Your growth opportunity in Asia
Asia Brand Office is a team of professionals in Hong Kong with deep experience across the Asia Pacific region.Since 2006, we have created profitable growth in Asia for international brands in Greater China, Japan, Korea and Southeast Asia.Our unique operating model allows you to retain control of your brand distribution in Asia, optimise your distribution channels and maintain your gross margins.Asian markets are incredibly valuable:• East Asia alone contributed USD23bn in 2022 final consumption value• Asia is likely to contribute 50% of global consumer spending growth to 2030• Asian economies are shifting to middle and higher income consumption, so the fit with products and services from G7 and related economies will only grow closer• Cities are consolidating as consumption centres, making distribution even more efficient
Contact Asia Brand Office with the form below.How can we help drive your next 20 years of business growth?
Our services
• Market research: to inform your strategy for the region and each addressable segment within it• Regional brand adaptation• Marketing planning and execution• Channel development including direct import and cross-border ecommerce• Subsidiary setup, strategy and governance• Operations outsourcing• Brand partnerships and collaborationsWe've helped these brands to success in the largest markets in Asia:
Economic indicators
Some of the trends we follow in the region.
Why Hong Kong?
Strategic Location and ConnectivitySituated at the heart of Asia, Hong Kong enjoys a prime geographical location that serves as an ideal gateway to the region. Its proximity to Mainland China, as well as its strategic connections with Southeast Asia, Japan, and South Korea, positions it as a hub for international trade and commerce. The city boasts a world-class transportation infrastructure, including a modern airport, an extensive port network, and efficient logistics services, facilitating seamless connectivity and efficient distribution across the region.The chart below shows the number of core consumers by market within easy reach of Hong Kong and their average annual spending. For comparison, we've included the equivalent market sizes and consumption levels for the countries of origin of our clients.The chart shows that Japan, Korea, Singapore, Hong Kong and Macau are similar to the US, Canada, the UK, New Zealand and Australia in the scale of individual consumption. Despite China having nearly 1 billion people in the core consumption cohort (aged 15-64), its annual consumption per capita is more like Thailand or Malaysia.
Business-Friendly EnvironmentHong Kong's business-friendly environment is characterised by its low taxation, simple regulatory framework, and efficient legal system. The city consistently ranks high in global indices for ease of doing business, providing a supportive ecosystem that fosters entrepreneurship and innovation. The transparent and predictable legal system, coupled with robust intellectual property protection, instills confidence and security for companies operating in Hong Kong.Financial Centre and Access to CapitalHong Kong's status as an international financial centre further enhances its appeal as a business hub. The city boasts a deep pool of financial resources, including a robust banking sector, active capital markets, and a wealth of venture capital and private equity firms. Companies can tap into this extensive network of financial institutions to secure funding, access capital markets, or seek investment for growth and expansion.The SME Loan Guarantee Scheme scheme enables easier access to financing for SMEs by providing government-backed guarantees to approved loans. Through this initiative, small businesses can obtain the necessary capital to expand their operations, invest in new equipment, or fund innovative projects, thus fueling growth and job creation.Moreover, the Hong Kong government also offers a range of funding and training programs to nurture entrepreneurship and innovation. The Innovation and Technology Fund (ITF) provides financial support to SMEs engaged in research and development activities, encouraging the adoption of innovative technologies and enhancing competitiveness. Additionally, the CreateSmart Initiative offers funding to support projects in the creative industries, fostering artistic and cultural entrepreneurship.There are also matching grant schemes for spending by SMEs on marketing to attract customers outside Hong Kong.To further support small businesses, Hong Kong has established dedicated business advisory and support centres.Skilled Workforce and Talent PoolHong Kong prides itself on its highly educated and diverse workforce. The city's educational institutions produce a steady stream of graduates with a strong foundation in business, finance, and technology. In addition, Hong Kong attracts international talent, thanks to its cosmopolitan nature and English proficiency. Companies establishing their presence in Hong Kong can leverage this talent pool to drive innovation, enhance productivity, and gain a competitive edge in the Asian market.Vibrant Innovation and Technology EcosystemHong Kong has witnessed a rapid growth in its innovation and technology sector in recent years. The city is home to thriving start-ups, incubators, and research institutions, fostering a vibrant ecosystem that encourages collaboration, creativity, and technological advancements. Initiatives such as the Hong Kong Science and Technology Parks and Cyberport provide support and resources for companies in sectors like fintech, biotech, smart cities, and more. This ecosystem creates opportunities for partnerships, access to cutting-edge technologies, and the development of disruptive solutions.Cultural Bridge and Market AccessHong Kong's unique position as a bridge between East and West makes it an ideal base for companies aiming to navigate the complexities of the Asian market. The city offers a deep understanding of both Western and Asian business practices, enabling companies to bridge cultural gaps and forge meaningful connections with partners and customers across the region. Hong Kong's robust legal framework, free flow of information, and international business practices provide companies with a solid platform to access the vast consumer markets of Mainland China and Southeast Asia.
