2022 Ultimate Guide to starting your Dropshipping Business in Hong Kong
10 minute read
The dropshipping business model is an opportunity to run a profitable venture, meeting the needs of customers worldwide without a physical storefront. It’s an online business model where you primarily forward orders received to suppliers or manufacturers, and they handle the delivery to customers on your behalf.
You might wonder if Hong Kong is an ideal place to incorporate your dropshipping business. The answer is yes. By 2023, the eCommerce market in China is projected to represent 64% of the retail sales market globally. In addition, Hong Kong offers a population of hyper-consumers with high and growing internet usage, fast shipping routes, an open market economy, business-friendly tax policies, and close access to the Chinese market.
Ready to begin? Starting a dropshipping business here couldn’t be more exciting, and our article will guide you through the steps needed to start one.
What is dropshipping, and is it different from eCommerce?
The act of buying and selling online is referred to as eCommerce, and the industry is booming. The eCommerce industry is expected to reach about 7.4 trillion dollars by 2025, and dropshipping is expected to contribute $557.9 billion. There are different eCommerce business models, and dropshipping is one of the more popular ones.
What sets dropshipping apart from the traditional online model? The main difference between dropshipping model and usual ecommerce fulfillment would be: who holds inventory, and the way orders are fulfilled. As mentioned earlier, a dropshipping store does not hold any physical inventory. Instead, a seller purchases the goods from a third party when an order comes in. This third party is usually a wholesaler or manufacturer who is also responsible for the packaging and delivery of purchased items to the customers.
Unlike dropshipping, the traditional ecommerce model requires business owners to have a wholesale quantity of items to be sold and also fulfill each order. Most eCommerce companies usually operate out of their homes. As their business grows, they can afford their own warehouse. Hence, the amount of capital needed is a major advantage of dropshipping over traditional eCommerce models. With dropshipping, you sell without holding inventory. Not a lot of capital is needed as you only pay for goods that have been sold.
How to launch a dropshipping business in Hong Kong
There are many benefits to running a dropshipping business in Hong Kong. Yet, like any other business, you need dedication and an efficient business plan to succeed. Let’s dive into the hows.
Understand how dropshipping works
Before you start your business, make sure you do your homework and understand the start-to-end processes of all that is involved. Only by understanding the techniques and operations, can you position your business for success.
Do your market and competitor research
The next step is doing the necessary market research. Choose a niche you’re interested in, then investigate how profitable it can be. It’s also important you select products that have growth potential and longevity. For example, stay away from products that are short-lived or hyped as they don’t have sustainable demand.
Also, remember to research your competitors and their offers. This is so that you can gauge the standards you have to meet to thrive in this market. You can use tools like Google trends and Keywords Everywhere to gauge the popularity of different business ideas and gain consumer insights.
Identify your suppliers
Once you’ve been able to decide on the product to sell, you need to identify your suppliers of choice. You would need reliable suppliers, as your supplier will package and ship products to the buyers. Without them, your business can’t function.
eCommerce websites like Alibaba and AliExpress are the largest suppliers in Hong Kong, with Taobao being a close alternative.
Bonus tip: when choosing a supplier, consider going with local suppliers if possible. Not only will it lead to reduced supply chain costs, but you’ll also have greater control, timing and access to the market.
Incorporate your dropshipping business in Hong Kong
Once you’ve established the product market and suppliers, the next thing is to incorporate your business. Your dropshipping business needs to be registered as a company before you can start operations in Hong Kong.
Carry out proper research on the best structure to use in registering your business entity. Sole Proprietorship is an option, but registering as a Private Limited company balances protection against liability with tax optimization. The application will be sent to the Hong Kong Companies Registry and you’ll be issued a Certificate of Incorporation and business registration number. For more information on the different business entities in Hong Kong, check out our article here.
Build, launch and market your online store
Now that you have your product and business entity, it’s time to start and market your online store. First up, you would need a good brand name. Pick a suitable brand name that leaves room to diversify your product offerings. For example, “Sleepy Pooch” is easier to market, grow, and diversify compared to “Dog Beds of Hong Kong”.
