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Electronics
1 Feb 2007 Content provided by:



Overview
Under the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III), the mainland agreed to give all Hong Kong products, by fulfilling the origin requirements under CEPA, a tariff-free treatment starting from 1 January 2006.
Hong Kong's electronics industry is the largest merchandise export earner, which accounted for nearly 50% of Hong Kong's total exports in 2006. According to the latest available statistics, Hong Kong was the largest world exporter of sound recording apparatus, and the second largest exporter of telephone sets, radios, computer parts/accessories and video recording/reproducing apparatus in value terms in 2004.
Hong Kong's electronics exports surged by 14% in 2006. While sales to both the US and the EU continued to expand, exports to the Chinese mainland, consisting mainly of parts and components, surged by 21% in the period.
Along with the popularity of information technology, IT and multi-media products continue to be the star performers in the market. Wireless application like wireless LAN or WiFi has become a popular choice for wireless access to the Internet. As for consumer electronics, digital products like digital camcorders, digital still cameras, MP3 players, DVD players and recorders are in demand.
Industry Features *



-
Manufacturing
Import/Export Trade

No. of Establishments
735 (Sep 2006)
9,629 (Dec 2005)

Employment
12,238 (Sep 2006)
66,704 (Dec 2005)

* Industry statistics cover activities in Hong Kong only.


Hong Kong' electronics industry is the largest merchandise export earner, which accounted for nearly 50% of Hong Kong' total exports in 2006. According to the latest available statistics, Hong Kong was the largest world exporter of sound recording apparatus, and the second largest exporter of telephone sets, radios, computer parts/accessories and video recording/reproducing apparatus (including DVD/VCD recorders/players) in value terms in 2004.

With respect to finished goods, which constitute about one-third of Hong Kong's electronics exports, the majority are consumer electronics for domestic use. The largest category is audio-visual (AV) equipment, consisting of radios, cassette and CD players, hi-fi equipment, TV sets, video cassette recorders, digital versatile disc (DVD) players/recorders, MP3 players, etc. Meanwhile, electronic toys, games and related articles, including battery-powered toys and TV games, as well as electronic watches and clocks, also share a significant portion of total exports. Moreover, Hong Kong exports a variety of computer products, such as desk-top/notebook computers and magnetic and optical disk drives, as well as telecommunications products like corded and cordless telephones. Other items with smaller export value include calculators, electronic dictionaries and translators, batteries and personal security and smoke alarms.

Regarding parts and components, which constitute about two-thirds of Hong Kong's electronics exports, the major items include parts and accessories for computers. Hong Kong also re-exports a large amount of integrated circuits (ICs) and micro-assemblies, in particular, to the Chinese mainland for outward processing production. In the meantime, Hong Kong produces and exports a variety of parts and accessories for telecommunications items, AV equipment, office machines, calculators and electronic watches and clocks, as well as components like resistors, capacitors, diodes, transistors, inductors, crystals, resonators, speakers, switches, buzzers, liquid crystal displays (LCDs), printed circuit boards (PCBs) and transformers.

Today, most manufacturers have relocated the labour-intensive production processes to the Chinese mainland to maintain cost competitiveness. Their Hong Kong offices are mainly responsible for product development, quality control, management, marketing and logistic support. Due to the relocation of production facilities, most companies have been re-classified as non-manufacturing establishments, despite the fact that they have manufacturing activities across the boundary.

Yet there are a number of companies still maintaining the high value-added and/or capital-intensive production in Hong Kong, e.g. IC packaging, production of multi-layer PCBs, manufacturing of flexible substrates for IC assembly, lead-frame bonding and PCB assembly by surface mount technology (SMT) for high-value products.

Hong Kong's electronics industry is characterised by the heavy dependence on imported parts of key components, especially ICs and dices. Given its free port status and the advanced telecommunications infrastructure, Hong Kong allows companies to source freely worldwide. For other parts and components, such as PCBs, passive components, speakers, metal parts, plastics, connectors, gift-boxes and other packing materials, Hong Kong companies may source from other manufacturers here, or local Chinese enterprises in the mainland.

The success of Hong Kong's electronics industry also 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. Moreover, due to the growing concern of quality conscious buyers, more and more companies have strengthened their quality assurance systems. This is evidenced by a growing number of Hong Kong companies certified as complying with ISO 9000, which is an internationally recognised standard for quality management system, as well as ISO 14000, a standard for environmental management system, amid the growing concerns for environmental protection.

