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Hong Kong Bids to Nurture High-Tech Start-Ups and Boost Innovation

Although seen as playing catch-up with many of its neighbours, Hong Kong is now committed to incubating a variety of new high-tech businesses, allocating official funding, providing premises and targetting far more high-calibre graduates.

Photo: Incubating innovation: The Hong Kong Science and Technology Park.
Incubating innovation: The Hong Kong Science and Technology Park.
Photo: Incubating innovation: The Hong Kong Science and Technology Park.
Incubating innovation: The Hong Kong Science and Technology Park.

As one of the world's leading financial centres and the major regional headquarters for many multi-nationals, Hong Kong hardly needs to burnish its business credentials. Yet there's one area where it's still obliged to play catch-up – technology.

Neighbouring economies have been pursuing high-tech for many years. South Korea and Taiwan have built global brands, while Singapore is attracting offshore talent and nurturing its own success stories.

Governments have played a key role in each of these markets. By contrast, the traditional Hong Kong approach has been to rely on the workings of the market to deliver outcomes.

Yet that is changing. The success of countries such as Finland and Israel suggests that even small economies can create innovation hubs through government partnerships with universities, industry and investors.

In a speech to the Asian Innovation Summit in December, HKSAR Chief Executive C.Y. Leung outlined his belief that the city could become a "super-connector" technology and innovation hub for the Asia-Pacific region. In line with this, the government is now working with the Hong Kong Science and Technology Park (HKSTP) to build technology clusters in several key sectors, notably biotech, IT, green technology and precision engineering.

According to Leung, government research funding had more than doubled over the last decade and now stands at HK$1.9 billion. In his policy address in January, he announced plans for another HK$5 billion for the Innovation Technology Fund. The government is also offering as much some HK$10 million per project to encourage corporate R&D, as well as another HK$24 million to back university start-ups.

Businesses at the Hong Kong Science Park site now employ 11,000 people. Tenants in the park's third phase, due to open next year, include China handset-maker TCL Mobile, plasma lighting firm Topanga and battery specialist Gold Peak.

The Hong Kong Science Park – initially funded by the government, but now run by an independent company – also has an incubator that is currently home to 160 start-ups. Another 1,000 are employed in start-ups at the Innocentre incubation hub, which specialises in design. Another science park, TusPark, operated by Beijing's Tsinghua University, opened in Kowloon Bay in January.

There's also been a boom in the growth of shared workspaces. According to Greg So, the Secretary for Commerce and Economic Development, there are now 35 such operation, up from just three in 2010. The latest set-up to adopt this approach is Swire Holdings' Blueprint, a 20,000-square-foot workspace in Quarry Bay where start-ups can tap into the expertise of Swire executives. Another major developer, Henderson Land, is supporting the Good Lab, a dedicated start-up space in Kowloon.

Then there's the performance of the start-ups themselves. The Startbase.hk database lists more than 400 start-ups, and they are beginning to attract both cash and attention.

In January alone, WeLab – the first peer-to-peer lending platform anywhere in China – received US$20 million in investor funding, while Lalamove, the company behind EasyVan transport company, collected US$10 million. In a related move, the mobile games company Animoca Brands completed a backdoor listing on the Australian Stock Exchange, with a market cap of approximately A$8.2 million.

Last year Divide, a New York-Hong Kong mobile software company, won second round backing of US$12 million from several high-profile investors, including Google Ventures and Qualcomm. GoGoVan, another local transport firm, collected US$10 million from social network firm RenRen.

Charles Mok, the entrepreneur who, 20 years ago, founded HKNet, one of the city's first ISPs, says the proliferation of start-ups is far from surprising. He said: "It goes back to the core advantages that people usually talk about with regard to Hong Kong – an open society, local talent, and so on. While local IT managers might complain about the cost of staff, they're still much cheaper than in the US."

