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Capitalising on Licensing Opportunities in Asia via Hong Kong

Hong Kong’s positive licensing environment, along with high quality licensing firms and strong ties with the Chinese mainland, Southeast Asia and global licensors, underpins its hub status in Asia.

Outside of Japan, sales of licensed products in Asia have grown at an average of almost 9% over recent years. This is in stark contrast to the sluggish global market and has seen the region emerge as the new focus for business opportunities and growth for international licensing companies (a broad outline of the Asian licensing market can be found at Licensing Opportunities in Asia: An In-Depth Look).

In a bid to develop an updated understanding of the role of Hong Kong as the preferred licensing hub for Asia, HKTDC Research recently conducted a questionnaire survey covering 10 locations in Asia. The research involved a total of 169 respondents, comprising licensors, licensing agents and licensees. The approach and methodology of the survey are detailed in the endnotes.[1]

Respondents engaged in licensing business with Hong Kong

Among the 139 survey respondents who answered the question as to whether they had engaged in licensing-related business with Hong Kong, 39% indicated that they were currently doing business with Hong Kong companies. The term “Companies engaged in licensing-related business with Hong Kong” refers to those companies targetting Hong Kong as a market, using Hong Kong as a gateway to enter other markets, or simply entering into licensing agreements with Hong Kong-based companies.

Among the international licensors and licensing agents, as well as their peers from Taiwan and Southeast Asia/India, more than half are currently engaged in licensing business with Hong Kong companies (i.e. 52%, 75% and 53% respectively). These affirmative responses are a lot higher than those relating to their counterparts on the Chinese mainland, with only 11% currently engaged in licensing business with Hong Kong.

These findings make complete sense given the growth in demand for licensed products in China. Despite the gradual emergence of Chinese properties over the past few years (typically characters and trademarks), Chinese licensors and licensing agents mostly focus on their home turf (i.e. the licensing market on the Chinese mainland). By contrast, Chinese licensees are more eager to seek out overseas properties through Hong Kong, particularly in those areas where Chinese demand for merchandise incorporating popular international licensed properties remains keen. This explains why there are twice as many Chinese licensees compared to Chinese licensors and licensing agents doing business with Hong Kong. At the same time, more than half of the international, Indian and Southeast Asian licensors and licensing agents either target Hong Kong as their market, or utilise the Hong Kong platform as a means of accessing the wider regional market, especially the Chinese mainland.

Chart: Respondents engaged in licensing business with Hong Kong companies
Chart: Respondents engaged in licensing business with Hong Kong companies
 

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Hong Kong as an important location to develop licensing business in Asia

An overwhelming majority of respondents recognise the value of using Hong Kong to develop their licensing business. The survey showed that more than 80% of respondents clearly identified the value of developing their licensing business on the Chinese mainland through Hong Kong. Similarly, more than 75% agreed that Hong Kong could play a pivotal role in developing their licensing business across Southeast Asia.

As shown in the chart below, 90% of respondents endorsed the proposition that “Hong Kong is an important base to develop your licensing business on the Chinese mainland”. Notably, respondents to this question were mostly international licensors and licensing agents, with Chinese licensing companies largely skipping this question, thus resulting in a smaller respondent pool. This concurs with the views expressed during the interviews that many international licensing companies are focussed on business opportunities and growth on the Chinese mainland.

Chart: Hong Kong useful in helping develop mainland licensing business
Chart: Hong Kong useful in helping develop mainland licensing business
 

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At present, the bulk of Chinese respondents neither recognises nor uses Hong Kong as a base for developing their mainland licensing business. However, a  much larger number and a greater variety of respondents (including some Chinese licensors and licensees) acknowledge that Hong Kong is an effective platform for helping to develop their licensing business across Asia. Chinese respondents, though, strongly endorse the future role of Hong Kong as either a base (or gateway) for developing licensing business on the mainland. Specifically, 83% of respondents noted that “licensing agents in Hong Kong will play an important role in supporting licensing business on the Chinese mainland over the next one to three years”.

