Overview

• On the back of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), certain lighting products made in Hong Kong will enjoy duty-free access to the Chinese mainland from 1 January 2004, while Hong Kong companies, as regards distribution, will be granted additional market access to the mainland.
  
  
• Hong Kong exports a wide range of lighting products, including electric table, desk, bedside or floor-standing lamps, and portable lamps like torches, hand lanterns and hand-held incandescent lamps. Other major products include wall and ceiling lighting, chandeliers and other lamps and lighting fittings, as well as decorative items like Christmas tree lighting sets and lamp shades.
  
  
• Hong Kong's lighting manufacturers mostly produce on OEM and ODM basis for overseas importers and distributors. In view of intensified competition from other Asian suppliers, however, ODM has outpaced OEM as the major business of many Hong Kong manufacturers.
  
  
• Hong Kong's total exports of lighting products decreased by 2% in the first half of 2003. Exports to the US, the largest market, declined by 16% amid weak consumer sentiment, while sales to the EU grew robustly by 24% on the back of a strengthened euro.
  
  
• Along with the booming DIY market overseas, lighting products are increasingly offered for DIY purposes. For handheld items, some lighting models have merged with other products to carry multi-functions. In addition, spurred by concerns over environmental protection, the industry has focused on products of high efficiency and longer lifetime.

Industry Features *

-	Manufacturing	Import/Export Trade
No. of Establishments	30 (Sep 2002)	6,515 (Dec 2002)
Employment	589 (Sep 2002)	39,019 (Dec 2002)
Gross Output	HK$188 million (2001)	--

* Industry statistics cover activities in Hong Kong only.

The lighting industry of Hong Kong is largely made up of small- and medium-sized companies. Their products are usually meant for home improvement and domestic purposes. The largest export categories include electric table, desk, bedside or floor standing lamps. Meanwhile, there are a number of companies engaged in the business of battery-operated portable lamps, such as torches, hand lanterns and hand-held incandescent lamps for outdoor, sports and/or diving uses. Other exports include wall and ceiling lighting, chandeliers and other lamps and lighting fittings, as well as decorative items like Christmas tree lighting sets and lamp shades. The materials used for casings and shades include plastics, die-cast metals, crystals, glasses, ceramics and polished brasses. Some companies also produce neon lights, illuminated signs and illuminated name-plates for advertising purposes and interior decoration.

Most Hong Kong lighting product manufacturers have relocated their facilities to the Chinese mainland to enjoy low operation costs there. Their offices in Hong Kong are mainly responsible for product development, management, marketing and logistic support. Amid intensified competition, most companies have focused on original design manufacturing (ODM) business, apart from original equipment manufacturing (OEM) orders. Many manufacturers are able to undertake product design, plastics injection moulding, vacuum coating, enamel plating and assembly production in-house.

The success of Hong Kong's lighting industries also lies in efficient management. Against the fast changing market, Hong Kong companies emphasize quick response to the market, while keeping a close eye on product trends. Moreover, due to the growing quality consciousness of overseas buyers, many companies have strengthened their quality assurance systems. This is evidenced by a growing number of Hong Kong companies certified as complying with the ISO 9000, which is an internationally recognized standard for quality management system.

Performance of Hong Kong's Exports of Lighting Products ^

-	2001		2002		January-June 2003
	HK$Mn.	Growth%	HK$Mn.	Growth%	HK$Mn.	Growth%
Domestic Exports	347	-5	233	-33	80	-38
Re-exports	12,930	-11	12,194	-6	5,621	-1
of Chinese Mainland Origin	12,434	-10	11,690	-6	5,373	-2
Total Exports	13,278	-11	12,427	-6	5,701	-2

Total Exports by Major Markets	2001		2002		January-June 2003
	Share%	Growth%	Share%	Growth%	Share%	Growth%
US	49	-5	50	-5	45	-16
EU	24	-15	23	-11	27	+24
Germany	7	-16	7	-11	9	+43
United Kingdom	5	-10	5	-9	5	+6
France	4	-8	3	-23	3	+15
Chinese Mainland	6	-11	7	+2	8	+21
Canada	4	-20	5	+31	4	-10
Japan	3	+16	3	-3	4	+22

Total Exports by Products	2001		2002		January-June 2003
	Share%	Growth%	Share%	Growth%	Share%	Growth%
Table, Desk, Bedside or Floor-standing Lamps	21	-15	21	-8	22	-4
Battery Operated Portable Lamps	19	-24	19	-3	23	+25
Chandeliers & Wall Lighting	18	-9	15	-21	13	-25
Electric Lamps & Lighting Fittings	18	*	22	+12	14	-32
Filament Lamps	5	-17	6	-2	6	-2

* Insignificant
^ Since offshore trade has not been recorded by ordinary trade figures, these numbers do not necessarily reflect the export business managed by Hong Kong companies.

