Is your business feeling the crunch from the United State’s trade war with China? If so, then you might want to look a little further south to find salvation. Hong Kong has been the world’s business center for decades, but it seems that this country is in a position to become a glittering oasis to those feeling the pressure of import tariffs.
The United States is currently stuck in a bitter trade war with China, and it doesn’t look like it’s going to be over any time soon. The 25% duties imposed by the US government are meant to help the country’s many businesses compete with an influx of foreign goods, but it may not play out exactly as intended. Even businesses who manufacture domestically need imported goods, and the added costs could cause them to take on massive losses.
These losses could eventually lead to layoffs, reduced hours for workers or even the closing of those businesses.
This potential reality is not lost on any industry, though it would seem those with the worst burden to bare would be the multitude of e-commerce businesses who source and ship their products directly from China.
If you are an entrepreneur who has found yourself crunching the numbers to see if you can keep your business model from going underwater; then fear not. While the winds have certainly shifted and mainland
China may not be the gold mine of cheap products and services that it once was, you need only direct your attention a little further south to find the new promised land, one that may be an even better opportunity for businesses who are heavily dependent on imports.
This magical land is called Hong Kong, and while technically it does reside within the boundaries of China, it is its own bustling nation. The lovely land of Hong Kong is one of the world’s busiest container ports, and they have been credited with having the highest degree of economic freedom in the world since their inception to the Index of Economic Freedom in 1995.
Trade and logistics account for 1/5th of the country’s GDP, and in 2016 the United States accounted for 10% of their exports.
While it seems that there is some debate over how things will play out and even Hong Kong officials are worried about being caught in the middle of the trade war between the United States and mainland China, it appears that Hong Kong could be in a unique position to capitalize on the mainland’s problems.
In 2017, over 18% of mainland China’s exports went to the United States, and Hong Kong could soon snap up part of that market share.
Hong Kong and the art of getting off on a technicality.
Hong Kong is a little difficult to explain. It is its own nation, but then again it’s not. Technically, Hong Kong is still very much a part of China, and they are subject to the laws of the Chinese government. However, they are also their own entity, and they are left much to their own devices by the powers that be.
This care-free attitude has made Hong Kong one of the most attractive destinations for offshore businesses for decades. Entrepreneurs from countries all over the world have sought out this paradise of the business world to more freely participate in various industries and trades for many years.
Though even more interesting than how China treats Hong Kong, is how the United States treats Hong Kong. The United States-Hong Kong Policy Act, which was enacted in 1992, allows the United States government to treat Hong Kong as an entirely different entity than China in regards to matters concerning exports.
This means that despite actually being part of China, Hong Kong is not subject to the same export laws, and thanks to this technicality, it’s possible for them to skirt these new duties entirely. In fact, shipments are free from any duties as long as the value of them is under $800.
This creates an interesting opportunity that many savvy entrepreneurs are keen to take advantage of to reduce their tax burden. It also means that any attempts the United States has made to impose additional taxes on Chinese factories will likely be ignored. In any case, it seems that these new laws could greatly benefit Hong Kong’s shipping industry.
In previous years, Hong Kong’s importance as a port has been diminished. This is mostly due to many new shipping ports popping up all over the mainland which were more convenient for factories. However, with large import duties looming over the heads of businesses, it could again be Hong Kong’s time to shine in this industry.
Twenty-five percent is a huge hit to the pocketbook, and many of these mainland located shipping companies may soon find that convenience is no longer enough to sway American businesses who could save significantly on their costs by moving further south.
The best part is that you don’t even need to have global connections to take advantage of these savings. Almost anyone, whether they are Amazon based e-commerce businesses or even crowdfunded projects looking to get products made for their Kickstarter or IndieGoGo projects, can take advantage of these indirect shipping routes to save money on their imports.
How can your businesses take advantage of this?
For many e-commerce businesses who have been hit hard by the new duties imposed on Chinese imports, this is a dream come true. Hong Kong resides in a very convenient location. It’s very close to China’s Pearl River Delta. This area is China’s crown jewel, and it’s home to a large portion of their manufacturing industry.
If you are already importing or manufacturing goods for your business in China, then there’s a good chance that they are coming from this area. If this is the case, then you could very well take advantage of Hong Kong’s duty-free shipping without even changing factories.
Many businesses have quickly discovered that it’s actually cheaper to route their shipments through Hong Kong rather than sending them to the United States directly. Since Hong Kong imposes no duties or tariffs on most goods itself, you’ll incur no further expenses here.
Plus, thanks to Hong Kong’s centralized location in the Asia-Pacific and the fact that they are one of the world’s busiest container ports, your shipments may even arrive faster than they did before. You’ll also incur no additional taxes by routing through Hong Kong because they are a duty-free port with the exception of a few items such as alcohol and tobacco.
There are also no VAT or GST taxes in Hong Kong to deal with.
If you currently fulfill products directly from China, then there are a few more benefits involved in moving these operations to Hong Kong instead. Many entrepreneurs and businesses ship from China using the ePacket method, which allows for these items to enjoy subsidized shipping and even tracking services provided by the United States Postal Service for the last leg of the journey.
Fortunately, Hong Kong is also a member, giving them access to reduced shipping costs for its fulfillment centers.
It’s also possible that your delivery times could be better as well. Hong Kong is serviced by 100 different airlines flying to 220 destinations. When you ship small goods, they are of course delivered on planes, and that means fulfilling from a location that is well connected in the shipping industry can give you a big advantage when it comes to delivery times.
It’s possible that you could see your package arrival times reduced by three full days or more. Customs operations in Hong Kong are also laxer than those on the mainland, which helps push your shipments through faster.
By using Hong Kong as your base of operations and fulfilling shipments from there, you’ll also receive another benefit. Since in most cases your shipments will likely be under $800 for each customer, you’ll be able to avoid paying any duties at all on them when they are shipped to your customers in the United States.
This could provide your e-commerce business with additional savings over bulk shipping goods straight to the US. Not to mention the fact that it’s likely cheaper to fulfill them through a company directly in Hong Kong rather than use a service such as Amazon Fulfillment, which takes an unreasonably large chunk of your profits.
If you are currently still packing and shipping your own goods, then there are many benefits to be had by switching to a fulfillment house. For starters, not having to pack and ship your own goods anymore, which is immensely time-consuming. However, you’ll also likely be surprised to learn that fulfillment houses do not pay the same shipping rates as you.
Almost every carrier has “bulk” rates, and it’s impossible to get these if you aren’t a high volume shipper. Using a fulfillment house can put you in the leagues of places like Amazon, who get discounted rates from USPS, FedEx, and UPS.
Shipping costs hit small businesses hard, and this is just another way that you can reduce your bottom line and compete with other e-commerce companies in your industry. Not to mention the fact that you won’t have to worry about customs fees slowing down your shipments or angering customers, and things like returns and custom packaging are streamlined for you.
Outsourcing your shipping and logistics allows you to focus on acquiring new customers, and this alone is worth the small cost incurred per package.
Why Hong Kong Should Be on the Radar of Every E-Commerce Business