Hong Kong is shaping up to be the next capital state for eCommerce with a population of hyper-consumers constantly on the prowl for the next big sale.
According to Global Data, Hong Kong’s eCommerce sector is estimated to reach a compound annual growth rate (CAGR) of 9.9% ( which is about HKD 226 trillion in value). It’s safe to say that Hong Kong might be the first few economies that are contributing to a new advent of digital consumerism.
Digital payments and telecommunications are also vastly better compared to most neighboring countries. As such, setting up a dropshipping eCommerce business here becomes a very promising endeavor in the eyes of entrepreneurs.
So should you make the move? Dropshipping in Hong Kong is not hard to get into but it’s also not exactly a cakewalk either. Now that we’ve piqued your interest in the matter, let’s dive into what exactly makes Hong Kong a prime destination for dropshipping.
1. What is dropshipping?
Dropshipping in a nutshell is when you sell customers’ products through your own established website but don’t actually have them in stock. Once an order has been placed, the store will contact the supplier to buy the said product and have it shipped to the end customers.
Sounds simple enough, but the model we have today has a rich history of origin. The concept itself actually originated in the ’70s where companies would advertise their products in mail-order catalogs. Every median household at the time would tune in to these catalogs for their weekly shopping.
It got to the point where demands were overtaking the rate at which these companies would actually be able to ship out products. This sparked the idea of establishing “fulfillment centers” aka warehouses closest to the customers’ vicinity in order to simplify logistics. It wasn’t long before other mail order companies would start to leverage these warehouses as well to sell marked-up products without holding any inventory.
Today, the model has mostly been extrapolated upon, with eCommerce giants like Amazon offering “same-day delivery” and bespoke merchant solutions.
2. Why should you dropship in Hong Kong?
Parcel deliveries are fast in Hong Kong, especially in major commercial and industrial areas. This can be attributed to its wide-ranging post offices across the country along with other macro factors.
2.1. Strong shopping culture
Hong Kong was already a city sprawled with shopping malls before the eCommerce boom. Being surrounded by a complex of shops and kiosks coupled with 24/7 access to ATMs has definitely shaped the way Hong Kongers live life.
As such, this obviously translated to an easier time for businesses making the jump to digital. According to the World Bank, 91,7% of the population is equipped with smartphones and access to the Internet which equates to an immense prospect pool.
2.2. Pro-business environment
Hong Kong boasts several incentives for companies looking to set up business in their jurisdiction. This comes in the forms of having an established rule of law, a free economy, and a well-built IT infrastructure.
Right off the bat Hong Kong presents an ideal geographical advantage being in close proximity to China and is a renowned trading hub in the international community.
Additionally, a good amount of suppliers are situated in China which makes setting up your dropshipping business much more viable. And since the majority of goods on the market are manufactured in China, you can enjoy super fast shipping, usually within 5 days.
The country’s territorial tax system ensures a level playing field for both local and international entities operating within its borders. In specific, profits arising or derived from any other source outside of Hong Kong are exempted from taxation. This means you can set up dropshipping in Hong Kong and sell to an international customer base without worrying about the extra costs.
Need a guide on Hong Kong’s corporate taxation? Take a look at our blog post Hong Kong Tax System – General Guide For Entrepreneurs.
2.3. Highly innovative tech & IT infrastructure
According to World Bank figures, 91.7 percent of the world’s population has an internet connection. Furthermore, as provided by statistics on Statista, about 80% of the population owns a smartphone, making it one of Asia’s highest smartphone penetration rates.
Other developed countries in the region, such as South Korea and Singapore, are the only other competitors. Aside from the fast Internet and well-optimized telecommunication system, Hong Kong doesn’t slack behind at all when it comes to other tech pastures. On the frontline of experimental tech is Hong Kong’s newest extended reality.
A more sophisticated form of virtual reality, the technology promises to deliver a next-gen user experience where customers can try on clothes, take hyperrealistic house tours overseas. Just imagine the level of immersion and customization your business can give to the customers!
Slow loading speed, restrictive bandwidth, and an overall lack of processing capability used to be the woes of online businesses. Imagine spending time producing a high-quality lead magnet video for your digital shopfront only to realize that it takes virtually forever to load.
With 5G technology, shop owners can diversify their marketing materials, implementing more interactive content into their campaigns. Not to mention the apparent jump in conversion rates now that your customers will be able to whizz through all the checkout sections in a matter of seconds.
3. How to start a dropshipping business in Hong Kong
3.1. Choose your products
A great thing about dropshipping is that it’s not only easy to get into, but also a good way to test the market for any products you plan to sell. You can approach this as someone who wants to sell the most popular products or is trying to establish a name for themselves through niche realms.
There’s a lot of angles from which you can approach this. Keep an eye out for products that perform well and are not seasonal by nature. Most places like Amazon or eBay tend to list their best sellers on their front pages so work your way around that.
On the other hand, selling novelty items like toy figures and collectibles is great if you plan to capitalize on the nostalgic and sentimental feelings of your customers. In this respect, there are a couple of things you should factor into the process of choosing your product.
3.1.1. Ease-of-transportation & shipping costs
Picking out a product that resonates with your customers is one thing, but making sure it arrives safely to its intended destination is also an important thing to consider.
