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Business Management

Don't Believe the Hype: Why Start-ups Should Avoid Hong Kong and China

When it comes to futuristic cityscapes they don’t come any more impressive than the towering, neon-lit skyscrapers dominating Hong Kong’s Victoria Harbour. This financial hub and one-time Pearl of the East at the furthest edge of the British Empire has always had a reputation as a can-do town, a city-state built on commerce – where anything’s possible as long as you have the money and the work ethic to make it happen.

With one of the world’s busiest ports, low taxes, a mature IPR regime and serving as gateway to the vast market of mainland China, Hong Kong was named the world’s top financial centre by the WEF for the past two years. Yet despite this admirable reputation, it’s a rotten place to grow a tech start-up. In a global survey of over 26,000 business leaders from office space firm Regus published last month, respondents in Hong Kong highlighted some surprising obstacles to setting up and running a small technology business.

The top three deterrents to would-be entrepreneurs in the Special Administrative Region (SAR) of China were listed as securing credit (78%), market domination by large corporates (68%) and red tape (61%). In addition, some 57% of local businesses surveyed said lack of government support for entrepreneurs was also a deterrent. This last figure may be lower than in mainland China (74%) or Taiwan (97%), but it stands at odds with Hong Kong’s supposed reputation as a capitalist wonderland where business-friendly, hands-off government and low taxation are the watch words.

The picture has been confirmed by many of the local entrepreneurs I’ve spoken to at a monthly “Web Wednesday” event for the local digerati in Central District. All of them, incidentally, have had experience of other markets with which to compare HK. Another, Mikaal Abdulla, CEO of online brokerage firm 8 Securities, told me the problem is more cultural than structural.

“The average Asian parents did not invest so much money and effort in their children’s education for them to turn down a prestigious and well-paying job. Priority number one is saving enough money to buy a home because only then is marriage and having children viable,” he writes in a new blog post. “There are no 0% down payments in this part of the world. Today, it’s a 50% deposit so there goes your bootstrapping. The longer we wait the harder it becomes to start a company. There is also shame in failure.”

A lack of a functioning start-up ecosystem, and the fact that, unlike in the US and elsewhere, it’s just not cool to go and work for a new small-time venture with limited pay and no benefits, has made it really tough to get on in Hong Kong, he adds. “There is absolutely no shortage of young and talented engineers in Asia but they are protected behind the fortress of the big companies they work for. Instead of developing an amazingly ubiquitous HTML 5 application, they are more likely fiddling around with Pascal in the basement that houses their company’s legacy technology. They are certainly not all starting companies or clammering to join yours.”

This is not to say the ecosystem won’t grow in time, though, and there is a small amount of support available already in the form of the Cyberport Incubation Programme, but it’s pretty limited. Cyberport and the Hong Kong Science Park were both conceived of by the SAR government years ago as a way of fostering technology entrepreneurship through subsidised rents and marketing, financial and other support. They’ve been largely unsuccessful, however, and critics argue that a different approach is needed to encourage resurgence in the kind of entrepreneurial spirit which turned colonial Hong Kong into a global electronics and textiles centre, before finance services took over.

As for what’s on offer across the border in mainland China, well, don’t even think about entering that Wild West if you’re fresh off the boat, according to Kaifu Lee, founder of Chinese VC firm Innovation Works. The former Google China CEO told me that the Chinese market is “very unique, tough and local”.

If the lure of a market that boasts the largest number of smartphone and internet-connected citizens on the planet is just too much, however, Lee recommended entrepreneurs either partner with a co-founder who is a local; find a VC firm or local firm which will operate the company while you provide the tech; or join an existing start-up for a few years to learn the ropes and build a network.

“This isn't just about China being difficult. The cultural and environmental differences are large, and doing a start-up is about who you know as much as what you can do,” he added. “You don't see any Chinese or Japanese entrepreneur just land in Silicon Valley and build the next Facebook, right?”

China may be shaping up as the economic powerhouse of the next century, but for technology entrepreneurs – especially those not originally from round these parts – there are slim pickings indeed at the moment.

 

John Anderson has been writing about technology and all things Asia for over a decade. From his perch in the Far East he keeps a keen eye on the global significance of emerging trends in the region. 


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John Anderson

John Anderson has been writing about technology and all things Asia for over a decade, having started out on some of the UK's best known best-known IT trade titles. From his perch in the Far East he keeps a keen eye on the global significance of emerging trends in the region. 

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