Licensing Industry in Hong Kong

BRANDORA Editorial Staff - August 2015

Overview

Hong Kong has been chosen by many international licensors and licensing agents as the strategic base to expand their licensing business in Asia, particularly the Chinese mainland.
Hong Kong offers clear advantages as an ideal platform for licensors, licensees, agents and manufacturers to get together, which include intellectual property (IP) rights protection, respect for business agreements, distribution networks, access to quality licensees, availability of industry talent, market sensitivity and close business connections with the mainland.
The annual Hong Kong International Licensing Show (HKLS) held since 2002 has been widely recognized as the best licensing show in Asia and has helped Hong Kong consolidate its position as the regional licensing hub. In January 2015, HKLS attracted more than 19,000 trade visitors from over 100 regions and countries, including manufacturers, licensees, retailers and distributors, with over 800 brands & properties shown by more than 310 exhibitors from 18 regions and countries.
China is the world’s fastest growing market for licensed goods, which has grown from US$3.12 billion in 2009 to US$ 5.5 billion in 2013. In 2013, licensed merchandise sales in China grew by 9.2%, far exceeding the global average of 1.7%. The per capita retail sales of licensed products of China rose by more than tenfold from US$0.4 in 2001 to US$4.1 in 2013.
In January 2010, the International Licensing Industry Merchandisers’ Association (LIMA) opened its 6th office in Hong Kong. The Hong Kong office is the regional hub for promoting licensing businesses and broadening the business network of LIMA members in Southeast Asia’s licensing markets. LIMA’s Hong Kong office is expected to reinforce the position of Hong Kong as a regional licensing trading centre.

Market Characteristics

Hong Kong’s licensing market began to take shape in the early 1990s. Despite a relatively short history of development, Hong Kong has grown into a highly developed licensing market in Asia. Similar to the global and regional pattern, characters and entertainment properties from the US and Japan are popular properties in Hong Kong.

Hong Kong consumers are sensitive to the latest market trends, with trendy licensed products and high-end international brands having a strong local presence. Main categories of licensed products are food and beverages, toys, books, gift items, stationery, computer supplies and sales promotions for fast food chains and banks. As a popular destination of shopping and entertainment in Asia, Hong Kong has attracted a number of sports brands to launch their licensing activities. In addition to merchandise sales, British football club Manchester United opened a themed restaurant in 2010 in a partnership with Hong Kong licensing agents.

Services Providers

Hong Kong has relatively few home-grown brands and properties for licensing. Nevertheless, many international licensors, like Warner Bros., Mattel and the National Basketball Association (NBA) have chosen to set up offices in Hong Kong, many of which also function as the licensors’ regional headquarters in Asia. Moreover, many famous foreign licensors have entrusted the exclusive property rights to Hong Kong licensing agents to develop the business in Asia. Hong Kong companies, such as YGM Trading, are also licensees of European designer brands, handling the sales and distribution on the Chinese mainland as well as in other Asian markets. There are some Hong Kong licensing agents which are also licensors of local properties, such as B Duck. Many licensing industry participants are members of the Licensing Executive Society of China, Hong Kong Chapter. Utilising Hong Kong as a springboard to the Greater China and Southeast Asia markets, several global licensing agents and brand management companies, including those from Europe, Japan and the US like Iconix Brand Group, have also established their offices in the city.

Trade in Services

The significance of Hong Kong’s licensing business lies in its status as a hub for licensing activities in Asia. Local business usually accounts for a small proportion of overall business of licensors and licensing agents, who are most active in other Asian countries.

Licensing activities between Hong Kong and the rest of the world can be partly reflected in the cross-border payments for the use of intellectual properties.

