Overview

• The mainland granted all Hong Kong products tariff-free treatment under the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III), which took effect from 1 January 2006.
  
  
• 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. In 2005, Hong Kong was the world's second largest exporter of hair dressing apparatus, as well as electric food grinders, mixers and juicers in value terms.
  
  
• Hong Kong's total exports of household electrical appliances declined by 4% in the first eight months of 2007. While sales to major markets like the US and Japan were lacklustre, exports to the EU, Canada and the Chinese mainland fared better.
  
  
• Many domestic appliances are now featured with electronic controls by incorporating electronic devices, while some wired appliances have evolved into wireless versions powered by charged batteries to enhance user friendliness. Looking ahead, smart appliances that utilise the Internet and networking technology will elicit demand over the longer run.
  

Industry Features *

	Manufacturing	Import/Export Trade
No. of Establishments	37 (Sep 2005)	6,578 (Dec 2005)
Employment	261(Sep 2005)	42,825 (Dec 2005)

* Industry statistics cover activities in Hong Kong only.


Hong Kong produces and exports a wide range of household electrical appliances, including : (1) kitchen appliances, which range from food grinders, mixers and juicers to thermic appliances like coffee makers, toasters, electric kettles and cup warmers, and ovens and cookers; (2) home care appliances, which include electric fans, air conditioning machines, vacuum cleaners, floor polishers, space heaters and irons; (3) personal care products, which include hair dressing and hand drying apparatus, shavers, hair clippers, massagers, face steamers and electric toothbrushes; as well as (4) household lighting products.

In 2005, Hong Kong was the world's second largest exporter of hair dressing apparatus, as well as electric food grinders, mixers and juicers in value terms.

The industry is dominated by manufacturers of small-sized household appliances, with a few companies producing large items such as air conditioners 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 ^

	2005		2006		January-August 2007
	HK$Mn.	Growth%	HK$Mn.	Growth%	HK$Mn.	Growth%
Domestic Exports	115	-3	143	+24	156	+64
Re-exports	27,695	-4	24,381	-12	15,609	-4
...of Chinese Mainland Origin	27,073	-4	23,681	-13	15,064	-5
Total Exports	27,810	-4	24,524	-12	15,766	-4

Total Exports by Major Markets	2005		2006		January-August 2007
	Share%	Growth%	Share%	Growth%	Share%	Growth%
US	37	-8	33	-21	29	-14
EU	29	-7	29	-12	33	+5
...Germany	7	-2	6	-25	6	-4.
...United Kingdom	6	-17	6	-12	6	-2
...France	3	-5	3	-11	4	+8
Japan	11	+15	12	-1	11	-12
Canada	4	-13	3	-17	4	+14
Chinese Mainland	4	+17	5	+18	6	+23

Total Exports by Categories	2005		2006		January-August 2007
	Share%	Growth%	Share%	Growth%	Share%	Growth%
Household Lighting Products	30	-1	30	-10	27	-13
Hair Dressing/Hand Drying Apparatus	10	-14	9	-19	7	-18
Thermic Domestic Appliances	12	+21	11	-24	11	+1
Domestic Electro-mechanical food mixer/grinder	6	-26	6	-9	7	*
Air-conditioning Machines, window/wall type	3	-39	5	+56	10	+31

^ 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 declined by 4% in the first eight months of 2007. Sales of major products like household lighting products and hair dressing/hand drying apparatus were lacklustre. But exports of air conditioning machines surged by 31% in the period.

The US and the EU were the largest export market, together constituting over 60% of Hong Kong's total exports of household electrical appliances. While sales to the US was lacklustre, exports to the EU expanded by 5% during January-August 2007.

As for other markets, exports to Japan declined by 12% in the first eight months of 2007. But sales to Canada and the Chinese mainland increased by 14% and 23% respectively.

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 merchandise 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, ANEX and SMC 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 advanced countries, but also emerging economies 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's exports of household electrical appliances have been subject to increasing threat from other Asian suppliers in recent years. Particularly in the case of simple appliances involving lesser technological input, Hong Kong has long been subject to fierce competition from 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 different consumer preferences in different markets are also 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 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.

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 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.

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/files/mainland_2007.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. Others include the CSA safety standards for exports to Canada, and product and quality standards of the State General Administration for Quality Supervision and Inspection and Quarantine for products sold in the Chinese mainland.

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 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 became effective in July 2006.

Besides, anti-dumping proceedings against goods of Chinese mainland-origin remain a concern for Hong Kong exporters. In the EU, a definitive anti-dumping duty, for example, has been imposed on mainland-origin integrated electronic compact fluorescent lamps. In Central and South America, imports of certain electrical items are also subject to anti-dumping duties. For instance, Brazil has anti-dumping levies imposed on imports of table electrical fans from the mainland.

Product Trends

Household electrical appliances carrying a single function are much sought after in western markets. These include heating-based products, like coffee and tea makers, toasters, toaster ovens and microwave ovens; and motor-based appliances such as food choppers, blenders and juice-extractors. Yet there are a number of multi-functional products coming out in a bid to tap the niche market. For example, AM/FM radio functions are added onto electric tower fans, while toast makers are enhanced with timer features.

Many electrical appliances are now featured with electronic controls by incorporating electronic devices like micro-control units (MCU) 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, electric jugs and vacuum cleaners. Hong Kong manufacturers also bring out new products with cooking methods traditionally not done electrically, such as electric grillers, bread and waffle makers, deep fryers, stewers and steamers. Other saleable products include electrical milk bottle warmers and sterilisers.

Regarding household lighting products, aesthetic design is among the major elements of manufacturers to tap the market demand. Hence, 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 over environmental impact of electrical products, the provision of environmentally appealing products 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. Also, manufacturers have increasingly focused on lighting models of high efficiency and longer lifetime. In particular, some lamps are developed to become electrodeless by replacing electrodes and filaments with fluorescent powders, such as the integrated electronic compact fluorescent lamps that can reduce power consumption with an even longer lifetime. Some other lighting apparatus has built-in sensors for automatic on/off switching to save energy.

As for the future, the focus will be put 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. will possibly be remote-controlled via the Internet. Coupled with the wireless 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. Although these smart appliances will not enjoy volume sales soon, they are expected to elicit demand over the longer term, given the realisation of a cost-effective solution by manufacturers and further penetration of the Internet into the daily life of consumers. Yet small appliances of novelty design will not obsolete in the medium term, thanks to a stable demand in most overseas markets. Design and quality, in addition to price, are the selling points for such items.