Business Management

Hong Kong: Silicon Harbour or Silicon Failure?

“Welcome to Hong Kong, Asia’s World City” scream out the gaudy billboards as you journey through the tiny region’s impressive Chep Lap Kok airport. This Special Autonomous Region (SAR) of China is home to around seven million industrious locals with a reputation for hard work, entrepreneurship, and singular bloody mindedness to get the job done. Alongside the Tourism Board’s attempts to portray the former British colony as a multicultural centre of Asia has been a government led-campaign to position it as the pre-eminent tech hub for the region.

But with Singapore, Tokyo and local rivals including Beijing, Shanghai and Shenzhen all embarking on their own projects to attract investment, how strong a claim does Hong Kong have to the title?   

Hong Kong’s tech credentials actually go further back than most in the region. It was in fact electronics manufacturers from the former colony, as well as those from Taiwan, that crossed the border into Shenzhen over 30 years ago. There they built factories and trained local engineers, who in turn left and built their own factories, Gartner’s Roger Sheng told me. The industrial heartland of the Pearl River Delta – eventually to become the world’s technology manufacturing epicentre – had been born.

Getting back on terms

Hong Kong has been trying ever since to re-establish itself as a technology hub for the region. It has many things going for it. Voted the world’s top financial centre by the World Economic Forum for 2011 and 2012, it has a mobile penetration of over 200%, making it one of the most connected spots on the planet. In addition, it boasts the highest average peak connection speeds (68Mbps) globally and has excellent connectivity, with 37% of the population on 10Mbps services and above, according to Akamai. No surprise, then, that the International Institute for Management Development ranked Hong Kong first in technological infrastructure in both 2012 and 2013, in its World Competitiveness Yearbook.

The government has issued no fewer than five Digital 21 Strategy documents since the handover, detailing its blueprint for ICT in the SAR. It has tried to encourage the local startup scene to flourish by building facilities including Cyberport, the Hong Kong Science and Technology Park, and more recently hot-desk spaces like The Hive and Cocoon. It’s also been trying to get foreign businesses to move in by offering up disused factories as datacentres and waiving the fees usually levied on firms wanting to convert such buildings to tier-one and -two bit barns.

So far, firms like HSBC, the Hong Kong Stock Exchange and NTT have all moved into the former industrial area of Tsueng Kwan O, and cloud giant Rackspace also established its Asian HQ in Hong Kong, launching its first public cloud for the region from the city state in October last year. APAC MD Ajit Melarkode told me most of Rackspace’s Asian clients recommended Hong Kong as the best location for their needs.

“There really have not been any challenges, which is one of the reasons to set up in Hong Kong. The infrastructure is great in terms of transportation through the region, telecoms networks, internet connectivity and being geographically stable [in political terms],” he added.

“From our experience, InvestHK and the Hong Kong SAR government have been very supportive in terms of connecting us to the right people and staying in touch to ensure they are supporting us as we grow in Hong Kong.”

The government has certainly spent a tidy sum: a whopping $3bn on over 500 projects since 2000, according to a flashy infographic bigging up the SAR from web rooms booking site Hotel Club.

Behind the hype

However, problems persist. Google famously pulled out of a $300m bid to set up a centre there in 2013, which Frost & Sullivan analyst Danni Xu told me was down to the “cost and difficulty of acquiring suitable land”.

“Other challenges emerge from the fact that Hong Kong is increasingly becoming the regional hub for financial services industry as well as the gateway to mainland China. Singapore, on the other hand, continues to be a hub for enterprises across industry sectors as well as a key node for data traffic exchange in the region,” she argued. “Generally speaking, many global IT service providers will choose Singapore to set up their first datacentre as an entry point to Asia.”

Forrester Research’s Clement Teo added that Hong Kong’s “relatively small domestic market and shrinking manufacturing and industrial sector do not provide sufficient incentives to spur technological developments.” He told me that while there is a strong gadget-buying culture on the consumer side relative to the rest of Asia, spurred by high disposable income, Hong Kong’s SMBs are certainly not tech-savvy.

“They will continue to maintain traditional ways of doing business, for example garment manufacturing. Cost remains a very big concern for the SMBs, and they are less likely to buy IT just because it improves business processes,” he argued. “There must be a sizable ROI if they are to spend on IT.”

China’s strength as a financial hub has also made it difficult for start-ups. I’ve been told that unless you’re a medium- or large-sized foreign tech company, it can be difficult to get any help from the Hong Kong government to establish your business. Even Hotel Club’s upbeat infographic acknowledges that the region is being held back by astronomical rents, a tiny amount of spending on R&D (less than 0.73% of GDP) and an investor market dominated by finance and real estate. It’s also difficult to scale as a business when your total market is just seven million people.

It doesn’t help when the government makes bafflingly xenophobic decisions like that to withdraw the English Schools Foundation subsidy, effectively making English language education in the SAR the preserve of the super-rich. That policy change has already made Singapore a much more attractive option for technology professionals and entrepreneurs with small families.

For those ex-pat IT pros looking to make a move to Hong Kong, there’s also a word of warning. If you don’t have local language skills or experience of working there previously, forget about it, unless you’re a director/manager or more senior.

Shanghai recently announced plans to loosen rules on direct foreign investment for a new free Trade Zone, Beijing continues to build out its own answer to Silicon Valley, Zhongguancun, and Singapore is attracting more investment than ever.

With rival cities like these breathing down its neck, Hong Kong will have to do a lot more to ensure “Silicon Harbour” doesn’t just become an ironic nickname.


Phil Muncaster has been writing about technology since joining IT Week as a reporter in 2005. After leaving his post as news editor of online site V3 in 2012, Phil spent over two years covering the Asian tech scene from his base in Hong Kong. Now back in London, he always has one eye on what's happening out East.


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Phil Muncaster

Phil Muncaster has been writing about technology since joining IT Week as a reporter in 2005. After leaving his post as news editor of online site V3 in 2012, Phil spent over two years covering the Asian tech scene from his base in Hong Kong. Now back in London, he always has one eye on what's happening out East.

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