Taking a Closer Look at the Benefits of Hong Kong
Even as fashion companies diversify their footprints, Hong Kong has retained its position as a hotspot for sourcing offices and retail stores, according to a panel during Sourcing Journal’s Global Outlook event.
Following Covid-era challenges such as travel bans, Angelica Leung, head of consumer products at Invest Hong Kong, said there is now “robust interest” in Hong Kong as a “sourcing hub.” “A lot of companies are putting the command and control, the brain center of their sourcing operations in Hong Kong,” said Leung during the session, moderated by Sourcing Journal features editor Kate Nishimura. “It was difficult to travel during Covid, but now everything is going back to normal.”
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Hong Kong is situated in the Greater Bay Area, placing it close to manufacturing hubs. Sally Huang, specialist, consumer products and retail at PwC Advisory, shared that although some companies are diversifying beyond mainland China, they are typically not severing ties with their Chinese partners. Instead, they are often leveraging the manufacturers’ offices and operational footprints in other countries. She added that simpler garments can be made elsewhere, but China has “world-class” capabilities for complex items.
Companies are moving more than just sourcing teams to Hong Kong to bring other functions closer to manufacturing. Leung noted that some design teams are now based in the special administrative region, and sustainability teams are also setting up in Hong Kong to work closely with mills to develop new materials. A European retailer client of PwC’s moved its merchandising team to Hong Kong, which resulted in a $15-million-dollar annual savings due to the efficiencies of having sourcing and buying in the same time zone.
“For companies with significant sourcing or business operations in mainland China, we see a clear advantage of being here in Hong Kong,” said Huang. “Not only are there the established systems in place, but the geographical advantage, Hong Kong being part of…the Greater Bay Area, that is providing a lot more connectivity.”
Hong Kong also offers a strong talent pool that is bilingual. Huang said that the region’s long history as a sourcing hub means individuals have category expertise and the “right connections.”
In addition to proximity to production, Hong Kong’s economic regulations make it appealing for businesses’ sourcing or regional headquarters. Huang pointed to Hong Kong’s 16.5 percent corporate tax rate, which is one of the lowest in Asia Pacific. There are also no value added taxes (VAT) or import duties for most categories, and capital can move in and out of Hong Kong without restrictions on foreign currency exchange.
The government has also incentivized financial firms to set up in Hong Kong, giving businesses access to local funding, per Huang.
Among the local investors is The Mills Fabrica, which has put venture capital into fashion technology startups including Renewcell, Reflaunt and Unspun. In addition to investing, The Mills Fabrica has an incubator program that helps startups scale through support including exposure and forging connections. Cintia Nunes, general manager and head of Asia at The Mills Fabrica, explained that the proximity and access to high-capacity manufacturing in the GBA is also a boon for startups.
Retail resurgence
Another area of investment within Hong Kong is retail. According to Leung, Hong Kong is often considered a “shopping paradise,” with the combination of no sales tax and a strengthening consumer base. She outlined three key neighborhoods for growth: the current airport, the cultural district West Kowloon and Kai Tak—the site of the former airport that is turning into the second Central Business District with residential and commercial development.
Nunes said that following the pandemic, footfall has resurged. And now, customers are seeking out learning experiences. To deliver on this, The Mills Fabrica’s Fabrica X store in Hong Kong provides sustainability-centric education and workshops around rotating themes, such as biomaterials.
“We definitely see the traffic ramping up as we see a surging demand for the public in search for not just a good customer experience, but in fact, meaningful experiences,” said Nunes.
