TRINITY HOOPER
HONG KONG: THE BEST DESTINATION FOR START-UP ENTREPRENEURS
In the current economic environment where many developed countries are experiencing decreasesin their economic growth rates and large corporations continue to cut down their workforce, start-ups have increasingly been acknowledged as the number one driver for economic growth and job creation.In the United Kingdom alone there were nearly 660,000new companies established in 2016, with total employment by SMEs making up 60% of all private sector employment in the UK.[1]
The Small Enterprise Association of Australia and New Zealand (SEAANZ), published a series of White Papers that established the necessary conditions required for these successful entrepreneurial ecosystems, and the role that government policy can play in having a beneficial impact on their formation and growth. Naturally it suggested that start-ups are to be the most successful when the environment in which they have based themselves actively looks to encourage and nurture their ongoing development; regulatory reforms, government policy, the availability and diversity of skilled talent, ease of access to the local and international market place and, funding and finance opportunities were all factors that were argued to be divisive in determining the growth of entrepreneurial ecosystems.Also put forward was the challenge for governments to avoid policies stimulating greater start-up growth through direct intervention, but rather to create policies that facilitate the greater engagement of the private sector from the start, and so allow the market to determine which will thrive andshould receive further funding. Thus, the government’s role in helping firms to succeed should more resolve around removing obstacles to their growth such as unfair and excessive taxation on small firms, anti-competitive cultures, unnecessary ‘red tape’ or lack of access to markets, investment capital or skilled employees.
Frequently described as the place where ‘East meets West’, reflecting the territory’s Chinese roots and its time as a British Colony, Hong Kong, one of the ‘Four Asian Tigers’is now, as of September 2017, the third global finance centre worldwide. Though a relatively new entrant into the start-up scene in the last decade, Hong Kong is now ranked as the 5th fastest growing start-up ecosystem worldwide and the 25th overall, according to theGlobal Startup Ecosystem Ranking 2015 study.[2]Moreover, a statement by InvestHK said that the number of start-ups increased from 1,558 in 2015 to 1,926 in 2016, with the number of employees in start-up companies rising by41 percent.[3]
The city of Bristol meanwhile, situated in the South West of England has a population of 456,000 (more than sixteen times smaller than Hong Kong) and was ranked second place in the Start-up UK Cities Index 2017. It was awarded this due to its skilled labour force, above average business survival rates compared to the rest of the UK (47%), broadband speeds, and, most significantly, its flourishing start-up community – 2,975 start-ups launched in the capital in 2016.[4]Relatively close to London and with established transport links between the two cities, start-up companies based in Bristol have the benefit of greatly reduced business costs whilst remaining central to the economic heart of the country.
Over the past decade, in both Hong Kong and Bristol there has been increasing support by their respective governments in promoting and encouraging the continued growth and establishment of new start-up companies.They have done this through a number of means, however the most common and notable ones include: finance schemes, dedicating specific areas for start-up ventures, trade agreements and also regulatory reforms. Naturally the support that the British Government has being providing to Bristol’s start-ups differs slightly to that of the Hong Kong Governments approach, partly due to the combination of local, regional, and national policies that Bristol in particular is influenced by.
Hong Kong’s government has set up a series of policies to support start-ups by making it easier for them to establish their business in the first place. The visa system is one way in which they have succeeded in doing this. In the past visas had been relatively difficult to obtain for entrepreneurs in Hong Kong, as although they may have innovative ideas, they are generally lacking in funds and the credible track records to get an investment visa. Thus, the Start-up Business visa scheme (opened to applicants from May 2015) enables start-up founders to apply for a Start-up Business visa and enter Hong Kong, which many countries would have barred this type of start-up founder from doing.[5] There is one proviso however for such an application to be considered: first start-ups are required to have been accepted by one of the five government backed start-up initiatives currently running. Aside from this minor issue, which if anything is beneficial to Hong Kong’s start-up ecosystem for it restricts the businesses entering only to those that are seriously trying to establish a business, and thus prevents fraudulent attempts to enter the country through this means. The Start-up Business visa is also greatly flexible in terms of which other people are entitled to enter under the visa – proprietors or partners of the company, and key researchers of relevant projects – therefore under these definitions anyone with an equity stake in the company could theoretically be included. As well as visas for start-up companies, Hong Kong also has a liberal immigration policy which further allows foreign professionals to work in Hong Kong based start-ups; Hong Kong was ranked by the IMD in 2008, even before many of their more flexible immigration policies had been set up, as having the sixth least restrictive immigration laws for foreign talent.[6]
The UK government’s visa policies for entrepreneurs wanting to come to the UK to start up a company are slightly less welcoming and accessible. Unlike the innovative and successful Start-up Business visa that the Hong Kong government has created, the UK instead has a Tier 1 visafor this. With those allowed to enter the UK on this visa restricted to only immediate family members and on the basis of already having secured £50,000 in investment funds, this is far more restrictive and discouraging to potential foreign entrepreneurs.[7] Thus, in many ways the UK government has not done what the SEAANZ White Paper argued created the most successful start-up culture – that is removing the barriers to entry and those obstacles that hinder companies’ growth. However, although the UK visa system for those outside the European Economic Area (EEA) is less flexible than Hong Kong’s, the reverse can be said for citizens from the EEA and Switzerland. Entitled to freedom of movement, these people face no such barriers when entering the UK. Many economists would agree though, that arguably this inability to control the quantity of different levels of skilled people or know their exact intentions for their business ventures is on balance not beneficial to the start-up community for it can, in some places create too much competition leading to negative outcomes. This is because in attempting to have the most competitive prices to ensure their new company survives, start-ups are unable to earn the profit margins that they need in order to invest in new capital that they require to ultimately grow.