Invest Hong KongSouth China Morning PostHong Kong export and importChina market profiles and research
Our thinking
Nobody Goes There Anymore. It's Too Crowded. (And Cheap.)
10 May 2024
1. (Shopping) Paradise Regained
It's déja vu all over again in Hong Kong retail memes. This February, SCMP was happy to report the declining appeal of the territory to tourists, specifically Mainlanders, because it is so expensive to shop here. There are similar stories at Reuters and The Standard.SCMP quoted the president of the Hong Kong Tourism Practitioners’ Union saying:It used to be a shopping paradise, but now people can buy the same things on the mainland.This is true...unless you consider price and selection to be important factors when you shop.One of Hong Kong's distinctive, enduring advantages is its free port status. When you combine this with the absence of local sales or other value-added taxes on retail purchases, you get comparisons like this for fully imported goods like the Swatch Bioceramic Moonswatch:CN retail: RMB2,300 or USD318
HK retail: HKD2,100 or USD269 (-15%)And Estee Lauder Advanced Night Repair Synchronized Multi-Recovery Complex 50mL:CN retail: RMB960 or USD133
HK retail: HKD965 or USD124 (-7%)And Nike Air Jordan 1 Low:CN retail: RMB849 or USD118
HK retail: HKD849 or USD109 (-8%)If there's room in your budget for one small additional item like a Montblanc Meisterstück one pen pouch with zip, the good news is you are already a VIP customer without having to ask:CN retail: RMB2,540 or USD352
HK retail: HKD2,350 or USD301 (-14%)That four-item basket, which we chose because it corresponds with some of the new frugality for Chinese consumers, rewards even a day tripper with savings of USD118. Obviously, for higher-priced goods, the dollar value of the discounts is much greater.
2. So...Where Is Everybody?
Despite a lot of anxiety in the media about fewer visitors, the data we follow shows that tourists are, in fact, returning rapidly. In the month of February 2018, before any COVID effects were apparent, Hong Kong had 5.28 million tourist arrivals. In February this year it was just over 4 million. So, in just over a year since its almost complete international travel restrictions were properly relaxed, the territory has regained about 75% of its pre-COVID visitor momentum.It's worth noting that, even at the most recent 4 million monthly arrivals, annual tourist traffic outnumbers local traffic by nearly 7:1. This - more than 55 million annual potential consumer visits - is the other part of what made Hong Kong retail so vibrant historically. It's equivalent to the local populations of Greater Tokyo and New York-Newark squeezed into about 35% of the space.
