As Asia's financial hub, Hong Kong remains in the spotlight when it comes to where is the right place for e-commerce business. Favorable conditions in Hong Kong grant online businesses great doors of opportunity.
Having said that, notwithstanding, a careful planning before embarking on your new business is a key to success. This article presents a question checklist and necessary steps for you to kick start your e-commerce company in Hong Kong. Let’s find out!
1. Ask yourself a few questions before getting started
Hong Kong’s dynamic market is obviously a good place to start an e-commerce business for most entrepreneurs. Hong Kong is well-positioned thanks to its transparent system of law and simple incorporation process; not to mention the city’s tons of tax benefits for businesses.
Still, when it comes to starting your e-commerce company in Hong Kong, there are some questions that you should be well clarified in your planning.
1.1. What is your target market?
This is the very first question when considering your place to start a business. An easy-to-reach location like Hong Kong, fortunately, is a strategic gateway to a wide range of other potential markets. If you are targeting Mainland China and different parts of Southeast Asia, Hong Kong is the right place to base your e-commerce company.
Determining your target market is really important, as it will also act as a lodestar for your setup of the selling platform and the fulfillment plan.
1.2. What is your selling platform?
Depending on your chosen target market, you should select an appropriate platform for your online business.
Many entrepreneurs may wish to hit major marketplaces, namely Amazon, Ebay. In another scenario, some just want to focus on their domestic buyer market. Suppose the largest population market, China, is your primary audience, then sales channels such as Alibaba, Pinduoduo, Taobao, or Tmall would gain more in popularity.
Just a kind reminder, if you scrutinize this ‘giant’ market, the Chinese online retail sales even have been larger than the rest of the world brought together. Its sales in 2019, interestingly, was three-fold higher than that of the US. The China market is proven to be a harsh competition for new e-commerce players, so a well-planned preparation is always of vital significance before getting started.
1.3. Have you got your e-commerce business model?
Well, this is really important! A wise choice of business model can enhance your business’s speed-up. There will be no all-embracing structure for your e-commerce platform. You should make decisions based on specific circumstances of your company.
One traditional business model for most e-commerce business operators is to self-run and ship to their customers one by one. Disadvantages are very apparent. It is a time-consumption process, burden of workloads; not to mention its financial pressure.
In the digital era, there are alternative e-commerce structures that offer online businesses much more flexibility and cost reduction. As a supportive partner for every small business, BBCIncorp draws up a list of common business models for e-commerce entrepreneurs:
Dropshipping. Your supplier is in charge of shipping to the end-customer. You do not need to have an inventory, warehousing stock, or spend much time focusing on the product life cycle. This model frees your online business from many hassles of packaging and shipping as well. But, if anything went wrong with the order – i.e., the product quality is low, you are actually the one to face it first.
Example: Rica creates an online store with an e-commerce website selling home appliances. When customers place an order, Rica will forward it to her supplier to conduct packaging and shipping directly to the customer.
White label. This model is widely applied in beauty-related industries. Your company will buy your desired products from the supplier. Such products are then relabeled and maybe re-packaged with your branding before you sell them to customers.
Wholesale. Get yourself ready since there is a lot to do if you want to go for a wholesale e-commerce business. Stock management, order and shipping tracking, warehousing preparation, etc., might be tasks included. You also need to send products in bulk on Google or Amazon marketplaces. Particularly, your company distributes a large volume of products to small shops and retailers at a discount fee. Products are then resold to buyers at higher price.
Subscription. A subscription-based online business model? Your online store will encourage customers to subscribe to its service for a specific period of time – i.e., 1 month, 3 months, 6 months, or in one year. Interestingly, when each subscription period comes to an end, the customers can enjoy many benefits. Those can be a box of existing products for free, small gifts, discount rates and so on.
The more satisfied customers are, the more additional subscriptions your e-commerce business can earn.
