Hong Kong Economy & Business News

• The mainland granted all Hong Kong products tariff-free treatment under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA). In terms of the CEPA origin requirement, watches made in Hong Kong with a Hong Kong brand are no longer required to fulfill the 30% value-added content requirement in order to enjoy the tariff-free treatment.
  
  

• According to the latest available statistics, Hong Kong was the world's largest importer of complete watches (in terms of value) and second largest exporter of complete watches and complete clocks (in terms of value) in 2009.
  
  

• During Jan – Nov 2011, Hong Kong’s watches and clocks exports increased by 20%. The EU and the US were the largest markets, together accounted for one-third of the total exports. While sales to the EU increased by 10%, exports to the US also raised by 13% in the first eleven months of 2011.
  
  

* Industry statistics cover activities in Hong Kong only.

Hong Kong is a leading exporter of watches and clocks in the world. The largest export item is battery-powered wrist watches, accounting for 57% of the total exports. Wrist watches exports range from analogue to digital watches, metal to plastic watches, fashion to classic watches, standard to jewellery watches, and novelty to sport watches. Hong Kong also exports a variety of parts and components of watches and clocks, such as assembled movements, cases, watch straps, dials and parts for watch cases and brands.

Hong Kong has established strong ancillary and supporting industries for its watches and clocks manufacturing. Local watch assemblers are well served with a varie­ty of high quality watch cases, dials, watch straps, hands, button cell batteries, crowns, electronic parts and other accessories. However, the industry relies heavily on imported watch and clock movements, and core components such as quartz, crystals and integrated circuits.  Major sources of imports include Switzerland, the Chinese mainland and Japan.

Hong Kong’s watches and clocks companies largely rely on OEM and ODM business. Because order quantity for each model is usually small, making it difficult for scale economy through automation. Manufacture of complete watches and clocks remains fairly labour-intensive in Hong Kong.

A number of manufactur­ers had relocated the labour intensive processes to the Chinese mainland to reduce costs, but a number of manufacturers still maintain their production bases for higher value products in Hong Kong. In fact, with rising production costs on the mainland, the need for product upgrade becomes more compelling. Meanwhile, as buyers are increasingly quality conscious, more and more watches manufacturers have acquired the ISO 9000 certification to strengthen their quality management systems. The Hong Kong Watch Manufacturers Associations Ltd. has also strengthened the industry’s intellectual property protection by running a “Watch & Clock Design Depository Centre”, where members can store their product designs there and the centre will provide a third-party certification services for the copyright.

Performance of Hong Kong’s Exports of Watches and Clocks ^

^ 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.
* Insignificant

Sales Channels

Major Hong Kong’s watches and clocks OEM customers include importers and distributors in the US, the EU and Japan. A small number of manufacturers have OEM arrangements directly with chain stores and fashion labels, which require unique designs to complement with their brand image.

With respect to ODM products that Hong Kong companies own the designs, though the sales channels are similar, they are especially preferred by smaller distributors, who are constrained by their financial strength in investment in design and tooling. Some low-priced products may also be sold to large companies directly as premium items for promotional campaigns. Market-wise, sales to the Chinese mainland, Southeast Asian countries and other emerging economies are usually on ODM arrangement.

There are a number of Hong Kong companies selling watches with their own brands. There are also some few examples that Hong Kong companies have acquired Swiss brand names or their Swiss counterparts as a means to extend marketing and distribution network, and/or to gain access to better technology and designs. In addition, some Hong Kong companies have begun business in major cities in the Chinese mainland via co-operation arrangements with department stores and shopping malls, aiming at promoting their own-brand products there.

The Basel Watch, Clock and Jewellery Fair held in Switzerland is an important event for Hong Kong companies to promote their business. The Hong Kong International Watch & Clock Fair, organised by the Hong Kong Trade Development Council (HKTDC), is another major event for companies to exhibit their products to overseas buyers. Business missions organised by the HKTDC to the Chinese mainland, Indonesia, Middle East, Russia, etc., also provide opportunities for Hong Kong companies to establish connections with buyers in emerging markets.

Industry Trends

Hong Kong’s watches and clocks industry has become a significant player in the global timepiece market, alongside reputable suppliers like Switzerland and Japan. However, competition has intensified. For instance, exports from certain Asian countries like South Korea and Singapore have grown robustly in recent years. To maintain their competitiveness, Hong Kong manufacturers have increased their efforts in moving up-market by improving quality, enhancing design and production capability, practising quick response, etc.

An increasing number of Hong Kong companies have put emphasis on the development of ODM businesses. Manufacturers have paid more attention to the design patent issues in order to protect their intellectual property rights. Technologies such as computer-aided design (CAD) have been applied to improve the design of complete watches and clocks, dial faces, watch cases and related components, while reducing time and costs involved. Applications such as the use of 3-dimension computer aided industrial design (CAID) and rapid prototyping also facilitate Hong Kong companies to enhance their design capabilities. Some companies have also invested in the research and development of movements to reduce their reliance on imports and overcome the constraints of standard movements to product design.

