Hong Kong’s eCommerce market is less frequently talked about than mainland China’s. It’s not strange as the latter one has great growth potentials and a population that is around 200 times larger.
Yet thanks to its business-friendly environment with no import duties, VAT, along with a strong purchasing power, exporters should not neglect Hong Kong.
The city is often used as a logistics hub for cross-border sales, and why not profit from the local market if the chance is there.
In this article, we review the most important topics when selling in the Hong Kong eCommerce market
- Market Entry Strategy
- Vietnam Market Entry Obstacles
- Market Entry Research
Market Entry Strategy
Market entries don’t come in one format but can mean an array of things. While some companies just want to conduct market research or test the market, other brands have great ambitions to claim local market shares and establish a strong brand presence.
Market entries are sometimes planned for years and when companies wait for the right moment. At the same time, start-ups that see rapid growth might want to enter a new market within just a few months.
Worth mentioning is also that market entry strategies have changed significantly in the past decade due to the prevalent growth of eCommerce markets and digitization.
While buyers predominantly chose physical stores not a long time ago, Asian eCommerce markets seem unstoppable.
Initial Marketing Campaigns
Initial marketing campaigns are crucial in the sense that you better understand whether it’s worthwhile to enter a market or not. These can also help create a suitable strategy such as focusing on specific areas or provinces.
Initial marketing campaigns can include advertising campaigns online as well as offline. In Vietnam, screens advertise brands in everything from elevators to local students dressed up like mascots.
With the rise of influencers and KOLs, increasingly more brands also try to increase brand awareness by using eCommerce market channels, blogs, vlogs, and pop-up events. The options are almost endless and it all boils down to creativity and budget.
Hong Kong is one of the most popular options for eCommerce sellers that operate in mainland Chinese or other Asian markets. The reason for this is Hong Kong’s superior 3PL and logistics services.
Having said that, if you plan to sell cross-border to Hong Kong and minimize local registrations, you have to store the products outside of Hong Kong.
One option is to stock the product in a bonded warehouse in Shenzhen, for instance, and ship the products to end-consumers in Hong Kong.
Keep in mind that products sold on Tmall Global can be accessed from Hong Kong as well.
Hong Kong does not use Chinese safety marks such as the CCC but has its own mark called the Hong Kong Safety Mark (HKSM), for example.
By selling cross-border from outside of Hong Kong, the registration process is generally easier as the end-consumers buy products personally.
Domestic eCommerce Operation
If you plan to sell in the local Hong Kong offline and online markets, you have to run operations in a different manner. First, you have to set up a local entity or an importer that can help you to bring the products into Hong Kong.
You also have to register your products with all relevant authorities before you can start selling.
Having said that, selling domestically can bring many benefits to companies that only sell cross-border into Hong Kong. First, you can sell the products to restaurants, supermarkets, and bricks & mortar stores.
This will help you to reach a broader range of customers and can increase sales volumes dramatically. You don’t necessarily have to focus on one option either, but can sell both cross-border and domestically, if manageable.
Hong Kong Market Entry Obstacles
As for any market, sellers face entry barriers that can be financially related and time-consuming. Below, I explain some of the most common entry barriers in general and how these relate to Hong Kong’s eCommerce market.
Luckily, the whole of Hong Kong is considered a free trade port, and all goods are levied from import duties and other taxes. This is a reason why many visit Hong Kong for shopping purposes, buying everything from electronics to clothes.
If you incorporate in Hong Kong, you also have to pay related fees to set up and run the company. Setting up a company in Hong Kong is also common for investors who plan to open Wholly-Owned-Foreign-Enterprises (WFOE) in China.
In short, they use the Hong Kong entities as parent companies for the Chinese ditto, which offers a handful of benefits. I will explain more about the setup costs and how these affect sellers later in this article.
Product Standards & Labeling Requirements
Hong Kong is developed by Asian standards and registering products here is comparatively straightforward. Laws and regulations are transparent and available in the English language.
Hong Kong has its own regulations and certification marks. The regulations are similar to Western ISO standards thanks to harmonization for easier market entries worldwide.
Having said that, there are also notable differences. Below, I have listed a few examples of regulations that apply to different products.
Example A: Food Packaging
Schedule 3 to the Food and Drugs (Composition and Labelling) Regulations should be reviewed for the regulations that apply for labeling of prepackaged foods.
In addition to listing ingredients, the regulation also mentions that the food name shall not be misleading, false, or deceptive.
For more information, you can visit the Center for Food Safety’s website. They have plenty of information with guides about various regulations, like labeling.
