Total Entrepreneurial Activity Average= 4.9%
- Hong Kong has a relatively low level of entrepreneurship, which is surprising considering high levels in mainland China.
- The level of entrepreneurial activity is historically very stable.
- Two in every three entrepreneurial pursuits are opportunity based and tend to be in export/import and consumer oriented businesses.
- Approximately 70% of start ups fail within the first five years, which is on par with the USA.
- There are strong correlations between higher education and willingness to take the risk of starting a new business, however the majority of these business are not using innovative technologies or selling new products and services.
- Most of the business start ups focus on capturing market share in North America and Europe.
- Special Administrative Region status with China strategically positions businesses to serve foreign enterprises seeking to enter the Chinese market; and Chinese businesses trying to tap into global markets.
- Major playing in the Global Supply Chain network.
- Economic growth is approximately 6.1% based on it GDP.
- Obtaining financial support through institutions and formal investment entities is difficult.
- Most new business are funded by owners, family members or friends due to: High personal savings rates, cultural norms, wealthy ageing population and a preference for low to no interest rates on capital.
- Secured loans are available to new businesses, however the application process is tedious and usually based on significant collateral and interest rates are about 6.5% per annum.
- Venture capital is virtually non-existent in Hong Kong, however, once a firm is ready for the Initial Public Offering (IPO) phase there is considerable opportunity for capital infusion.
- Excellent infrastructure
- Ample educated, English speaking and flexible human resources
- Regulations are transparent and easy to navigate
- 0% average tariff rate and they do not restrict foreign direct investment.
- No capital gains tax, so investors can keep all their gains in a venture.
- Bankruptcy and insolvency regulations allow a firm to exit a failed endeavor.
- Hong Kong’s has an economic freedom rating of 83%.
- Government has educational/training initiatives for cultivating entrepreneurial activity
- Easy to start a business in 11 days and you can register the company within a month starting operations.
- Simple/transparent tax code, low tax rates
- One of the least corrupt legal systems in the world with strong protections for individual rights and property rights. They have established intellectual property rights, although they do need to improve enforcement.
- Cultural values entrepreneurship – it is seen as the only real way to achieve significant wealth, they respect people that bootstraps and do not stigmatize people for failure.
- Women are not discouraged from pursuing their own businesses, although the majority of the female entrepreneurs have entered into “female-oriented” sectors (clothing, beauty products, etc.)
- Does have a high cost base, inadequate links between R&D and the market retard entrepreneurship, high fears in taking risks.
Souce: http://www.internationalentrepreneurship.com/asia_entrepreneur/hong_Kong_entrepreneur.asp
My comments: Some facts listed above may or may not correct. That's not the point. The key point is, as an entrepreneur, whether you are aware of or not, you compete in clusters rather than individually. You or your firm have a larger chance to succeed if the cluster, in this case Hong Kong, is getting better. (Btw, I think Startup Monday is a great step forward. Thanks those who initiate the gathering). You idea maybe more likely to get funded if you are in Silicon Valley. However, even if you are in Silicon Fen, Hsinchu/Taiwan, Zhongguancun/Beijing or here in Hong Kong, as long as you understand the strength and weakness of the cluster and know how to play with it, you probably have a equal chance to succeed.My further thoughts:
- What are main weaknesses of HK cluster? High cost-base? Limited market size (even your product/service achieve scalability)?
- What are main strengthes of HK cluster? geographically close to a huge booming consumer market?
- What are the opportunities for HK cluster? Shenzhen cluster, one hour drive from your place, stand several internet/technology giants in China. Among them, Tencent(QQ) and Huawei. Chinese Nasdaq recently opens up in Shenzhen. The city is also a nationwide center for RMB-denominated Venture fund and has a very low R&D cost base.
I am sorry for throwing out many unorganized thoughts but would be very happy if you find some pieces are helpful. Your comments more than welcome! I won't be able to join next Monday's meeting due to travel but wish you all enjoy it.
