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Hong Kong’s Licensing Role in the Developing Market of Southeast Asia and India podcast

The licensed products market in Southeast Asia and India is becoming attractive due to the sheer population size, young demographics and rapid market growth, spelling opportunities for Hong Kong.

The licensing market of Southeast Asia

Aside from China, Southeast Asia is one of the fastest growing regions in Asia. Real GDP of the 10-nation ASEAN [1] is seen as having grown by about 5% in 2013. This has been helped by robust private consumption and government expenditure, with projections of strong GDP growth of above 5% in 2014 and outer years. As a trade bloc, ASEAN has gained increased recognition for its economic potential, helped by the visionary move to launch an ASEAN Economic Community (AEC) by the end of 2015. This ambitious regional economic integration strategy aims to create a single market of more than 600 million people, to enable an easier flow of goods, services, investment, capital and people across the region.

As a licensed products market, the economically diverse ASEAN had an estimated size of US$341 million in 2013, a modest 3% rise from the 2012 figure of US$331 million. As a region, it accounted for only 1.8% of the total Asian market in 2013, far smaller than China’s US$5.5 billion. It was also smaller than the single markets of South Korea (US$401 million) and India (US$637 million). Although none of the individual ASEAN countries had a market size bigger than that of Hong Kong (US$286 million) in 2013, the ASEAN market size as a whole is still significant enough for licensing companies to focus on. It was roughly 20% larger than that of Hong Kong, in itself an important location in Asia to develop licensing business (see Capitalising on Licensing Opportunities in Asia via Hong Kong).

Table: Selected licensing markets in Asia, 2008-2013 (US$ million)
Table: Selected licensing markets in Asia, 2008-2013 (US$ million)

While ASEAN’s licensed products market expanded modestly by 3% in 2013, largely in line with that of Hong Kong for that year, performance variations in individual markets were notable. The Philippines charged ahead with more than 5% growth, closely followed by Thailand (4.8%) and Indonesia (4%). Singapore’s licensed products market was unconstructive not only in 2013, but also in the five years to 2013, as it edged up by little more than 0.5% on average annually, which pales in comparison with other ASEAN markets that grew by about 3% each year. In particular, licensed product sales in the Philippines have been catching up lately on the back of robust economic growth since Benigno Aquino III assumed the presidency in 2010. The Philippines’ GDP soared by 7.5% in 2013, chalking up the fastest growth in East Asia with the exception of China (more about the Philippine economy: country profile & Selling to the Philippines: Syncing with the New Retail Reality).

Table: Selected licensing markets in Southeast Asia and India, 2008-2013 (US$ million)
Table: Selected licensing markets in Southeast Asia and India, 2008-2013 (US$ million)

As the largest licensed products market in Southeast Asia, Singapore had a much higher level of per capita sales of US$16.80 in 2013 than its ASEAN peers. By contrast, the Philippines, the second-largest licensed products market in Southeast Asia, had a per capita sales level of only US$0.70 in 2013, which is just a little over 4% of Singapore’s US$16.80. The Philippine population climbed above 100 million in the first half of 2014, making it about 20 times larger than that of city state Singapore, whose per capita income is about 20 times that of the Philippines.

Table: Per capita income and licensed products sales (US$)
Table: Per capita income and licensed products sales (US$)

The licensing market of India

In the world’s second-most populated country, India, which has more than 1.2 billion people, the licensed products market showed an impressive average annual growth of more than 8% in the five years to 2013. Year-on-year growth in 2013 edged down to 0.1% due to the country’s lacklustre economic growth, which more than halved from the levels in 2008 to less than 5% in 2013. India’s economic outlook turned brighter following the landslide victory of the pro-business government led by Narendra Modi in May 2014. Like Southeast Asia, India is a growing market, and high single-digit growth in recent years has pushed up the size of India’s licensed products market to US$588 million. This makes it the second-largest market in Asia after China, accounting for 3.2% of the total Asian market. Nonetheless, per capita sales of licensed products in India was only US$0.46 in 2013, ranking among the lowest in the region and representing about 13% of China’s per capita sales of US$4.10.

