Hong Kong Industry Profiles

^ 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

In the first ten months of 2011, Hong Kong total exports of sporting goods increased by 4%. In terms of product categories, exports of sports equipment and accessories and sports apparel increased by 5% and 1%, respectively, while exports of sports footwear increased by 6%.

Many Hong Kong sporting goods are exported under licensing and contract manufacturing arrangements with overseas manufacturers and brand holders such as Nike, Puma, Umbra, Quiksilver and Wilson. Buyers usually provide production specifications and product designs. Yet, Hong Kong manufacturers are increasingly devoted to product design and development, engineering, modelling, tooling and quality control, so that they can generate higher value along the supply chain.

Sales Channels

As mentioned, a few large local manufacturers export products bearing their own brand names. For example, the “Nikko” knapsacks and “Neil Pryde” sails are well known in overseas markets. It is common practice for these manufacturers to appoint overseas distributors to promote sales. A good distributor is a valuable source of market information and can be helpful in advising Hong Kong companies on appropriate pricing strategies. However, Hong Kong companies are advised to ensure that their potential partner is well established in the market, supported by warehousing and product handling facilities, and with good knowledge of the dynamics of the local market. On the Chinese mainland, sporting goods are channelled through shopping centres in first-tier cities and specialised retail stores in second- and third-tier cities.

Other distribution methods include selling to discount stores, speciality stores and traders. There are large discount chain stores in the US, such as Wal-Mart and Target, which buy from Hong Kong exporters. Large speciality chain stores selling sporting goods in the US include Sport Mart and Sports Authority. In Europe, Decathlon, Intersport and Go Sport are the big players.

International Sportsmen Exposition in the US and ISPO in Germany are the world-class trade fairs for sporting goods. The latter held a trade show called “Sports Source Asia” in Hong Kong, in October 2011. Hong Kong Trade Development Council (HKTDC) was one of the organisers. Practitioners are encouraged to join trade missions and exhibitions organised by the HKTDC. Besides trade fair, HKTDC also organises from time to time study or match-making missions for Hong Kong manufacturers, many of whom are OEM manufacturers, to visit specific markets for establishing new business connections.

Retail consolidation is one of the biggest issues facing the sporting goods industry. Retailers are transforming into super size stores with “shoppertainment” format. Manufacturers are dealing with fewer, but more powerful retailers such as Wal-Mart or large specialty chains such as Sport Mart and Foot Locker. These sporting goods retailers, in turn, put increasing pressure on manufacturers for better deals. They also shift the inventory risk to manufacturers.

Industry Trends

Generic sporting goods tend not to be influenced by changes in favour of particular sports, though they are still highly affected by fads and fashions. Luxury brands have entered into the sporting goods business by introducing sneakers and sporting accessories. A “life cycle hypothesis” is proposed to describe the boom and bust in the specialised sporting equipment market. As people grew older, they prefer fishing, golf and exercise equipment, as opposed to more strenuous football and tennis etc.

With capital intersive products as exceptions, sporting goods are like other consumer goods, where R&D and marketing are the process with the highest value-added. Many industry barons have off- shored their physical production to the mainland, Vietnam, Indonesia and Thailand to lower their production costs. Hong Kong manufacturers have also largely off-shored their plants to low-cost countries. While international players focus their R&D on the use of new materials and design incorporating engineering, biomechanics and physiology, some Hong Kong manufacturers have also developed their R&D capabilities.

As regards marketing, endorsement agreements with sports stars and sponsorship and licence agreements with sports events are important factors for the products/brands to be success. Thus sports stars, teams and tournaments are often sponsored by sporting goods companies. Close connections with sports stars and coaches could provide a source of competitive advantage. Their feedback on products could help direct R&D activities.

Though the EU and the US remain the biggest markets, sporting goods manufacturers are keen on the mainland’s market. The success of 2008 Beijing Olympic Games had further driven up the demand for sporting goods in the mainland. The Li Ning Group, listed in Hong Kong since June 2004, is one of the most successful local sporting goods enterprises on the mainland, which operates over 2,000 sales outlets and offers over 1,000 varieties of products. Other popular local China brands include Kangwei, Gweat, Anta, Qiaodan, 361° and Double Star.

CEPA Provisions

The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) came into effect on 1 January 2004, and all items can enjoy duty-free access to the mainland beginning from 1 January 2006 by meeting the CEPA rules of origin.  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. For more information about country of origin criteria, please refer to the Trade and Industry Department’s CEPA web page:
http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_2011.pdf

Trade Measures Affecting Exports of Sporting Goods

Many sporting equipment items are required to observe the safety and technical standards of the importing countries. For example, Japan has banned the use of a list of substances in consumer products under the Japan Green Procurement Survey Standardised Initiative (JGPSSI). In EU, the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH), entered into force in June 2007. Among others, it requires EU manufacturers and importers of chemical substances (whether on their own, in preparations or in certain articles) to gather comprehensive information on properties of their substances produced or imported in volume of 1 tonne or more per year, and to register such substances prior to manufacturing in or import into the EU.

Ethical sourcing is a common practice for international sports companies in response to social demands for corporate social responsibility. Leading companies have introduced measures to monitor working conditions of workers in their factories and contracted factories overseas. For example, Nike has hired a team of employees to monitor the labour conditions of its contracted factories throughout the world. Reebok has introduced Reebok Human Rights Production Standard and Reebok Restricted Substances Policy and adidas has implemented its Standards of Engagement, and other companies have followed suit.

Product Trends

Hong Kong's sporting goods industry is expanding steadily as people appreciate health and leisure benefits of physical activity, while sportswear is increasingly embraced by the casual wear market. The best selling sports outfits nowadays combine sports activities with leisurewear, as sports lovers want to look smart and fashionable when doing exercise and people wear athletic apparel and footwear for casual or leisure purposes. A case in point is adidas, which collaborated with famous fashion designer Yohji Yamamoto to introduce a separate line of fashion sportswear carrying the brand name of “Y3”.

Modern technology is playing a role in the industry, with designers seeking new fabrics and applications, for example, sun-protecting and reflective fibres with synthetics blended into wool and cotton. Manufacturers of sports balls and golf equipment have upgraded the materials used on basketballs, volleyballs and footballs from rubber and PVC to high-end PU. The use of nanotechnology in sports apparel is also expected to become more widespread, dry-fit, coolmax and UV protection material are becoming more popular in sportswear. Apart from new materials, products have been developed with hi-tech devices attached, such as MP3/ipod sport shoes and pulse timer bras. Furthermore, new sportswears are increasingly designed with the help of the latest sports science, which enhances performance.

Fitness activities have become a worldwide trend, and yoga, pilates, kick boxing, aqua fitness and Latin dance are gaining popularity especially among females. Sporting goods companies have introduced series of products (outfits and accessories) especially for yoga. Other new indoor sports equipment includes foam roller, balance disc, rubber bands/tube and fitball. As a result, women are an increasing prominent clientele of the industry, and companies have devoted more resources to introducing women sporting goods.

In the US, outdoor pursuits like hiking, camping, backpacking, rock climbing, kayaking and fishing, have also grown in popularity.  Nordic fitness, such as Nordic walking, which involves walking with the use of poles to optimise fitness, is expected to gain popularity.  Gloves as an accessory will also benefit from the rising trend of Nordic fitness.