U.S. and Hong Kong (1997)

U.S. Department of State

Hong Kong Country Commercial Guide for FY 95-96

Office of the Coordinator for Business Affairs

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CHAPTER IV. MARKETING U.S. PRODUCTS AND SERVICES

For most American products and services, initial market penetration in Hong Kong does not require an investment of millions of dollars of company funds. With the propensity of Hong Kong citizens to buy American products, and the fact that Hong Kong is a "Free Port" with virtually no duties or tariffs and a wide ranging network of agents and distributors, a well-managed market penetration program with a moderate investment in market development is generally all that is required initially. In the longer term, this could be followed with more ambitious investments in marketing, assembly or even a production facility. The market for U.S. service firms is also quite open, with the exception of medical and legal professionals, as discussed in Section VII. A, below.

Most American products do have a market in Hong Kong, and in many cases through Hong Kong to the PRC. The best agents and distributors for China are mostly located in Hong Kong, although given China's size and diversity, it is often necessary to work with different agents for different regions of China. Hong Kong companies are eager to talk to potential exporters and have a strong interest in representing U.S. products.

A. Distribution and Sales Channels

One of the best ways to sell products in the Hong Kong market is through the use of agents or distributors. It is also an excellent way of minimizing the initial investment in the market. As outlined below, there is a wide range of companies who can serve as agent or distributor for U.S. firms.

B. Use of Agent/Distributors; Finding a Partner

Working with agents and distributors in Hong Kong is very much like working with an agent in the United States. An agent takes orders in the supplier's name. Distributors act in their own name and may stock products purchased from the manufacturer for resale. The choice depends on the relationship with which the manufacturer/supplier is most comfortable and the nature of the business.

Hong Kong has no special legislation regarding agents and distributors. Virtually anything which both sides can agree to and put into a written contract is acceptable and enforceable, including restrictions on territory and a grace period for termination of the agreement. While not required by Hong Kong law, the more complex the contract, the more helpful legal counsel can be in drafting the text. Items that are "musts" for any contract include:

- Exclusivity and sales territories (always a sensitive issue; business people should be careful about granting an exclusive agency too soon or in too large a territory if the agent is to cover beyond Hong Kong.)

- Proprietary information (theft of intellectual property is prohibited by local law, but prevention of piracy is always less expensive and more effective than post-facto legal action.)

- Levels of sales activity -- set specific targets and goals to qualify for maintaining or renewing the agreement

- Time duration

- Payment terms

- Quality control -- inspection -- verification

- Rule of law -- jurisdiction in the USA vs. Hong Kong (It is generally Hong Kong, but another location may be specified -- for arbitration, for example.)

- Covenants restricting activity following cancellation of the contract.

There are many types of agents and distributors in Hong Kong, ranging from those who simply stock retail stores with standard items to agents who provide sales, engineering and technical support for complex systems. It is common for a single company to deal in a wide variety of products - everything from chicken parts to airplane parts, for example. As long as the potential agent/distributor has relevant experience in the sector of interest, American firms should not be concerned. Each sector within the standard (which usually means Chinese family) Hong Kong trading company is usually run as a discrete unit, led by a family member with specialized training who reports to the pater familia - the Managing Director.

C. Franchising

During the past decade, Hong Kong and the region have been catching up with the concept of franchising. In fact, franchising has become one of the fastest growing forms of business in Hong Kong. In 1994, franchising contributed US$750 million to Hong Kong's gross domestic product (GDP). U.S. firms have dominated this industry mainly through well known hamburger and pizza fast food outlets. Other kinds of retail outlets ranging from bakeries to shoe repair are also expanding significantly. The field is wide open.

D. Direct Marketing

Direct marketing is not a well-accepted sales channel in Hong Kong, although recently there has been some growth in direct marketing through television. Mail-order and other forms of direct marketing are very small although some consumer products are sold very successfully via person to person marketing. Shopping is one of the major leisure time activities in Hong Kong which, given Hong Kong's small size and its efficient transportation system, effectively limits the growth of this form of marketing technique.

