*Industry statistics refer to production in Hong Kong only.

The latest official statistics show that there were a total of 10 manufacturing establishments hiring 30 workers as at 2008. The majority of footwear manufacturers have set up offshore production facilities on the Chinese mainland to reduce operation costs and stay competitive, leaving only limited capacity in Hong Kong to meet small orders. Some manufacturers, after relocation of production facilities offshore, are classified instead as import-export establishments. At the end of 2008, there were altogether 1,340 import/export establishments hiring 6,380 workers.

Hong Kong produces a wide range of footwear suitable for indoor and outdoor activities. The industry is particularly strong at manufacturing women's shoes, including dressing shoes and casual shoes of real and synthetic leather such as boots and mules. Some companies specialise in men's casual shoes, like boat shoes, moccasins, loafers and canvas shoes, while others in sports shoes. Meanwhile, more companies are paying attention to children's shoes, like funky boots with embroidery, shoes with cartoon characters, rubber boots and school shoes.

Performance of Hong Kong's Exports of Footwear^

Note:

^ Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessarily reflect the full picture of the export business managed by Hong Kong companies.
* Insignificant

Following a negligible rise in 2008, Hong Kong's footwear exports deteriorated significantly during the first four months of 2009, dropping by 18%. Re-exports, accounting for almost all footwear exports from Hong Kong, fell in line with total exports, while domestic exports managed to register a mere 1% increase during January-April 2009.

Playing a leading role in Hong Kong's footwear exports, the US took up a 34% market share in the first four months of 2009. Nevertheless, exports to this country fell 33% in the period, after decreasing by 7% last year. Following the US lead were the EU and Japan, accounting for 23% and 12% of Hong Kong's footwear exports respectively. Footwear exports to the EU decreased by 10%, while sales to Japan fell by 4% in January-April 2009. In the meantime, Hong Kong's footwear exports to the Chinese mainland dropped by 16%, compared to a growth of 30% in the year before.

Sales Channels

Many footwear companies in Hong Kong engage in OEM arrangements to produce for leading brands and retailers in North America, the EU and Japan. With improving capabilities in product design and development, engineering, modelling, tooling and quality control, more and more Hong Kong footwear companies engage in ODM projects. Many companies have their own R&D and QC specialists to strengthen the quality of their products. Some Hong Kong footwear companies, such as Le Saunda, Mirabell, Staccato, and Joy and Peace, have also succeeded in building up their own brands with retail network in Hong Kong, Macau and the Chinese mainland. While some footwear exporters prefer selling to overseas importers and distributors, many of them are selling to mass merchandisers, such as Wal-Mart, Target, Costco and Kmart.

A number of Hong Kong companies, some with Taiwanese stakes of interest, produce world famous brands, including Adidas, Asics Tiger, Bass, Converse, Le Coq Sportive, New Balance, Nike, Reebok and Timberland. A few have been granted licences to produce and distribute foreign brands for the Chinese mainland or Hong Kong market.

To establish business contacts with overseas buyers, Hong Kong manufacturers and traders have involved themselves actively in international trade shows led or sponsored by the Hong Kong Trade Development Council (HKTDC), including the ones in Budapest, Dongguan, Dusseldorf and Dubai. They also benefit from study or matchmaking missions organised by HKTDC to visit specific markets for establishing new business relationships.

Industry Trends

China maintained its position as the largest shoe exporter in the world in 2008 when footwear exports increased by 17% year on year to US$30 billion. While global economic challenges are taking a toll on China's footwear exports, the Ministry of Finance and State Administration of Taxation have recently announced the latest round of adjustments of export VAT rebate rates. Since 1 June 2009, the VAT rebate rate for footwear has increased from 13% to 15%. Cost aside, footwear manufacturers nowadays focus more on value-added service. Quick response in sample making, prompt delivery and high quality are widely practised.

On the demand side, ethical sourcing is a common practice among international footwear companies. In response to the social demand for protecting human rights in workplaces, many leading companies have introduced measures to monitor the working conditions in their own factories as well as the contracted factories in overseas countries. For example, Nike has established its code of conduct for labour conditions of its contracted factories throughout the world. To follow suit, Hong Kong companies such as Taizin have also introduced their own codes of conduct to ensure safe and healthy working conditions.

CEPA Provisions

The mainland and Hong Kong agreed in October 2005 to further liberalise the mainland market for Hong Kong companies under the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III). Under CEPA III, the mainland agreed to give all products of Hong Kong origin, including footwear, tariff-free treatment starting from 1 January 2006.

Detailed information, including the origin rules for footwear, is available from the following hyperlink: http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_2009.pdf.

Trade Measures Affecting Exports of Footwear

Overall speaking, trade measures for footwear are quite prohibitive. While footwear exports to the US are subject to tariff duties of 0 - 48%, import tariffs of the EU are around 3 - 17%. In the EU, an anti-dumping duty of 16.5% has been levied on certain leather footwear from the mainland since October 2006. Meanwhile, Japan applies the tariff quota system with tariff duty ranging from 3.4% to 30%. Tariff rates on leather footwear are broadly classified by shape, material of soles and uppers, and country of origin.

Tariff Rates of Footwear in Major Countries

Product Trends

Nowadays, most footwear consumers have a strong sense of fashion, particularly in mature markets and big cities of emerging markets. In recent years, even males have become more interested in fashion and new trends. That said, the continuing sluggish economy has forced consumers to consider the value-for-money option. There has been a wave of trading down where basic items are outperforming those targeting impulse shoppers. Sales periods have accounted for an increasing share of volume sales of footwear in retail outlets, while hypermarkets and supermarkets have become increasingly popular among bargain-seeking shoppers. Seeing an increase in demand for cheaper footwear products under the guise of current economic crisis, footwear manufacturers are pursuing strategies focusing on lower price/quality ratios.

Fashion and price aside, people are looking more into the durability and adaptability of footwear. To cope with this new trend, footwear manufacturers are working with technology and material companies to incorporate technical devices and sustainable materials into their products to enhance durability. For example, transeasonal footwear featured with adaptive design and durable materials to resist wear and tear under different climate conditions is much sought after. In view of the ever-increasing health consciousness among consumers, other items such as healthy and comfort footwear products like reflexology massage sandals and foot care products like pads, toe spreaders and separators are also gaining popularity.