• Hong Kong's spectacles companies specialise in making medium to high-end frames. They mainly produce for overseas buyers and renowned international brands on an OEM and/or ODM basis with their manufacturing bases in the Chinese mainland.

• Hong Kong is the third largest exporter of spectacles and frames in the world after Italy and the Chinese mainland. After a 2% increase in 2008, Hong Kong's total export of spectacles declined by 16% in the first seven months of 2009. The EU and the US, together accounting for almost 70% of the total, are the two biggest markets for Hong Kong’s exports of spectacles.

• Facing keen competition from indigenous Chinese companies, Hong Kong companies strive to improve their quality and design by using advanced technology to uphold their international competitiveness. Technological advancement allows the use of even lighter and durable materials.

• Increasingly more fashion and designer labels are introducing their collection of spectacles and frames as fashion-forward accessories. Frames featuring floating big logos at temples and accents with crystals, colour stones and diamonds are becoming a prime source of added style.

Industry Features

Hong Kong's spectacles makers specialise in making medium to high-end frames. They are able to cope with small orders and offer an extensive range of frame designs. Hong Kong companies are traditionally strong in making plastic spectacles frames, which include hand-made cellulose acetate frames, rimless nylon frames, and injection-moulded frames. They also produce metal frames made of rolled gold, aluminium alloy, brass, stainless steel, silver, titanium and mixtures of metals.

The majority of Hong Kong's spectacles companies are engaged in the production or trading on an OEM and/or ODM basis for overseas buyers and international brands. This labour intensive industry is however characterised by short life cycle, fast changing design and small order sizes. On the other hand, only a few Hong Kong companies have diversified their business from manufacturing to distribution and retail of brand-name products in the Chinese mainland and overseas, with some even developing and producing their own brands.

Hong Kong's spectacles companies are facing keen competition from their counterparts in nearby regions, particularly Wenzhou of the Chinese mainland. Nonetheless, competition is confined to the lower-end sector for the time being. The leading Italian companies still prefer engaging Hong Kong sub-contractors because of their quality, business integrity, as well as long-term relationship.

In order to reduce operation costs and stay competitive, many spectacles makers have relocated their factories to the Chinese mainland, particularly in Shenzhen and Dongguan, where the labour and land costs are lower than those in Hong Kong. On the other hand, high value-added activities, including marketing, management, finance and accounts, are still carried out in Hong Kong.

Technological investments in such areas as advanced machinery and information technology are substantial for large-scale manufacturers in improving their production efficiency and product design. They are equipped with CAD/CAM technologies and computer numerically controlled (CNC) production lines to enhance their design and production process.

The industry is well supported by ancillary industries, including the production of cellulose acetate sheets for plastic frame production, optical parts including spring hinges, nose bridges and temples, as well as other industrial supports such as electroplating and mould-making.

Performance of Hong Kong Spectacles Exports^

Note: ^ 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. * Insignificant.

Hong Kong is the third largest exporter of spectacles and frames in the world after Italy and the Chinese mainland. In 2008, Hong Kong’s total exports of spectacles (including lenses, frames, sunglasses and parts) increased by only 2% to HK$13.7 billion, and they fell by 16% in the first seven months of 2009.

The EU and the US, together accounting for almost 70% of the total, are the two biggest markets for Hong Kong’s exports of spectacles. But exports to these two major markets fell quite substantially in the first seven months of 2009. During this period, exports to the EU and the US decreased by 17% and 19% respectively, compared with more stable changes of 0.2% and -3% in 2008. Even exports to France and Germany fell by double digit percentages, after their strong increase in 2008. In fact, exports to all the major markets listed decreased in the first seven months of 2009, with the least change from the UK at -4%.

Frames and mountings, taking up over half of the total spectacles exports, decreased by 14% during Jan-Jul 2009, after a small increase of 4% in 2008. Meanwhile, exports of spectacles, goggles and the like dropped by 13% to constitute around 30% of the total.
 
