Electronics & Electricals

Overview

• Hong Kong’s electronics exports rose by 9% in 2011. Exports of parts and components to the Chinese mainland, the largest export market of Hong Kong, rose on the back of expansion of mainland’s outward processing production. But exports to the EU were less robust, while exports to the US were lacklustre, due mainly to the slower consumer demand especially in the second half of 2011 in view of the debt crises happened in western markets.
  
  

• Mobile computer devices with wireless connectivity, in particular the tablets, are well received in the market. Sales of mobile phones with advanced features, particularly the smart phones, are rising rapidly. Large-screen TVs with 3D effect and connectivity for Internet surfing are also among the industry foci for further development.
  
  

Industry Features *  

* Industry statistics cover activities in Hong Kong only. 

Hong Kong’s electronics industry is the largest merchandise export earner of the territory, accounting for 55% of Hong Kong’s total exports during January-November 2011. According to the latest available statistics, Hong Kong was the world’s largest exporter of telephone sets and sound recording apparatus; the second largest exporter of calculators, computer parts/accessories and video recording/reproducing apparatus (including DVD recorders/players); and the world’s third largest exporter of radios and video cameras/recorders (including digital cameras) in value terms in 2009. 

Finished goods constitute about one quarter of Hong Kong’s electronics exports, of which the majority are consumer electronics for domestic use. The largest category is audio-visual (AV) equipment, consisting of radios and optical discs players, hi-fi equipment, TV sets, MP3/MP4 players, etc. Moreover, Hong Kong exports a variety of computer products, such as desk-top/notebook/tablet computers, routers, monitors and optical disk drives, as well as telecommunications products like corded and cordless telephones and mobile phones. Other items with smaller export value include calculators, electronic dictionaries and USB memory devices. 

Parts and components constitute about three quarters of Hong Kong’s electronics exports, of which the majority are re-exported to the Chinese mainland for outward processing production.  Meanwhile, Hong Kong produces and exports a variety of parts and accessories for telecommunications items, AV equipment, office machines and computers, as well as components like resistors, capacitors, inductors, crystals, resonators, speakers, printed circuit boards (PCBs) and transformers.

Most Hong Kong manufacturers have relocated their production facilities to the Chinese mainland, where various production processes like PCB assembly, plastics injection moulding and sheet metal working are carried out. Their Hong Kong offices focus mainly on product design and development, industrial engineering, management, logistic support and marketing, etc. In the wake of the relocation, most of such companies have been re-classified as non-manufacturing establishments, despite the fact that they have manufacturing activities across the boundary. 

The success of Hong Kong’s electronics industry 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. Many Hong Kong companies have further strengthened their quality assurance and environmental management systems, and are accredited with ISO 9000 - an internationally recognised standard for quality management system, and ISO 14000 - a standard for environmental management system. 

Performance of Hong Kong’s Exports of Electronics ^ 

^ Since offshore trade has not been recorded by ordinary trade figures, these numbers do not necessarily reflect the export business managed by Hong Kong companies. 

Hong Kong’s electronics exports rose by 9% in 2011, after surging by 28% in 2010. Exports of IT equipment, telecommunications equipment and semiconductor items grew by different degrees, while exports of AV equipment were sluggish. 

Exports to the Chinese mainland, which accounted for nearly two-thirds of the total electronics exports, grew by 10% in 2011. Exports of electronic parts and components, the major items of Hong Kong’s electronics exports to the mainland, rose on the back of expansion of mainland’s outward processing production. 

Meanwhile, electronics exports to the EU were less robust, while exports to the US were lacklustre, due mainly to the slower consumer demand especially in the second half of 2011 in view of the debt crises happened in western markets. Elsewhere in Asia, exports to ASEAN, which constituted mainly of parts and components, grew by 15% in 2011. Exports to Japan also managed to edge up by 3% in the period. 

Sales Channels 

Hong Kong manufacturers of finished electronic items mostly produce on OEM and ODM basis for reputable brand names in overseas markets. Some of these major buyers 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 distribute the merchandise under their own channels or re-sell to their clients for further distribution. 

For Japan, although imports of electronics are dominated by reverse imports from Japanese production facilities in Asia, some brands like Hitachi, Sharp, Toshiba, Sony and Matsushita have OEM/ODM arrangements with Hong Kong suppliers. 

There are a number of Hong Kong companies marketing electronic products under their own brand names, including Truly, V-Tech, Group Sense, Venturer, GP and ACL. Their sales network covers not only the advanced countries, but also economies like Latin America, Eastern Europe and various parts of Asia. 