Once you’ve decided on a name, get a matching domain name for your website from platforms like Namecheap. You can then focus on developing your brand identity (i.e. your brand persona, look and feel, logo). While building an eCommerce platform for your business, you should begin your marketing efforts to drive awareness. Digital platforms like Facebook, Instagram, Forums, and Paid Ads are some ways to do this. Work out the best channel mix for your market and commit to them.
Manage your finances
One common mistake most eCommerce businesses make, and you should avoid when starting your business, is using the same bank account for business and personal finances. This makes accounting more difficult. In addition, complications may arise when preparing your corporate tax accounts, as you’ll be required to tender your financial statements.
Setting up a business account will help you stay on top of your finances. We recommend opening a business checking bank account in a Hong Kong bank, from which all business related transactions are handled. You can also use software that automates bookkeeping services. Or to save time, you can simply hire an accounting company, which supports eCommerce businesses and helps you to keep track of all your tax deadlines while you focus on scaling your business.
After launching your online business, it’s crucial to stay on top of your profits. Start looking at and analyzing your sales figures. Some questions to consider: What has been your best channel so far, what products are working best and which audiences are buying more? Think of how to increase your product range. How can you target more audiences to buy your products? From a cost perspective, can larger volumes reduce your overheads? Constantly review your dropshipping supplier packages and carrier options to ensure you are profitable.
Bonus resource: here’s a free eCommerce checklist for your business planning. The key is to keep your operating costs down, and profit margins up. Keep pivoting your business operations for growth. Once this is in place, it becomes easier to move your business to the next level.
How to incorporate a dropshipping business in Hong Kong
Hong Kong is a prime location due to its many benefits: proximity to China, access to the Chinese market, and Hong Kong’s favorable corporate tax rate. Here are some things to get you started on your business incorporation process.
Choose a Company Structure
Once you’ve decided on a name for your Hong Kong company, you need to choose the structure you want to be incorporated as.
These are the types of company structures:
- Sole Proprietorship: This is a single-owner structure. The business and owner are seen as the same legal entity.
- Partnership: In this business structure, two or more people agree to collective ownership of the business. Profits and liability are also shared. The Limited Partnership entity gives limited liability to partners.
- Limited Liability Company: This can either be a public limited liability company or a private limited liability company. However, in both structures, the business is seen as a separate legal entity. This is the most common entity in Hong Kong due to its suitability for medium sized businesses.
- Branch, Representative, or Subsidiary: An entity registered as a branch is an extension of a foreign company and can carry out commercial activities in Hong Kong – this is liable to its parent company. A representative entity is also an extension of a foreign company, but cannot be involved in commercial activities. A subsidiary office is for overseas companies wanting a legally separate entity in Hong Kong and will need to incorporate as a private limited company to be distinct.
Understanding the different structures is important in making a decision. But, no matter what your business needs are, there is a business structure for you.
Acquire any relevant licenses
Before trading some goods, like alcohol, you need to get relevant licenses. Trading companies naturally deal with a huge variety, so you need a license from the Customs and Excise Department of Hong Kong. Also, there’s the import and export registration which involves filing an Import/Export declaration to the Commissioner of Customs and Excise.
Incorporate in Hong Kong
You do not need to be a resident of Hong Kong to incorporate here. However, your company secretary needs to be a Hong Kong national. You also need to have a registered office address for your online business where everything concerning your business can be sent to. It can’t be a PO Box, and for security reasons, it is not recommended to be a residential address. Sleek can handle this for you and make sure you’re all properly set up.
Get your Business Registration Certificate and update it annually
Finally, to be legal to trade, you need a Business Registration Certificate (BRC). This must be kept updated every year.
Before starting your eCommerce business, make sure you understand how best to navigate the compliance and incorporation process. Have questions on how to incorporate your business and company setup? Get in touch with our trusted experts at Sleek today. We will be happy to guide you.