Example B: Clothing
First, the Consumer Goods Safety Ordinance regulates the safety of consumer products in general. Besides, different separate regulations are used for textile products, including so-called EN standards and ASTM standards.
Examples of EN standards used include:
- EN 14878 – Burning behavior of children’s nightwear
- EN 14682 – Cords and drawstrings on children’s clothing
- Market Entry Research
Below is an overview of the different points that are important for market entry strategy.
It’s important to make a thorough analysis of the eCommerce platforms available and what best suits your products. Some marketplaces have more users but are generally also more expensive to sell on.
This is particularly the case for websites like Tmall where buyers have higher disposable incomes.
The product types you sell will also determine the selection of websites. While some marketplaces offer a wide range of products, you also find websites that focus on cosmetics and apparel, for instance.
As mentioned, marketplaces sometimes only accept domestic sellers such as Taobao. If you plan to sell cross-border, you have to find platforms that offer such services. For a better overview, I have listed the most popular websites in Hong Kong below.
Tmall is available in mainland China as well as in Hong Kong and was founded in 2008. Owned by Alibaba, it’s considered the leading eCommerce marketplace that attracts plenty of young buyers with high disposable incomes.
You’ll find many foreign and renowned brands with flagship stores on the site.
It’s comparatively difficult to enter Tmall due to the high competition and entry requirements. A refundable deposit of USD 25,000, as well as yearly running costs in the thousands of US dollars, are charged.
Not to forget, buyers need help from Tmall Partners (TPs) to sell on the website. This requires additional costs in the thousands of US dollars monthly, in addition to marketing costs.
You can find many product types sold on the website such as cosmetics, skincare products, health products and supplements, food, and more.
JD was founded in 1998 and has grown rapidly in previous years. Its parent company, Tencent, is one of the biggest IT companies in China and owns a large stake in Shopee, one of the biggest eCommerce platforms in Southeast Asia.
JD caters to more male buyers than Tmall and focuses more on electronic products. It’s well-known for having advanced logistics capabilities, focusing on expansion and automation.
It’s not as hard and expensive to enter JD compared to Tmall, a reason why many start selling on the website.
Taobao is also popular in Hong Kong and the first eCommerce website launched in China. In comparison to the other websites, Taobao doesn’t allow cross-border sales. The website doesn’t have as many branded products as Tmall and JD.
It caters to many buyers in smaller cities. Even if you can find premium brands on Taobao, it’s primarily used among buyers with lower disposable incomes who look for low-cost products.
Taobao is not the most popular option among cross-border and foreign sellers who want to profit from mainland China and Hong Kong’s rise, but rather for local brands.
Setup costs can be exceptionally high due to the need of hiring third parties at an early stage. Other fees for initial marketing, pop-up events, shipping, and incorporation will also be needed.
The setup costs needed will differ depending on if you sell cross-border or domestically.
Besides, trademark registration fees, product testing, and local registration with authorities might not cost much money but are time-consuming. Make sure to set aside sufficient time before you plan on entering a new market.
Competitor Cost Analysis Research
Simple cost analysis can be made by visiting local eCommerce websites and seeing what other brands sell their products for. Tmall also allows you to check monthly sales volumes, giving you a hint of how much profit they make from that single sales channel.
Another option is to visit local supermarkets and see what prices brands use. From time to time, companies can also assist with such matters.
Shipping & Logistics
The way you ship products will also be determined based on where you plan to sell the products. If you stock the products in Shenzhen, for example, you will ship the products in bulk to mainland China.
After, you transport the goods by air freight or road into Hong Kong and have to pay the last-mile deliveries. Your option will be to use a bonded warehouse on the mainland.
If you go for a domestic solution, you simply ship the products in bulk and can use a local 3PL company.
The shipping costs will be similar and each option should be studied well in advance.
Incorporating in Hong Kong can be beneficial in many ways. First, you can manage local transactions more easily and open a local bank account. Besides, you can also use that entity as a parent company if you plan to incorporate in the mainland at a later stage.
By having a Hong Kong company, you will also be able to import the products to Hong Kong. This is crucial if you plan to sell in the local market and want to manage the imports.
Opening a company in Hong Kong is easy by international standards. It doesn’t cost you much either and can take a couple of days. The common requirements when opening a Hong Kong entity are:
- At least one shareholder
- At least one director
- Minimum share capital: HKD 1
- Registered address
- Appoint a secretary
Below you can find the documents needed when incorporating in Hong Kong.
- A copy of the directors’ and shareholders’ identification documents
- Proof of address
- Signed Incorporation form by the authorizing partners