As for parts and components, many manufacturers produce on custom-made basis for famous US, European and Japanese companies, e.g. parts and accessories of computers, recorders, and radio receivers, as well as components/modules like PCBs and LCDs. Meanwhile, standard components are usually exported directly to distributors and manufacturers in overseas markets, although some Hong Kong companies also have their own sales offices and/or representative offices abroad. 

Hong Kong is an important trading hub for electronic parts and components in Asia-Pacific. Many items from the US, Europe, Japan, Taiwan, and South Korea are re-exported via Hong Kong to the Chinese mainland, and vice versa. A number of multinational manufacturers of parts and components have set up their offices in Hong Kong, engaging in sales, distribution and sourcing activities in the Asia-Pacific region.  

Promotion via participation in trade fairs is an effective way for Hong Kong’s electronics companies to explore market opportunities. Important trade fairs include the CES Show held in the US, CeBit Fair and Electronica in Germany, CEATEC Japan, Taipei International Electronics Show in Taiwan, CommunicAsia in Singapore 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 

Increasing competition from mainland and other Asian suppliers has long been a threat to Hong Kong companies. In response, many manufacturers have shifted the more labour-intensive processes across the border. They have also changed their product mix to strengthen their competitiveness, moving towards higher value-added and more sophisticated products. 

While parts and components for consumer electronics are selling well in Asia, major players have re-positioned to supply parts and components for commercial and industrial equipment like computers, telecommunications and navigation systems. For example, many PCB manufacturers have shifted to the production of fine pitch multi-layer boards for sophisticated products, while some LCD companies have developed high-resolution LCD modules for high-value products. These manufacturers tend to adopt a strategy of higher degree of vertical integration to increase value-added. PCB layout, schematic drawing, tool-making, production and/or quality assurance are all done under one roof. 

The fast changing consumer pattern has resulted in low inventory levels in major export markets, requiring quick response for inventory replenishment. Product life cycles have also shortened amid advancement in technology, leading to the need for more frequent changes in product features and specification 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.   

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 electronic items, is available from the following hyperlink:
http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_2012.pdf

General Trade Measures Affecting Exports of Electronics

Most electronics exports of finished items and certain parts and components are subject to relevant safety requirements. For instance, certain electronic products sold to the US have to be in compliance with the safety requirements of UL/ETL listing or equivalent. Likewise, products exported to the EU have to comply with relevant safety directives, including those of low voltage electrical equipment, and have to carry a CE-mark to show their compliance. With regard to electromagnetic compatibility (EMC), products sold to the US require compliance with FCC standard, while EU’s CE-mark has also required the compliance with relevant EMC directives. As for sales in the China market, most electronic products 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 of environmental protection. Not surprisingly, the EU has adopted a number of directives for environmental protection, which may have an impact on the sales of electronic products. 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 came into effect in July 2006. 

The European Union law on chemicals, REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals), came into effect in June 2007. REACH requires all companies manufacturing or importing chemical substances into the EU in quantities of one tonne or more per year to register these substances with the European Chemicals Agency. 

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 

On the back of technological advancement and falling prices amid keen competition, conventional IT products like desktop and notebook computers have become mass products. Now, the industry is focusing on further technological enhancement to sustain their business. Notably, mobile computer devices with wireless connectivity, in particular the tablets such as the iPad, are well received in the market. 

Meanwhile, the industry is exploring business opportunities by applying 3D display technology to computer products. Indeed, a number of industry players are in the pipeline to promote their 3D computer devices, such as shutter glass 3D monitors, naked-eye 3D monitors and 3D webcams. Also, the industry is in the process to launch computer products with interfaces of faster communication speed or higher data transfer rate, especially those in USB 3.0 specification. 

Mobile communication has become part of the daily lives of consumers in most countries. Sales of mobile phones with advanced features, particularly the so-called smart phones, are rising rapidly. Enhanced features, especially those related to Internet applications, have been added on to the majority of the models, in addition to other features like digital/video cameras, multimedia playback functions and GPS. This has lured demand especially from youngsters and higher-income consumers. 

As regards consumer electronics, one of the developments is digital imaging. In particular, the market for digital camcorders and digital cameras has expanded robustly. DVD recorders/players are also expected to be gradually replaced by Blu-ray disk recorders/players in the next few years. On another development, demand for large-screen TVs making use of LED display is rising rapidly. Digital TVs with 3D effect and connectivity for Internet surfing are also among the industry foci for further development.