Hong Kong: Japanese trading houses strengthening offshore trade

Japanese apparel trading houses having their head offices in Hong Kong will strengthen offshore trade. It is an essential task whether Hong Kong can play a new role in the new trade competition in Asia.

Devastating Hong Kong's Financial Condition

Among textile product exports by Asian countries in 2002, only China and Vietnam achieved growth compared to 2001. While other countries kept declining after peaking in 2000, China absorbed the decreases of those countries and achieved an increase in exports.

Generally speaking, Chinese firms hold half the share of Chinese exports. Local factories of foreign firms hold the remaining half. Some people call it "made in China by foreign countries" pointing at this situation.

With this situation in the background, Japanese-affiliated apparel trading houses having their head offices in Hong Kong have been strengthening offshore trade. It is a strategy to cope with the fact that the base of apparel exports to Japan has been shifting from Hong Kong to the eastern and northern areas of China.

Before Chinese cities such as Shanghai grew to the present level, the position of Hong Kong was overwhelming. Only Hong Kong was the gate to China. However, several cities such as Shanghai, Ningbo, Dalian and Qingdao have opened their gateways. Competition among cities has become fierce.

Financial deficits of Hong Kong are becoming serious. For this reason, the Hong Kong government increased or plans to increase income tax rates: corporate income tax rates to 16% in 2002, 17.5% in 2003 and 17.5% in 2004; non-corporate income tax rates to 15% in 2002, 15.5% in 2003 and 16% in 2004; income tax rates on wages to 15% in 2002, 15.5% in 2003 and 16% in 2004; and income tax rates on assets to 15% in 2002, 15.5% in 2003 and 16% in 2004.

The Hong Kong government has been increasing taxes in order to reduce financial deficits. One of the merits of doing textile and apparel business in Hong Kong is low taxes. Compared to taxes in Tokyo and Beijing, Hong Kong's taxes are lower, more simple and clearer. Companies used to be attracted by these low taxes in Hong Kong, but this merit will slightly decrease.

Placing Higher Importance on Exports to U.S.

Sales of Prominent Apparel Limited (PAL) having its head office in Hong Kong in the fiscal year ending in March 2003 came to US$350 million, leveling off from the previous fiscal year. Exports to Japan accounted for 20% of the total sales. The share has greatly decreased compared to 35% in the fiscal 2001 and 25% in the fiscal 2002. This is because orders from Japan are leaving Hong Kong and southern China and moving toward the northern China area. What is making up the decrease in exports to Japan is an increase in exports to the U.S. The share of U.S.-bound exports was 10% in the previous fiscal year, and rapidly increased to 25% in fiscal 2002. The core is offshore trade of casual wear made in Vietnam and Southeast Asia.

With this, the share of offshore trade in the fiscal 2003 will increase to 80%. These exports include fabric sales.

For Sumitex Hong Kong Limited, the share of exports to the U.S. and that of exports to Japan have reversed, and the share of exports to the U.S. is expected to increase further. Of US$120 million in sales in the fiscal year ending in December 2002, its share of exports to Japan was 40% (50% in the previous fiscal year), and that of exports to the U.S. was 45% (40% in the previous fiscal year). The remainder is sales of textile materials in the local Hong Kong market.

Sumitex has increased exports to the U.S. because Sumitex added product types such as tops and swimwear for specialty stores in the U.S. from its previous product lines focusing on pants. As for exports to Japan, production districts are moving from Hong Kong to the northern part of China except for products with high added values such as sweaters with retail prices above 10,000 yen/piece. For this reason, Sumitex will place importance on product development focusing on exports to the U.S.

N.I. Teijin Shoji (H.K.) Ltd. has been expanding exports to the U.S. by manufacturing apparel in Vietnam. Fashion Force No.1 Factory that Teijin Shoji possesses in Vietnam started an equipment increase in the latter half of 2002, and will soon establish a system with 900 employees and 600 sewing machines. This is double the size compared to the previous size. This equipment increase is for active sportswear. With apparel manufacture in Vietnam mainly in this factory, Teijin Shoji will increase exports to the U.S.

Expanding Business by Increasing Staff in NY

Sales of Nichimen Orient Wear Ltd. in the fiscal year ending in December 2002 came to US$200 million, and the share of exports to Japan was 90%. This year, Nichimen Orient Wear Ltd, will strengthen offshore trade focusing on exports to the U.S. The firm will strengthen this trade by employing local employees and increasing staff in the New York office.

Sales of Tomen hot-Line (H.K.) Ltd. in the fiscal year ending in December 2002 came to US$110 million. Of these, the share of exports to the U.S. was 30% and that of exports to Europe was 25%. This composition has not changed from the previous fiscal year.

Sales of Passport Fashion Company Limited in the fiscal year ending in March 2003 came to US$280 million. Of these, the share of exports to the U.S. and Europe was 6%. Speaking about profit, however, the share of Europe and the U.S. was 10%. Passport Fashion plans to earn 25% of its profits from its exports to the U.S. and Europe. For this purpose, Passport Fashion has its Asian base in Hong Kong and Thailand. Hong Kong is used to control the axis of Indonesia, Vietnam and China. Thailand is used to control the axis of Cambodia, India, Sri Lanka and Myanmar.

