Kong's footwear exports, respectively. During the first five months of 2011, footwear exports to the EU rose by 9%, while sales to Japan saw an increase of 2%. In the meantime, Hong Kong's footwear exports to the Chinese mainland increased by 30%.

Sales Channels

Many footwear companies in Hong Kong engage in OEM arrangements to produce for leading brands and retailers in North America, the EU and Japan. With improving capabilities in product design and development, engineering, modelling, tooling and quality control, more and more Hong Kong footwear companies engage in ODM projects. Many companies have their own R&D and QC specialists to strengthen the quality of their products. Some Hong Kong footwear companies, such as Le Saunda, Mirabell, Staccato, and Joy and Peace, have also succeeded in building up their own brands with retail network in Hong Kong, Macau and the Chinese mainland. While some footwear exporters prefer selling to overseas importers and distributors, many of them are selling to mass merchandisers, such as Wal-Mart, Target, Costco and Kmart.

A number of Hong Kong companies, some with Taiwanese stakes of interest, produce world famous brands, including Adidas, Asics Tiger, Bass, Converse, Le Coq Sportive, New Balance, Nike, Reebok and Timberland. A few have been granted licences to produce and distribute foreign brands for the Chinese mainland or Hong Kong market.

To establish business contacts with overseas buyers, Hong Kong manufacturers and traders have involved themselves actively in international trade shows led or sponsored by the Hong Kong Trade Development Council (HKTDC), including the ones in Budapest, Dongguan, Dusseldorf and Dubai. They also benefit from study or matchmaking missions organised by HKTDC to visit specific markets for establishing new business relationships.

Industry Trends

On the wings of cautious optimism, footwear sales growth will largely be underpinned by steady rebuilding of consumer confidence and recovery of the global economy. With reference to Global Industry Analysts, the worldwide footwear market is forecast to reach US$195 billion by 2015, with volume sales, on the other hand, reaching 13.3 billion pairs by 2012.

China, with an annual production of more than 10 billion pairs or 70% of the world’s footwear production, continued to maintain its position as the world’s largest shoe exporter in 2010. In view of the recent global economic recession, the Ministry of Finance and State Administration of Taxation have announced rounds of adjustments of export VAT rebate rates. Since 1 June 2009, the VAT rebate rate for footwear has increased from 13% to 15%. Cost aside, footwear manufacturers nowadays focus more on value-added service. Quick response in sample making, prompt delivery and high quality are widely practised.

Footwear manufacturers are also tapping into the global green trend by producing shoes made with recycled and eco-friendly materials. Major reputable footwear brands including Reebok, Bobux, Dansko, Terra Plana, Nike and Timberland have adopted environmentally-driven manufacturing processes and increased their assortment of “green” footwear items such as shoes made with natural latex rubber and recycled plastic. Meanwhile, most of these brands have developed eco-friendly packaging solutions by utilising eco-friendly, bio-degradable and sustainable materials such as soy-based ink, recycled cork, nylon and foam. For instance, Puma has redesigned its packaging, replacing its original shoe box with a simple cardboard sheet and a special bag made of non-woven polyester consisting of recycled PET.

Furthermore, online shopping has been growing in popularity along with ascending internet usage. Particularly in China, which is a fast growing market with high potential, onlines sales revenue rose more than 109% year-on-year in 2010 to top  RMB523 billion according to China Internet Network Information Center. This online shopping trend prevails not only in emerging economies, but mature markets such as the US where a recent report by Cotton Incorporated revealed that 79% of US consumers shopped online for shoes last year. Some renowned brands like Nike, Crocs and Adidas have already responded by setting up online stores where shoppers can choose from a wide variety of shoes in different sizes, colours and styles at different price points.

Increasingly, ethical sourcing is a common practice among international footwear companies. In response to the social demand for protecting human rights in workplaces, many leading companies have introduced measures to monitor the working conditions in their own factories as well as the contracted factories in overseas countries. For example, Nike has established its code of conduct for labour conditions of its contracted factories throughout the world. To follow suit, Hong Kong companies such as Taizin have also introduced their own codes of conduct to ensure safe and healthy working conditions.

CEPA Provisions

The mainland and Hong Kong agreed in October 2005 to further liberalise the mainland market for Hong Kong companies under the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III). Under CEPA III, the mainland agreed to give all products of Hong Kong origin, including footwear, tariff-free treatment starting from 1 January 2006.

Detailed information, including the origin rules for footwear, is available from the following hyperlink: http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_2010.pdf.

Trade Measures Affecting Exports of Footwear

Overall speaking, trade measures for footwear are quite prohibitive. While footwear exports to the US are subject to tariff duties of 0 - 48%, import tariffs of the EU are around 3 - 17%. In the EU, an anti-dumping duty of 16.5% has been levied on certain leather footwear from the mainland since October 2006. Meanwhile, Japan applies the tariff quota system with tariff duty ranging from 3.4% to 30%. Tariff rates on leather footwear are broadly classified by shape, material of soles and uppers, and country of origin.

Following the expiry of the EU’s controversial anti-dumping duties on leather shoes on 1 April 2011, Hong Kong exporters nowadays are free to export footwear to the EU without being subjected to burdensome anti-dumping duties.

Tariff Rates of Footwear in Major Countries

Product Trends

Nowadays, most footwear consumers have a strong sense of fashion, particularly in mature markets and big cities of emerging markets. In recent years, even males have become more interested in fashion and new trends. Although footwear consumption may take time to restore to the pre-crisis level, consumers are increasingly more willing to spend and buy more expensive items as the fear of recession has now largely ebbed away. Suffering the fallout from the global economic slump, however, they have been seeking greater value for their money. Mass market retailers such as hypermarkets and supermarkets have therefore become increasingly popular among bargain-seeking shoppers, while manufacturers are pursuing strategies focusing on lower price/quality ratios.

Fashion and price aside, people are looking more into the durability and adaptability of footwear. To cope with this new trend, footwear manufacturers are working with technology and material companies to incorporate technical devices and sustainable materials into their products to enhance durability. For example, transeasonal footwear featured with adaptive design and durable materials to resist wear and tear under different climate conditions is much sought after. In view of the ever-increasing health consciousness among consumers, other items such as healthy and comfort footwear products like reflexology massage sandals and foot care products like pads, toe spreaders and separators are also gaining popularity. Due to rising green awareness of consumers, there is also growing demand for earth-friendly footwear.