While it’s true that many new startups popping up in Hong Kong are tech-oriented, Hong Kong’s is built upon traditional commerce, and almost every other day somebody starts a new import/export company. Often times, these aren’t considered “start-ups” in the way we’ve come to think about the concept, but they certainly are and deserve as much attention and recognition as those in the technology field.
Listen to the Market
I’ve heard of many business ideas and seen several import/export businesses fail in Hong Kong. I cannot tell you for certainty what caused their demise but I know what is crucial: listening to the market. Many business people think something is a good product and that may be so in their own country, but the reality is that the Hong Kong market is a different beast.
Talk to the distributors and managers, read market reports and finally test the market with a small sample before even committing yourself to an idea or product. The classic Hong Kong mistake is to order a container of a product and then try and sell it. Please do not do that. Relationships that evolve into buyers usually take 6-12 months. You need to get a lot of rejections before you get a nod from somebody. The rejections are the market talking to you. Listen to the market and hear what they are saying.
Now that you have listened to the market and conducted a small test sample, what do you need to get your import/export or manufacturing business off the ground in HK? My first advice is to identify a specific “carry trade” you like and are comfortable with. By carry trade, I mean a specific trading opportunity that allows you to buy something for x dollars, add y value and sell it for z dollars. In my case I bought coffee beans from Jamaica, roasted and packed them in Hong Kong and then sold to ParknShop. My margins were clear and simple. Minus my fixed, variable and unforeseen costs, I could see that being single-minded and repeating the process 100 times would make a decent chunk of change. It’s not always easy to find that perfect arbitrage position but when you do, my advice would be to lock it in.
By locking it in, I mean take ownership by either owning the rights to the product or having a licence to import, sell, distribute the product. I’ve experienced both and taking control has made all the difference. For my coffee business, I waited a whole year to get my Trademark User Licence and the Foreign Importers Certificate from the Coffee Industry Board of Jamaica before I could trade Jamaica Blue Mountain® coffee. At the time, the patient waiting paid off and I was one of only two authorised importers and distributers in Hong Kong and mainland China.
As for my beer business, I spent 6 months negotiating an exclusivity agreement with the world’s largest alcoholic beverages manufacturer before obtaining the rights to Red Stripe beer in Hong Kong, Macau and mainland China. Don’t begin trading before you’ve locked in your competitive advantage. This town is full of sharks and if you have not taken control of your products, you will see competitors all over the place. An angel investor I know calls it the broken mirror syndrome; break a mirror and you’ll find a hundred reflections of you. That is what business is like in Hong Kong; lock it in before you trade.
Cross your T’s and dot your I’s
Setting up your business is relatively straight forward. It is not necessary to set up a company and my advice would be to weigh up the costs before doing so. Registering a business at the 4th floor of Revenue Tower in Wan Chai (next to Immigration Tower) takes 40 minutes and currently costs HK$2,250. Contrary to a popular misconception, you can use your home address. The only difficulty will be getting some particular licences (see below).
Financial transactions will be crucial to your business so open an account immediately and get a secretarial organization to handle your registered office, government mail, etc. My office is with my accountant and she handles everything including being my secretary, using her office as my registered address, answering calls in English and Chinese, opening all my government mail and sending me a WhatsApp when I need to get down to her office to sign documents, managing my accounts, etc. Apart from the accounts, it costs me HK$180 per month for all these services. There is no need to get a fancy office until you are making fancy profits!
Hong Kong is a free port so you don’t need licences to import or export most goods. However, there are exceptions. You can find them on the Trade and Industry Department website (www.tid.gov.hk). Licences in Hong Kong are relatively straightforward to get. I obtained a Rough Diamond licence for my company within 24 hours for under HK$800. The paper work was straight forward. I also obtained a Food Import//Export/Distribution Licence for under HK$300. It took 2 weeks.
I recommend that whenever you are given an application form, fill in or tick every box. Don’t be selective. My current food import licence allows me to bring everything from sushi, to kola nuts (something I added in miscellaneous), beer, pork, you name it. Of course I didn’t need nearly all of them but it does not cost any extra to have them so why not. For your information, if you apply for the Dutiable Commodities Licence, you cannot use a co-working space or anywhere you are not on the Land Registry.
Your first shipment and storage
Never bring in a big shipment without a willing and confirmed buyer. You will thank me for it. My first shipment was a 40lb sample from my exporter in Jamaica. Since then, my first shipment of any product has always been samples. Only when I have a purchase order (PO) do I then start to talk about containers. You can use shipping agents and they come at a princely price. Estimate about HK$5,000 for a full 40 ft container. I discovered that this amount can be reduced significantly if you don’t use Chinese shipping agents. I employed Pakistani/Indian agents and it was incredibly much cheaper.
Storage is a big issue in Hong Kong. I would suggest getting a warehouse somewhere cheap like Kwai Hing/Kwai Cheong. Prices are roughly HK$10 per square foot and you will have to pay 4 months up front for a unit. For this, I would recommend getting a Chinese agent and if you bargain hard enough, the agent can forfeit his commission. Mine did. Mind you, he did not speak a word of English. Interesting conversation. I kid you not.
To be honest, I did all my logistics at the beginning. I took 5 cases of beer to every ParknShop store with my trolley. Costs were down to HK$20 per delivery. A bit embarrassing but I reduced my costs significantly. It paid off as I eventually got ParknShop to accept delivery in their Kwai Cheong warehouse. It only took trips on mini buses, MTR, GoGoVans and taxis for 2 months before I moved up the pecking order and landed their elusive POs for beer. What I am saying is start small and do what you can before committing huge amounts on logistics. It will eat up your revenue if you don’t control it. Use GoGoVan or any other similar app service and you will be surprised how little it costs. Use Pakistani/Indian logistics companies to get the same service for considerably less.
If you are a foreigner/expat, it’s important to note that the import/export world is a Chinese world. From the security guard at your warehouse to the CEO of the shipping carrier, you will be interacting with Chinese culture and language. Adapt to survive and eventually succeed. If you can’t adapt to their culture and way of doing business; the writing is on the wall.
By Jim Coke