Hong Kong's total exports of lighting products decreased by 2% in the first half of 2003. Sales of table, desk, bedside or floor-standing lamps, chandeliers and wall lighting, electric lamps and lighting fittings as well as filament lamps registered declines in the period, despite the good showing of battery-operated portable lamps.

The US was the largest export market, constituting over 40% of Hong Kong's total lighting exports. Because of weak consumer sentiment, sales to the US declined by 16% in the first half of 2003. Exports to Canada, another market in North America, also decreased by 10%. On the other hand, however, sales to the EU grew robustly by 24% on the back of a strengthened euro, despite the lacklustre EU economy. Exports to major markets like Germany, the UK and France all registered increases of different degrees.

As for other markets, exports to the Chinese mainland in the first half of 2003 surged by 21%, despite keen competition from local Chinese enterprises. Exports to Japan, in the meantime, rebounded by 22%.

Sales Channels

Hong Kong's lighting manufacturers mostly produce on OEM and ODM basis for overseas importers and distributors. In view of intensified competition from other Asian suppliers, however, ODM has outpaced OEM as the major business of many Hong Kong manufacturers in the industry. A few manufacturers and traders also promote products with their own brand names or trademarks.

Hong Kong companies usually sell directly to overseas buyers, including volume importers and regional distributors of hardware and general merchandise. Some of the companies also deal with buying offices set up by major buyers in Hong Kong. Some large companies even sell directly to large-scale retailers like hypermarkets, supermarkets and chain stores, as well as buying groups/co-operatives of smaller retailers in North America and Europe in order to reduce the levels of distribution.

Major trade fairs such as the National Hardware Show held in Chicago, the Cologne International Hardware Fair, and the Japan DIY Show Tokyo provide promotion opportunities for Hong Kong traders. The Hong Kong International Lighting Fair organized by the Hong Kong Trade Development Council (HKTDC) is another major event for companies to exhibit their products to overseas buyers. Business missions organized by the HKTDC to the Chinese mainland and other emerging markets provide further opportunities for Hong Kong companies to establish connections with potential buyers.

Industry Trends

Hong Kong's lighting industry is increasingly subject to challenges from other Asian suppliers. In the case of medium- to high-end items, Taiwanese manufacturers, who are largely equipped with automatic production machines, are major competitors to Hong Kong in the region. As for simple and low-end articles that involve less technological and design inputs, Hong Kong exporters have been subject to fierce competition from other Southeast Asian countries and local Chinese enterprises.

In response, Hong Kong manufacturers have differentiated their products by enhancing product features and aesthetic design, and enriched their product assortment by exploring new product lines. While preserving the traditional OEM products and subcontract assembly works to maintain economy of scale, emphasis is placed more on design engineering as well as production quality. Hong Kong companies are well known for their adaptability and responsiveness to the rapidly evolving consumer tastes, and quick response has been among their keys to success. They are capable of offering items that appeal to both quality and price-conscious customers in a timely manner.

As more product design works are undertaken by Hong Kong companies, there is a tendency of overseas importers to shift liabilities arising from defective products to the manufacturers and traders. Especially for electrical items, overseas buyers usually demand guarantee or warranty on product quality by the manufacturers. It has thus become increasingly critical for Hong Kong exporters to evaluate the likely impacts before making deals with their buyers, and observe relevant laws and regulations in relation to consumer protection, warranty and product liabilities in overseas markets.

Meanwhile, overseas buyers have placed more pressures not only on prices, but also order quantity amid intensified competition in overseas retailing markets. Distributors and retailers tend to make smaller-sized orders with higher frequency in order to minimise inventory. This has resulted in smaller orders with shorter delivery lead times. Some Hong Kong companies therefore re-engineer their procurement and production management systems, in a bid to shorten their manufacturing cycle time and reduce costs.