E. Joint-Ventures/Licensing

Joint-ventures or strategic alliances can be very helpful in entering the market and are particularly important in competing for major projects. (For additional information on joint ventures, see Section VII, Investment Climate.) Companies may also choose to establish an office here themselves or rely on one of the many international trading companies to act as agents or distributors for imported products.

Licensing is not a particularly common practice except in the field of brand name product manufacturing and marketing.

F. Steps to Establishing an Office

Foreign interests are allowed to incorporate their operations freely in Hong Kong, to register branches of foreign operations, or to set up representative offices. There is no restriction on the ownership of such operations. Company directors are not required to be citizens of, or resident in Hong Kong. Reporting requirements are straightforward and not onerous. There is no distinction in law or practice between investment by foreign controlled companies and those controlled by local interests. There are no disincentives to foreign investment such as limitations on the use or transfer of foreign currency, or any system of quotas, performance requirements, bonds, deposits, or other similar regulations. The high costs of labor and rents as well as the shortage of international schools are the major disincentives to establishing a presence in Hong Kong.

G. Selling Factors/Techniques

The major selling factors are the same as in the U.S.: price, quality, timeliness in delivery and service. Initial sales require more face-to-face contact as Asians generally place a premium on developing personal connections.

H. Advertising and Trade Promotion (including listing of Major Newspapers and Business Journals)

Many promotional vehicles are open to suppliers to introduce and develop their services in the Hong Kong market. These include:

- special trade fairs and exhibitions

- advertising in the media and other public relations activities

- holding seminars

- in-store promotions

- joint promotions with wholesale and retail outlets

Hong Kong is a major conference and exhibition center. Hundreds of international exhibitions are held annually. The Hong Kong Conference and Exhibition Center has 180,000 square feet of exhibition space and will soon be expanding. Television is a widely used medium with an estimated daily audience of 5.3 million out of a population of 6.1 million. A list of the major trade shows and trade show organizers is supplied in the appendix.

Suppliers should provide technical catalogs in English, and at least some information in Chinese, for distribution to agents and firms. Company brochures are particularly useful when visiting Hong Kong for the first time. English-Chinese business cards are a must. Business people should also be aware that business cards are exchanged far more frequently in Hong Kong and China than in the United States.

As one of the largest centers in the world for Chinese language publications, the territory produces 600 publications, including 51 Chinese newspapers and 3 English daily newspapers. Advertising agencies, including many of international standing, offer a full range of services. A list of the major newspapers and magazines follows.

Newspapers:

South China Morning Post
South China Morning Post Publishers Limited
Morning Post Building
Tong Chong Street
Quarry Bay, Hong Kong
Tel: (852) 2565-2222
Fax: (852) 2565-5380

Hong Kong Standard
Hong Kong Standard Newspapers Ltd.
4/Fl., Sing Tao Building
1 Wang Kwong Road
Kowloon Bay
Kowloon, Hong Kong
Tel: (852) 2798-2798
Fax: (852) 2795-3027, 2795-3009

Eastern Express
Eastern Express Publisher Ltd.
Oriental Press Center
Wang Tai Road
Kowloon Bay
Kowloon, Hong Kong
Editorial: Tel: (852) 2707-1111
Fax: (852) 2707-1122
Display advertising:Tel: (852) 2707-3333
Fax: (852) 2707-2233

Trade Journals:

AmCham (Monthly)
American Chamber of Commerce in Hong Kong
Room 1030, Swire House
Central
Hong Kong
Tel: (852) 2526-0165
Fax: (852) 2810-1289

Asian Business (Monthly)
Far East Trade Press Ltd.
Block C, 10/F., Seaview Estate
2-8 Watson Road
North Point
Hong Kong
Tel: (852) 2566-8381
Fax: (852) 2508-0197

Construction & Contract News (Monthly)
Trend Publishing (HK) Ltd.
19/F., Washington Plaza
230 Wanchai Road
Hong Kong
Tel: (852) 2832-9298
Fax: (852) 2832-9667

