Auto Parts & Accessories (tdctrade.com)

Hong Kong exports a large variety of auto parts and accessories. They include safety glass, rear-view mirrors, locks, car seats, electrical lighting, wiring sets and exhaust systems. Hong Kong companies are a major producer of car audio products and car security systems.
Many manufacturers are producing auto parts on OEM basis, but some large manufacturers are producing under their own brand names and designs. Re-exports account for an overwhelming majority of total exports of auto parts and accessories, suggesting the importance of Hong Kong as a trading centre and entreport for auto parts.
It is expected that auto assemblers will continue to locate production close to their markets, hence putting pressure on the parts suppliers to relocate or giving rise to opportunities for new suppliers in the local market. This trend will benefit parts suppliers with close proximity to assemblers. There is also an increasing pressure on lower-tier suppliers to comply with higher quality standards.
As consumers are getting more concerned about passenger safety, driving performance and environmental friendliness, these areas may be the focus of future innovation by auto parts suppliers. Building new models with different value-added functions or features is also a core strategy for some manufacturers.
Under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), the mainland agreed to give all products of Hong Kong origin tariff-free treatment starting from 1 January 2006. According to the stipulated procedures, products which have no existing CEPA rules of origin will enjoy tariff-free treatment upon applications by local manufacturers and upon the CEPA rule of origins being agreed and met.

Although the auto parts and accessories industry is not a major industry in Hong Kong, a large variety of auto parts and accessories are exported. Product-wise, car radios are the largest single items amid the strong position of Hong Kong in exporting a wide range of consumer electronics, including audio-visual equipment for in-car entertainment. Hong Kong also exports certain direct parts and accessories for motor vehicles and motorcycles. A wide range of other parts and accessories for automobiles are also on the export list. These include pneumatic tyres, safety glass, rear-view mirrors, locks, car seats, lead-acid batteries, electrical lighting, alarms, navigational equipment, wiring sets, counters and meters, exhaust systems as well as certain parts for use in combustion piston engines.

Only a few Hong Kong companies are engaged in the production of engineering components for automotive industry. This is because on one hand Hong Kong does not have an automotive industry. On the other hand, it is difficult for Hong Kong engineering parts manufacturers to enter the European and US markets as they lack track records. Most overseas buyers have their established suppliers network already.

In Hong Kong, the auto parts and accessories industry is in an initial stage of development, but more manufacturers are becoming interested in the production of auto parts and accessories, and higher value-added products are being developed. For example, Hong Kong car signal lights manufacturer is adopting super bright LED in its products. Hong Kong manufacturers are also competitive in producing higher-end audio and security systems.

Many local manufacturers are small electrical or metal work factories. Most of them actually carry out production in mainland, or have set up joint-ventures with Chinese or overseas companies there, to take advantage of the lower production costs and proximity to the mainland market.

by Categories	2005		2006		2007
by Categories	Share %	Growth %	Share %	Growth %	Share %	Growth %
Radiobroadcast receivers for motor vehicles	38.9	*	33.0	- 17	25.8	- 14
Parts and accessories of motor cycles/cycles/invalid carriage	9.3	- 13	9.5	*	9.9	+14
Radio navigational aid apparatus	3.3	+136	5.0	+48	9.6	+108
Parts and accessories of motor vehicles	7.0	+10	8.0	+12	8.3	+14
Revolution counters, production counters, taximeters, mileometers, etc., speed indicators/tachometers	6.9	- 2	6.7	- 4	7.5	+23
Other burglar alarm	na	na	7.3	na	7.1	+6
Parts for use with spark-ignition internal combustion piston engines, nesoi	3.0	+1	4.6	+52	6.0	+44
Parts of electric lighting or signalling equipment, windshield wipers, defrosters and demisters	1.6	+33	3.0	+86	4.1	+52
New pneumatic tyres, of rubber	5.2	- 15	4.6	- 14	3.1	- 26

^Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessarily reflect the export business managed by Hong Kong companies. Trade figures for different product groups are based on HS classification system and maybe different from values under the SITC system.
* Insignificant

Hong Kong exports a great variety of auto parts and accessories, which cover different industrial sectors, ranging from electrical appliances and electronics to metal and plastics parts or mechanical components. Some products may have exported under categories of electronic products, and mechanical or plastic parts. But relevant trade statistics do not have detailed breakdowns for particular items exclusively used in automobiles. The above tables present trade statistics (under HS classifications) of products that are identified for vehicles or related uses to avoid misrepresentation. However, figures may also include a small amount of products that are not for use in vehicles, due to the aggregation of some HS codes.

One salient feature of Hong Kong's exports of auto parts and accessories is the dominance of re-exports, which account for about 98% of total exports. This may suggest the importance of Hong Kong as a trading centre and entreport for auto parts, in particular, for the Chinese mainland market.

Most manufacturers produce on OEM basis for car assemblers or for their parts suppliers. However, some large manufacturers also produce under their own brand names and designs, and export either through exporters, agents or directly to overseas importers who buy in bulk and distribute to car dealers, service stations and department stores. There is an increasing trend for major US aftermarket chain-store retailers who are large enough to direct import from manufacturers. Apparently, co-operation with international auto component suppliers will help local manufacturers enter the international market and upgrade their technology standards. Establishing joint ventures with Chinese partners may also help in exploring the Chinese market.

