Hong Kong Industry Profiles

• Hong Kong produces and exports a wide range of household electrical appliances, including kitchen appliances, home care appliances, personal care items and household lighting products. According to the latest available figures, Hong Kong was the world’s second largest exporter of hair dressing apparatus, and the third largest exporter of electric food grinders, mixers and juicers in value terms in 2008.
  

• Hong Kong’s total exports of household electrical appliances surged by 20% in 2010. Exports to the US and the EU, which together constitute over half of Hong Kong’s total exports, rose by 27% and 8% respectively in the period.
  

• Along with the growing concern on environmental protection, provision of environmentally appealing electrical appliances is becoming a competitive edge of Hong Kong exporters. Among others, industry players are focusing on the development of LED lamps, which can reduce power consumption with an even longer lifetime than the electronic compact fluorescent lamps.

Industry Features

In 2008, Hong Kong was the world’s second largest exporter of hair dressing apparatus, and the third largest exporter of electric food grinders, mixers and juicers in value terms, according to the latest available figures.

The industry is dominated by manufacturers and traders of small-sized household appliances, with a few companies producing large items such as air conditioning machines and space heaters. Today, most manufacturers 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.

Apart from original equipment manufacturing (OEM), a large portion of Hong Kong companies have their principal business based on original design manufacturing (ODM). These cover product design and development, mechanical drawing, prototyping and sampling, tool-making and production, with buyers providing the industrial/conceptual design only, such as cosmetic drawings and features. In some cases, the industrial/conceptual designs are 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 electrical appliances 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, more and more companies have strengthened their quality assurance systems. This is evidenced by the 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 Household Electrical Appliances ^

^ 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’s total exports of household electrical appliances surged by 20% in 2010. Sales of major products like household lighting products, thermic domestic appliances and hair dressing/hand drying apparatus all performed well last year.

The US and the EU were the largest export market, together constituting over half of Hong Kong’s total exports of household electrical appliances. While sales to the US rose rapidly by 27% in 2010, exports to the EU expanded by 8% in the period. Exports to other markets like Japan, the Chinese mainland and Australia also performed well, growing by 33%, 11% and 16% respectively in the period.

Sales Channels

Hong Kong manufacturers of household electrical appliances mostly produce on OEM and ODM basis for reputable brand names, of which some have set up buying 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 merchandises through their own channels or re-sell to their clients for further distribution.

As for Japan, although imports of electrical appliances are dominated by reverse imports from Japanese production facilities in Asia, some Japanese brands may have OEM arrangement with Hong Kong suppliers. In any event, after-sales services are usually undertaken by overseas buyers, while Hong Kong suppliers provide technical support for repair and maintenance.

There are a few large Hong Kong manufacturers like Goodway and Megaman marketing electrical appliances 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 developed economies, but also emerging markets like Latin America and Eastern Europe.

Promotion via participation in trade fairs is an effective way for Hong Kong companies of household electrical appliances to explore market opportunities. Important trade fairs include the CES Show held in the US, CeBit Home Fair and Domotechnica in Germany, and 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 exporters of household electrical appliances are subject to fierce competition from other Asian suppliers. Particularly in the case of simple appliances involving lesser technological input, Hong Kong companies have long been competing with Southeast Asian suppliers and local 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 companies to enhance their competitiveness. The most important attribute of their success in ODM business is product design and development capability, while knowledge of world product trends and diverse consumer preferences in different markets are their edge.

As more design works are being undertaken by Hong Kong companies, there is a tendency of overseas importers to shift liabilities arising from defective products to local manufacturers and traders. It has thus become increasingly critical for Hong Kong exporters to observe laws and regulations in relation to consumer protection and product liabilities in overseas markets.

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 constantly upgrade 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.

In the main, the CEPA origin criteria for Hong Kong items include change in tariff heading, performance of specific manufacturing process in Hong Kong, as well as fulfillment of value-added requirement, under which at least 30% of the FOB value of the products, and that the final manufacturing or processing operations should be completed in Hong Kong. Product development cost incurred in Hong Kong, in addition to material costs and labour costs, can be taken into account in calculating the value-added percentage.

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 Household Electrical Appliances

Exports of household electrical appliances to many overseas markets are subject to relevant safety requirements. For instance, a certain electrical appliances sold to the US have to comply with the mandatory requirements of UL/ETL listing or equivalent, in order to meet the federal safety standards. Likewise, products exporting to the EU have to comply with certain directives, including the low voltage electrical equipment directive, and carry a CE-mark accordingly. With regard to electromagnetic compatibility (EMC), a certain products sold to the US are required to meet the FCC standards, while the EU’s CE-mark also requires the compliance with relevant EMC directives. As for sales in the China market, most electrical appliances 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 towards environmental protection. Not surprisingly, the EU has adopted a number of directives for environmental protection, which may have an impact on the sales of 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 became effective in July 2006.

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

Household electrical appliances carrying a single function are much sought after in western markets. These include heating-based products, like coffee/tea makers and toasters; and motor-based appliances such as food choppers, blenders and juice-extractors. Yet many electrical appliances are now featured with electronic controls and LCD/LED displays. To enhance user friendliness, some wired appliances have evolved into wireless versions powered by charged batteries, including wireless coffee makers, electric irons and vacuum cleaners.

Regarding household lighting products, aesthetic design is among the major elements of manufacturers to tap the market demand. A wide range of lighting sets for domestic uses, such as track lights, linear lights and spotlights, are offered in a great variety of novelty designs in order to meet different consumer preferences.

Along with the growing concern on environmental protection, provision of environmentally appealing electrical appliances which comply with, for instance, European or North American eco-labelling and energy-saving schemes, is becoming a competitive edge of Hong Kong exporters of household electrical appliances.

On the other hand, lighting models of high efficiency and longer lifetime are in demand. In particular, a number of industry players are focusing on the development of LED lamps and lighting apparatus, which can reduce power consumption with an even longer lifetime than the electronic compact fluorescent lamps.

In addition, the industry has continued to focus on Internet application and networking technology to develop the so-called smart appliances, aiming at bringing the fully automated households to life. Smart appliances for air-conditioning, security, entertainment, lighting, etc. can be remotely controlled via the Internet. Coupled with the mobile technology for Internet access, a touch of a button on the mobile phones will let consumers able to turn on the air-conditioners before arriving home, or programme their recording and lighting apparatuses.

Yet small appliances of novelty design will not obsolete in the medium term, thanks to a stable demand in the market. Design, quality and environmental features, in addition to price, are the selling points for such items.