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Start-up Entrepreneurs New source of FDI for Hong Kong
November 11, 2014
WHILE the Mainland remains a strong source of FDI for Hong Kong, an emerging source is the start-up entrepreneur with global ambitions, wanting to use Hong Kong as a base for regional and world markets . . .
HONG KONG — The rise of the start-up entrepreneur with global ambitions is changing the face of foreign direct investment into Hong Kong. The phenomenon is in line with a trend identified by McKinsey of what the research firm terms micro-multinationals – entrepreneurs selling and sourcing cross-border (see ATI June 2014).
Hong Kong’s inward investment agency, InvestHK, reacted to the trend last year with the launch of a worldwide StartmeupHK Venture Programme, offering promising entrepreneurs a series of Awards valued at up to US$500,000 in terms of sponsored work space and business support services.
The initiative attracted 384 entries from 39 economies, from which 12 were selected to
pitch ideas to a judging panel in Hong Kong. This year has seen 550 entries from 47 economies, with three new categories of Awards – FinTech, SmartCity and Data Analytics - to be presented in Hong Kong in November.
Simon Galpin, Director-General of InvestHK, says there has been steady growth in the number of start-up entrepreneurs coming to Hong Kong with an eye to global markets.
“We are really playing catch-up trying to map out all the start-ups in Hong Kong because we have a strong number in areas like e-retailing.
Fintech (financial services technology) is another growth area because a lot of ntrepreneurs are coming out of the financial services sector in Hong Kong to start their own businesses.”
Growth in start-ups, in large part driven by the internet and social media, has been startling, says Galpin. “When we look back three years, Hong Kong had three co-work spaces aimed at helping start-ups, now there are well over 30, and most are private-led organisations.
“We thought initially that the start-ups were looking at the Mainland China market, but many had a global perspective from Day One.
Even if they only have two people in Hong Kong, they are collaborating with other startups maybe in London, or Israel or the USA.
“Some are here because they want to manufacture or source from the Mainland, but not exclusively. If their only focus is on China, they are more likely to set up in Shanghai or Beijing.”
Establishing an initial base in Hong Kong while taking advantage of the manufacturing ability available in neighbouring Shenzhen can be a good way to go for a lot of the new startups, says Galpin. “The beauty of Hong Kong is that you can set up a company here very quickly – in an hour – and our tax rates are simpler than those in China.”
Of the 550 applicants for Startmeup Venture Awards this year, 40 semi-finalists have been chosen in two categories — early-to-growth stage and concept-and-prototype stage. They cover a wide spectrum of industries, including retail, marketing, creative design, social media smart mobile applications and financial data analysis.
On a broader scale, Galpin says Mainland China remains a strong source of FDI for Hong Kong, with most Mainland companies looking to use a subsidiary in Hong Kong to make investments elsewhere in the world.
Increasingly, he says, companies choose Hong Kong for its global reach, and there is a trend for more multinationals to use Hong Kong as a global headquarters rather than just a regional headquarters.
The Mainland continues to be the major source of new corporate arrivals into Hong Kong, with 55 companies establishing there in the first six months of 2014, compared with 30 from the US, 20 from Japan, 10 from France and 18 from the UK.
In terms of trade, again the Mainland is Hong Kong’s major trading partner, now followed by ASEAN, then the EU, the US and Japan. Hong Kong trade with ASEAN is growing
quickly, says Galpin, and, as a result, InvestHK is strengthening its presence in Singapore to tap potential inward investment from Southeast Asia.
In January 2015, InvestHK will open a consulting office in Mexico to serve the increasing number of Latin American companies looking to do business through Hong Kong to the Mainland.
It is also planning to strengthen its position in India following the change of government there. “Hong Kong is very keen to conclude a double tax agreement with India,”
says Galpin. “If we can get that through, suddenly Hong Kong will be quite an attractive location.”
InvestHK currently has 28 offices offshore, the most recent of which was established in Wuhan earlier this year.
Galpin says his agency is actively working with 750 companies around the world that are planning to establish a presence in Hong Kong. “We work on the basis that about half of these will set up in any given year,” he says.
The timeframe from initial approach to an up-and-running presence varies from sector to sector. “Financial services can take longer because they need licenses – we could be looking at a year – but if we are lucky and we find a company that is close to making a decision, it may take just a couple of months,” says Galpin.
“We have some on our books who have taken 10 years before we actually get them into Hong Kong. It is very much an account management role where we try to keep in touch and to provide support over an extended period – then, when they are ready to take the plunge, we are there to support.”