Other considerations. Some e-commerce businesses may feel interested in marketplace-connected models like Fulfilled by Amazon (FBA). E-commerce companies can outsource storage and shipping to Amazon. Simply put, when there is an order, Amazon will package and ship products to customers from the Amazon fulfillment center. This way enables an online business to relieve overloaded burden; however, it requires additional costs arising from FBA service ( sign-up fee, fulfillment and storage fees, removal fees for damaged products, etc.)
Alternatively, Fulfilled By Seller (FBS) is another worth-mentioning option. FBS is fairly similar to FBA, but it is the e-commerce business that will be responsible for packaging and sending products directly to customers. By this model, the online business does not need to pay service fees to have Amazon handle, but it takes full control of the process.
So, which e-commerce model suits your business most?
1.4. What is your proposed fulfillment plan?
Shipping and warehousing associated matters should be well considered in your plan when coming to an e-commerce business.
Again, picking an appropriate e-commerce model is of vital importance. It, in fact, will be closely tied with your storage and logistics plan. Some might choose to build their own warehouse, meanwhile, others may want to outsource to another third-party service provider.
Choosing fulfillment centers allow online merchants flexible shipping and warehousing services. You do not need to operate your own physical storage, but just directly push your inventory out to the fulfillment center. From the center, products are distributed to the customers over the world. Remarkably, most fulfillment centers are normally bound up with e-commerce marketplaces (Amazon, eBay, and many others), facilitating much more convenience for online businesses.
There are numerous fulfillment centers available for online businesses. In the USA, Fulfillment Center of Amazon is a typical choice. Furthermore, Hong Kong or China based fulfillment centers such as Shipwire, ZhenHub, Exchain are also names to gain in popularity.
1.5. Opening a merchant account: Is it necessary?
Opening a merchant account is relatively essential for your e-commerce business if you are selling products on your own websites or operating on selling platforms.
Most significant sales channels such as Amazon, eBay will require e-commerce players to connect with a merchant account and payment gateway. This pattern also goes for Hong Kong e-commerce companies. Paypal and Alipay accounts are considered to be the top-most ones in this city.
And if you are getting a merchant account opening in mind, be advised to understand your target customer to know which one is best suited for your selected type of business.
2. How to set up an e-commerce company in Hong Kong
A typical process of setting up an e-commerce company in Hong Kong includes the following steps:
- Register a company
- Get a bank account opened
- Check whether the business must apply for a license
- Decide on the marketplace
- Arrange bookkeeping and maintain the company
2.1. Register an e-commerce company in Hong Kong
One very first question for most new business players when embarking on the-blistering-pace e-commerce industry in Hong Kong is how to set up a company. The positive thing is that it is as easy as incorporating a normal company in Hong Kong. Dedicated support from a local professional service firm like BBCIncorp can even streamline your Hong Kong company formation within 24 hours.
Registering an e-commerce company in Hong Kong goes through 4 main steps:
- Choose your ideal type of business
- Select your company name
- Settle upon your company structure
- File the application and submit required documents to the Companies Registry of Hong Kong
Want to learn a step-by-step guide to forming a company in Hong Kong? Find out more: How to Set Up a company in Hong Kong
Among various types of business entities in Hong Kong, a private limited company is considered to be the most common one for those engaging in online businesses. The force behind this popularity is due to its separate liability among shareholders, meaning your personal assets can be completely secured. This is not to mention the low tax rate imposed on and the flexibility of the ownership transfer in a private limited company in Hong Kong.
As compared to a sole proprietorship or a partnership, entrepreneurs with a desire of starting an e-commerce business in Hong Kong are highly recommended to pick a private limited company to go for.
2.2. Open a ‘bank’ account in Hong Kong
Well, Hong Kong is among the world’s best global financial hubs.
And you are planning to set up an online business that will require your business-related transactions to work well on digital platforms.