Photo: Mok: “Core advantages”.
Mok: "Core advantages".
Photo: Mok: “Core advantages”.
Mok: "Core advantages".
Photo: Cohan: “Cultural challenge”.
Cohan: "Cultural challenge".
Photo: Cohan: “Cultural challenge”.
Cohan: "Cultural challenge".

He also sees the trends in Hong Kong as part of a wider global movement, citing the bustle of startup activity now underway around the world, as well as the international ecosystem that has emerged to support it. This has given start-ups the option of sourcing computing power and analytics from Amazon and selling their products through online platforms.

Contrasting this with his own formative experiences, Mok says: "Twenty years ago we paid HK$200,000 for servers and had to put ads in magazines and newspapers."

These days, though, he says the biggest problem he hears from early stage companies is the "lack of a VC or funding infrastructure."

Last year, a study by Savantas, a local think tank, came to pretty much the same conclusion. It said that, while Hong Kong had abundant funds, most were invested as short-term financial plays.

Assessing the particular challenges facing Hong Kong, the report said: "In stark contrast to the so-called 'classic' model that emerged around Silicon Valley in the US, venture capitalists in Hong Kong avoid early-stage investments and seldom nurture early-stage ventures that are commercialising new technologies."

Early-stage funding sources are slowly emerging, however. The Hong Kong Business Angel Network last year invested HK$105 million, while Nest, a local incubator, is investing in start-ups as well as nurturing them. In a move that made the front pages, Alibaba boss Jack Ma has also created a HK$1 billion fund to back young Hong Kong tech firms. The HKSTP is now said to be considering setting up a fund to bridge the gap between seed and first-round funding stages.

Peter Cohan, a professor at Babson College, Massachusetts, one of the most highly rated US colleges for entrepreneur education, agrees funding is an issue. He also believes, though, that Hong Kong lacks 'pillar' companies offering expertise or inspiration to aspiring entrepreneurs.

Striking a note that may jar with Hong Kong's entrepreneurial self-image, he says: "Young people prefer to become bankers or professionals than start up new businesses. Their parents are also happier with that choice. It's a big cultural challenge for Hong Kong and on one that Singapore is also having to contend with."

Christelle Ho, a local entrepreneur who has founded the TopDoc healthcare platform, echoes that view, saying: "When I talk to graduates here, they typically tell me they're looking for a job in a bank or in a similar corporate environment."

She also sees a genuine shortage of important skills in certain key areas, including SEO, user experience and digital marketing. With regard to the areas, she says: "We had to basically hire people and train them from scratch."

At a deeper level, City University President Professor Way Kuo points out that there is currently only limited interest among young Hong Kongers when it comes to science and engineering. Not only are there fewer people enrolled on such courses than 20 or 30 years ago, they are also not attracting the best high school graduates.

He said: "I look at graduates who get a perfect score – not one chooses engineering or science. Not one. That's not the case in Korea, Japan, Taiwan or the US. Hong Kong is bigger than Finland, Cambridge or Singapore, yet our innovation is less.

"I think it's the local culture. Hong Kong people are very innovative, but they innovate outside Hong Kong. In fact, Hong Kong invests a lot in Silicon Valley. There must be some issue about Hong Kong – smart people, a lot of money, very hard-working, but they invest outside."

Overall, Cohan sees the need for something to trigger a change in the local culture. He says: "Hong Kong has created tremendous entrepreneurial success – just not in technology, but also in retail, fashion, logistics and financial services.

Photo: Alibaba: Transforming the start-up scene.
Alibaba: Transforming the start-up scene.
Photo: Alibaba: Transforming the start-up scene.
Alibaba: Transforming the start-up scene.

"While there's a lot of different kinds of entrepreneurship, we need an Alibaba-like IPO to transform the start-up scene. If that happens, capital will flow into Hong Kong. Venture capitalists are pack animals and they hate missing out on investment returns."

Robert Clark, Special Correspondent, Hong Kong

Content provided by Picture: HKTDC Research
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