Hong Kong’s Start-up Scene

The global economy is becoming more knowledge-based, rewarding businesses with creativity, innovation, and imagination. A wave of technological revolution has started to fundamentally change consumer behaviour and disrupt existing industries. Radical innovations and paradigm shifts are changing the world, resulting in traditional industries and value chains becoming challenged by completely new business models.

Disruption occurs when start-ups use newly emerging technologies to offer cheaper or better alternatives to mainstream products or services, or when they discover and offer more convenient means of delivering products and services. In line with the global trend, start-up companies with new business models, founded by new generation of business owners, have become a rising phenomenon in Hong Kong.

What Is a Start-up?

Certainly, start-ups frequently turn to technology for problem solving, but a start-up does not have to be a tech company. There are no hard-and-fast rules on defining a start-up; some say a start-up is determined by its age, revenue, profitability or stability, while others think that a start-up can remain so at all ages and sizes.

Many entrepreneurs believe that being a start-up is a state of mind, the label unrestricted by the number of years a company has been in business, or the amount of revenue it generates. A start-up is a business created by an entrepreneur who forgoes stability in exchange for high growth and the excitement of having the chance to change the world.

Stanford professor and a Silicon Valley serial-entrepreneur, Steve Blank, for example, describes a start-up as: "an organisation formed to search for a repeatable and scalable business model."

In this study of Hong Kong’s start-ups [1], a start-up is intentionally defined more loosely in order to create the flexibility to include a wide spectrum of Hong Kong start-ups. The criteria used are scalability, innovation and disruption.

Scalability:

Most people, no matter what their perception of what defines a start-up, will agree that one key attribute is its ability to grow quickly. To scale rapidly, a start-up needs to provide something it can sell and deliver to a large market, or a solution that can solve a common problem.

Innovation:

A start-up does not need to be a tech company, but innovative ideas and products differentiate it from other small businesses.An innovative mind-set that does not settle for the status quo and keeps searching for new ideas or a better way of doing things is how start-ups can change the world.

Disruption:

Being disruptive in the business world means new entrants to a marketplace use new technologies or business models to upend or take business from established players. Netflix, Uber, Facebook, Alibaba, and Airbnb are just a few examples of how a once start-up turned a traditional business model on its head that severely disrupted the video rental, taxi, media, retail market and hotel markets.

Hong Kong’s Start-up Ecosystem

Hong Kong’s start-up ecosystem is only a few years old. Its recent growth is fuelled by high Internet and smartphone penetration, which lowers the threshold for starting a business enormously. In addition, government encouragement and the success stories of Google, Facebook and Alibaba also inspire the new generation of entrepreneurs.

Government Initiatives to Boost Start-ups

The Hong Kong government has recently beefed up measures to develop innovation and technology in Hong Kong. One of the measures is the “Technology Start-up Support Scheme for Universities” (TSSSU), which is provided by the Innovation and Technology Commission (ITC), initially for three years, starting from the 2014-15 financial year.

Under TSSSU, the ITC provides six local universities annual funding of up to HK$24 million to encourage technology start-ups. Each university is granted HK$4 million (US$515,000) per year. Staff, students or alumni who set up a company with a significant focus on “knowledge” and “technology” are eligible to apply.

In 2016, the Hong Kong government announced a HK$2 billion Innovation and Technology Venture Fund for co-investing in local innovation and technology start-ups with private venture capital funds on a matching basis. In so doing, the government is expected to bring in "smart money" into Hong Kong in order to boost investment in local innovation and technology start-ups.

The 2017 Policy Address further demonstrates the government’s determination to step up investment in technology and innovation:

1. Hong Kong and Shenzhen signed a deal to jointly develop the Lok Ma Chau Loop into an ­innovation and technology park, which will be built on the 87-hectare loop on the city’s northern border – four times bigger than the existing Science Park in Sha Tin.
2. The government requests that universities conduct more research projects with the potential to be applied in practice, and to refine their knowledge and technology transfer plans, as well as strengthen the role of their knowledge transfer offices in coordinating and commercialising research results.
3. To promote re-industrialisation, the government plans to build a Data Technology Hub and an Advanced Manufacturing Centre in the Tseung Kwan O Industrial Estate, to be completed in three and five years respectively.
4. The government supports the construction by the Hong Kong Science and Technology Parks Corporation (HKSTP) of an InnoCell adjacent to the HKSTP to provide residential units and shared working spaces for leasing to staff of incubatees and start-ups.
5. The government has earmarked HK$500 million for the Innovation and Technology Bureau (ITB) to help the government in applying technology to improve the quality of public services.
6. The government promotes the establishment of a Common Spatial Data Infrastructure (CSDI) to enable sharing of geospatial data and support the smart city blueprint of ITB. Such infrastructure allows the government to share geospatial data and the related application programming interfaces (APIs), encouraging the private sector to be involved in the development of different smart city applications.

