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Brand New

Hong Kong manufacturers should look for business opportunities in the rising trend towards outsourci  

Hong Kong manufacturers should
look for business opportunities
in the rising trend towards outsourcing by mainland enterprises (photo: EyePress)

 
Driven by rising overseas competition, Chinese mainland clothing firms are strengthening their technology and quality management, with many enterprises moving towards product value and branding. 

Along the way they’ve re-thought their systems for design, R&D and the use of new materials. A recent The Hong Kong Trade Development Council report, “China’s industry upgrade and opportunities for Hong Kong expertise,” reveals that processing enterprises on the mainland have been upgrading for several years. 

The goal is to produce value-added goods either through R&D, design and marketing or by upgrading technology and product quality, paths particularly followed by garment firms. 

Clothing enterprises are diversifying their development models, following many of the goals mentioned. Several manufacturers have begun developing distribution businesses, for example. Others have entered the retail market, building cross-provincial or even nationwide retail networks while developing their own brands. Many mainland garment enterprises are moving away from production, gradually increasing the outsourcing ratio of their businesses. 

While this poses competition to foreign and Hong Kong brands trying to enter the mainland market, it also offers opportunities for related service providers as they move from production to upstream and downstream activities. Hong Kong companies focused on production have to be ready to grasp these opportunities. 

  Brand Operations of Surveyed Garment Manufacturers
  Chart 
To better understand mainland garment makers’ drive to branding, outsourcing and related services, the HKTDC conducted a telephone survey, between December and March, with some 2,000 companies that own brands. Companies from different provinces and cities across the country were interviewed; more than 70 per cent had annual sales volumes of more than US$1 million. 

Mass Market Positioning 

The study found that developing a national brand has become the goal of most (89 per cent) of the surveyed garment enterprises that operate their own brands. But with formidable competition from high-end imported labels, 90 per cent of the enterprises have positioned their brands at the medium end or mass market, with second- and third-tier cities as their main sales targets. 

Some 85 per cent of the surveyed enterprises are developing their markets through own-operated stores or specialty counters, while just 37 per cent rely on distributors. With the growing maturity and popularity of franchised operations and Internet sales, 64 per cent of surveyed enterprises are running franchised businesses, with 56 per cent selling their products online. 

From Production to Brand Marketing

Mainland garment enterprises are moving away from production by outsourcing more of their business  

Mainland garment enterprises are moving away from production
by outsourcing more of their business
(photo: EyePress)

 
The sales of garment enterprises are growing in scale. For example, 34 per cent of the surveyed enterprises have annual sales volumes of more than US$10 million. To support brand development, garment producers tend to devote more resources to product R&D, design and marketing activities with higher added value. They’re also gradually outsourcing their production to other manufacturers. 

Some 38 per cent of the surveyed enterprises indicated that they are already outsourcing their production, while nine per cent said that they would consider outsourcing. 

During the five years to 2010, the mainland’s garment exports grew at an average annual rate of 12.9 per cent, while the production of garments, shoes and hats expanded at an average annual rate of 21.4 per cent. 

The takeaway for Hong Kong manufacturers is to look out for business opportunities offered through a gradual increase in production outsourcing by mainland enterprises. 

Planning and Promotion

There is growing brand awareness among Chinese mainland consumers. HKTDC surveys on such personal apparel items as garments, jewellery and watches show that product development, as well as the image and taste projected by individual brands, have become consumers’ major shopping consideration, making branding the obvious direction for the mainland market. 

  Developing brands is the goal for a majority of garment enterprises on the Chinese mainland
 

Developing brands is the goal
for a majority of garment enterprises on the Chinese mainland (photo: EyePress)

Appropriate positioning, product design and brand image are required to build a brand effectively. There’s also packaging, store ambience and advertising designs to consider, in line with the preferences of target consumer groups. 

Among the most surveyed enterprises, logistics and distribution services are the most popular services, followed by advertising and marketing. Brand strategy tends to be handled in-house, although some enterprises indicated that they would make use of, or take into account, external professional advice. 

The professional approach is particularly used in conceptual and product design, including architectural and interior design services from external sources. To upgrade their internal management and operation, a relatively large number of enterprises indicated that they would make use of enterprise management and training services. 

To upgrade the technology and quality of their products, some enterprises also buy production and environmental technology from external sources. All this shows that mainland garment-makers increasingly require business and support services as they shift from production to brand marketing. It’s a services field that is set to grow. 

For more on the Chinese mainland market, please see the June issue of the HKTDC Trade Quarterly, which can be ordered at: http://bookshop.hktdc.com/.

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