Sales Channels

On the retail side, most of the sales are done by chain stores and mass merchants worldwide. Many manufacturers deal directly with overseas buyers, including large retail chains. Production of house brands or international famous designer labels under licensing agreement has been growing among Hong Kong exporters. Some Hong Kong exporters have formed strategic alliance with overseas companies and brand licensee to consolidate a long-term relationship and explore overseas market opportunities. For example, Safilo, a leading Italian eyewear company, holds shares of Elegance, a listed eyewear company in Hong Kong. Hong Kong manufacturers have also engaging in OBM, developing their house brands for other markets, particularly Southeast Asia and the Chinese mainland. Some larger companies have diversified into distribution business by setting up retail chain stores in the Chinese mainland and distributors throughout Europe, North America and Asia.

Attending international optical trade fairs is an effective way to increase the exposure in overseas market. Below is a list of some major trade fairs:

Industry Trends

Offshore outsourcing: Facing stiff price competition from Hong Kong and Chinese suppliers, spectacles manufacturers overseas have been shifting their focus from production to design and brand management. A few of them, as brand or license holders, have outsourced production to lower-cost areas under licensing agreement, including the making of parts and processing into finished spectacles. More of their resources are instead used in marketing and brand building. Benefiting from this trend, some Hong Kong manufacturers have entered into licensing arrangements to design, manufacture and market frames for fashion brands and cartoon characters. This trend of offshore outsourcing is particularly prominent among European and Japanese companies.

Downstream expansion: Growth is boosted worldwide by continuous investment in distribution business. The strategy involves isolating and exploring opportunities to invest further downstream. With this direction, Hong Kong companies gain important opportunities to control the entire supply chain network and deliver its products directly to end-users. However, backing of internal management, logistics systems and speeding of operational processes are keys for the downstream expansion to be a great success.

Emphasis on design, innovation and quality: Apart from cost-controlling measures, Hong Kong companies are putting more emphasis on design, technological innovations and quality management to stay competitive. Many large Hong Kong manufacturers have attained quality management certification, such as ISO 9000 and/or Q-Mark awarded by the Federation of Hong Kong Industries. To promote and enhance the design and quality of Hong Kong eyewear, an eyewear design competition is held every year.

ODM and OBM trends: Indeed, Hong Kong exporters are facing the challenges of escalating production costs, as higher raw material prices, labour wages and energy prices have fully offset the positive effects of economies of scale. ODM basis of production has helped various Hong Kong companies increase value-added. In addition, some companies, such as Sun Hing Optical Manufactory Ltd and Arts Optical International Holding Ltd, have also shifted their focus further to OBM – developing their own brand products to enhance their competitiveness.

Business opportunities on the Chinese mainland: In China, more than 300 million people wear prescriptive glasses. The optical market is promising, considering a repurchase cycle of three years with an average annual demand of 100 million pairs. The number does not include the consumption of sunglasses. Some foreign companies seek for partnership opportunities with Chinese chain stores notwithstanding that the existing ones are confined to the big cities and are much smaller in scale, comparing with their foreign counterparts, while some leading manufacturers, such as the Luxottica Group and HAL Investments (Asia) BV, have entered the Chinese market through acquisition. Also, a few Hong Kong manufacturers have already set up retail optical businesses in China and distribute brand-name products.

CEPA Provisions

Under the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III), the mainland agreed to give all products of Hong Kong origin, including spectacles, tariff-free treatment starting from 1 January 2006. According to the stipulated procedures, products which have no existing CEPA rules of origin, can enjoy tariff-free treatment upon applications by local manufacturers and upon the CEPA rule of origins being agreed and met. Non-Hong Kong made spectacles remain subject to tariff rates of 6-20% when entering the mainland.