The initial process of starting up a business in Hong Kong is also made easier by the multiple start-up hubs that the government has cultivated and supported. This is because they often offer full-range entrepreneurial support and value-added services, as well as subsidised rent costs to allow new companies to get off the ground and develop into successful business. The main five are: StartmeupHK Venture Programme (InvestHK), Cyberport Incubation Programme, Incu-App, Incu-Bio and Incu-Tech at Hong Kong Science and Technology Park (HKSTP), Small Entrepreneur Research Assistance Programme (SERAP) and Enterprise Support Scheme (Innovation and Technology Commission), and Design Incubation Programme (Hong Kong Design Centre), though others such as Ycombinator and Chinaccelerator also exist. Though they have at times been labelled ‘white elephants’, they enable like-minded companies to get together through their co-work spaces. Cyberport, one of these hubs, has been greatly successful in providing this initial extra support to emerging companies – over the years its microfund scheme has awarded seed money of HK$100,000 to 108 projects, and also offers technical support, subsidies for professional services, training, and staff, and most significantly, 24 months rent-free space if they locate with them in Pok Fu Lam.[8]Not only this, but some of the original start-up companies that benefitted from this environment are now helping other start-ups gain investment funding - Deep Invest Technology Limited is one of these, as its business model is to help finance professionals make smarter investment decisions.Therefore, through the Hong Kong government nurturing and encouraging these start-up communities they have thus created a burgeoning start-up culture, where the success of one contributes to the success of another; a positive feedback loop has formed.
The city of Bristol is home to one of the UK’s largest urban regeneration projects: Bristol Temple Quarter Enterprise Zone. The zone contains several unique spaces where small, innovative businesses can thrive and grow, which is very similar to the communities that the Hong Kong government has established. Paintworks, Temple Studios and Engine Shed are three such examples of these, and unlike Hong Kong and as a direct result of Bristol being less built up,they are all positioned directly next to Bristol’s Temple Meads Railway Station, thus being more efficient and more likely to entice start-ups considering where to base themselves to Bristol.[9]Bristol Council is also in the process of improving transport infrastructure into and in these start-up ecosystems even further with a £400 million boost, which will ensure that the Enterprise Zones are the drivers of economic growth. The ease of starting up a business in Bristol is further made easier by the large talent pool provided by the cities two, highly ranked universities. Whereas one could argue that the Hong Kong Government’s policies place greater emphasis on attracting foreign talent and so cause it to have the 35% foreign start-up founders that it does, Bristol on the other hand has policies that lean more towards encouraging local talent. The STEP initiative, a national scheme for short and medium-term work placements for both undergraduate and postgraduate students to work on specific business or technical projects is one method to how start-up companies are being attempted to be helped by the UK government.[10]
The proximity and access to foreign markets that the Hong Kong government has secured is another means to which start-ups are being supported. The Closer Economics Partnership Agreement (CEPA), which is a bilateral agreement between Hong Kong and Mainland China greatly benefits start-up businesses as it provides them with preferential access to a much larger market, tariff free.[11] This in turn enables these new companies to expand more rapidly not only due to there being a greater pool of potential customers, but also because it allows their pricing to be more competitive, thus contributing to increased sales. Though not necessarily a measure implemented by the government, Hong Kong’s start-ups have massively benefitted from the manufacturing hub of China – Shenzhen - being just under an hour away for this enables companies to cheaply produce their products. However, the government’s policies concerning ensuring relatively easy access to visas and no tariffs on imported goods from China has enabled this opportunity to be better optimised.[12] Thus, the ‘one country, two systems’, and resulting relationship between the two territories enables Hong Kong’s start-ups to expand and thrive.
