Cosmetics and Toiletries in Hong Kong: A Strategic Reference, 2006
ICON Group International, July 2007, Pages: 216
How to Strategically Evaluate Hong Kong
Perhaps the most efficient way of evaluating Hong Kong is to consider key dimensions which themselves are composites of multiple factors. Composite portfolio approaches have long been used by strategic planners. The biggest challenge in this approach is to choose the appropriate factors that are the most relevant to international planning. The two measures of greatest relevance to cosmetics and toiletries are “latent demand” and “market accessibility”. The figure below summarizes the key dimensions and recommendations of such an approach. Using these two composites, one can prioritize all countries of the world. Countries of high latent demand and high relative accessibility (e.g. easier entry for one firm compared to other firms) are given highest priority. The figure below shows two different scenarios. Accessibility is defined as a firm’s ease of entering or supplying from or to a market (the “supply side”), and latent demand is an indicator of the potential in serving from or to the market (the “demand side”).
Framework for Prioritizing Countries
Demand/Market Potential Driven Firm
Relative Accessibility
Accessibility/Supply Averse Firm
In the top figure, the firm is driven by market potential, whereas the bottom figure represents a firm that is driven by costs or by an aversion to difficult markets. This report treats the reader as coming from a “generic firm” approaching the global market - neither a market-driven nor a cost-driven company. Planners must therefore augment this report with their own company-specific factors that might change the priorities (e.g. a Canadian firm may have higher accessibility in Canada than a German firm).
Latent Demand and Accessibility in Hong Kong
This report provides a detailed overview of factors driving latent demand and accessibility for cosmetics and toiletries in Hong Kong. Latent demand is largely driven by economic fundamentals specific to cosmetics and toiletries. This topic is discussed in Chapter 2 using work carried out in Hong Kong on behalf of American firms and authored by the United States government (typically commercial attachés or similar persons in local offices of the U.S. Department of State). I have included a number of edits to clarify the information provided. Latent demand only represents half of the picture. Chapter 2 also deals with micro-accessibility for cosmetics and toiletries in Hong Kong. I use the term “micro” since the discussion is focused specifically on cosmetics and toiletries.
Chapter 3 is also a stand-alone report that I have authored. It covers proxy pro-forma financial indicators of firms operating in Hong Kong. I use the word “proxy” because the provided figures only cover a “what if” scenario, based on actual operating results for firms in Hong Kong. The numbers are only indicative of an average firm whose primary activity is in Hong Kong. It covers a vertical analysis of the maximum likelihood balance sheet, income statement, and financial ratios of firms operating in Hong Kong. It does so for a particular Standard Industrial Classification (SIC) code. That code covers “perfumes, cosmetics and other toilet preparations manufacturing”, as defined in Chapter 3. Again, while “perfumes, cosmetics and other toilet preparations manufacturing” does not exactly equate to “cosmetics and toiletries”, it nevertheless gives an indicator of how Hong Kong compares to other countries for a proxy adjacent category along various dimensions.
Chapter 4 deals with macro-accessibility and covers factors that go beyond cosmetics and toiletries. A country may at first sight appear to be attractive due to a high latent demand, but it is often less attractive when one considers at the macro level how easy it might be to serve that entire potential and/or general business risks. While accessibility will always vary from one company to another for a given country, the following domains are typically considered when evaluating macro-accessibility in Hong Kong:
Openness to Trade in Hong Kong
Openness to Direct Investment in Hong Kong
Local Marketing and Entry Strategy Alternatives
Local Human Resources
Local Risks
Across these domains, a number of not-so-obvious factors can affect accessibility and risk. These are covered in the Chapter 4, which is a general overview of investment and business conditions in Hong Kong. Chapter 4 is also presented from the perspective of an American firm, though is equally applicable to most firms entering Hong Kong. This chapter is also authored by local offices of the U.S. government, as is Chapter 2. Likewise, I have included a number of edits to clarify the provided information as it relates to the general strategic framework mentioned earlier.