Performance of Hong Kong's Exports of Electronics ^

-
2004
2005
2006

HK$Mn.
Growth%
HK$Mn.
Growth%
HK$Mn.
Growth%

Domestic Exports
22,230
+18
36,522
+64
36,405
*

Re-exports
885,526
+17
1,036,616
+17
1,182,684
+14

of Chinese Mainland Origin
517,449
+27
632,935
+22
735,767
+16

Total Exports
907,757
+24
1,073,137
+18
1,219,088
+14




Total Exports by Major

Markets
2004
2005
2006

Share%
Growth%
Share%
Growth%
Share%
Growth%

Chinese Mainland
48
+28
50
+23
53
+21

EU(25)
14
+28
14
+21
13
+2

Germany
3
+16
3
+18
3
+9

Netherlands
2
+25
3
+41
2
-4

US
12
+11
11
+11
11
+9

ASEAN
7
+20
7
+8
7
+10

Singapore
3
+22
3
+8
3
+4

Japan
5
+23
5
+20
5
+1


Total Exports by Categories
2004
2005
2006

Share%
Growth%
Share%
Growth%
Share%
Growth%

Finished Products
34
+14
32
+12
31
+9

Parts & Components
66
+30
68
+22
69
+16


Total Exports by Products
2004
2005
2006

Share%
Growth%
Share%
Growth%
Share%
Growth%

AV Equipment & Parts
27
+34
25
+11
24
+7

IT Equipment & Parts
22
+17
25
+33
24
+10

ICs & Micro-assemblies
18
+33
18
+19
20
+23

Telecom. Equipment & Parts
6
+10
6
+16
6
+24

Elec. Toys & Games
4
+5
4
+4
3
+7

Elec. Watches & Clocks
3
+8
3
+1
3
+2

* Insignificant
^ 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 surged by 14% in 2006. Exports of the big 3 categories, namely AV equipment and parts, IT equipment and parts and integrated circuits, grew by 7%, 10% and 23% respectively.

Market-wise, electronics exports to the US and the EU expanded by 9% and 2% respectively in 2006. The good showing was thanks to the robust sales of computer parts/accessories and video recording/reproducing apparatus.

As regards Asia, exports to the Chinese mainland increased strongly by 21% in 2006. Thanks to increases in input demand for outward processing production, exports of parts and components, which accounted for some four-fifths of total sales to the mainland, grew robustly.

Elsewhere in Asia, exports to ASEAN, which were mainly parts and components, rose by 10% amid increases in export production in the region, while the growth of exports to Japan moderated in 2006.

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 may 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, Matsushita and Sanyo may have OEM arrangements with Hong Kong suppliers. In any event, after-sales services are usually undertaken by overseas buyers, while Hong Kong suppliers provide technical support for repair and maintenance.

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

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.

In the meantime, Hong Kong is an important trading hub for electronic parts and components in Asia-Pacific. Apart from Chinese products, many items from Japan, Taiwan, the US and South Korea are re-exported via Hong Kong. A number of multinational manufacturers of parts and components have set 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 companies of electronics to explore market opportunities. Important trade fairs include the CES Show and COMDEX held in the US, CeBit Fair and Electronica in Germany, Japan Electronics Show, Taipei International Electronics Show in Taiwan, CommunicAsia in Singapore and Hong Kong Electronics Fair organised by the Hong Kong Trade Development Council (****). Business missions organised by the **** to the Chinese mainland and other emerging markets also provide opportunities for Hong Kong companies to establish connections with potential buyers.

Industry Trends

Along with intensified competition, other Asian suppliers have posed an increasing threat to Hong Kong's electronics exports. But Hong Kong continues to be a popular sourcing centre for higher-end consumer products. This is because competition from less advanced suppliers is confined to low-end mass-market items and simple products, while more advanced competitors like Taiwan and Singapore have different product mixes from Hong Kong. More worrying is the competition from mainland's indigenous enterprises. In fact, the Chinese mainland has a well-established industrial base for domestic electronics items and poses obvious threat to Hong Kong exporters in the international market, especially in OEM production.

Against this background, Hong Kong companies have enhanced their value-added. While maintaining their OEM production, they have focused more on ODM business, rendering increased value-added services to overseas customers. Although this would normally require more investment in aesthetic and technical designs than OEM production, developing ODM business is deemed to be an important strategy for Hong Kong's electronics companies to enhance their competitiveness. The most important attribute of their success in ODM business is product design and development capability, while knowledge of world product trends and different consumer tastes and preferences in different markets are also their edge.

As more design works are being undertaken by Hong Kong companies, there is a tendency for overseas importers to shift liabilities arising from defective products to local manufacturers and traders. It has thus become increasingly critical for Hong Kong exporters to observe laws and regulations in relation to consumer protection and product liabilities in overseas markets.

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.

