10 Dec 2014
Hong Kong's Entrepreneurs Call For Lower Rents and Higher Visibility
With 2014 drawing to a close, has the year proved a golden one for Hong Kong's entrepreneurs and keen young start-ups? A number of the city's business folk share their successes and frustrations and call for greater official support.
The spirit of enterprise is alive and well in Hong Kong, but it's not all good news. The would-be entrepreneur's age and the industry they choose to work in are all important factors, while high rents can be a killer.
Jay Chu is one of the lucky ones. The 27-year-old software programmer initially made little progress in his career after graduating from City University's creative media programme. To begin with, he started working from home and then joined a government-sponsored Youth Employment Start (YES) programme.
The YES centre offers workshops, seminars, legal advice and free desk space to aspiring entrepreneurs who have a Hong Kong ID and are under 30 years old. Chu, though, realised it would not be a long-term solution and maintained it was noisy when school groups visited.
At one YES-hosted seminar, however, he met Anthony Lam, now 30, whose one-man shop was being incubated by Cyber Port. Lam wanted to create an online restaurant reservation system, inspired by his experience of living in the United States. He had found his first customer – the revolving restaurant, Paco Roncero – at Wan Chai's Hopewell Centre.
He found the client after cold calling the city's food and drink companies, as listed a phone directory complied by the Hong Kong Trade Development Council. The problem was, at the time, Lam did not really have a product to sell. He needed software programmers like Chu and his colleagues to make that happen.
Chu and his team joined Lam in forming Venture Solutions, a move that saw them rent a 350-square-feet office in Kwai Hing for HK$3,000 per month. One friend dropped out due to financial pressures but the business kept going. Chu said: "Previously, we had focussed on mobile apps, but here's no money in that."
In 2003, they were awarded HK$10,000 in funding from InnoCentre, part of the Hong Kong Science and Technology Parks Corporation. This was in addition to free office space at InnoCentre for the first year and a 50% rent discount for the second year.
Lam, a former accountant who had worked with KPMG for five years in Los Angeles, said: "Hong Kong is good for entrepreneurs. There's no corruption or anything like that."
The city's business environment has not been so benign for one mid-life entrepreneur, however, even in one of the city's anchor industries – filmmaking.
Two years ago, the 40-something Johnny Ho started a film production company, the Micro Film Factory. He had partnered with a secondary high school classmate, the well-known cinematographer Stephen Man-Yin Ma. The flight of the Hong Kong film industry to the Chinese mainland was of concern to Ma, who saw an opportunity for microfilms. These last no longer than 15 minutes and cost only HK$30,000 to make and screen online.
They set up the studio in a Shatin flat that Ma bought some time ago. It provided much-needed escape from the city's notoriously high rents. Reflecting on the move, Ho said: "It's easy to start a business but challenging. There's more competition now."
Ho launched his first company in 1997 and experienced modest success. He imported United States-produced plastic hang-tabs for Chinese factories, so they could attach them to products such as DVDs and export them to the US.
Entry barriers are high for the film industry in general, although microfilms are something of a new genre. Even so, they have become popular on the mainland, which has many microfilm competitions, frequently hosted by the likes of CCTV's online channels and Youku.com. By contrast, it was only last year that the Hong Kong Productivity Council introduced the city's first microfilm competition.
Ho said: "Hong Kong's film industry is dominated by large companies, heavy investment and high entry barriers. You need personal connections. Lots of young people want to join the industry, but find it difficult."
"Hong Kong is not like the US or United Kingdom, where there are a lots of start-up and networking groups that are, sometimes, government-sponsored and aim to educate entrepreneurs." He believes the government should expand its existing initatives, such as the Entrepreneur Day and provide free exhibition space on a competitive basis, rather than renting it out for a fee.
He said: "The government can do more – not just giving out money, but also providing training courses and workshops for entrepreneurs. It's also difficult to obtain government funding, as a track record is frequently required. How can a start-up provide a track record?" Ho said.
Another new Hong Kong was set up by Allen Chan and Ray Li, both in their late 20s. They established branded watch manufacturing company – Real Design Limited – in 2012. Another childhood friend, Ryan Hui, was brought in to manage the company's computer and online systems.
Together, they have in-depth knowledge about the industry, partly because Hong Kong is the world's largest market for luxury watches. Li's family has been exporting China-made watches to Eastern Europe for more than two decades.
Real Design can ship a custom-made order within 10 days and offers watches that are waterproof up to 50 metres and have Japan-imported calibre, leather straps. Customers can choose the design, colour and strap. A minimum order of one watch costs just over HK$300. By contrast, a typical OEM (original equipment manufacturer) order requires a minimum order of 500 timepieces and delivery takes 90 days.
