Asia accounts for about 8.5% of the world's licensing market, which was valued at US$108 billion in 2005. Excluding the stagnating licensing market in Japan, Asia's licensing market has performed well from 2001-05. The Chinese mainland market has grown spectacularly, expanding at an average annual rate of around 20% and almost doubling to US$1,125 million in 2001-05. The Chinese mainland now represents more than 80% of Asia's licensing market excluding Japan, up from around 50% in 2001.

Aside from its size and rapid growth, the Chinese mainland's licensing market is characterised by its low per capita spending on licensed products compared with more developed markets in Asia, such as Japan, Hong Kong and Singapore. At US$0.85 per capita, which is among the lowest in Asian economies, the potential of the Chinese mainland's licensing market appears enormous. Aside from the traditional media on the mainland, there is increasing adoption of new media like the Internet and mobile phones in promoting licensed properties, where the number of Internet users exceeded 130 million at the end of 2006, almost a five-fold increase from 2002-06. Rapid growth of the online games market, which linked intimately with is animated characters, has also had a great impact on the mainland's licensing business.

Although at an early stage of development, the Chinese mainland is considered a promising market for licensing businesses. The questionnaire survey with licensors and licensing agents showed that around three-quarters of respondents expect their licensing business to be good or very good over the next one to three years. The views are even more positive among Chinese licensing companies (90%) and licensees (97%).

The survey of licensors and licensing agents with business in China indicated that over the next three years, entertainment/characters-related properties would be most promising (76%), followed by trademarks (66%). Moreover, properties from the US and Japan would remain mainstream popular properties. In terms of the market prospects of mainland cities over the next one to three years, 76.5% and 59.3%, respectively, of licensors and licensing agents with a licensing business in China considered Shanghai and Beijing their target markets, though many Chinese licensing companies (58%), many of whom are based in Hong Kong, would like to include Southern China (Guangzhou in particular) in their overall licensing strategies for the mainland.

More than half of the overseas licensing companies noted that they had made their foray into the mainland market within the past two years or so. For those respondents yet to do licensing business in China, close to half are planning their mainland entry. Despite the promising prospects, conducting a licensing business on the Chinese mainland is fraught with many formidable challenges, which include, among other things, product piracy and counterfeitings, a shortage of useful information on licensing market conditions generally and information on mainland licensees specifically. Regarding these challenges, there are no marked differences in views between those who have already entered the mainland market (i.e. advancing companies) and those contemplating market entry (i.e. emerging companies) on the one hand, and between overseas licensing companies and their Chinese counterparts on the other.¹

Many international licensors and licensing agents having business in China have chosen to establish their regional headquarters in Hong Kong, which many see as continuing to serve as an important base for licensing operations in Asia, including the Chinese mainland. Such a function is expected to strengthen over the next one to three years, as suggested by all surveyed licensing companies, both advancing and emerging.

Hong Kong as Strategic Base for Mainland Advancement

Among the advancing overseas licensing companies, Hong Kong is considered the most preferred location for entry into or further development of their Licensing business on the Chinese mainland (61.3% responses vis-à-vis 48.4% for either Beijing or Shanghai). Specifically, many of these companies are operating their licensing business in China through Hong Kong-based agents, drawing on the latter's knowledge concerning the licensing business on the Chinese mainland, including ready access to licensees, and an ability and network to organise marketing activities in promoting properties on the mainland.

Another key area of business activities of these agents is that they can effectively smooth communication with other parties, particularly licensees on the mainland. In fact, more than twice as many advancing overseas licensing companies would work through agents in Hong Kong (75%) than in Shanghai (35%). On the other hand, establishing business units or subsidiaries in Hong Kong would allow these licensing companies to readily reap the benefits of using Hong Kong as a business platform and capitalising on Hong Kong's business advantages and proximity to the Chinese mainland.

On the whole, Hong Kong's advantages as a gateway for the Chinese mainland market are well recognised. Interestingly, there are some gaps in perception between an average overseas licensing company having entered the mainland market and one that has penetrated the market via Hong Kong. For those going through Hong Kong, their views on the effectiveness of Hong Kong in facilitating their mainland entry are more favourable. Admittedly, the wider the perception gap, the lower the realisation of the prospective use of Hong Kong in facilitating foray into the mainland's licensing market. Similarly, the perception gaps pertaining to Hong Kong-based agents are somewhat wider than those concerning Hong Kong as a business platform, with those utilising Hong Kong agents underlining the latter's effective role in the prospective development of the licensing business on the Chinese mainland/Asia over the next one to three years.

Hong Kong and Hong Kong agents, however, will not only play crucial roles on behalf of overseas licensors and licensing agents, but also Chinese licensees. Over the past few years, there has been a significant increase in the number of licensees on the Chinese mainland. Regarding these licensees, they would expect Hong Kong agents to help, among other things, acquire overseas properties that are extremely popular on the Chinese mainland. Over the next one to three years, 62.2% of the advancing licensors and licensing agents believed that the licensing prospects with large-sized private enterprises on the Chinese mainland would be "Good" to "Very Good", followed by foreign companies (52.4%) and Hong Kong companies (50%). In the end, Hong Kong will play an increasingly important role in the licensing business not only on the Chinese mainland, but also Asia as a whole.

Nonetheless, some overseas licensing companies would opt for direct operations on the Chinese mainland. Yet, those opting for this have a stronger preference for using agents in the respective mainland cities than establishing their own offices and subsidiaries. The primary rationales for adopting such strategies are "easier access to licensees" (55.4%) and "better control over quality of licensees" (44.6%). Evidently, these overseas licensing companies place a lot more emphasis on having "better control over quality of licensees" than simply "easier access to licensees", which reflects their perceived difficulties in the effective licensee building exercise on the Chinese mainland on the one hand, and reliance on agents on the other.

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