3. Luxe Is In Flux
Flows are one thing but stocks, and overstocks in particular, are quite another. Our discussions with selected premium Hong Kong retailers suggest that higher-priced categories are still suffering. As a result, they are still cautious about adding new brands or significant amounts of new floor space.There are many reasons for this uncertainty.First, Hong Kong retail sales, which have been recovering strongly from the decade lows of February 2020, are still about 25% below pre-COVID levels and have been volatile in the last 12 months.Second, while the territory's population increased by just over 3% from 2018 to reach 7.5 million at the end of 2023, the distribution has changed. Upper middle-class areas including Happy Valley, Mid Levels and Repulse Bay lost up to 13% of their total residents between 2018 and 2022, while the New Territories continued to grow.Third, if you believe in the real estate wealth effect (and this is both empirically and emotionally true in Hong Kong), you cannot ignore the 27% decline in the real residential real estate price index since the peak of July 2018.Fourth, the previous two points are clearly contributing to the moribund recent performance for Hong Kong in what we consider to be the best forward-looking index of luxury demand in Asia: the value of exports of Swiss watches. We recently constructed our own time series from 1988 using Swiss customs data because the FHS reports are usually incomplete. During the peak of Mainland tourism consumption in 2012, Hong Kong alone accounted for 20% of all global Swiss watch exports. Since COVID, that share has declined to less than 10% and the China market - which suffers from the sales and related tax disadvantages noted above - has surpassed Hong Kong.Fifth, Hong Kong is suffering from a persistent COVID-related skills shortage across several sectors including retail and hospitality. It's not yet clear how the government's relaxing of some immigration restrictions will help with this, since the new policy was only implemented in September 2023.Sixth, and critically, while overall Hong Kong retail sales are 25% lower than 2018 and our leading index for luxury demand is also about 20% lower, the Hong Kong retail rental index is only down 17% since the peak of 2018. Importantly, landlords remained inflexible during the crisis: the index remained within 12% of its 2018 peak until the end of 2022, when overall monthly retail sales had already fallen by as much as 40% from pre-COVID levels. We can forgive retailers for being cautious given this recent and very painful experience.(An aside on retail real estate: many advisory firms are suggesting prime street vacancy rates will continue to decline below 10% and are forecasting 5-10% annual rental increases in 2024-2025. But a short walk in street areas like Central and TST shows that the momentum in footfall, build-out and cohesion in category and quality is very far from where it needs to be.)
4. The Future Ain’t What It Used To Be
Hong Kong has a history of rebounding strongly from challenges, including the 1967 crisis, the large-scale migration of the early 1990s, the Asian Financial Crisis, SARS and the GFC. COVID has been different, though, not least because of the scale and the persistence of the self-inflicted economic effects. We are really only seeing a sustained recovery in retail now.The territory's inherent advantages in retail - and in trade generally - are already manifesting themselves in increased tourist arrivals and recovering overall sales. However, the luxury segment is slow and our preferred leading index suggests this will persist through 2024.With the changes in Hong Kong's demographics and more modest Mainland tourism spending post-COVID, it's likely that the luxury segment will have significantly less overall share than before 2018. In any case, Louis Vuitton and Omega are responding to the improving sentiment and spending by expanding their footprints again.This is a truly interesting time, full of opportunity for mid-priced operators who reward customer curiosity with encompassing and memorable experiences. The newly-refreshed Hands, Restoration Hardware (with a significantly adjusted range to suit apartment-only living), Musinsa, Rothy's, Reformation and American Giant are all positioned well for this environment.Hong Kong's existing multi-brand retailers are still understandably conservative about investing for growth. They are caught between continuing volatility in demand, staffing challenges and the typical inflexibility of landlords.We think the retail recovery is here to stay and that customers - both local and international - will respond to interesting, high concept/mid price offers with experiences that are distinctive of the city and its cultural and shopping traditions. Innovations in this mode are already happening with Airside and Anima Tokyo.This is a period in which a new M at The Fringe or Shanghai Tang can be founded: we hope that landlords, retailers and brands of all kinds might find some creative solutions to allow just those sorts of happy accidents.
History Never Repeats, Except When It Rhymes
14 March 2024
The excellent Japan Consuming has an article in this month's report about the increasing level of frugality among Japanese households. This theme continues with references in Bloomberg and The New York Times.But wait...the NYT article is from 1975, in the second half of the Showa period. The author noted that:There is general agreement here that the recessionary plunge, which began with the Arab oil embargo 20 months ago, has hit bottom. But it seems to have flattened out because the Japanese consumers, by and large, are keeping their money in their pockets as they carry on “the revolt of the consumer” against inflation.Personal consumption accounts for slightly more than half of the gross national expenditure here and, thus, is noticeably restraining the economic recovery. The outlook is for a long, slow climb with true recovery probably a year or more away.The Japanese Government, the banks and the economists attest to that with their revised economic forecasts for the cur rent fiscal year, which began April 1. The original Government prediction was a real growth rate of 4.3 per cent—and that was among the most pessimistic. Now Government officials are seeing 2 per cent as perhaps the best that can be hoped for....The Nomura Research Institute predicted recently no more than a 2.1 per cent rise because consumer spending is restrained, capital expenditures are down because of overcapacity in productive facilities, and exports are expected to drop 5 per cent in the world trade slump.Similarly, the Fuji Bank has predicted a 3.2 per cent real growth and cites the same reasons, saying, “Consumers continue to be cautious, and the growth of their expenditures, especially on durables, will remain slow.”During the fiscal year that elided [sic] on March 31, Japanese consumers demonstrated the Iowest propensity to consume since World War II. They spent only 76 per cent of their disposable income.So far this year, that trend continues. Department‐store sales dropped 2.9 per cent in April, compared with March. Sales were 13.9 per cent above a year ago, which, given inflation, meant practically no growth at all. In May, sales rose only 12 per cent over a year ago, the smallest increase in more than three years, and real growth was again eliminated by price rises.For those of us who watch Japanese consumer behaviour closely, that data and commentary could have been from any year since about 2001.And yet, Japanese consumers continue to power global luxury goods retail, including a year of double-digit growth for LVMH in 2023 and similar YTD results for Hermès.
