As the new year emerges, the dragon economy on the doorstep of China is breathing new fire into its innovation and startup sector. Hong Kong, known globally as a financial centre and a tourist destination, is repositioning itself for the innovation era to boost its economy to the next level.
It wants to be the destination where tech entrepreneurs and investors will base themselves to work on their extraordinary innovations. To this effort, the Hong Kong government last year unveiled a bold HK$50 billion strategy to lift this sector.
Alongside tax cuts and relief measures, the strategy will focus on four key technologies, namely artificial intelligence, biotechnology, smart city and financial technology.
Taking the lead is the Hong Kong Science and Technology Park (HKSTP) which will use HK$10 billion (note: out of the HK$50 billion) chunk of the money to create new initiatives to fund early stage startups, develop a corporate venture fund and nurture IT talent.
Can Hong Kong become a leading startup hub in Asia? Is it in competition with Singapore?
The strategies of the two countries are similar, that is, technological innovation is the next enabler of economic development.
Apart from creating next generation new businesses, tech innovation will be aimed at rejuvenating existing small to large companies by nudging them to use innovation to advance themselves.
There are six areas where the Hong Kong and Singapore strategies are similar yet different.
1. Money talks!
The two governments have injected – and will continue to do so – billions of dollars into developing the startup ecosystem. This includes incentives and grants to lure entrepreneurs to locate their startups in the two economies.
Both are also developing the “hardware” like the labs and engineering facilities and buildings to support startups.
Through the National Research Foundation, Singapore committed S$19 billion between 2016 and 2020 to fund R&D activities in various labs which also support startup development efforts.
Like Singapore, Hong Kong is also partnering with various leading tech giants like Alibaba and Tencent to set up tech labs that can be used industry wide.
2. Deployment or getting funding?
Graduating startups from incubators and accelerators usually pitch to investors for follow-on funding. Their ability to get extra finance demonstrate the strength of their innovations and business models.
This is a key metric investors and policy makers in Singapore and elsewhere measure startup success. Often, the incubators and accelerators would announce that their graduating class receive some millions of dollars as a mark of success.
Hong Kong has a more nuanced approach. HKSTP head of incubation Peter Mok wants startups to “graduate” with projects in-hand. So the graduation pitch is often made to large Hong Kong conglomerates and enterprises like Cathay Pacific and New World Development who will identify the innovations that they need and can deploy.
Startups who get the support of businesses are considered a success, said Mok because the collaboration gives them access to customer expertise and a chance to deploy their technologies.
3. Markets targeted
Singapore’s 5.5 million population makes it a small market. Asean, with over 630 million people, is often the obvious regional market. The challenge however, is that startups have to crack the heterogneous Asean market with its different languages, cultures, currency and financial systems.
Hong Kong however, has a great advantage. As part of the Guangdong-Hong Kong – Macau corridor – also known as the Greater Bay Area – it has a vast pool of 68 million consumers, all of whom speak Mandarin and have the same culture.
They get tips and bargains on WeChat and pay with AliPay. For Hong Kong startups, this is a ready market for their goods and services.
4. Foreign talent welcome
Singapore’s foreign tech talent pipeline has slowed to a trickle in recent years because of tighter employment pass rules. In contrast foreign entrepreneurs, developers, designers, engineers can easily get permits to work in Hong Kong.
They can claim rents, up to HKG$10,000 a month, which can be subsidised upon approval and limited to a fixed period by the Hong Kong government.
5. Culture change needed
The success of Google, Uber, Alibaba and other tech giants have convinced students and parents that entrepreneurship is a worthy and profitable career choice. Both countries however, are steeped in a culture of success where failure is frowned upon. The reality is that 99 per cent of startups are fail.
While the situation has somewhat improved in recent years, more parents, employees and employers need to view failure differently, as part of a business outcome and as a learning process and not as a failure in life.
6. Unicorns are vital
Nothing boosts the innovation and startup ecosystem then unicorns, startups that are each valued over US$1 billion.
Unicorns demonstrate that good profitable businesses – and wealth creation – can be built from innovative digital ideas and business processes in a number of years instead of decades.
A public listing of a unicorn is an attribution to the success of a startup ecosystem. Hong Kong has had no unicorn exits while Singapore has had two.
Hong Kong’s best known unicorn is Sensetime, the world’s most valuable AI firm, which was founded in 2014. Backed by Alibaba, it is in computer vision and deep learning.
Prior to it, there were no unicorns. The good news is that unicorn pipeline is filling up including logistics firm GoGoVan, travel activities and booking firm Klook and online lending platform WeLabs.
Two Singapore unicorns, game accessory firm Razer and game publishing firm SEA, were listed in 2017. Two-year-old Qtum is Singapore’s first blockchain unicorn but its public listing plans are unknown. Other unicorns waiting in the wings include online property portal PropertyGuru, online marketplace Carousell and logistics firm Ninjavan.
Act 2
Hong Kong’s audacious HK$50 billion strategy is naturally welcomed by the startup community.
Looking back at Hong Kong’s startup history, Dominic Chan, partner of venture capital firm Dark Horse Investment, said Hong Kong and the investors there were burnt during the first dotcom bust in 2000.
“We shied away from this sector for a long time. Now we’re trying to figure it out again, how to make it work. There is the realisation that Hong Kong could not rely just on financial services and property business to grow. Hence, we must innovate,” he noted.
“We’re excited that the Hong Kong government now sees this too and is investing big to support the sector,” he said in a recent interview in Hong Kong with Techgoondu.
He envies Singapore because the government has invested earlier on in providing funding for startups, co-investing with venture capital firms and developing the ecosystem.
He recalled that in 2008 when Dark Horse started its business in Hong Kong, there were no lawyers that could come up with term sheets which are funding documents because they were used to corporate work
“Today they know how to do term sheets. We’re seeing more legal and finance startup experts, there are more angel investors, mentors, incubators and co-working space. We’re slowly building up the ecosystem,” said Chan, who invests in Hong Kong as well as Singapore.
HKSTP’s Peter Mok, aims to provide a more holistic development for Hong Kong startups to differentiate them from others.
HKSTP is partnering law schools and design schools in Hong Kong where startups can learn a multi-disciplinary approach to building their businesses.
This will complement their innovative ideas with design and business processes so that they can improve and advance faster, he said.
The one area that Singapore has pipped Hong Kong is fintech. It must hurt because Hong Kong is a respected global financial centre like the Republic.
Three years ago, when fintech was just emerging, the Singapore government organised the Fintech Festival. Last year’s event attracted about 45,000 government leaders, investors, entrepreneurs and financial executives who attended its conference, forums and networking sessions, making the Festival the largest fintech event in the world.
More significant is that nearly 400 investors who attended the event have promised to invest US$12 billion in Asean over the next three years.
Still the question remains for entrepreneurs: where should we base ourselves?
Location depends on where entrepreneurs can get the best funding on the best terms, where their lead investors are based, where their markets are, and finally it their personal preferences.
There is little to choose between Hong Kong and Singapore, so I would say, locate in both places to get the best of both worlds.
There is no better place to be than in Hong Kong and Singapore where English is spoken and where there is good legal and corporate systems.
They are the best places for entrepreneurs and investors to participate in the next wave of economic development in Asia.