Participation in international trade fairs and exhibitions will not only help Hong Kong companies to know the latest technologies and the product trends, but also meet with potential business partners and overseas manufacturers. In order to establish connections and explore market opportunities, auto parts manufacturers can join trade fair missions organised by the Hong Kong Trade Development Council (HKTDC) to participate in international trade fairs such as AAPEX-Automotive Aftermarket Products Expo in Las Vegas and the Automechanika in Frankfurt. The HKTDC also organises from time to time study missions for Hong Kong manufacturers to visit specific markets for establishing new business relations.

Major players of the world auto industry have continued to shift production close to their markets to gain better access and to reduce costs. This trend has encouraged parts suppliers to follow suit. As many Asian countries have considered the development of auto industry as one of the major pillars of their economic growth, auto parts suppliers with a presence in the region will gain a definite advantage. For example, an increasing number of foreign automobile assemblers have formed joint ventures in the Chinese mainland.

In the meantime, assemblers tend to rely more on a few first-tier suppliers, and require these suppliers to play a greater role in product design and innovation. These first-tier suppliers in turn need to subcontract out more of their production of less sophisticated components, leading to increased opportunities for competitive lower-tier manufacturers.

With growing pressure on cost and quality, the automotive industry has increasingly adopted advanced information technology in design and manufacturing. Computer aided design has become a popular tool in many industries, and is getting mature in automotive geometric design. Computer aided manufacturing, which is largely related to numerical control machining, is also being adopted. Other new technology being adopted in the automotive industry includes rapid prototyping and virtual reality.

Some auto parts and accessories suppliers have brought their operations in line with certain environmental management system requirements, especially the standards of ISO14000, which is particularly emphasised by certain first-tier manufacturers. This is because multinationals are promoting not only their "green" vehicles that are characterised by cleaner emission and energy saving, but also their overall "green" corporate image in view of the increasing concerns over environmental protection worldwide. In this regard, multinationals have increasingly required their supply chains to practise environmental friendly production.

On 18 October 2005, the mainland and Hong Kong agreed to further liberalise the mainland market for Hong Kong companies under the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III). The mainland agreed to give all products of Hong Kong origin tariff-free treatment starting from 1 January 2006. According to the stipulated procedures, products which have no existing CEPA rules of origin, will enjoy tariff-free treatment upon applications by local manufacturers and upon the CEPA rule of origins being agreed and met.

The promulgated rules of origin for auto parts and related items to benefit from CEPA's tariff preference are basically adopting the criteria of principal manufacturing process, change in tariff heading and the value-added content requirement. Detailed information is available from the following hyperlink: http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_2008.pdf.

In 1994, the US's three largest automotive manufacturers, Chrysler, Ford and General Motor, established the Quality System Requirements QS-9000, which is a harmonised standard for the industry world-wide, especially for the supplier network. In Europe, different countries are having their own automotive systems, for example, VDA6.1 in German and AVSQ in Italy. In an effort to align these existing standards, the International Automotive Task Force (IATF), which consists of major vehicle manufacturers, developed the ISO/TS 16949 in conjunction with the International Organisation for Standardisation (ISO). The QS-9000 standard is phasing out and being replaced by the ISO/TS 16949.

Consumers in the developed economies have helped shape the industry's development, as they are getting more concerned about passenger safety, driving performance and environmental friendliness. These areas may be the focus of future innovation by auto parts suppliers. The world, including developing countries such as China, is becoming more concerned about urban pollution, and is paying greater attention to reducing air pollution and raising fuel efficiency. More eco-friendly materials are replacing synthetic materials.

Product development is a key priority as suppliers need to introduce improvements in performance and appearance regularly. Increasingly, more advanced and newly-developed features are incorporated in automobiles. To some manufacturers, building new models with different value-added functions or features is a core strategy. Examples include the wide range of car audio models and advanced electronic technology to help monitor and manage the movement of vehicles. In fact, there is an increasing trend of using more electronic components in automobile, including engine control, instruments, safety electronic components, navigational components, security components and other related products.

Among the vast range of accessories, high-end car audio products, in which Hong Kong is quite competitive, are becoming increasingly popular. Auto radio (with the same advanced features of home audio stereo products) and CD players are popular items. In addition, car security systems which include remote-controlled alarm systems and lock systems also have good market potential in countries with high crime rates. Due to intense competition in the global car industry, new cars are usually equipped with these accessories as built-in features. Some manufacturers have responded by shifting their target customers from end-users to car assemblers on OEM basis.

Meanwhile, there is a growing trend, especially among young drivers, to improve their automobiles' appearance, resulting in greater demand for fancy designs for audio equipment, alloy and aluminium wheels and wheel covers, seat covers and anti-theft systems, mobile phone holders, etc. Consumers are paying more attention to comfort and convenience. Therefore, vehicles are increasingly equipped with all sorts of accessories ranging from telephones to more advanced items such as global positioning systems. Nowadays, the automotive accessories aisle in any store is filled with a wide range of product selections dedicated to comfort and convenience, meeting also every imaginable need while travelling in a vehicle, such as back-seat organizers for kids, adjustable cup holders and hands-free cellular phone attachments.

There is also an increase in the use of plastics for auto production. This trend is projected to continue further, enabled by technology improvement and growing pressure on costs. This development implies considerable opportunities for plastic producers to diversify into the auto market. Hong Kong companies, with proven plastics manufacturing capabilities, should be able to take advantage of this development. There is also the trend of using more aluminium for auto production. It was estimated by 2008, the average amount of aluminium being used in each automobile would increase by another 20% from the level in 2000.

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Auto Parts & Accessories