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Should you build your tech startup in Hong Kong?

For any tech entrepreneur looking to start or grow a future “unicorn” (a tech company valued >1B) internationally, the most obvious place to consider is mainland China. China’s e-commerce market is forecast to be larger than those of the U.S., United Kingdom, Japan, Germany and France combined by 2020 (KPMG). Although there are clear advantages to doing business in China, I would suggest an intriguing alternative: Hong Kong.

Hong Kong is more famous for its thriving financial markets and while it sits in the shadow of mainland China, it does offer an intrepid tech founder several unique benefits that set it apart.

As the first in a series of articles designed to help tech entrepreneurs explore interesting opportunities for scaling their startup abroad, I will share with you why I think you should consider Hong Kong when the time comes for your business to “go global”, and some things you should be aware of before jumping in.

There are clear advantages to doing business in China, but Hong Kong is an intriguing alternative Click To Tweet

The Pros

Government Benefits

The Hong Kong government has proven its dedication to fostering innovation, particularly in the area of science and technology. Key initiatives include establishing the Hong Kong Science & Technology Parks and the Innovation and Technology Bureau. As at February 2016, the Innovation and Technology Fund had approved 5,038 projects and provided financial support in excess of HK$10.9b. The real question that is being asked by many entrepreneurs is whether the government is getting too involved in innovation, rather than acting as a mere facilitator. While government funding does exist, in October 2014 there were 1,065 registered startups in Hong Kong and over 20 government funding schemes, there’s still plenty of space for funders (and bootstrappers) to forge their own path.

Legal Environment

The startup scene isn’t the sole domain of locals, with 40% of founders from overseas or mainland China. This is mostly thanks to the business environment left by the British and the decision to maintain the city as a self-administering region. This has enabled Hong Kong to retain its business friendly legal system and relatively low tax regime, there is no value-added tax or capital transfer tax, ensuring the city remains an attractive base for businesses.

Business Environment

Hong Kong has always had a western outlook to business, one that is well received by foreign investors and locals alike. Its proximity to mainland China adds to its attractiveness, particularly as the country opens up to more collaboration with the west.

Language

The language of business in Hong Kong is English and its highly-skilled workforce are generally fluent, enabling a seamless entry into the city’s business environment. However, knowledge of both Mandarin and Cantonese would not hurt.

The Cons

Financial Regulation

One area where reform is required to capitalize on the startup potential is in the area of FinTech, one that would fit naturally within Hong Kong’s strong position as a global financial capital. The current regulatory environment is based around traditional financial business, but to enable disruption fintech businesses require a flexible environment that encourages innovation and creative thinking.

Fintech disruption requires a flexible environment encouraging innovation & creative thinking Click To Tweet
Funding/Venture Capital

One area where Hong Kong lacks support is with regards to funding. While there has been significant growth in the amount of venture capital funding in Hong Kong in recent years, the city’s entrepreneurs still attract far less funding than their Asian counterparts. In 2014 Hong Kong startups attracted $33.7m funding, while Singapore saw $319.4m, Seoul received $72.3m and neighboring Shenzhen saw $202.9m. It’s an odd conundrum for a city that has built itself to be one of the world’s greatest financial centers, but investors seem to be gun-shy when it comes to investing in smaller businesses, preferring more traditional investment vehicles. For those that have attracted investment, it still falls short of the larger C and D funding rounds seen in other startup hubs; funding that has the potential to catapult a regional play into a global leader.

Talent

One of the key issues has been access to talent. 65% of employers in Hong Kong have reported difficulties filling roles, with educated locals favoring more ‘secure’, larger businesses, particularly in technology; an issue that continues to hinder growth of innovative startups. Although Hong Kong’s appeal to expatriates does make it easier to attract imported talent, navigating immigration laws means it comes at a price for cash-strapped startups and a headache for small businesses.

Cost of Business

Another challenge facing businesses is the high cost of living in Hong Kong. At $255.50 per square foot, Hong Kong has the most expensive office space in the world. A fact of life that has spurned a new industry in co-working spaces across the space-poor city .

The Conclusion

The startup ecosystem in Hong Kong has much in its favor, and this will only increase if the issues of funding and resourcing are addressed. While it is still not one of the world’s largest tech startup its investor friendly business environment and proximity to China make it hard to ignore.

Hong Kong is a sleeping start-up metropolis that is worthy of consideration Click To Tweet

I believe Hong Kong is a sleeping start-up metropolis that is worthy of your consideration but I am more interested in what you think. If you are looking to build your startup in Hong Kong or are expanding an existing business I’d appreciate you sharing the benefit of your experiences with me and my followers in the comments below.