Far Eastern Economic Review (Weekly)
Review Publishing Company Limited
25/F., Citicorp Center
18 Whitfield Road
Causeway Bay
Hong Kong
Tel: (852) 2508-4300
Fax: (852) 2503-1537

Hong Kong Industrialist (Monthly)
Federation of Hong Kong Industries
4/F., Hankow Center
5-15 Hankow Road
Tsimshatsui, Kowloon
Hong Kong
Tel: (852) 2723-0818
Fax: (852) 2721-3494

Productivity News (Monthly)
Hong Kong Productivity Council
HKPC Building
78 Tat Chee Avenue
Yau Yat Chuen, Kowloon
Hong Kong
Tel: (852) 2788-5678
Fax: (852) 2788-5900

I. Pricing Product

If possible, quote in metric, on a deliverable basis to Hong Kong i.e. CIF or C&F rather than FOB. Hong Kong companies have lots of options; American companies must make it as easy as possible to deal with them.

J. Sales Service/Customer Support

Some sort of local presence, whether it is a branch office or an agent or distributor, is very important in getting established in the market. Business in Hong Kong and elsewhere in Asia requires relationships which can only be developed with some sort of full time presence. Prompt after-sales service is also crucial to succeeding in this very competitive market.

K. Selling to the Hong Kong Government

The Hong Kong Government Supplies Department (GSD) is the central purchasing, storage and supply organization for the Hong Kong Government, serving over 80 government departments and agencies, and many subsidiary organizations. The GSD usually purchases by open tender, with decisions based on price, quality and delivery. The GSD gives no preference to any particular source of supply from any country or organization. GSD spent about US$540 million in 1994, with American companies winning around 32% of the total procurement contracts (about US$171.2 million).

Tenderers generally have about six weeks to prepare their offers. Invitations to open tender are published in the Hong Kong Government Gazette and in leading Hong Kong newspapers. Tenderers are urged to submit offers with at least a 30-day validity period. Payment is usually effected by check within 30 days of delivery of the goods, but terms are often amended to suit special conditions of the contract. Total bid prices and names of the successful tenderers are published weekly in the Government Gazette.

For information about a subscription to the Hong Kong Government Gazette, contact:

Information Officer
Publications Sales Section
Information Services Department
Ground & 1st Floors
French Mission Building
1 Battery Path, Central
Hong Kong
Tel: (852) 2842-8802
Fax: (852) 2537-1543

The GSD maintains lists of registered suppliers. To become a "Registered Supplier" and regularly receive the GSD's tender documents, companies must submit questionnaires detailing business activities, licensing arrangements, financial resources, the goods and services they offer. The GSD evaluates this information and selects qualified suppliers for inclusion on their register. The Commercial Service, Hong Kong office regularly reports on government tenders. These reports are available via the Economic Bulletin Board from the Department of Commerce.

Companies seeking more information on the GSD are encouraged to contact:

The Director of Government Supplies
Government Supplies Department
12 Oil Street
North Point
Hong Kong
Tel: (852) 2802-6100
Fax: (852) 2510-7904
Telex: 61675 HKGSD HX

L. Protecting your product from IPR Infringement

The best protection for an American company is to aggressively market in Hong Kong. By using a good local agent, American manufacturers or suppliers can make their product legally available. Dealers have a strong incentive to stop any piracy, and with good local connections, have a better chance of making that happen than an American company which is not participating in the market. Hong Kong's laws are effective and include a full set of tools to raid, enjoin, and seek damages from unauthorized producers and sellers of infringing works. The chief law enforcement body for IPR is the Customs and Excise Department. However, protecting copyrights or trademarks takes vigilance, and even with the U.S. Government vigorously pressing Hong Kong and other Asian governments on this issue, enforcement is still dependent on reporting incidents of product piracy to the authorities. This requires a strong local presence. Substantially stiffer penalties for copyright infringement passed in 1995 will hopefully reduce IPR infringing products. For more information on intellectual property legislation and registration, see Section VII. H, below.

M. Need for a Local Attorney

Hong Kong follows the Common Law System and disputes which cannot be resolved between the interested parties are commonly pursued through the court system. Attorneys are needed for most court processes and are extremely expensive.

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