Through relentless door-to-door visits to Hong Kong retailers, they succeeded in persuading six to display their wares. Sales have also be achieved via three retail points on the mainland, and through friends' networks in Fujian and Sichuan provinces and Shenzhen. Their business idea won a silver award from the Doers Group. It's not always been easy, however.
Chan said: "Sales are terrible. It's easy to start a new company but the promotion, funding and management required to be successful are difficult. That's why we all have full-time jobs. As we are not a technology company, it's difficult for us to find investors and get government funding."
Early this year, they started selling their branded watches, called RealOne, through a company website, providing discounts of 50%. Another initiative has seen them identify local designers interested in having the company produce watches for them.
The three founders work on their joint venture in their spare time, in a small office leased from Li's family. Li said: "We have a five-year exit plan. In that time, we will try our best to test the market. So far, we are losing a few thousand Hong Kong dollars a month. Our rent is very low. That's why we can survive."
A government initiative, launched after the handover in 1997 in order to modernise Chinese medical practices, has given rise to a new generation of medical professionals, including Alan Hoi-lun Koo. He's the founder of River Cam Chinese Medicine and Acupuncture Clinic. Koo, 29, opened his first clinic in May 2012 and, with the help of his wife, is now working on his third.
Koo said: "I think we are lucky. We are riding the wave of modern Chinese clinics. Our business model is not unique, but we are unique in terms of our education."
Chinese clinics were an unregulated, grey industry during colonial days. Corner shops operated by unqualified doctors abounded. A vigorous regime was introduced after 1997, requiring exams and licensing. The industry was also incorporated into the public health care system under the Hospital Authority.
Koo finished his undergraduate studies in Chinese medicine at Baptist University before taking an MBA equivalent in pharmaceuticals at Cambridge University – all achieved with scholarships. Upon graduation, he returned to Hong Kong to work with pharmaceutical giant Pfizer for five years.
Before opening a clinic, Koo tested the market in a 100-square-feet room at a business centre, where he had just a desk, computer and a cabinet to store the medicines. Family members and friends became his customers and word quickly spread.
He said: "After six months, I gained confidence and knew the business model would work." Koo's clinic chain was the by-product of a broader consulting venture Koo has been working on with Professor Tai-Ping Fan, head of a traditional Chinese medicine lab at Cambridge University's Department of Pharmacology.
Explaining the concept, Koo said: "I know many entrepreneurs my age have big dreams, but the fact is, you've got to pay the rent. Aside from setting up your own business, everyone has a side job. It's really frustrating for young entrepreneurs that any profit is taken by landlords."
Koo has just renewed the lease for another three years on one of his clinics in a shopping mall, which according to the government's Link REIT scheme increased the rent by nearly 30%. He said: "Next time, we probably need to incorporate the increased rent in our business plan or move to a cheaper location."
Belinda Wong, founder of Leader Corporation Services, dealt with high rents by subleasing a space inside the office of an ex-colleague from PricewaterhouseCoopers (PwC). She said: "As my rent was so low, I was making money from the beginning. It's very important to have this space. I could not lose money because the overheads were so low."
The service she provides is the fruit of nearly three decades' work with big audit firms and PwC. Essentially, she provides company secretarial services to help with company registration and secretarial duties, corporate restructuring and listing companies.
She planned meticulously for the eventual launch of her company at the end of 2010. This included publishing a book and gaining industry credentials at the Hong Kong Institute of Directors, Hong Kong Institute of Chartered Secretaries and Hong Kong Securities Institute.
"I also had to make enough money to sustain myself for 10 years." Her first client was a friend's referral, followed by her first overseas client, one acquired through the LinkedIn network.
In another example of Hong Kong's entrepreneurial spirit, 10 years ago Christina Leung created a Hello Kitty-styled comic character whose eyes were obscured by her curly hair. In 2011, the Independent Commission Against Corruption featured the character on its website, though this was free of charge.
In September last year, Leung was chosen from 80 people in a competition to participate in a master class workshop. A mentor in the class helped her come up with the brand name Fiscgo. Since then, she's been promoting her branded comic strips by participating in trade shows.
She said: "People call and inquire about this character I created and ask about my experience and how many customers I have. When I say that I haven't any clients that's the end of the conversation.
"I have no customers and have not made any money. I want to find some financial support before I resign from my job as an app designer and focus on setting up my own company. This is my long-term goal but I might not be able to find my first customer. No-one knows about the character or is prepared to give me a chance. If the government can help with promotion, it would be very helpful. Finding the first customer is critical."
Shu-Ching Jean Chen, Special Correspondent, Hong Kong