The current weaknesses for HK-based startups is that the culture that connects the players is not connecting anything (talking about the norm). The connections that are needed: investment, inter-company, and global. Investment: After getting into looking for investment for my current company, I’ve come to see there is a fair amount of money that is potentially available out there, but it is difficult to connect to those investors and they tend to be quite conservative. It looks like setting up a bridging organization or mechanism would help in this respect. One potential bridge that I’m helping to set up is an extension of HKSUA, called Pitch Masters. The idea is to provide a forum for people to practice their pitches in a fostering environment and then also arrange for vetted events to connect investors with companies. The other potential direction is to establish incubation companies that can be more hands on than the government sponsored programs, similar to Y Combinator, but structured for the local market. This company would not replace the existing incubation network, but would be effectively a pre-incubator, helping to weed out the weakest players and to strengthen the others. A company such as this could act as a vetting agent and intermediate to investors, helping to either dilute the risk of investment over many companies, or to simply foster relations with investors over time, helping to create contacts within the community. Inter-company Collaboration:One of the benefits of Silicon Valley is that over time one builds up a network of people that you can turn to if you hit a wall with your venture. In Hong Kong, the prevailing culture for startups is that you go off into your own little office and not have any idea what is going on among your peers. I think there is a growing network of more open people who realize that one of the biggest potential strengths is that Hong Kong is really the world’s largest small town. It is so easy to make connections with like-minded people here (physically) since everything is generally an hour or less away via public transport.Groups such as this one are helping to foster that outlook, and over time that will have a big impact on the whole scene. I think that the pre-incubator companies can also have a good impact on this by promoting collaboration and literally openness within the companies that are active within them. Global: Not saying that every venture needs to focus on non-HK markets, but I think that one of the largest strengths we have here is that we are still positioned as being accessible to both China and the rest of the world. I think the companies in SZ and other mainland cities are probably not able to consider solutions that either bridge the divide or address all markets. I think locally focused companies can do well for themselves, but it will be those that either bring something to the China market that companies outside of the PRC can not deliver or that come up with solutions that are viable in a global market that will be the rock stars of the HK startup scene.
good read for us there DemingAgree with Jon on Inter-company Collaboration part especially…The China market is huge but I think that HK is stuck halfway between China and the rest of the world in this regard.
Great comments, Jon. Off to a meeting now and will come back with more thoughts.
Some further thoughts here:Not all company can or need to be Rock Stars. But rock stars are what VCs are looking or dreaming for. VC is similar to a betting game. If you place a very high risk bet, equally you seek huge potential return. Even if a locally focused business is indeed a viable business run by solid management team, given the limit in market size, VC may still not interested. It does not, however, prevent locally focused business getting funding from elsewhere. Jon rightly pointed out that HK’s main strength as “accessible to both China and the rest of the world”. That may sounds like cliché but is very true. Consider 1) many successful web ventures (Baidu, Sohu, KongZhong, Ctrip,etc.) are created by overseas returnees by correctly replicating successful US models/technologies in China; 2) emerging apps/websites are more accessible to HK entrepreneurs due to much lower language or culture barrier (also becasue some new app/websites are not accessible inside China. For example: Facebook, Twitter and this Posterous.) The “accessbility” factor would create a first-mover advantage for HK entreprenuers as long as a) they can create products which is locally (Chinese) adapted; b) they can equally reach resources (such as low cost base) available to mainland entrepreneurs.
i really wish hk entrepreneurs/youngsters cherish the “accessibility” to the (real) world and utilize this strength. (say i in bj have to use vpn at this very moment) but then these years i’m seeing more chinese domestic companies, not even founded by returnees, doing international web/mobile biz than in hk. somehow, i don’t know what to say to encourage my home town.
Wow, well said Kin.
