Why the Christmas gift industry is recession-proof

November 18, 2015 06:06
Richard Chan founded his own company with his life savings of HK$70,000. Photo: HKEJ

In the 1970s to the 1990s, when Hong Kong’s economy began to take off, many manufacturers with factories in the mainland became impressively wealthy when exports boomed in the Pearl River Delta region.

However, after more than 20 years, many factory owners have been put out of business by fierce competition.

Some are barely alive.

Richard Chan, vice president of the Hong Kong Small and Medium Enterprises Association, said the changing operating environment in the mainland has made it harder for Hong Kong manufacturers to make a profit.

However, he remains bullish about the growth prospects for the manufacturing industry in the Pearl River Delta region.

He said Hong Kong manufacturers have a definite advantage over their competitors in customer service and product design.

"While Hong Kong manufacturers must have their own assembly lines in the Mainland, they also need to establish their own exhibition areas in their head offices in Hong Kong to showcase their products to international buyers," he said.

"My company spends an average of HK$500,000 to HK$700,000 every year to showcase our products in Frankfurt, not only to get export orders but also to promote Hong Kong’s products."

Over the years, Chan has been running a successful business making artificial Christmas trees and decorations.

He keeps an exhibition venue in Hong Kong for that business while investing in local stocks and properties.

Mindful of volatile government policy in China, he avoids investing in mainland properties.

Also, he has resisted the temptation to take his company public, retire and rest on his profits.

"If one day my company did go public, it would be because I wanted to bring my business to the next level, rather than to take the money and retire," he said.

A public listing would be his ultimate goal but he is not in a hurry.

Also, he is concerned he might not have enough energy for the extra workload.

“Being a public company means you are accountable to your shareholders and you need to make sure you can always come up with a nice balance sheet," he said.

"I am not sure if I have enough energy to cope with that.”

Like many ordinary Hong Kong people, Chan started from scratch. He is a self-made billionaire.

Chan entered the Christmas gift industry 20 years ago as an employee in a local manufacturing company.

There, he gained experience and connections, paving the way for himself to start his own business years later.

"I believe you can’t really learn anything and can’t build any connections and truly understand your own products unless you have worked in the same company for at least five years," Chan said.

"In my case, I spent seven years in my first job. It opened my eyes to how vast the Christmas gift market is."

His boss once told him he would "never find a better job than".

The remark inspired him to start his own business and be his own boss.

"I thank him for that." 

Chan landed a new job, this time with a mainland company where he was responsible for product design, production line management and contract negotiations.

A few years later, he decided to take the plunge while maintaining a partnership with his former employer.

Life savings

With his life savings of HK$70,000, Chan founded his company.

Although things did not go smoothly in the early years, the business saw a tremendous boost after he opened his own production line.

It survived the 2008 global financial crisis thanks to the recession-proof nature of the Christmas gift industry.

In the past decade, the business has grown from to 600 hundred employees.

It is housed in its own two-story headquarters and operates production lines in Huizhou and Dongguan, with annual turnover of over HK$100 million.

Chan still works his heart out every day.

"I remember those days when I would take the last bus to Tuen Mun to get home. I had bought a flat in Tuen Mun before I started my company. It was when property prices were at their peak."

Tough times

In the past many Hong Kong entrepreneurs had an easy time setting up their factories on the mainland and then public, Chan said.

However, as competition intensifies and salaries keep rising, manufacturers need to come up with new ideas in order to survive.

Chan hopes the government will give more support to small businesses in Hong Kong.

Although small businesses benefit from several subsidy program such the SME Export Marketing Fund, the SME Loan Guarantee Scheme and the SME Development Fund, bureaucracy and red tape are hurting small business owners.

“If a small business owner can offer his property as collateral, he can easily get a loan of several million dollars from a bank," he said.

"In contrast, it might take months for the government to approve a loan of several hundred thousand dollars."

This is the first in a two-part series on Hong Kong manufacturers. The article appeared in the Hong Kong Private Banking Journal on Nov. 18. 

Translation by Alan Lee

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