Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
One of the best ways to sell products in Hong Kong and Macau is through agents or distributors. There are many companies across most sectors that can serve as agents or distributors for U.S. firms, and third-party logistics providers, specialized warehouses, and order fulfillment firms that offer related trade facilitation services. Companies that are looking to sell equipment that requires long-term maintenance, technical support, or installation, or that are seeking to become involved in infrastructure projects, frequently partner with local companies. Furthermore, as discussed in other sections, many Hong Kong (and Macau) firms have established sales networks that expand throughout mainland China.
Using an Agent or Distributor
Working with agents and distributors in Hong Kong and Macau is very much like working with agents and distributors in the United States. Hong Kong and Macau have no special legislation regarding agents and distributors. Virtually anything to which both sides can agree to and put into a written contract is acceptable and enforceable; this includes restrictions on territory and a grace period for termination of the agreement. U.S. firms should consult local legal counsel when drafting contract terms. Items that are often in contracts include:
- Exclusivity and sales territories – businesses should be careful about granting an exclusive agency too soon or in too large a territory if the agent is to have coverage beyond Hong Kong or Macau.
- Proprietary information – local laws prohibit theft of intellectual property, but prevention of piracy is always less expensive and more effective than post-facto remedial legal action.
- Levels of sales activity – set specific targets and goals the agent or distributor must meet in order to maintain or renew the agreement.
- Payment terms.
- Quality control – inspection – verification.
- Legal jurisdiction – generally, Hong Kong is chosen, but another location sometimes (U.S. or Macau) may be specified.
- Covenants restricting business activity following cancellation of the contract.
There are many types of agents and distributors in Hong Kong and Macau, ranging from those who simply stock retail stores with standard items to agents who provide sales, engineering, and technical support for complex systems. It is common for a single company to deal in a wide variety of products in a particular sector. Agents and trading companies may be less specialized than companies in a large economy like the United States, but the best ones are focused and have contacts in a specific line of business. Although it may be desirable to identify distributors based in Macau, many Hong Kong distributors are capable of covering Macau.
Establishing an Office in Hong Kong
Foreign companies are allowed to incorporate their operations, register branches, or establish representative offices freely in Hong Kong with no restriction on ownership. Company directors need not be citizens of, nor reside in, Hong Kong. Reporting requirements are straightforward and not onerous. There is no distinction in law or practice between investment by foreign-controlled companies and those controlled by local interests. There are no disincentives to foreign investment such as limitations on the use or transfer of foreign currency, or any system of quotas, performance requirements, bonds, deposits, or other restrictive regulations.
To incorporate or register in Hong Kong, a foreign company should first file statutory declarations and submit the necessary documents to the Administration Section of the Companies Registry. Specific information on establishing an office in Hong Kong is available at Companies Registry website. Additional information including detailed step-by-step guidance for setting up in Hong Kong can also be found at InvestHK website.
Establishing an Office in Macau
There are no restrictions or constraints for establishing a company in Macau. There are, however, regulations that govern various economic activities and specific licenses. Authorizations are required for certain types of businesses, such as banking, insurance, manufacturing, tourism, civil construction, education, and telecommunications. All entities carrying out business activities in Macau must be registered with the Macau Commercial Registration Bureau, and with the Macau Finance Bureau. All legal and administrative procedures apply to all local and foreign individuals or organizations interested in setting up a company in Macau.
A limited liability company by quota in Macau and a branch of a company incorporated outside of Macau are the most common types of business entities operating in Macau. Foreign entities with only one-off or occasional contractual projects in Macau may choose to apply for a tax registration status on a project basis. Investors may obtain details of the necessary procedures for setting up a business from the Macau Trade and Investment Promotion Institute.
For the latest Investment Climate Statement (ICS) which includes information on investment and business environments in foreign economies pertinent to establishing and operating an office and to hiring employees, visit the U.S. Department of Department of State’s Investment Climate Statements website.