Licensing business in Southeast Asia and India

Among the licensors and licensing agents surveyed (please see the survey approach and methodology at the endnote of the article Capitalising on Licensing Opportunities in Asia via Hong Kong), the Southeast Asian markets where they had the highest business involvement was Singapore/Malaysia (21.3%), followed by Indonesia (17.8%) and Thailand (16.6%). In comparison, India received the least business attention from the surveyed respondents (8.9%).

Chart: Licensing activities in Southeast Asia and India
Chart: Licensing activities in Southeast Asia and India

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When asked to rank the reasons posed for developing a licensed product sales market in Southeast Asia/India, respondents did not place much importance on the population size of the respective local markets. The popularity of the company’s licensed property was rated more important, followed by whether the licensing market was growing or not. For the respondents, immediate demand considerations clearly outweigh a market’s long-term potential with regards to size of population. Among the markets in Southeast Asia, Indonesia gained the highest responses in all three selection criteria. Surprisingly, India registered a rather low response in relation to the popularity of properties.

Chart: Reason for doing licensing business in Southeast Asia and India
Chart: Reason for doing licensing business in Southeast Asia and India

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While the current market size of licensed products in Southeast Asia/India is still small, growth is well underway. Excluding local licensors and licensing agents based in the respective markets, a higher proportion of overseas or non-local licensors and licensing agents point to Indonesia as the market showing yearly business expansion in 2013 (64.5%), as compared to India (46.7%) or other markets in Southeast Asia. Of note is that, despite the surge in licensing product sales in 2013 in the Philippines, more than 70% of the foreign-based licensing companies there reported either flat or negative business growth in 2013, with only 28.6% of them reporting yearly growth.

Chart: Licensing business in Southeast Asia and India, 2013 over 2012
Chart: Licensing business in Southeast Asia and India, 2013 over 2012

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This in part reflects that, over the 2008-2013 period, the Philippine market grew more slowly (1.1%) than other markets in Southeast Asia, such as Indonesia (2.9%) and Thailand (3.1%). In those markets, non-local licensing companies reported business performances more in line with the product sales conditions in the countries concerned. At the same, the improvement in licensed product sales in the Philippines in 2013 (5.1%) had yet to trickle down to non-local licensors/licensing agents as much as their local counterparts.

Although the existing licensing market size of Southeast Asia or India is small, not a lot bigger than that of Hong Kong, the much bigger population of these markets, along with young demographics and rapid market growth, make them attractive markets of the future. Respondents anticipated an overall positive business outlook for the next one to three years, with Indonesia considered to be a stand-out prospect among the markets in Southeast Asia and India (see table below). 

Table: Prospects of licensing business over next 1-3 years (%)
Table: Prospects of licensing business over next 1-3 years (%)

Breaking into the licensing markets in Southeast Asia and India

Overseas-based licensing companies prefer to use local agents as their gateways to enter the licensing markets in Southeast Asia and India, rather than use non-local agents or open a local office. Thailand registered the highest response in using local agents (59%), with India reporting the lowest rate (42%) – these responses are comparable to the response rate on breaking into the China market (50%). The term “local agent” refers primarily to licensing agents based in the respective markets in Southeast Asia and India, and also covers overseas licensing agents registered with localised operations there (thereby, including those from Hong Kong). Many of the non-local agents are based in Hong Kong or Singapore.

Table: Entry model for overseas licensing companies in Southeast Asia and India (%)
Table: Entry model for overseas licensing companies in Southeast Asia and India (%)

The top three rationales cited by overseas licensing companies for their preferred means of entering the markets of Southeast Asia and India are: “Have deep understanding of licensing business practice in the area”, followed by “have expert knowledge of marketing and doing business in this area”, and thirdly, “have a strong network of licensees”. This ranking of rationales contrasts starkly to views gathered in a separate survey on the China licensing market, where connecting with prospective licensees was seen as most important (see Asia’s Licensing Hub Reaches Out to China’s Booming Market).