The rules of origin for contact lenses and spectacles lenses to benefit from the CEPA's tariff preference are the same as the current rules governing exports to other markets. For contact lenses that are manufactured from polymer, both lathe-cutting and polishing, identified as the principal processes for the purpose of delineating their origin, are required to be carried out in Hong Kong. For spectacles lenses that are manufactured from lens blank, the principal process is grinding/polishing of refractive curvature. Detailed information is available from the following hyperlink: http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_2009.pdf.

General Trade Measures Affecting Spectacles Exports

Spectacles are generally not subject to prohibitive import tariffs or non-tariff barriers in the developed markets including the US, the EU and Japan. However, tariff preferences under the GSP Regulation for China-made optical goods imported into the EU have been removed completely since May 2004.

Spectacles exports are required to comply with certain safety and quality requirements. An EU Directive (89/686/EEC) is currently in force which stipulates that personal protection equipment must meet specified safety requirements and bear a CE mark when selling in the EU market. The EU has also prohibited the manufacture and importation of products containing nickel that come into repeated prolonged contact with the skin since December 1999. In the US, spectacles/sunglasses must comply with the impact-resistant lens regulation. Another regulation – ANSI Z80.3 – is further developed by the American National Standard Institute (ANSI) to govern non-prescription sunglasses and fashion eyewear.

Product Trends

Lightweight materials and new mixes: Customers prefer lightweight and durable metal or plastic frames. Titanium is already a popular lightweight material. Thanks to technological progression, the use of magnesium and carbon fibre has emerged, particularly in sporty optics. Magnesium is half the weight of titanium with superior hypoallergenic characteristics, while carbon fibre is a lightweight and durable plastic. Some temples are now composed of materials with improved memory and elasticity. Moreover, frames made of metal/plastic and metal/wood combinations are getting popular.

Fashion and designer labels: Apart from being a medical device or a vision necessity, eyewear has also become a fashion accessory, a fashion statement, to go with clothes. Increasingly more fashion and designer labels are introducing their collection of spectacles and frames as fashion-forward accessories. Indeed, many fashion brands have granted licenses to spectacles manufacturers. For example, Luxottica Group has been producing and distributing the brand eyewear of Chanel, Burberry and D&G, etc. under license agreements with the respective brands.

Frame styles: Frames featuring floating big logos at temples and even the hinges are common among the brand named eyewear. The temples are getting lower to give a trendy look. Spring hinges allowing temples to flex backward and forward are widely used. Some frames are screwless and feature a patent-pending flex-hinge design that allows customers to quickly make repair by hand without costly parts or tools. The top brow and the temple of a frame are becoming a prime source of added style, for example, accents with crystals, colour stones and diamonds. Narrow rectangle shape dominates the style. Sport also continues to influence frame styles. Large wraparounds and oversized styles are particularly popular.

Role of lenses: In recent years, people tend to spend more money on the lenses (costing on average more than 50% of the price of the spectacles) than on the frames owing to the more important role of lenses in fashion. Nowadays with technology advancements, lenses provide more special functions beyond eyesight correction, such as anti-reflective coating, anti-scratch and anti-glare lenses. There is a considerable amount of research and development being done in these areas, with results such as an in-the-lens telescope to help people with more severe visual impairments to drive and adjustable strength lenses for the presbyopic market.

Increasing demand for presbyopic glasses: In 2009, there were just over 500 million people worldwide aged 65 and older, making up nearly 8% of the world’s total population (U.S. Census Bureau). This ratio was higher in developed countries, such as Italy, Sweden and Japan. Riding on the aging population, a rising demand for presbyopic glasses is expected.

Rising popularity of sports eyewear: Polycarbonate and acrylic material technology have been boosting the sports eyewear sector. With the help of continued advancement in technology, new super light-weight and strong materials appear and support the sports eyewear sector. Growing health consciousness and increased popularity of sports will lead to a greater demand for sports eyewear. In addition, eyewear, especially sports eyewear, is expected to fulfil the international standard of UV-400.