For heavy products like fitness equipment or home entertainment apparatus, the shipping costs can very well eat up a considerable amount of your profit margins. Most of the time the problem isn’t necessarily with the weight of the item but rather how much space it takes up in a truck.
In other words, the more space your products take in a truck, the less money the carrier company makes. This is why it’s common practice in the industry to now charge fees based on whichever nets them the most money, “actual weight” or “dimensional weight”.
3.1.2. Popular niches
In Hong Kong, the most popular niches are apparel, creative and novel products, household appliances, and recreational tools.
Having similar traits to countries where drop shipping is highly successful, people are always looking for fashionable clothes and accessories to add to their collection. The fashion sector alone currently commands a whopping US$2.3 billion and is on a prospective incline of U.S 3.36 billion by 2025.
However, pay to mind the level of brand sensitivity your consumers might have when browsing your ware. Not everyone is on board with the idea of buying from a completely new name on the market when they could be buying from established brands like Nike or Adidas instead.
3.2. Find a supplier
We shouldn’t emphasize just how important this step is because it’s practically the key player that makes this model work in the first place. If you’re sourcing from Mainland China, there are two types of suppliers you’ll come across, namely Original Equipment Manufacturer (OEM) and Original Design Manufacturer (ODM).
Already have a design and want to outsource the production? Opt for an OEM. There’s a common myth among the dropshipping scene that products tend to lack in the originality department.
OEMs nowadays have the technologies and expertise to make your product in any shape and design you could possibly want. As for your part, make sure you’ve done the market research and are actually in possession of a finished blueprint, or better yet a working prototype.
But for those with little to no experience in these fields, a more streamlined solution like going to an ODM might be better. They’ll take care of the designing phase for you, some even include the product life cycle services at the end. You can request to have the products branded to propagate the idea that you manufacture them yourself.
Which one should you go for?
There’s no one-size-fits-all solution and the choice you make heavily depends on the amount of control you want over your business.
OEMs are generally easier to maintain a mutual relationship with since they’re only in charge of production. But changing them can sometimes mean overhauling your entire production line as they themselves might be sourcing materials from other manufacturers/suppliers.
On the other hand, ODMs are more of a one-stop solution ideal for less-experienced entrepreneurs just looking to get their products out there on the market as fast as possible.
Nevertheless, they’re quite volatile as there’s the risk that they’ll just proceed to manufacture the product once you’ve provided them with the ideas to do so. And since they’re the ones that came up with the design and production details, you’d be hard-pressed to want to change suppliers.
To avoid unnecessary disputes, negotiate thoroughly with the suppliers on the ambit of both party’s rights and obligations. An integral part during a negotiation should be about IP ownership and acquisition of the design details (source code, Gerber file, BOM, 3D designs) upon request.
3.3. Decide on your selling channel
This is another important juncture where you’ll have to decide whether you want to sell on your own website or on an eCommerce marketplace. Each has its own set of benefits that we’ll be going over to help you with your decision.
If you’re someone who is seeking to establish a long-term brand identity for your business then it’s a good idea to build your own website. You get the foremost benefit of having more control over how you want your shopfront to look and feel.
Even if you’re not a whiz kid, all-in-one platforms like Shopify make setting up and launching your website a breeze. Having a plug-and-play option at the beginning is extremely beneficial, especially for starters. Everything gets taken care of on the backend leaving you with more time to focus on growing your business.
3.3.2. eCommerce marketplaces
One of the biggest hurdles for a new dropshipping business to overcome is customer acquisition which is both costly and time-consuming. Selling on Amazon or eBay can net you a good amount of exposure upfront without too much promotional effort at the start.
Whether you’re a complete beginner or a veteran at dropshipping, they’re a great way to grow and expand your business. With the number of cult followings that top online marketplaces command, there’s really no reason why you shouldn’t set up shop on them, beginner or veteran.
3.4. Incorporate your business
Since dropshipping is considered a trading activity in Hong Kong, you have to register as a trading company. The most common entity type to go for is a private limited company which offers a well-balanced mix between liability protection and tax optimization.
After collecting all the necessary documents, file an application form to the Hong Kong Companies Registry. Upon completion, you’ll receive a Certificate of Incorporation signifying the official commencement of your business.
Trading companies must obtain the relevant licenses in order to begin operating their business. Because trading companies tend to deal with a variety of items, a special license from Hong Kong’s Customs and Excise Department is required.
Unless they are exempt, all products and articles must file an Import/Export Declaration under the import and export registration requirements. It must be lodged with the Commissioner of Customs and Excise within 14 days of the goods or articles being imported or exported.
Next up is to open a bank account to receive payments from your customers. In addition, every eCommerce business can benefit from opening a merchant account. Think of it as a middleman between your bank account provider and the customer’s credit card issuer.
Essentially, this is the holding spot for all transacted funds from credit card payments. After a set period of time, the amount will be processed and transferred to your account.
Dropshipping in Hong Kong can be a very lucrative opportunity for you to get accustomed to the world of eCommerce. Can’t waste any time? BBCIncorp can help expedite the process of incorporation and get your company up and running in no time. Simply drop us a message or contact us via email@example.com.