1 INTRODUCTION & METHODOLOGY 1
1.1 What Does This Report Cover? 1
1.2 How to Strategically Evaluate Hong Kong 1
1.3 Latent Demand and Accessibility in Hong Kong 3
2 COSMETICS AND TOILETRIES IN HONG KONG 5
2.1 Latent Demand: Market Composition 5
2.2 Latent Demand: Leading Segments 6
2.2.1 Hair Products 7
2.2.2 Bath Preparations and Soaps 7
2.2.3 Perfumes and Fragrances 7
2.3 Latent Demand: Target Buyers 7
2.4 Accessibility: Distribution Strategies 8
2.5 Accessibility: Trade Event 9
3 FINANCIAL INDICATORS: PERFUMES, COSMETICS AND OTHER TOILET PREPARATIONS MANUFACTURING 10
3.1 Overview 10
3.1.1 Financial Returns and Gaps in Hong Kong 11
3.1.2 Labor Productivity Gaps in Hong Kong 14
3.1.3 Limitations and Extensions 14
3.2 Financial Returns in Hong Kong: Asset Structure Ratios 15
3.2.1 Overview 15
3.2.2 Assets - Definitions of Terms 15
3.2.3 Asset Structure: Outlook 18
3.2.4 Large Variances: Assets 19
3.2.5 Key Percentiles and Rankings 22
3.3 Financial Returns in Hong Kong: Liability Structure Ratios 37
3.3.1 Overview 37
3.3.2 Liabilities and Equity - Definitions of Terms 37
3.3.3 Liability Structure: Outlook 39
3.3.4 Large Variances: Liabilities 40
3.3.5 Key Percentiles and Rankings 43
3.4 Financial Returns in Hong Kong: Income Structure Ratios 56
3.4.1 Overview 56
3.4.2 Income Statements - Definitions of Terms 56
3.4.3 Income Structure: Outlook 59
3.4.4 Large Variances: Income 60
3.4.5 Key Percentiles and Rankings 63
3.5 Financial Returns in Hong Kong: Profitability Ratios 78
3.5.1 Overview 78
3.5.2 Ratios - Definitions of Terms 78
3.5.3 Ratio Structure: Outlook 80
3.5.4 Large Variances: Ratios 81
3.5.5 Key Percentiles and Rankings 84
3.6 Productivity in Hong Kong: Asset-Labor Ratios 99
3.6.1 Overview 99
3.6.2 Asset to Labor: Outlook 100
3.6.3 Asset to Labor: International Gaps 101
3.6.4 Key Percentiles and Rankings 104
3.7 Productivity in Hong Kong: Liability-Labor Ratios 119
3.7.1 Overview 119
3.7.2 Liability to Labor: Outlook 120
3.7.3 Liability and Equity to Labor: International Gaps 121
3.7.4 Key Percentiles and Rankings 124
3.8 Productivity in Hong Kong: Income-Labor Ratios 137
3.8.1 Overview 137
3.8.2 Income to Labor: Outlook 138
3.8.3 Income to Labor: Gaps 139
3.8.4 Key Percentiles and Rankings 142
4 MACRO-ACCESSIBILITY IN HONG KONG 157
4.1 Executive Summary 157
4.1.1 Government Intervention Risks 157
4.1.2 Infrastructure Situation 158
4.1.3 Macau Economic Scene 159
4.1.4 Pearl River Delta - Hong Kongs Hinterland 159
4.2 Political Risks 160
4.2.1 Nature of Political Relationship with the United States 160
4.2.2 Major Political Issues Affecting the Business Climate 160
4.2.3 The Political System 160
4.2.4 Macau Political Scene 161
4.3 Marketing Products and Services 161
4.3.1 Distribution and Sales Channels 162
4.3.2 Use of Agents and Distributors/Finding a Partner 162
4.3.3 Franchising 162
4.3.4 Direct Sales 163
4.3.5 Joint Ventures/Licensing 163
4.3.6 Steps to Establishing an Office 163
4.3.7 Selling Factors/Techniques 164
4.3.8 Advertising and Trade Promotion 164
4.3.9 Pricing Product 168
4.3.10 Sales Service/Customer Support 168
4.3.11 Selling to the Government 168
4.3.12 Protecting Your Product from IPR Infringement 169
4.3.13 Need for a Local Attorney 169
4.4 Trade Issues 169
4.4.1 Customs Valuation 170
4.4.2 Trade Regulations and Standards 170
4.4.3 Membership in Free Trade Arrangements 172
4.5 Investment Climate 172
4.5.1 Openness to Foreign Investment 172
4.5.2 Conversion and Transfer Policies 173
4.5.3 Expropriation and Compensation 173
4.5.4 Dispute Settlement 174
4.5.5 Performance Requirements and Incentives 174
4.5.6 Right to Private Ownership and Establishment 174
4.5.7 Protection of Property Rights 175
4.6 Transparency of the Regulatory System 176
4.6.1 Efficient Capital Markets and Portfolio Investment 176
4.6.2 Political Violence 177
4.6.3 Corruption 178
4.6.4 Bilateral Investment Agreements 178
4.6.5 OPIC and Other Investment Insurance Programs 178
4.6.6 Labor 178
4.6.7 Foreign Trade Zones/Free Ports 179
4.6.8 Major Foreign Investor Firms 179
4.7 Trade and Project Financing 181
4.7.1 General Availability of Financing 182
4.7.2 How to Finance Exports/Methods of Payment 182
4.7.3 Types of Available Export Financing and Insurance 182
4.7.4 The Asian Development Bank 183
4.8 Travel Issues 183
4.8.1 Travel Advisory and Visas 184
4.8.2 Business Infrastructure 184
4.8.3 Temporary Entry of Goods 184
4.8.4 Country Data 185
4.9 Key Contacts 185
4.9.1 U.S. Consulate General Trade-Related Contacts 185
4.9.2 U.S. Commercial Service Offices in China 186
4.9.3 American Chamber of Commerce and U.S. China Business Council 188
4.9.4 Hong Kong Trade or Industry Associations in Key Sectors 188
4.9.5 Hong Kong Government Offices Relating to Key Sectors and/or Significant Trade Related Activities 194
4.9.6 Hong Kong Market Research Firms 199
4.9.7 Licensed U.S. Commercial Banks in Hong Kong 202
4.9.8 U.S. Contacts in Washington 204
4.9.9 U.S. Market Development Cooperator Organizations Represented in Hong Kong 204
5 DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS 208
5.1 Disclaimers & Safe Harbor 208
5.2 Icon Group International, Inc. User Agreement Provisions 209
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