Chain-link logic: providing enduring consumer value through inversion and deeply integrated design.
15 November 2023
This discussion from Richard Rumelt’s book is instructive:Consider IKEA. Formed in Sweden in 1943, the company designs ready-to-assemble furniture it sells through special IKEA-owned stores, advertised by its own catalogs. Giant retail stores located in the suburbs allow huge selections and ample parking for customers. In the stores, the catalogs essentially substitute for a sales force. Its flat-pack furniture designs not only reduce shipping and storage costs; they also help keep the stores in stock and let the customers pull their own stock out of inventory and take their purchases home, eliminating long waits for delivery. The company designs much of the furniture itself, contracting out manufacturing, but managing its own worldwide logistics system.IKEA’s strategy is an effective way to co-ordinate policies, but it is hardly secret. Won’t other companies see how it works and copy it, perhaps even improve it? The explanation for its continued excellence and the lack of any effective me-too competition is that its strategy builds on chain-link logic.IKEA’s adroit coordination of policies is a more integrated design than anyone else’s in the furniture business. Traditional furniture retailers do not carry large inventory, traditional manufacturers do not have their own stores, normal retailers do not specify their own designs or use catalogs rather than salespeople, and so on. Because IKEA’s many policies are different from the norm and because they fit together in coherent design, IKEA’s system has chain-link logic. That means that adopting only one of these policies does no good — it adds expense to the competitor’s business without providing any real competition to IKEA. Minor adjustments just won’t do — to compete effectively with IKEA, an existing rival would have to virtually start fresh and, in effect, compete with its own existing business. No-one did. Today [the book was published in 2011], more than fifty years after IKEA pioneered its new strategy in the furniture industry, no one has really replicated it.IKEA continues to increase its share in markets like the UK, adapting its strategy to include smaller format stores and click-and-collect options. Apple and Amazon also compete very effectively using chain-link logic.InversionIn the mid-market, where we work, there are far fewer successful examples of both elements of Rumelt’s thinking: inversion and deeply integrated design.Smaller companies naturally develop by inverting - or even subverting - industry practice because it is usually fatal for them to compete head-on with the market leaders:• Charles Rolls and Tim Warrillow, the founders of Fever-Tree, realised that consumers of high-quality spirits needed mixers of the same standard• Sara Blakeley needed a sheer undergarment that would work under white pants and developed SPANX• Frank Toskan and Frank Angelo couldn’t find makeup with colours and textures that resolved well in fashion photography, so they created M.A.C• Roxane Quimby found a large, hidden US distribution channel for Burt’s Bees personal care products: small health food stores and perfumeries• Kevin Plank developed Under Armour as a sophisticated synthetic alternative to cotton t-shirts for elite athletes in hot conditions• Rei Kawakubo launched her COMME des GARÇONS fashion label outside Japan in 1981 using fabrics, cutting and presentation that were like “a piece of shock theatre” for consumers of that eraDeeply integrated designWhile his own approach is independent of Rumelt’s, Richard Koch has made both a study — and practice of investing in — small and mid-market businesses that combine both of Rumelt’s strategic elements:• Filofax, the leading paper-based personal organiser, had a proprietary refill system and became one of the aspirational products of the 1980s• Belgo began as the first Belgian monastery restaurant in London in 1992, with a unique dining area, an exclusive range of Belgian beer and a high-margin, high-quality but very efficient menu• Betfair was the first betting exchange in 1999, providing professional gamblers and sophisticated, enthusiastic amateurs with lower transaction costs and the ability to wager against each other instead of bookmakers (using a web-based exchange, the business could also grow very quickly)Some other growth businesses from Koch’s study that developed authentic chain-link logic include:• Cirque du Soleil combined elements of the traditional circus with new, unique stories, tightly integrated with original music, visual effects and physical performance• Kinepolis created cinema “megaplexes” in exurban locations with free parking, a wide range of films and other entertainment, high-quality food and comfortable seating• AbeBooks became the largest online marketplace for rare books, fine art and collectiblesWe want to work with companies that harness the power of chain-link logic. Some interesting developments in this area are:• Patagonia’s repair and used gear services, which reinforce its reputation for quality and longevity and extend its relationship with its customers• Thrive Market’s membership-based, discount organic grocery service• the approach taken by two young developers to design and incubate their extremely popular Jailbreak game within the Roblox community• the markets for authentic new and pre-owned fine watches operated