I think it really has to do with most youngsters in Hong Kong are discouraged from being engineers or innovators.For the few that do and do well, they don’t find Hong Kong as attractive as other places.It’s a vicious cycle, but I think that it will be better especially with the events these past year or so and the government trying.
I am going to sound very negative, but here we go…When you mentioned “Hong Kong entrepreneur” I would have thought of Li Ka-shing types real estate mogul, but not the tech startup entrepreneurs of Hong Kong. Hong Kong is just not known for that. Nor Japan or Singapore for that matter…Secondly, let’s not kid ourselves on the motivations of the tech startup. Do you want to build a sustainable business and maintain a balanced lifestyle (aka be your own boss)? Or are you looking for multi million dollar exit for your investors, your employees, and make a lot of money through your technology and business model? Or better yet, do you want to “change the world”? With the end game in mind, IMHO Hong Kong is a suitable place for the first type of startup. But when the stakes are much higher (i.e. tier one VCs that are looking for a blockbuster exit), Hong Kong doesn’t seem like a logical place for these type of investment (startup) due to the lack of both the inputs (enough talent) and the outputs (proven technology buyers, M&A ecosystem).See, I told you I am going to be depressing…
One should also read Om’s recent blog post on what makes the Valley special. There’s a part stuck with me in the comment section: “NY celebrates wealth, while Silicon Valley celebrates ingenuity that creates wealth.”. One can replace “NY” with Hong Kong…. Om’s article is here:http://gigaom.com/2009/12/02/what-makes-silicon-valley-special-eternal-optimism-of-the-innovative-mind/
I think everyone knows that the HK startup scene is still in its infant stages, but that is just as much an opportunity as it is a hindrance. Look at Shenzhen 20 years ago, would you have thought that a large portion of the world’s consumer goods would be manufactured there given time? Unfortunately, if you look at the traditional manufacturing related jobs here in HK, it is becoming more and more common for those workers to spend more of their time over the border at the factory. Also, there is a lot of pressure to reduce the overhead in the HK offices since manufacturers no longer require the support of having HK based staff to deal with customers. Something has to fill in this gap. Yes, Hong Kong is more like New York than San Francisco in many respects, but it is very different in most aspects. Networking here seems to come second nature in business, and I think it is just these last two generations that has lost that as an innate business advantage, perhaps it is the introduction of the large corporations as the norm which teaches people that cooperation with your peers is not beneficial. Look at how when factories in the 50’s and later started growing at a rapid pace. That wasn’t due to everyone working in isolation, it was because one factory owner would help another out if orders were too large to complete on time by themselves. Things can change if people want it. Hong Kong is unique in that it is so friendly towards business with very low or no taxes on corporate income and a solid simple legal system. Also, I don’t see it being difficult to get the right people here if there is a need. There are a lot of young bright people that would be happy to come here to spend 5 or 10 years of their youth if there were opportunities for them. This is a fantastic place to be 20 something or 30 something.I question how important VCs are in the current software based startup ecosystem. I think with the cost of getting a company up and running having dropped dramatically due to free tools and cheap hardware and bandwidth, it no longer is necessary to put so much cash in before you start turning a profit. However, I think there is a huge need for an active angel investment community here, and what I’ve seen is that this can be pulled together. The money is out there, we just need to start building the community. No, none of this is built up yet, but the momentum is building, just in the last few months I’ve seen a lot of changes, and I think the next few years are going to be quite exciting in this area. Trying to make Hong Kong out to be the next Silicon Valley is just like what happened during the bubble where everyone wanted to IPO, it was a distraction away from the true opportunities at hand.
So glad to see healthy discussion like this in Hong Kong. I have written about this topic few years ago:http://aneverendingdream.com/2006/09/26/china-so-many-billionaires-so-few-great-global-corporations/Lacking of great engineering universities, talent immigrates and role models definitely put Hong Kong in a bad position. However, with the successful startup examples like EditGrid and 6waves, I do think that the future looks promising for local startups.
Thanks for you comments Vincent.