Table: Rationales for entry modes of overseas licensing companies (%)
Table: Rationales for entry modes of overseas licensing companies (%)

Properties in the licensing markets in Southeast Asia and India

Regarding the types of properties handled by licensors and licensing agents in Southeast Asia and India, all of the responses pointed to “Character & Entertainment”, a percentage response even higher than that found in China (89%). American and European properties are the primary focus, particularly those from Disney and Warner, which have been long-time market leaders, as well as more recent attractions like Hasbro’s Transformers. Properties from Japan and Korea, including Doraemon and Hello Kitty, are also very popular. With the number of internet users fast expanding, characters said to be arising from the internet like Japan’s Hatsune Miku are becoming popular.

Aside from foreign properties, local properties are also on the rise in Southeast Asia and India. In Malaysia, Upin & Ipin is the most successful local property, followed by BoBoiBoy and Kanpan. In Indonesia, characters from BIMA Satria Garuda, a comic series collaboration of an Indonesian-Japanese joint venture that was broadcast on TV, enjoy growing popularity in the country.

Chart: Types of properties handled by licensing companies in Southeast Asia and India (n=15)
Chart: Types of properties handled by licensing companies in Southeast Asia and India (n=15)

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Issues confronting licensors and licensing agents in Southeast Asia/India

Across the licensing markets in Southeast and India, “copyright infringement” is a widespread and persistent problem, signifying either the top- or second-most pressing issue confronting the licensors and licensing agents in respective countries. Other typical problems include “immaturity of the licensing market”, “insufficient understanding of the licensing business conditions”, “companies lack knowledge and information of licensing business”, and “insufficient information on licensees”. Basically, these findings echo those found when the same question was posed in the survey on China. The only exception is the “strict restrictions on television broadcasting”, which registers no more than a 10% response across the markets in Southeast Asia, as licensing companies can easily piggyback on TV broadcasts to promote their characters.

Table: Issues confronting the licensing market in Southeast Asia or India (%)
Table: Issues confronting the licensing market in Southeast Asia or India (%)

Essentially, each country faces its own set of challenges and difficulties, apart from the common obstacles of imitation products, low purchasing power, and differences in the distribution environment and manufacturing scale. For example, multi-ethnic countries like Indonesia face additional issues such as multiple languages, and differences in religion and local customs. Compared to the survey conducted in 2010, many issues remain unsolved, though others are gradually improving. Copyright infringement remains an overarching issue for the region, but more than 50% of respondents believe there is some improvement in licensing problems in their respective home turfs. However, the damage inflicted by Chinese bootleg merchandise is considered to be significant. Due to their overall weak buying power, consumers in Southeast Asia tend to purchase less expensive, pirated goods.

Chart: Improvement in licensing problems in Southeast Asia or India (2013 vs 2010)
Chart: Improvement in licensing problems in Southeast Asia or India (2013 vs 2010)

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Hong Kong as an important location to develop licensing business in Southeast Asia and India

In terms of developing the licensing business in Southeast Asia and India, Hong Kong’s key role, both now and in the future, is strongly endorsed across the board. More than 75% of respondents, including those from the Chinese mainland, saw clear benefits in using the Hong Kong platform to develop their licensing business in Southeast Asia and India.

Chart: Hong Kong instrumental in developing licensing business in Southeast Asia or India
Chart: Hong Kong instrumental in developing licensing business in Southeast Asia or India

Download excel

Furthermore, of those licensors and licensing agents in Southeast Asia and India surveyed, more than half were engaged in licensing business with Hong Kong. They also viewed Hong Kong as a useful gateway to conduct licensing business with Southeast Asia and India. The city is seen as commanding good relations with global licensors, and as creative when it came to developing new business in the region. In future, more licensors and licensing agents in Southeast Asia and India will be prepared to undertake licensing business with Hong Kong.

Chart: Hong Kong as a licensing gateway to Southeast Asia or India
Chart: Hong Kong as a licensing gateway to Southeast Asia or India

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[1]  ASEAN consists of 10 members, namely, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.

Content provided by Picture: Dickson Ho
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