Industry Developments

The global retails sales of licensed goods amounted to US$155.8 billion in 2013. More than 60% of the sales were in the US and Canada, with 21% and 12% in Europe and Asia respectively. With a market size of US$5.5 billion, China was the second largest licensing business market in Asia in 2013, accounting for 29% of the Asian market, following Japan.
Licensing has become a global business. According to LIMA, about one-third of the global licensed product revenues are generated outside the US compared with only one-tenth a decade ago. Meanwhile, developing economies like China and Southeast Asia are turning into the new focus of licensing companies looking for business.
China is one of the world’s fastest growing markets for licensed goods, which has grown by more than 70% from US$3.12 billion in 2009 to US$ 5.5 billion in 2013. The per capita retail sales of licensed products of China rose by over ten-fold from US$0.4 in 2001 to US$4.1 in 2013.
The licensing markets of Southeast Asia have been fast growing, particularly Philippines, Thailand and Indonesia, with licensed products sales grew by 5.4%, 4.8% and 4.0% in 2013 respectively. In Southeast Asia, licensed properties in the character and entertainment category are most popular, such as Disney, Hello Kitty (Sanrio) and Warner Bros.
As blockbuster films are keen to have simultaneous releases in various markets to maximize the global buzz, international co-productions are becoming popular and contributing to a rise of cross-border entertainment properties in the global licensing market. For instance, Warner Bros is successful in creating a continued revenue stream from Harry Potter through various types of licensing deals. For example, the Wizarding World of Harry Potter at Universal Orlando, a 20-acre theme park opened in 2010, was the result of the licensing partnership between Warner Bros and Universal.
In 2013, licensed products of characters in films such as Monsters University, Frozen and series of Marvel superhero movies generated significant sales worldwide. In particular, the movie Frozen released in late 2013 become the top licensing theme for toys in 2014. It is estimated that the retail sales of licensed Frozen merchandise in 2014 ranged between US$800 million to US$1 billion.
The Internet and mobile commerce is affecting international licensing business. Characters, fads, brands and fashion trends now travel at hyper-speed across the markets, cutting short the time needed to get a product from licensed concepts to retail shelves. With increased internet penetration and the possession of electronic gadgets in Asia, digital media, online videos and games, such as Angry Birds, play an active role for licensed product promotion. Social media, particularly Facebook, is also an important channel for marketing new properties. Meanwhile, the characters of mobile games and social networking platforms, such as LINE Friends, are popular licensed properties in Asia.
Collaborations or co-branding among retailers and licensors have become popular in recent years. Through partnership with international licensors, licensees or retailers launch limited editions or character specific collections. For examples, Hong Kong-based licensor ENS, with its property B Duck, has collaborated with the confectionery brand Chupa Chups to launch a collection of lifestyle products including fashion and electronics accessories; the Dutch character Miffy has licensed to the Hong Kong fashion brand 2 percent for a limited edition of fashion collection.
Both the public and private sectors have been working hard to promote Hong Kong as an international licensing hub. For instance, the Hong Kong government signed the first IP co-operation agreement with the mainland government in November 2011, strengthening the co-operation in areas of laws, education and staff training. The fourth Business of IP Asia Forum, held in December 2014, was jointly organised by the Hong Kong Government, the HKTDC and the Hong Kong Design Centre. The two-day event was attended by more than 2,000 professionals and business leaders in design, R&D, finance and legal profession, as well as IP traders from 36 countries and regions. Global issues and opportunities in licensing was one the main discussion topics during the Forum.
The Hong Kong International Licensing Show (HKLS) held since 2002 has been well-known in Asia and has helped further promote Hong Kong as the regional licensing hub. In January 2015, HKLS attracted about 19,000 trade visitors from over 100 regions and countries, including manufacturers, licensees, retailers and distributors. Over 800 brands & properties were shown by 318 exhibitors from 18 regions and countries. During the event, more than 500 business-matching meetings were arranged to help industry players to explore new partnership opportunities.
The Asian Licensing Conference 2015, concurrently held with HKLS, was joined by 28 expert speakers from various international brands and many sectors in the licensing industry, focusing on new opportunities and strategies for licensing business in Asia. The event also serves as a networking platform for international licensing executives and business people to gather latest industry intelligence and explore new opportunities.
The Asian Licensing Association was established by Hong Kong industry leaders in 2011, aiming to promote Hong Kong as an international licensing hub. The Innovative Entrepreneur Association organised the first Cross Industry Matching Showcase in the same year, which aimed to provide a platform for business synergy between local licensors (e.g. character creators and graphic designers), licensing agents and enterprises.

China as the rising star

While the global licensing market has generally been stagnant, licensing activities are growing in Asia excluding Japan, particularly the China market. China is the world’s fastest growing market for licensed goods, which has grown from US$3.12 billion in 2009 to US$ 5.5 billion in 2013, i.e. an average annual growth rate of 15%. Despite a short history of development, the huge size of the economy has made China the second largest licensing market in Asia, following Japan.

In China, e-commerce has become one of the top trends in the licensing industry. Many foreign brands and properties are fast gaining popularity in China through utilising some B2C online platforms, which often require more support and resources from the licensors. For instance, basketball sport brand NBA has established an online shop in Alibaba’s Tmall, which helped the brand strengthen its presence in the Chinese consumer market. Leveraging the marketing impact of social media platforms, such as Sina’s Weibo, NBA China established its online fans club with interactive campaigns to help promote licensed NBA products.

At present, characters are the major type of properties handled by the Chinese licensing industry players. The number of home-grown licensing properties on the mainland has increased rapidly in recent years, popular characters include Pleasant Goat and Big Big Wolf, Balala the Fairies and Armor Hero.

With strong networks on the Chinese mainland and in Southeast Asia, Hong Kong licensing agents are considered by many foreign licensors the most preferred partners to tap these emerging opportunities. Hong Kong-based licensing companies are major players on the mainland, setting up offices in cities like Shanghai and Guangzhou with distinct functions.

On the other hand, Hong Kong is the best gateway for mainland-based enterprises to promote their brand names and trademarks overseas due to Hong Kong’s remarkable international network, as well as resourceful licensing players providing quality licensing services, including public relations support and personnel training. The increased demand for licensing services from mainland-based companies is expected to drive the Hong Kong licensing industry to a higher level.

Closer Economic Partnership Arrangement between Hong Kong and the Mainland (CEPA)

Among other provisions, CEPA further opens up the mainland market for Hong Kong products and the distribution business to Hong Kong companies. In December 2014, the Agreement between the Mainland and Hong Kong on Achieving Basic Liberalisation of Trade in Services in Guangdong (i.e. the Agreement) was signed for implementation from March 2015. Under the Agreement, HKSS are granted national treatment to conduct retailing and wholesale services in Guangdong^[1].

Since effective distribution is vital to the success of a licensing deal, Hong Kong companies making use of the opportunities provided by CEPA to develop their mainland business will likely be sought after as distributors for foreign licensors, who prefer to work with distributors that offer adequate IPR protection and services in line with international practices.

Hong Kong manufacturers on the mainland who build their own distribution channels on the mainland or partner with a reliable Hong Kong-invested distributor can become even stronger candidates as licensees for popular foreign properties.

Hong Kong manufacturers/licensees can also benefit from CEPA, given that all Hong Kong-produced goods fulfilling the required origin rules – many of which are hot products for licensing – can now enter the mainland market free of tariff.

_{[1] Except the retailing services of tobacco, books, newspapers, magazines, cultural relics}