In terms of developing licensing business in Southeast Asia and India [2], Hong Kong’s key role, both now and in the future, is strongly endorsed across the board. More than 75% of respondents, including those from the Chinese mainland, saw clear benefits in using the Hong Kong platform to develop their licensing business in Southeast Asia.

Chart: Hong Kong instrumental in developing licensing business in Southeast Asia
Chart: Hong Kong instrumental in developing licensing business in Southeast Asia
 

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Hong Kong’s relevance for conducting licensing business in Asia

To ascertain more precisely the primary functions of Hong Kong as a licensing gateway to markets on the Chinese mainland and in Southeast Asia, the survey set out to determine the respondents’ views under three broad headings - (1) licensing business environment; (2) quality of licensing firms and personnel; and (3) licensing business networks.

With regard to their preferred environment for conducting licensing business, respondents were first asked to rate factors on a three-point scale - “very important”, “important” and “unimportant” - irrespective of the market. The top three “very important” factors were found to be “protection of intellectual property rights” (81% of responses), followed by “efficacy of conducting licensing business” (77%), and “low tax and a simple tax system” (72%). [3]

Respondents were also asked the extent to which Hong Kong matched their preferred business environment on a three point scale, ranging from “good”, “neutral” to “bad”. In terms of intellectual property rights (IPR) protection, Hong Kong scored highly, with 87% of respondents endorsing the city’s robust IPR regime, whereas less than 5% had reservations with regard to its IPR protection record. The assessment of Hong Kong concerning the other two criteria under “licensing business environment” is basically in line with the preferences relating to the licensing business environment.

Chart: Hong Kong as a licensing gateway: business environment
Chart: Hong Kong as a licensing gateway: business environment
 

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In term of the quality of licensing firms and personnel and the expertise needed for conducting cross-border licensing business, the top-three related factors were seen as “many resourceful staff for international licensing business” (70% of responses), followed by “creativity in developing new business in Southeast Asia” (67%), and “many experts in supporting licensing business” (65%). Among these criteria, Hong Kong received a strong endorsement across the board, with 88% of respondents giving Hong Kong a high level of approval in terms of resourceful staff for international licensing, 87% citing the city’s expertise in support of licensing business, and 78% praising the creativity of Hong Kong-based licensing companies when it comes to penetrating the Southeast Asian market.

Chart: Hong Kong as a licensing gateway: quality and expertise of licensing firms
Chart: Hong Kong as a licensing gateway: quality and expertise of licensing firms
 

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To excel as a gateway to the licensing market in Asia, business networks are essential. As such, respondents were asked to rate the relative importance of business relations with the Chinese mainland, Southeast Asia and global licensors. It emerged that business relations with the Chinese mainland are regarded as most important (69% of respondents), followed by those with global licensors (68%) and then Southeast Asia (66%). Remarkably, Hong Kong received a very positive evaluation from more than 80% of respondents in relation to all of these business relationships.

Chart: Hong Kong as a licensing gateway: business networks
Chart: Hong Kong as a licensing gateway: business networks
 

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Prospective use of the Hong Kong licensing gateway

As cited earlier, about 40% of the survey respondents are engaged in licensing business with Hong Kong, with 93% of these indicating that they would continue doing business with Hong Kong licensing firms in the future. These respondents included all the Chinese licensing companies with existing business ties with Hong Kong. Conversely, those who said they would cease such an arrangement included a handful of international licensors and licensing agents, as well as companies from Taiwan, Southeast Asia and India.

Chart: Companies with plans to continue licensing business with Hong Kong
Chart: Companies with plans to continue licensing business with Hong Kong
 
Chart: Companies with plans to continue licensing business with Hong Kong
 

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It is worth noting that almost 30% of the survey respondents currently not engaged in licensing business with Hong Kong indicated an inclination to do so in the future. As there are more survey respondents planning to establish business ties with Hong Kong’s licensing companies than those thinking of severing such ties, this indicates a prospective net gain in the number of companies using Hong Kong as a licensing platform. Apart from this, it also revealed that, across the different categories of survey respondents, there are net gains in the numbers of licensing companies using Hong Kong in each respondent category, with the only exception being Chinese licensees. With specific regard to Chinese licensees, those who already have business ties with Hong Kong-based licensing companies will continue to do so, whereas those currently not engaged in licensing business with Hong Kong would rather maintain this position for the foreseeable future.