Besides, Hong Kong’s watches and clocks manufacturers have increased investment in modern production technology to enhance quality and productivity. They have continued to develop better technologies in die-casting, mould making, plastic manufacturing, metal stamping, surface finishing and plating, etc. For example, metal injection moulding (MIM), which is especially suitable for production of stainless steel cases, bands and buckles of complex shapes, has been applied to enhance production capability for sophisticated designs.

Internet has become a viable option for sales and marketing of watches and clocks.  A growing number of timepiece retailers and dealers have set up web pages not only for promotion and cataloguing, but also for on-line sales. For example, some Hong Kong watches and clocks manufacturers opined that they got email orders from some Eastern Europe countries buyers who visited their website.

Overseas buyers continue to demand more and more from their suppliers in terms of quick response and delivery. Hong Kong exporters, as a result, are required to handle more orders of smaller quantities, along with shorter 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.

The CEPA origin criteria for watches include either:

(1) Assembly of component parts and accessories into watch. The principal processes are assembling watch movement into the watch body, assembling of component parts and accessories (watch buckle, watch band, dial and battery, etc.) into watch, testing, time adjustment and quality control, and to fulfill the value-added content 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.

or

(2) Assembly of component parts and accessories into watch. The principal processes are assembling watch movement into the watch body, assembling of component parts and accessories (watch buckle, watch band, dial and battery, etc.) into watch, testing, time adjustment and quality control and the exterior design of the watch should be carried out in Hong Kong. The watch should belong to a “Hong Kong brand” jointly determined by Hong Kong and the Mainland authorities. There should be clear Hong Kong origin marking (e.g. “Manufactured in Hong Kong”, “Made in Hong Kong” or “Hong Kong”, etc.) on the shell of the “Hong Kong brand” watch.

Notably, watches made in Hong Kong with a Hong Kong brand, by fulfilling the CEPA origin rules, are no longer required to fulfill the 30% value-added content requirement in order to be eligible for zero tariff. Detailed information, as well as the origin rules for clocks and other timepiece items, are available from the following hyperlink: http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_2012.pdf

General Trade Measures Affecting Exports of Watches and Clocks

The Chinese mainland removed its quota restrictions on watch imports in 2003 under its WTO accession commitment.

Hong Kong's present origin rule stipulates that the origin of watches and clocks should be determined by the origin of movements. This is to align Hong Kong's practice with those of the major producing countries and markets, including the US, Japan and Switzerland. However, there have been discussions in the Committee on Rules of Origin of the WTO in a bid to reach a consensus on harmonisation of the rule of origin. Positions of representatives from different countries, in general, can be divided into two camps:

• the view originally put forward by Hong Kong that manufacture of the movement represents the last substantial process in the production of watches and clocks; and
  
  
• the view that the final assembly of the movement into its case and the subsequent finishing and checking processes should be the activities that confer origin.
  
  

These two positions clearly reflect the commercial interests of the countries manufacturing movements against those manufacturing completed watches and clocks from imported movements.

Separately, the US Customs requires that watches must be marked with the country of origin. But the rule stipulating watch straps/bands affixed to watches must be separately marked to indicate their country of origin has been removed, on condition that the straps/bands are assembled into complete watches at the same place as watch assembly.

In the EU, there is a Directive on the control of the use of nickel in objects intended to be in contact with the skin, including watches, for health reasons, and another Directive prohibiting the trading of textile products, including textile watch straps, containing prohibited azo dyestuffs. There are also Directives for environmental protection in relation to sales of watches and clocks in the market, including restrictions on batteries and accumulators that contain mercury, as well as the Directive on Waste Electrical and Electronic Equipment (WEEE) implemented since 13 August 2005, and the Directive on Restriction of Hazardous Substances (RoHS) that came into effect on 1 July 2006.

Product Trends

• High-tech material

While PVD (Physical Vapour Deposit) has been around for years, the new DLC (Diamond Like Carbon) treatment is taking the limelight at the higher end. Besides the all black watches, the black-with-a-hint-of-colour look is also popular. A number of brands turned to other high-tech materials for durability and even aeronautical influences. Material such as ceramic, titanium, alloys, carbon fibre, magnesium and palladium are getting more popular.

• Product Features

According to HKTDC Watch & Clock Fair on-site survey (Sep 2011), in terms of product segment, fashion watches, sports watches and jewellery watches would enjoy the biggest market growth in 2012. Gemstones and jumbo-case designs watches would be next year’s popular designs. Black and White would be the most popular dial colours and watch band colours in 2012.

Regarding clocks, models with novelty designs and special themes like cartoons and graphics would continue to enjoy steady demand. In addition, multi-functional alarm clocks such as iPhone alarm clock are gaining in popularity. Those with fancy designs and made of different materials, in particular, are increasingly targeted at the premium market, or marketed as give-away items for promotional purposes.