Due in part to the UK market being far larger than that of Hong Kong’s, there is less of an urgency or emphasis on UK start-ups needing to ensure immediate growth in international markets.The UK government however does provide some guidance to start-ups wishing to grow internationally concerning which markets are most profitable, and also how to overcome the barriers they may face to name a few. Aside from international support, the UK government is also helping Bristol become, to quote the Chief Secretary to the Treasury, Elizabeth Truss, the ‘UK’s start-up hub’ through its Regional Growth Fund (RGF).[13] Similar to schemes organised by the Hong Kong government but on a smaller scale, this funding scheme enables these start-ups to expand into neighbouring regions through providing grants or loans of less than £1 million. Thus, this government help scheme though not greatly innovative in nature, is a successful measure as it has encouraged and supportednumerous SMEs through the stages of start-up and growth into other markets, as shown by the more than 9,400 small and medium-sized businesses it has funded and their on-going profitability, from which Dyson Ltd has been arguably the most prominent success to come from the South West’s RGF.[14]
Similar to the ease of starting up a business, Hong Kong’s government has also created the conditions in which there is a great ease of doing business. Hong Kong’s overall ranking of 4th place on the Word Banks’s ease of doing business index for 2017, is due to its world-class infrastructure, sound legal environment (copyright laws) and democratic governance.[15] Aside from its business parks that provide an integrated infrastructure in one region that helps to reduce businesses’ expenses, Hong Kong’s telecommunications infrastructure is one of the most technologically advanced in the world, providing high broadband speeds to virtually all residential and commercial buildings at competitive prices. The very nature of Hong Kong’s government also makes it an attractive place for entrepreneurs to set their companies up in. This is down to Hong Kong often being cited as one of the most corruption-free economies in the world, as well as having one the least amounts of bureaucracy and red tape in Asia.[16] Lastly but viewed as vital by start-up companies are strongly enforced Intellectual Property Rights and stringent regulations for copyrights, trademarks, and patents, which Hong Kong has – it was ranked as having the best judicial system in Asia – making it a very appealing place to setup and operate a business.
Bristol city and more generally the UK also experience a very similar ease of doing business to Hong Kong. Though Bristol’s telecommunications infrastructure is marginally less advanced, the current lack of trade tariffs with all European Union member states that the UK enjoys till Brexit is enforced, coupled with Bristol’s access to one of the busiest ports, allows start-up companies based in Bristol near unrivalled and very few barriers of entry to international markets. Ultimately, with the UK’s ranking on the ease of doing business index being 7th (2017), and its classification being ‘very easy’ – the same as Hong Kong’s – both’s governments, with minor discrepancies, have ensured that start-up companies, once established have limited factors to contend with that could challenge their continued success.[17]
Though there is a current seed funding gap due to a lack of active angel investors, there are numerous programmes led by the Hong Kong government (and the private sector) that provide start-up companies with access to capital and business support. A number of business support programmes have also been established to foster growth in start-up companies: organisations such as the Hong Kong Trade Development Council, and the Support and Consultation Centre for SMEs have been aiding Hong Kong companies by helping them find new markets and acting as a comprehensive information and advisory centre for SMEs respectively.[18]The government initiative StartmeupHK and the HK$2 billion Innovation and Technology Venture Fund are just some examples of the volume of capital that is available to new firms. Due to these policies highlighting thegovernment’s confidence and desire to support Hong Kong’s relatively new start culture, they have thus encouraged more private firms, specifically ones like the 5 million high net worth individuals (HNWI) in Asia, to also support these start-ups. This greater participation of the private sector in start-up funding, has as a resultultimately led to more successful companies now and in the future as private firms will only allowthe most promising start-ups to be granted their finance. This has and will lead to more profitable businesses, increasing Hong Kong’s notoriety as the start-up capital of the world.
Start-ups launching in, or moving to, Bristol have a broad range of funding options available to them. The West of England Growth Fund is a smaller scale version of the government’s Regional Growth Fund which provides funds between £10,000 to £80,000 to any start-up that is assessed to have the potential to generate strong economic growth or job creation within Bristol and the surrounding areas.[19]Apart from this grant there are other government backed schemes such as the Enterprise Zone programme. This gives start-ups that locate to areas such as Bristol’s Temple Quarter Enterprise Zone up to a 100% business rate discount worth up to £275,000 per business over a 5-year period or 100% enhanced capital allowances (tax relief) to business making large investment in plant and machinery, in combination with simplified local authority planning. Therefore, as also shown by the earlier conclusions about the two countries’ start-ups’ access to finance and funding, it is evident that the UK government plays a much larger role in providing financial help to start-up businesses, whereas the Hong Kong Government practices a more ‘laissez-faire’ approach, allowing private investment firms to be the leading provider to the large part, which is in keeping with their freer, less mixed economy status.