Chart: Companies with plans to engage licensing business with Hong Kong
Chart: Companies with plans to engage licensing business with Hong Kong
 

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Strengthening contact to enhance Hong Kong’s hub status

The contrasting views held by Chinese licensees highlights a critical issue: what does Hong Kong need to do to enhance its licensing platform in order to attract more business? In the course of both the interviews and the survey, it became clear that respondents, including Chinese licensees, held very positive views with regard to Hong Kong as the gateway to Asia’s licensing market. 

For those respondents not doing business with Hong Kong licensing companies and having no future plans to do so, their primary reason given was “No chance to contact Hong Kong companies” (as indicated by 79% of all relevant respondents [4]). Specifically, under-exposure to Hong Kong is especially acute for Chinese respondents, with 96% of Chinese licensors and licensing agents and 100% of Chinese licensees responding that they had no opportunity to have contact with Hong Kong companies. Reaching out to Chinese licensors, licensing agents and licensees on the mainland, and inviting them to join licensing events in Hong Kong, is, therefore, hugely important when it comes to strengthening business ties and enhancing Hong Kong’s status as a licensing hub. The licensing market on the Chinese mainland and the corresponding survey findings will be covered in a further article in this series.

Chart: Reason for not doing business with Hong Kong companies
Chart: Reason for not doing business with Hong Kong companies
 

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[1]   Approach and methodology

Prior to conducting the survey of licensing companies in Japan, Korea, Hong Kong, the Chinese mainland, Taiwan, India and four selected Southeast Asian countries (i.e. Malaysia, the Philippines, Indonesia and Thailand), a total of 50 in-depth interviews were conducted in the relevant locations. The interview outcomes served as input for the development of a structured questionnaire survey, which involved 169 participating companies, comprising licensors, licensing agents and licensees.

The survey, completed in the first half of 2014, was focussed on Hong Kong as a licensing hub for Asia, including its reach to the four selected markets in Southeast Asia. All of the four are, comparatively, less-developed than Singapore, a country that is fairly sophisticated in terms of the licensing business in Southeast Asia. Singapore was not included in the survey.

Table: Licensing companies in in-depth interviews
Table: Licensing companies in in-depth interviews
 

The interviewees were primarily licensors and licensing agents, focussing mostly on the supply side of licensing business. By contrast, more than 20% of the respondents in the survey exercise were licensees, the majority of whom were from the Chinese mainland. In sum, both the supply and demand sides of the licensing business were considered in the survey. For the purpose of the interview and survey exercise, “international licensors licensing agents” referred to those from Japan and Korea in view of the relatively advanced state of their licensing market development.

Table: Licensing companies in questionnaire survey
Table: Licensing companies in questionnaire survey
 

Not all survey questions were attempted by all of the 169 respondents, and caution must be exercised in interpreting the percentage responses pertaining to particular questions in light of the corresponding sample sizes, which may vary with the question.

[2]  For the sake of easier illustration, graphical presentations concerning the licensing market of Southeast Asia would also include that of India. Care should be exercised in interpreting the results including India given the small number of Indian respondents.

[3]  Institutionally, intellectual property rights protection is a fundamental consideration for conducting business concerning licensing properties, while a simple and attractive tax regime makes it far easier to conduct licensing business, particularly in terms of cross border deals. Overall, the efficacy of conducting licensing business at a certain location refers to the broad conduciveness of the licensing market environment, including the general capability levels of the licensing business, the convenience and business efficiency in initiating and concluding licensing deals, the efficiency in executing agreed licensing solutions, as well as the ability of overcoming operational challenges.

[4]  Respondents were allowed to cite more than one reason for not doing business with Hong Kong licensing companies. As such, the total percentage responses add up to more than 100%.

Content provided by Picture: Dickson Ho
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