by Chrono24 and Watchbox• Rapha’s cycling club and clubhouses, which reinforce the values of the company and provide opportunities for its customers to meet and enjoy the culture of road cycling
Our ideal partner
11 January 2023
We are always glad to speak to companies with these characteristics:Independently led and inspiredConsumers and team members engage most intensely with brands and products that are inspired by deep industry knowledge, creativity and strongly differentiated perspectives. To quote the late Dame Anita Roddick:'It's making your product so glorious that people don't mind buying it from you at a profit. Their reaction is, 'I love that. Can I buy that?' You want them to find what you are doing so wonderful that they are happy to pay your profit."'Patagonia, Phaidon and Birkenstock are good examples of this factor at work. If the company founder is still leading the business, so much the better.Thriving with plenty of room to growOur focus is the mid-market. Companies with more than USD10–15mn equivalent in revenue, positive profit and cash flow and decent growth are the best fit. We're especially interested in businesses that already show some scale and consumer loyalty effects.Managed by disciplined entrepreneurs who want to keep learningSmaller companies necessarily experience greater volatility in financial metrics as they grow. A skincare brand loses a high-performing department store location as it opens its own stores. A distributor's catalogue suffers as some of its brands are acquired by a multinational. A beverage business doubles its volume in a year thanks to a new channel. Each of those events implies enormous changes and pressures within each organisation. The management team in a mid-market growth business has to make strategically coherent, financially valuable decisions that do not risk its survival if they are wrong.Located in structurally advantaged industries and market segmentsWe know that business is complicated and difficult; even great managers make mistakes. One way to hedge these risks is to invest in industries and segments that are likely to keep growing despite normal cyclicality. Our core investment theme is the continued expansion in spending by Asia Pacific consumers.Even within the overall high growth of the regional consumer sector, there are industries and segments which will grow much faster than average (sunrise) and those which will decline (sunset). For example, in each year from 1999 to 2016, US consumers increased their real spending on recreational goods and vehicles (RGV) by more than 10% while increasing real spending on clothing and footwear (CAF) by only 2.6%. The effect of this relative compounding over 17 years was immense: in 1999 the value of the RGV segment was less than half of that of the CAF segment; by 2016 the RGV segment was more than 50% more valuable.We want to work with companies in the most advantaged sunrise segments in Asia Pacific. Recent, apparently secular, consumption trends that interest us are food consumed out of home in Australia, the impact of tourism on Japanese luxury purchases and Korean preferences for premium imported food.
Our Business Partners
Ben McQuhae & Co"We are a commercial law firm established for one purpose – to apply our legal expertise to support clients who are contributing to the global imperative of building a sustainable future. We operate at the intersection of law, ESG and technology to deliver high-quality legal advice with purpose. We provide legal guidance to MNCs, SMEs, investors, entrepreneurs and startups, focusing on transactions and initiatives in Climate, Biodiversity and Innovation."NH Advisors"We assist with establishing, buying, selling, restructuring and financing businesses. In addition, we assist our clients in dealing with regulatory bodies when disputes arise.As accounting and tax specialists, we are also multi-jurisdictional. Where other services are required, we partner with experts in those fields."FundFluent"We connect small businesses, startups and nonprofits to grants. Access support to start, grow, and scale your business."JapanConsuming"JapanConsuming does just one thing: provide intelligence on Japanese retail & consumer markets. This focus provides clients with expert analysis whether through report, call, meeting or seminar."