HK must do more to encourage entrepreneurship

A dynamic entrepreneurial landscape is needed for Hong Kong to thrive in the new economy (Image WEIMING_CHEN / iStockPhoto)

A dynamic entrepreneurial landscape is vital to Hong Kong's long-term development, and must be actively encouraged if the region is to thrive in the digital era.

This is one of the key findings of new report from KPMG and the Alibaba Hong Kong Entrepreneurs Fund.

The study sought to identify the drivers of entrepreneurship in Hong Kong, as well as identify the key gaps in the start-up ecosystem that must be plugged to drive the ongoing development of Hong Kong's new economy.

According to the report, the new economy refers to innovative service-driven businesses with a business model that meets underserved markets, has the ability to achieve growth and scale, and requires lower capital investment as a result of high technology adoption.

Based on surveys and interviews with key industry stakeholders in Hong Kong, the study found that Hong Kong entrepreneurs are driven by a strong sense of purpose.

The most popular driver for starting a new business is a desire to develop new technologies or products (91%), followed by advancing community development (87%), changing the world (82%), and solving problems for people respondents strongly identify with (81%).

By contrast, just 52% of Hong Kong entrepreneurs report starting a business to make money and become rich.

But despite the strong desire to drive change, Hong Kong citizens also face a number of barriers to participation in the entrepreneurial scene, including strong pressure among family and friends for students to pursue traditional career paths instead.

In addition, nearly half (48%) of entrepreneurs expect to only generate revenues of less than HK$10 million by 2020, and this shortage of profit potential has the effect of discouraging investment.

The report notes that the government and business sector have introduced multiple reforms aimed at overcoming these barriers and encouraging innovation.

These include a significant increase in government grant support for R&D, the introduction f the Technology Talent Admission Scheme to offer fast-track arrangements to technology companies at Science Park and Cyberport to bring skilled staff from the mainland and abroad.

But while Hong Kong is currently considered as one of the top locations to launch a startup, the report finds that more can be done to strengthen its entrepreneurial ecosystem.

For example, Hong Kong has yet to capitalize on its role as the gateway to mainland China, with only 31% of entrepreneur respondents indicating that the city’s startups are collaborating well with their peers in the Greater Bay Area.

Hong Kong is nevertheless seen as having a number of competitive advantages, including the ease of doing business (53% agree), geographic location (43%) and tax or other incentives (32%).

But only 15% of entrepreneur respondents believe that the city has a strong enough entrepreneurial mindset, 12% believe there is a favorable regulatory landscape and 12% believe access to suppliers is a competitive edge.

The report makes a series of recommendations aimed at improving Hong Kong’s innovation capabilities and entrepreneurial ecosystem. These include taking steps to facilitate the free flow of academics, research and development and business knowledge, expand access to capital and financial services, as well as promoting and simplifying access to startup support services.

Regarding the access to capital, "there is a relatively lack of institutional funding for startups in Hong Kong, with personal savings (82%) and family savings (54%) still the top two primary sources of startup capital," said Irene Chu, head of new economy and life sciences for Hong Kong at KPMG China. 

Chu said the existing tax rules encourage venture capital (VC) funds to invest in startups outside of Hong Kong. To attract VC in Hong Kong and enhance the city’s competitiveness as a place for VC funds to invest into local startups, she said the existing tax rules have to be revised. VC funds are then able to invest directly into Hong Kong businesses without contravening tax exemption rules.

In addition, the HKSAR and mainland governments should strengthen the network of experts across the Greater Bay Area as well as internationally, help start-ups scale and sieze mainland China opportunities, and introduce measures aimed at improving access to capital and financial services.

In the long-term, the report recommends that Hong Kong enhance the development of the entrepreneurial mindset to support jobs of the future.

"Entrepreneurship can maximize the opportunities disruptive technologies and digitization are creating and support Hong Kong's ambitions to be a major technology and innovation hub," said Chu. 

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