The result is? Opening a bank account or bank-like account is actually indispensable. If you are going to think about the banking system in Hong Kong and pick a business-friendly banking partner, some options to put in your shortlist should be HSBC, DBS Hong Kong, Citibank, and so forth. Take your reference to BBCIncorp’s Online Banking Tool to simplify your choice!
Some may wonder about the challenges to successfully get a traditional bank account in Hong Kong opened. Certificate of Incorporation, your company’s business proofs, the company’s registered address, and additional paperwork must be well prepared, as your bank of choice requires.
For some nationals, Hong Kong banks do apply stringent conditions for the eligibility of opening their corporate bank accounts. The nationality of your company’s directors, shareholders, and beneficial owners are under the scope of examination as well.
Good news is that in Hong Kong, alternatives to bank accounts are now growing fast, facilitating the ability to open accounts for most e-commerce businesses. It can also be said that those money service operators are especially created to suit e-commerce businesses. Neat Account is a case in point. It grants you a super-fast registration with minimum balance, multi-currency account availability, and especially a completely online process. Neat Account can also link with your business’s payment gateway efficiently to streamline your online business.
2.3. Look up for license
NOT all businesses in Hong Kong are required to apply for a business license. Depending upon your choice of business activity, you may have to obtain a proper license or permit to legally run your online business in Hong Kong.
Suppose you are about to start your Hong Kong e-commerce business by selling Chinese herbs or cosmetics products online, applying for a business license with the Hong Kong’s Department of Health is a must. Or, your company intends to operate in serving alcoholic beverages online, having a liquor license in Hong Kong is compulsory.
Any license or permit is required for your business line in Hong Kong? Check out here.
2.4. Decide on your marketplace
Choosing and understanding your target marketplace is another important step.
Each e-commerce company can generate different ideas of what is the best e-commerce platform to meet the company’s demand. Is it Taobao, HKTVmall, or Tmall where you’ve targeted to penetrate the Chinese market? Or, do you want to become a seller on eBay or Amazon? These are common questions for Hong Kong businesses to put in their business plan.
To operate on a marketplace, it is necessary to send them your business registration number which you have already received after your Hong Kong company setup. Moreover, they would require your bank account number to verify account details.
Note that some significant players like Amazon also restrict the number of countries allowed to sell products on their platform. Currently, Amazon accepts 103 countries to register for becoming a seller, including Hong Kong. Therefore, having a careful examination of each marketplace to check whether it is the right platform for your Hong Kong business is very essential.
2.5. Arrange bookkeeping and maintain your company
Unless exempted as regulated in Hong Kong laws, an e-commerce company in Hong Kong, like most companies, must follow annual compliance requirements with competent authorities. Particularly, the company needs to:
- After the first 18 months since its incorporation date, file Profits Tax Return to the Inland Revenue Department (IRD) of Hong Kong.
- File an Employer’s Return of Remuneration and Pensions with IRD
- Within 42 days from the anniversary date of incorporation, file an Annual Return with the Companies Registry
It should be noted that financial statements in your reporting must be audited before submission (except for a dormant company). Therefore, keeping records of your business-related transactions is well advised to be carried out on a regular basis. This is highly recommended for e-commerce companies, as an online store can actually come with a significant number of transactions to handle at once.
Seeking an online Hong Kong accounting service is an effective solution to stop your business from waste of money and time when dealing with such duties.
3. The bottom line
How to start an e-commerce business in Hong Kong? You may now get your answer. Keep in mind, ask yourself a few questions before setup is never of no use.
There will be no one all-embracing business model for e-commerce businesses, so it is vital to understand their pros and cons to your business circumstances before selecting. Having a fulfillment strategy and opening a merchant account are very essential when coming to running a Hong Kong online business as well.
Important steps to set up an e-commerce company in Hong Kong: Register a company, open a bank account, check the need for a license, determine the right marketplace, and keep the company stay compliant in the post-registration stage.
Still uncertain about the incorporation procedure for an e-commerce business in Hong Kong, and need more advice from our dedicated experts? Feel free to drop us a message now!