Hong Kong’s legal framework and high per capita income attracts foreign franchisors looking to sub-franchise. It is relatively easy to establish a foreign franchise operation in Hong Kong as there is no specific legislation governing franchising operations, no foreign exchange controls, and no foreign equity participation or local management participation regulations. Disputes arising from a franchise agreement are subject to common law (and specifically to contract law) and to legislation relating to licensing, protection of intellectual property rights, and registration of trademarks/service marks. Please refer to the Leading Sector section that covers franchising for more information.
Direct or online marketing is now recognized not just as the fastest growing segment of the marketing business, but also the segment that produces substantial profits for many businesses, from financial services to fast moving consumer goods. Direct marketing in Hong Kong has changed significantly over the last decade and is now multichannel and electronic to a large extent. Transactions via online business-to-business (B2B) marketplaces are increasing at a brisk pace, with several well-known online B2B platforms extant in Hong Kong.
The direct marketing business environment relies on a highly developed supply chain infrastructure that enables even small firms to sell directly to their consumers with minimal complications. Smaller-scale companies that do not have an in-house supply chain department often make use of professional logistics service providers established in Hong Kong. Regulations regarding direct marketing are primarily centered on customer privacy rights, data security and postal regulations. In April 2013, the Personal Data Ordinance took effect regulating the use of personal data for direct marketing. For more information, please visit the website of the Privacy Commissioner for Personal Data, Hong Kong.
Hong Kong is the marketing services capital of Asia. The sophistication of the market has attracted a strong presence of multinational agencies and a pool of marketing services talent. A number of multinational public relations, marketing, and advertising agencies have regional headquarters in Hong Kong. Hong Kong’s marketing services companies are often first movers in the mainland market. Mainland business has also become an increasing source of income for Hong Kong marketing services companies. The Closer Economic Partnership Arrangement (CEPA) agreement has further facilitated Hong Kong marketing firms’ expansion in the mainland market.
Joint ventures or strategic alliances can be very useful in helping firms enter the market. They are particularly important when competing for major projects. Licensing is increasingly common in the field of brand-name product manufacturing and marketing. There are generally few legal restrictions on Joint Ventures / License arrangements in Hong Kong.
Hong Kong’s express delivery industry is dominated by a few multinational players including DHL, UPS, FedEx, Expeditors, Panalpina, Kerry Logistics, and Schenker. Typical express services involve transport logistics of door-to-door deliveries with guaranteed time and traceability. With Hong Kong’s well-connected air and land connectivity, express delivery firms can deliver goods within the same day to major Asian cities and next day delivery to cities in Europe and in America. Efficient customs clearance is also an important element in the express industry. Hong Kong’s International Airport speeds up this process by providing integrated Electronic Data Interchange (EDI) with eight major air cargo operators and the Customs & Excise Department, which allows pre-arrival customs clearance for all types of cargo. In the World Bank’s 2018 Logistics Performance Index, Hong Kong ranked 12th among 160 regions and the third in Asia.
Knowing your business partner is critical to evaluating any major business deal. In today’s business climate, while a company’s financial and legal standing are important, issues relating to the company’s reputation, history, business ethics, integrity, business acumen, and influence in its business sectors and local environments can all be critical to a successful deal. One key aspect, often misunderstood, is that negative information need not be a deal killer. Such information often offers opportunities to re-negotiate better terms and/or structure deals to mitigate identified risks. The key to due diligence is to do it up front before any commitments or deals are signed. Unlike mainland China where it is more difficult to gather information, getting information on Hong Kong and Macau entities is relatively easy. There are many service providers that offer investigative due diligence. The U.S. Commercial Service can provide a list of due diligence companies in Hong Kong upon request.
The U.S. Commercial Service also offers the International Company Profile-Full and Partial (ICP) service, which provides credit rating, financial information, key officers and U.S. Commercial Service’s overall assessment of potential business partners. The ICP enables U.S. small and medium-sized businesses to evaluate overseas companies more effectively.