20 Nov 2014
How One Hong Kong Toy Maker Turned to Licensing to Reinvent his Business
An Interview with Stanley Yeung, President of Yeung's Group
Traditionally, Hong Kong toy manufacturers have been primarily engaged in OEM business. Over recent years, though, competition has become increasingly fierce, with Renminbi appreciation and rising costs, together with many European and American companies looking to source directly from the mainland, making the sector a difficult one. In light of this, a number of toy manufacturers have allied themselves with brand licensing ventures. This has enabled them to enhance the value of their products and services, while also allowing them to upgrade and transform, as well as to expand the overall retail market.
One such manufacturer is the Yeung’s Group, a well-regarded Hong Kong-based supplier of gift and premium products. By identifying locally-created cartoon characters with particular potential and by partnering with their creators, the company has reinvented itself as a manufacturer and licensee of such characters. Now with considerable success in brand building and the commercialisation of the work of cartoonists, Stanley Yeung, the company’s Group President, has a number of insights as to how to run such licensing ventures.
From Toy Maker to Licensee
Since 1962, the Yeung’s Group has been engaged in the OEM production of gift and premium merchandise for, among others, Disney, the NBA and the English Premier League. In 2007, with European and American orders faltering, together with increasingly high production costs on the Chinese mainland, its OEM profit margins dwindled. This forced the company to reevaluate its business model and even look at developing its own brands.
At the time, Yeung became aware of the popularity of Maggiology, an MSN character favoured by many of his friends. This made him think that partnering with existing well-known creative people would be a better option than developing characters from scratch. Back then, Maggiology’s creator has restricted his activities to just publishing two comic books, with no thought of spin-off merchandise. Yeung seized the opportunity and partnered with the cartoonist for the launch of a number of licensed products.
The first batch of Maggiology products comprised 10 different ranges, including photo frames, key chains, pens, books and fridge magnets. These were sold through one bookshop and realised around HK$80,000 in monthly sales. Following this initially positive reception, the company moved to producing more than 20 different licensed products, all selling on a consignment basis through some 20 Hong Kong bookstores. The sales performance, however, proved far from satisfactory.
Yeung believes that these disappointing figures can be blamed on the relatively small size of the Hong Kong market. When items are only available through one outlet, consumers are happy to make the effort to buy from there. When the product is more widely available, the retailers are obliged to compete. This saw sales at the worst-performing outlet recorded as low as HK$800. In light of this, the company again adjusted its strategy, stepping up its brand promotion efforts in addition to producing and distributing the products.
Achieving Product Stand Out
In 2013, the total global retail sales of licensed products amounted to US$155.8 billion, with products relating to cartoon characters accounting for 16.5%. According to Yeung, Japanese cartoon characters have been particularly popular among Hong Kong consumers. Over recent years, demand has also grown for locally-created characters. The work of a number of Hong Kong cartoonists and illustrators have caught the attention of the local market as their subject market is likely to particularly resonate with consumers. In order to ensure these works stand out, it has been necessary for companies to carefully promote such brands and their associated products.
Maggiology, for example, other than appearing in comic books, has been featured in the marketing campaigns of a number of different companies and branded products, including the Wellcome supermarket chain, PCCW, Wing Hang Bank and Wacom. As different consumer groups have become familiar with Maggiology, it has enhanced its overall brand awareness. When choosing partners, however, the nature of the company and its brand image is a matter of primary concern. As a rule of thumb, though, cooperation with government bodies or the public sector often benefits the brand.
Another form of awareness can be built via Hong Kong’s shopping centres and malls, many of which frequently organise cartoon displays during festivals as a means of driving traffic and stimulating consumption. In addition, occasional giveaways enclosed with popular magazines is also a common promotional practice. Licensees may collaborate with these magazines in order to launch their products and promote them to target consumer groups.
Diverse Sales Channels
Currently, Yeung’s Group’s sales network includes bookstores, boutiques, department stores and an online offering. In terms of local online shopping, there are a growing number of third-party platforms - Hong Kong Post (shopthrupost.hk), OK convenience store (fingershopping.com) and HKTDC Design Gallery (hkdesigngallery.hktdc.com).
Overall, opening an online shop incurs lower costs than launching a conventional store, while the availability of sales platform-related support services (eg. payment platform, delivery services, etc.) makes online platforms more suitable for small and medium-sized enterprises (SMEs). Compared with third-party platforms, proprietary online stores have greater autonomy and flexibility in their layout, operation and cash flow. Companies have also more room within their own online stores to build brand image and create a unique brand culture. In fact, third-party platforms and own online stores can enjoy a parallel development as there is no competition and conflict with each other, depending on the precise business development needs.
Maggiology products are available both on its own online store (maggieshop.com) and in HKTDC Design Gallery, providing ease of access to those consumers with different channel preferences.
While the mainland consumer market has immense potential, Yeung says his company is in no hurry to push Maggiology into China just yet. As the Maggiology characters embody many typically Hong Kong traits, while also featuring many of the city’s tourist attractions (such as the Avenue of Stars, The Peak and the Star Ferry) this underlines Maggiology’s positioning as a locally-based property. The products are also said to have been well received by mainland tourists, a key route to building awareness in other territories.
Brand Licensing Agent: Long Term Business Model
Yeung says his company’s long-term business model is to identify animation characters that have the potential to be successfully licensed. Most artistic people focus on creation, with production and marketing being outside their expertise. The company can collaborate with such individuals to their mutual benefit. In general, ownership of the brand remains with the creator, who may then grant a license for agents to develop brand-licensing business. Depending on the format of cooperation and the exact terms of any contract, licensing agents may then sub-license the production and distribution rights of their licensed products.
Currently, Yeung’s Group acts as licensing agents for more than 10 brands, with its target customers including children, young adults, people-at-work and even housewives. As most animated characters are developed via the medium of graphic design, the company works with the creators to bring these characters to life. Producing a three-dimensional version from such graphics requires detailed specifications and, in the product design and production stage, brand-licensing agents require creators and manufacturers to work closely together in order to produce quality products.
For their own part, after identifying suitable, animation characters, brand-licensing agencies then have to start promoting the brand image of the characters they represent, devising sales channels strategies as well as developing marketing plans in order to boost the overall brand value. The ultimate aim is to create a win-win situation for both creators and manufacturers.
 International Licensing: A Status Report 2014