On the other hand, there are an increasing number of Hong Kong manufacturers applying modern technology for product design and production. For instance, computer aided design (CAD) has been adopted to improve the aesthetic and mechanical designs of lighting products and power tools, while reducing time and costs involved. Applications such as the use of 3-dimension computer aided industrial design (CAID) also facilitate companies to enhance their design capabilities. Modern technology for plating, polishing, sheet metal cutting, die-casting, etc. has also been applied to improve the product precision and quality.

Implications of CEPA for Hong Kong Companies

Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) was concluded in June 2003. By meeting the CEPA rules of origin, certain lighting products made in Hong Kong will enjoy duty-free access to the Chinese mainland from 1 January 2004.

China's Tariffs Reduction Schedule for Selected Imports of Lighting Products

HS Code	Description	2003 MFN Rate %	2004 CEPA Rate %
85139010	Parts of torches	14.0	0
85139090	Parts of other portable electric lamps designed to function by their own source of energy	14.0	0
85392991	Electric filament lamps, not specified elsewhere, of a voltage 12 V or less	12.0	0

As regards distribution, Hong Kong companies will be granted additional market access to the mainland. From 1 January 2004, Hong Kong enterprises are permitted to supply distribution services (including commission agents, wholesale, retail and franchising) in the mainland on a wholly-owned basis, and to set up wholly-owned external trading companies, 1 year ahead of China WTO's timetable. Meanwhile, Hong Kong enterprises can set up retailing companies in all cities at prefectural level in the mainland, and cities at county level in Guangdong Province. The entry requirements for Hong Kong services suppliers to set up an external trading company, a wholesale commercial enterprise or a retailing commercial enterprise in mainland are also lowered. In addition, Hong Kong permanent residents of Chinese nationality are permitted to set up individually owned retail stores in Guangdong Province.

General Trade Measures Affecting Exports of Lighting Products

Exports of electric lighting products required external power for operation are subject to relevant safety requirements in overseas markets. For instance, a certain electrical items sold to the US have to comply with the mandatory requirements of UL/ETL listing or equivalent, in order to meet the federal safety standards. Likewise, products exporting to the EU have to comply with certain directives for safety, and carry a CE-mark accordingly. Others include the CSA safety standards for exports to Canada, and product and quality standards of the State General Administration for Quality Supervision and Inspection and Quarantine for products sold in the Chinese mainland.

In addition, anti-dumping proceedings against goods of Chinese mainland origin remain a concern for Hong Kong exporters. For instance, the EU has imposed a definitive anti-dumping duty of 66.1% on mainland-origin integrated electronic compact fluorescent lamps.

Product Trends

One of the significant developments in the lighting industry is the booming of the DIY (do-it-yourself) market overseas. DIY products are increasingly popular, especially in North America and Western Europe. Hence, a wide range of hardware items, including lighting apparatus, are offered for DIY purposes. As these products are intended for installation by household users themselves, the easiness of installation and maintenance have become the virtues to rely on.

Meanwhile, decorative lighting items are no longer limited to Christmas lighting sets. They also include a wide range of lighting sets for domestic uses, such as track lights, linear lights and spotlights of different novelty designs. To enhance value-added, some companies have added on extra functions to their products, such as smoke detectors and gas alarm sensors. As for handheld items, some lighting models have merged with other products to carry multi-functions. For example, some portable lamp models have included radios and cassette players, along with spotlight, emergency light and/or siren features. Many of them are waterproof or water-resistance, making them suitable for outdoor purposes.

Due to the concern over environmental protection, lighting product manufacturers have increasingly focused on lighting models of high efficiency and longer lifetime. Some lighting products provide the choice of kryton, halogen or fluorescent bulbs, the use of which is more energy efficient than traditional bulbs. In particular, some lamps are developed to become electrodeless by replacing electrodes and filaments with fluorescent powders, such as the integrated electronic compact fluorescent lamps that can reduce power consumption with an even longer lifetime. In the meantime, some of portable lamps operate on rechargeable batteries, and are equipped with overcharge and discharge protection circuits to prolong the battery life. Some other lighting apparatus has built-in sensors for automatic on/off switching to save energy.

In addition, the use of natural, recyclable, mercury-free and non-polluting materials during production is also among the focuses of the industry. For example, wooden materials, textiles and bamboo are used for the housing and shade of some lighting sets, while high-pressure sodium lights are promoted to replace the high-pressure mercury and halogen-tungsten lights.