Furthermore, the government has introduced the Technology Voucher Programme to facilitate the adoption of technology by small-and-medium enterprises (SMEs) for upgrading and improving productivity in order to meet increasingly demanding requirements for better quality and lower prices, and to keep up with stiff competition.

Vibrant Start-up Ecosystem

Hong Kong has recently begun to see the fruits of years of government support of university-based research and incubation programs such as that in HKSTP and Cyberport.

More and more innovative ventures in Hong Kong are successful in securing international recognition. GoGoVan, Da-Jiang Innovations (DJI), WeLand, Cathay Photonics, Xcelom and Vitargent are just a few examples. These inspirational stories have displayed the originality and innovation of Hong Kong entrepreneurs and proven that there is a diverse breadth of disciplines where Hong Kong can compete globally.

Moreover, in 2015, the tech-focused conference organiser, WebSummit, chose Hong Kong as the venue for its premium Asian start-up event, the RISE Conference. The event attracted over 5,000 international attendees from over 70 countries, demonstrating that Hong Kong’s start-up ecosystem has grown into a vibrant community and has the potential to be a hub for Asian start-ups.

According to the Hong Kong's Start-up Ecosystem survey conducted by InvestHK in 2016, there are 1,926 start-ups in 38 co-working spaces in Hong Kong, providing 5,229 jobs. There is a steady upward trend in the number of start-ups (+24%) and workstations (+24%) and a significant increase in the number of staff (+41%) from a year ago. Yet, the industry estimates that the actual number of start-ups in Hong Kong is much bigger than that, since many start-ups operate outside co-working spaces.

According to the Global Start-up Ecosystem Ranking 2015 by the San Francisco-based research firm, Compass, Hong Kong is the fifth fastest growing start-up ecosystem and the twenty-fifth largest overall. The city has always had a very high concentration of entrepreneurs but is now ready to become a key player on the international start-up stage.

Trends and Characteristics

In the previous wave of start-ups in Hong Kong, a plethora of apps development start-ups emerged as the craze for smart phones and tablets promoted the usage of mobile apps. In recent years, however, there has been a surge in entrepreneurial activities in various areas – information and communication technologies (ICT), software as a service (SaaS), Internet of things (IoT), data analytics, biotech, artificial intelligence (AI), robotics, virtual reality (VR) and augmented reality (AR), as well as new material – displaying a growing and vibrant start-up ecosystem.

In terms of applications, fintech (financial technology), smart city and smart home, healthcare and big data applications are among the most popular sectors, in line with global trends. In Hong Kong, there are also a significant number of start-ups in the process of commercialising cutting edge technologies developed by universities, thanks to the government’s support through TSSSU.

The twenty-first century has witnessed profound changes in the business landscape as a result of a new generation of business owners who have stepped up to disrupt the traditional business models. Globalisation, digital technology and ubiquitous connectivity are widely regarded as key driving forces for such changes. The table below summarises the key characteristics of new generation of business identified in this study.

Challenges and Needs

While start-ups are often able to quickly latch onto innovative ideas and emerging technologies – or create their own – they are faced with some common challenges that can limit their potential. These challenges can be broadly classified as four dimensions, namely access to funding, access to talent, commercialisation and go-to-market. To cope with these challenges, start-ups often have different needs at different stages of development. The table below summarises the needs at different stages of development identified in this study.

Needs of Start-ups at Different Stages

Source: HKTDC interviews and survey

Synergy with Traditional Business

While start-ups are often a disruptive force to traditional business, more interaction and engagement between the two groups can result in a synergy. For example, in the prototype/product testing stage, start-ups usually lack the knowledge and experience of industrial designs, which traditional manufacturers would be able provide. While commercialisation and go-to-market are often big challenges, start-ups can often gain knowledge or create value through connection or partnership with traditional businesses which with experience in sales and distribution, for example.

At the same time, traditional business can benefit from engaging with start-ups. Indeed, technology advances are rewriting the rules of competition, with traditional industries most at risk of being left behind the curve. Many traditional business models are changing, and new models are emerging. Traditional industries must be quick to identify and react to these new challenges. Forward looking incumbents see start-ups not as a threat, but as potential partners because many problems they are facing today can be addressed with technology or process innovations.

[1] HKTDC Research would like to acknowledge the help extended by Hong Kong Science and Technology Parks Corporation, InvestHK, The Office of the Government Chief Information Officer, Hong Kong Baptist University’s Knowledge Transfer Office, The Hong Kong Polytechnic University’s Institute for Entrepreneurship, The Hong Kong University of Science & Technology’s Entrepreneurship Center, The University of Hong Kong’s Technology Transfer Office, The Chinese University of Hong Kong’s Centre for Entrepreneurship, The Hong Kong Federation of Youth Groups, StartupsHK and Cocoon in arranging company visits and providing valuable insights for this study.