On the other hand, 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 the advancement in technology, leading to the need for more frequent changes to product features and cosmetic designs 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. They have constantly upgraded their capability in product and aesthetic designs. Some companies also re-engineer their procurement and production management systems, in a bid to shorten delivery lead times.

In addition, on the back of the significance of information technology, e-commerce is an important development in the business world. For Hong Kong's electronics exporters, getting on-line is a fundamental element to support their marketing activities. Apart from using their web pages for promotion and cataloguing, firms are adopting electronic means to foster their business, including Internet facilities to communicate with their customers for data exchange and logistics arrangement. Some companies make use of the Internet to stimulate sales, allowing consumers to update or enhance, through downloading relevant software from designated web sites, the functionality of their products like certain computer equipment, electronic gadgets and electronic toys.

CEPA Provisions

Under the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III), the mainland agreed to give all products of Hong Kong origin a tariff-free treatment starting from 1 January 2006. 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 electronics items, are available from the following hyperlink:
http://www.tid.gov.hk/english/cepa/files/mainland_2007.pdf

General Trade Measures Affecting Exports of Electronics

Overseas Markets

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 exporting 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 the EU's CE-mark has also required the compliance with relevant EMC directives.

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 electronics and electrical appliances. 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.

China's WTO Accession

Following China's accession to the WTO in December 2001, the opening of the mainland market provides considerable opportunities for Hong Kong companies. While lower tariffs and removal of quotas have facilitated sales of products originating in Hong Kong or other places to the mainland, penetration into the market is aided further by the libersalisation of the mainland's trading and distribution sectors.

On the back of the mainland's participation in the Information Technology Agreement (ITA), the mainland has eliminated its import tariffs on most ITA products, including certain IT and telecom products, as well as a wide range of related parts and components. This has facilitated sales of ITA products to the mainland market. In the meantime, Hong Kong's electronics manufacturers also benefit from the mainland's liberalisation of telecom and Internet service sectors. Indeed, the demand for relevant IT and telecom equipment has grown robustly in recent years, thanks to lower telecommunication fees amid the mainland's market opening. This has stimulated the penetration of telecommunication services, facilitating the demand for relevant IT and telecom equipment.

Product Trends

Along with the growing importance of information technology and sustained popularity of the Internet, IT and multi-media products continue to be the star performers in the market. On the back of falling prices amid keen competition, however, conventional products like personal computers have become mass products. As the market for such items, especially in the US, is hotly competed, the industry is focusing on further technological advancement and enhancement to sustain their business.

One of the focal areas is wireless application. Amid the growing popularity of broadband Internet access, demand for wireless connections is on the rise. In particular, the solution of wireless LAN, or the so-called WiFi, is now a popular choice for wireless access to the Internet. Meanwhile, some market players have developed their wireless LAN solutions for system applications, which are emerging as a niche on the back of the booming networking market. In the meantime, the Bluetooth technology is among the choices for short-range radio link among different devices like computers, mobile phones and other portable apparatuses.

Meanwhile, mobile phones with capabilities of Internet access, e-mail and/or SMS/MMS functions are getting popular. Moreover, a number of enhanced features have been added on to some mobile models, such as colour display, digital camera, radio, MP3 and movie playback functions, which have effectively lured demand especially from youngsters. In addition, while major players have continued to focus on the 3G mobile technology amid falling service charges, it is believed that the era of 4G technology is not far away.

As regards consumer electronics, digitalisation is the major development trend in today's AV equipment sector. One of the prominent areas is digital imaging. In particular, the market for digital camcorders and digital still cameras has grown robustly amid falling prices. Moreover, digital still cameras have overtaken the sales of film cameras. On the back of the home entertainment concept, DVD players are increasingly purchased by consumers. This has in turn stimulated the demand for complementary audio systems, such as high quality speakers, decoders, and amplifiers for surround sound and home theatre. Following the success of DVD players, major players have also introduced DVD recorders to the market.

Amid the advancement of digital display technology, demand for wide-screen TVs making use of liquid crystal display and plasma display technology is rising steadily. On another development, digital TV (DTV) broadcasting is being promoted in a number of markets like the US, the EU and Japan. In particular, the US has set a timetable to require all commercial TV broadcasters to phase out analogue TV broadcasting by 2009. In the EU, developments vary among member states, with a number of countries like the UK and Germany being the pioneers to introduce DTV broadcasting. It is anticipated that the switching from analogue to digital broadcasting will be completed during 2006-2010 for most EU member states. Demand for digital TV products will therefore be sought after in the future.







Source: Hong Kong Industry Profiles





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Copyright (c) 2000-2007 Hong Kong Trade Development Council. All rights reserved.
Reproduction in whole or in part without ****'s permission is prohibited.

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