Hong Kong market: strong, but not to be left alone.

Hong Kong remains a viable market for U.S. food products; however, the word is out that U.S. exporters should not become complacent. Since food products from the United States often cost more than foods from other countries, U.S. exporters should continue to emphasize high-quality, convenience

U.S. agricultural exports to Hong Kong increased from $466 million to $771 million during 1987-91, a 65-percent gain in value--making it the eighth-largest market for U.S. farm exports. Growth has been steady, averaging 13 percent per year, and has been particularly strong among high-value products.

While the country already imports 80 percent of its food, the demand for imported food will continue to grow as remaining farmland falls victim to urban development.

Other Countries Gaining a Share

Although U.S. sales to Hong Kong have been positive, an analysis of market shares by country over the past five years is more sobering. The U.S. share has largely remained unchanged, at just under 14 percent, even though the value of exports has increased by nearly two-thirds.

Given the trade barriers of the European Community and the lagging economic growth in North America, Asian food processors from Singapore to New Zealand have intensified their marketing efforts in Hong Kong, probably the most open food market in the world. The major gains in market share have gone to countries such as Thailand, Australia, Taiwan, Singapore and Indonesia.

Thailand has gained the most in market share since 1987 and has been successful in shipping tropical fruits, chicken, snack foods, rice and various packaged products to Hong Kong.

Thailand, Australia and the Netherlands have promoted their products in nearly every supermarket in Hong Kong. The Tourism Authority of Thailand and the Thai national airline also actively organize menu promotions in hotels and restaurants, as well as exhibitions of Thai food products.

On the other hand, China's market share in Hong Kong has declined steadily and has been captured by competitors. But China is selling more than ever before by value, despite its eroded market share.

In the coming years, gains are likely in this market from low-cost developing competitors such as Thailand, Vietnam, Singapore, Indonesia and Brazil. China will likely continue to lose ground as Hong Kong's consumers shift towards convenient, higher value processed foods.

When China Takes Over

The uncertainty of 1997, when Hong Kong's ownership returns to China, has raised several questions for those interested in doing business in the Territory. What will it mean in terms of food trade with other countries? How will it affect buying patterns? How will it change traditional trading relationships?

The answers, at this point, are unclear. What is certain is that the most important steps U.S. exporters can take to maintain their trading relationships with Hong Kong after 1997 are to identify key trends, products and issues, then move quickly to negotiate and formalize trade terms and conditions with the appropriate Hong Kong authorities. This will ensure that a trading relationship will be well established before China's growing influence in the Territory begins to take effect.

U.S. Exporters Can Fare Well

The Hong Kong market will always be Chinese in spirit, but the dominant trend in the market today is the increasing Westernization of consumers and their tastes.

Many of the younger people in Hong Kong developed penchants for Western food and lifestyles while living, studying or traveling in North America. They tend to retain their Westernized food tastes when they return to Hong Kong.

Exporters should take advantage of the Westernization of the Hong Kong market. Western products are gaining wider acceptance throughout all market segments, but the basic Chinese character of the buyers will not change. Therefore, traditional buying patterns and product choices will continue to be a major market force. Despite the popularity of Western-style foods, retaining some Chinese-style tastes, dishes and even food types in an export line is an important plus for sales.

A product's pricing is crucial to its success anywhere, but even more so in Hong Kong, where smart shopping is almost an art form. People are willing to spend more for a well-respected Western brand and its greater perceived quality, but even so, there is a fine line between a worthwhile purchase and an unnecessary luxury.

A product's quality--perceived or real--has become a more important factor for success in Hong Kong's increasingly sophisticated retail market than ever before. Levels of service and image are two elements Hong Kong consumers look for when making a buying decision. Consumers want more service and value, and have the money to demand it.

The choice of an appropriate distributor or agent is also crucial to sales success in Hong Kong. Many local agents representing international food accounts are ill-equipped to meet the demanding needs of effectively servicing the highly competitive food market. Without the opportunity to be sold in the right areas to the appropriate market segment, no food item, no matter how right for Hong Kong, will sell well.

The value of advertising to enhance sales has increased substantially in Hong Kong. As a result, name brand imported items are getting instant acceptance. Maintaining close Asian links is important to an advertising campaign's success in Hong Kong, and if the agency is tuned into the local Chinese market, the advertising has a much better chance of attracting the bulk of the market's buying power.

Trade Barriers Are Few

There are no trade barriers or duties in Hong Kong on foods and beverages, except for alcoholic beverages. Labels may be either in English or Chinese, but if both languages are used, the product name and ingredients listing must appear in each language.

Prepackaged foods must be marked or labeled with a list of ingredients in descending order by weight or volume, preceded by the word "Ingredients." There can be problems when food labels show "Contents," because Hong Kong labeling laws require the word "Ingredients."

Some products packed in containers with less than 10 centimeters surface area are exempt from certain labeling requirements. It is important, as well, to note that certain colorings and flavorings are not allowed by the Hong Kong Food Ordinance.

Minimum durability must appear on labels in both English and Chinese as "Best Before," "Sell By," "Consume By," or similar words. In almost all circumstances, the date must be shown in either Arabic numerals or in both Chinese and English in terms of day, month and year.

All U.S. meat and poultry entering Hong Kong must be accompanied by documents certifying U.S. Department of Agriculture inspection. Wines and spirits duties and taxes are high, so retail prices are nearly double the import prices. Only spirits having over 40 percent alcohol (over 80 proof) are allowed entry.

For more information about the Hong Kong market, contact:

Agricultural Trade Office U.S. Consulate Hong Kong PSC 464, Box 30 FPO AP 96522-0002 Tel. (011-852) 841-2350 Fax. (011-852) 845-0943

The author recently returned from assignment as the Assistant Agricultural Trade Officer in Hong Kong.