Tredia Fashion Co., Ltd. is a firm focusing on trade with Japan. Tredia Fashion has experiences in offshore trade to Korea, Taiwan and the U.K. In succession, Tredia Fashion is preparing for offshore trade to the U.S. Because deployment of staff in New York will be necessary for that purpose, Tredia Fashion will study it this year.

Tredia intends to maintain its existing business of exporting to Japan by appropriately sharing the business between its head office in Hong Kong, the Shanghai office, and Ho Chi Minh office according to products. While Shanghai office has already exceeded the Hong Kong head office in sales, Tredia is coping with the situation by increasing staff members in Shanghai and strengthening its function.

For exports to Japan, Tredia is placing importance on special style production, which is different from the production in the eastern and northern China.

To Produce Unique to Hong Kong

Sumikin Bussan International (H.K.) Ltd. has a policy to do business in Hong Kong focusing on products that only Hong Kong (Guangdong Province in reality) can produce. Even if Sumikin Bussan moves its production point to Shanghai, the time will come when Sumikin has to move again to somewhere else due to high costs. If that is true, Sumikin Bussan thinks that it is more advantageous for it to pursue good points of production in southern China despite high costs in Hong Kong. For this reason, Sumikin has established an office as a base for the production process and quality control in Dongguan City Guangdong Province on April 1, 2003.

According to Shinko Sangyo (Hong Kong) Ltd., shirting is its main sales product. Sales of fabrics account for 40%, and sales committed to the making up of shirts account for 60%. Sales in the fiscal year ending in December 2001 were US$20 million, recording deficits for ordinary profits, but sales in the fiscal year ending in December 2002 were US$22 million, changing into black figures for ordinary profits. Shinko Sangyo's efforts focusing on the strong area by stopping unprofitable businesses brought good results. Shinko has been promoting sales of made-up corporate uniforms in addition to shirting.

Chori Company, (H.K.) Ltd. stopped simple contract apparel production and places importance on the production of apparel where the firm participates from the stage of fabrics and raw materials Chori is strong at. Chori produces man-made fiber composite materials in the area of fabrics, as well as apparel using special materials such as Italian yarns. Chori trades materials such as cashmere and compact spun yarn.

Textile sales of Toray Industries (H.K.) Ltd. in the fiscal year ending in March 2003 were US$200 million, leveling off from the previous fiscal year. Toray plans to increase its sales in the fiscal year ending in March 2004 by 10% compared to the previous year by increasing sales of textile materials, textiles and industrial materials.

Strengthening Exports of Apparel Products

Toray (H.K.) will increase apparel exports to Europe and the U.S. and market carbon fiber and geo-textiles mainly to Guangdong Province. Toray opened its office in Guangzhou City in May 2002, and has promoted sales. Toray (H.K.) is studying to localize it by the end of 2003 at the earliest.

Teijin Hong Kong Limited will expand its exports of apparel manufactured in East Asia to the U.S. The total sales of apparel manufacture and materials in the fiscal year ending in December 2003 will increase to US$62 million, up 15% compared to the previous fiscal year. For the sales of Teijin Hong Kong, products made by Nantong Teijin Co., Ltd. accounts for 60%; products made by Thai Namsiri Intertex Co., Ltd., 30%; and Japanese products, 10%.

Sales of Teijin Hong Kong to Europe decreased in quantity compared to the previous fiscal year. In contrast, exports to the U.S. increased. For exports to the U.S., high-grade taffeta for active sportswear, and coated fabrics for down wear led sales.

Shikibo (H.K.) Ltd. has been marketing knitted fabrics for cut-&-sewn knitwear and apparel. Fabric accounts for 70%, and yarn and apparel account for the rest. Sales destination is Japan. Shikibo has been marketing products with characteristics in functions and touch such as mercerized yarn-dyed fabric and fabrics with UV-shielding or perspiration-absorbing functions. This year, Shikibo will increase sales of apparel. Shikibo intends to increase offshore trade including the above.

Kurabo Industries Ltd. Hong Kong Branch has been achieving good sales results by specializing in denim. As the tie-up with the group companies, Kurabo Denim (HK) Ltd. and Kurabo Denim (Zhuhai) Co., Ltd., has been successful, the sales quantity in 2002 increased by 20% compared to 2001. Because the unit price did not decrease, the sales value also increased by 20%. The share of A-grade products was 99.7%. This is "Kurabo standard", which is increasing the image of reliability of the firm. The main feature of Kurabo's business is to produce and market all by itself.

Regarding sales destinations of denim products of the Kurabo Hong Kong Branch, Japan accounted for 70% in 2000. The monthly production quantity was 1 million yards in 2002. Out of this, 100,000-150,000 yards were for Japan, and 600,000-700,000 yards were for the U.S., showing a large change in the destinations. This is one example of "made in China by a foreign country".