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Since last month, TechNode covered two posts about Hong Kong’s startup ecosystem. Former Cyberport interview post talked about Hong Kong government’s support to local startups and opportunities to drag more foreign startups in the area. The latter post was about the VC Panel from Fresco Capital and Archangels Access, how they work in Hong Kong’s startup scene, and why should people should take notice. In this post, Director-General at InvestHK, Simon Galpin provided the quantitative figures on Hong Kong’s startup ecosystem to help you get a holistic view along with former two posts.

How is startup ecosystem in Hong Kong? 

According to a survey conducted by Invest Hong Kong in October 2014 of 37 co-work spaces and incubators in the city, there were 1,065 startup companies operating in these premises, a 30% increase over 2013. These co-working spaces typically provide a more cost-effective and collaborative environment in which startups can base themselves.

Hong Kong’s advantages as a city from which to scale globally and its edge in quick prototyping have led to growth in businesses and applications in several new subsectors like Financial Technology (FinTech), Smart City, e-commerce as well as the Internet of Things (IoT). In the survey mentioned above, of the 1,065 startups, e-commerce and supply chain management ventures accounted for 12%, FinTech 8% and hardware (IoT, prototyping and smart wearables) 5%.

The combination of factors like Hong Kong’s fast internet access and the population’s use of mobile phones (penetration rate of 242%) along with the city’s traditional position as an international business and financial centre and its free flows of capital, information and talent are supporting the rapid development of these subsectors in particular. In addition, the internet is open in Hong Kong, giving businesses based in the city unfettered access to multiple social media channels including western platforms (twitter, facebook, LinkedIn, YouTube, etc) and Mainland Chinese sites (weibo, Youku, WeChat, etc), allowing them to market their products and services to customers and consumers all over the world from Hong Kong.

Simon Galpin - Photo

Simon Galpin, InvestHK

What are advantages for startups in Hong Kong?

Hong Kong’s geographic proximity to the Mainland results in a large number of Mainland companies setting up in Hong Kong to leverage our city’s international status in order to expand themselves globally, or to “go global”. In 2013, almost 60 percent of Mainland China’s outward FDI went to Hong Kong, which demonstrates the importance of the city as a springboard not only for state-owned enterprises but also many privately-owned enterprises that use Hong Kong to raise funds and engage in M&A. Subsequently, this creates business opportunities for SMEs in a wide range of professional services like law, accounting, marketing, PR and other consultancy services.

As a free and open economy, Hong Kong offers a range of enduring business advantages that support all sizes of businesses, be they MNC, SME or entrepreneur-led. These include the city’s low and stable tax regime (corporate tax rate capped at 16.5%), one of the easiest and quickest business incorporation procedures in the world (working through a service provider it takes just one hour online), strong rule of law and free flows of information, capital and talent.

How is the Hong Kong government helping foreign companies looking to expand businesses globally from Hong Kong?

As a Hong Kong SAR Government department, InvestHK is responsible for helping overseas and Mainland investors set up or expand in Hong Kong. The department identified the growth in the number of entrepreneur-led ventures setting up in Hong Kong back in 2012 and launched its StartmeupHK Venture Programme early in 2013. The programme is part of a multi-pronged strategy that includes branding, a website, a business plan competition and a social media-led global marketing campaign, all intended to attract entrepreneurs to Hong Kong, provide a one-stop service platform to support their setting up in the city, promote Hong Kong as a premier startup destination and help build the startup ecosystem to transform the city into a global hub for innovation and entrepreneurship.

Is it hard for Hong Kong startups to raise fund?

The situation is improving both from a venture capital and angel investor angle. One of the aims of our StartmeupHK programme, for example, is to reach out to high net-worth individuals locally who are starting to see the value of investing in scalable startups in Hong Kong.

Are Hong Kong startups thinking of entering China market?

More recently, Hong Kong has seen several new opportunities arising from its unique position in Asia as the gateway to Mainland China markets as well as a major springboard to access other major markets in Asia. Hong Kong’s proximity to Mainland China brings a large number of wealthy Mainland visitors to our city every year. In 2014, this number exceeded 47 million. In Hong Kong, Mainland visitors in particular demand a wide range of luxury and other retail goods, food and beverage and tourism services and facilities. There are also many high net-worth individuals in the city, not just visiting from the Mainland but also based in Hong Kong, who seek asset management services and other portfolio items such as art and wine for investment.

The startups InvestHK assists are thinking of scaling to regional, even global markets. It is true that Hong Kong offers them a platform from which they can easily access the Mainland market. At its backdoor is the Greater Pearl River Delta, which is both a manufacturing and consumer base for retailers, enabling startups based in Hong Kong to easily manage their production processes over the border while also extending their market for sales to consumers in the Mainland.

Image Credit: InvestHK