Pokin Yeung is a transplanted Canadian who, until recently, called San Francisco home. Because she decided she hadn’t moved enough times in her life she moved again to Hong Kong to work on her latest startup, Peer. She’s hoping to learn as much as she can along the way about how to build a hardware startup.
Most startups pack their bags and head West towards San Francisco.
I did that eight years ago, but this time around I packed my bags and headed East to Hong Kong.
Why on earth did I decide to do that?
For hardware and IoT startups
For a hardware startup, Hong Kong is an ideal landing ground. Hong Kong’s history as a British colony means that the vast majority of business is still conducted in English. Its proximity to China (responsible for 22 per cent of the world’s manufacturing) makes it easier for startups to design, develop and prototype their hardware products quickly and in a more cost-effective way.
While it may actually be even faster to develop from within China (and I anticipate many trips across the border), there is still a slight language barrier compared to operating in Hong Kong. Many contract manufacturers and original design manufacturers also have offices located in Hong Kong so it is easy at least to start the discussions and process from within Hong Kong.
Beyond that, Hong Kong’s strong history of toy manufacturing (second largest exporter in the world even today) means there is a good local talent with industrial design experience. On the development side, Hong Kong’s education system is ranked second worldwide for math and sciences. The school system is robust and engineers are highly skilled.
That being said, because engineers are in high demand and short supply (with many students preferring degrees in banking and finance), hiring these engineers and scaling up may be a challenge. I’ve been told a competitive salary is valued above equity and stock options.
For B2B startups
If you’re a B2B startup, Hong Kong offers an interesting opportunity. Since there is a shorter history and smaller roster of tech-based startups, most potential advisors and mentors (especially those introduced via accelerators such as Nest) come from traditional businesses. Instead of meeting with fellow entrepreneurs, advisors often come from institutions such as KPMG, advertising agencies (Ogilvy, Landor, Jack Morton), packaged goods companies, and organisations such as Samsung, Amazon and Google.
Despite being small geographically, many companies choose to maintain operations in Hong Kong, and there are close to 2,500 multinational corporations with regional offices and headquarters in Hong Kong. These companies include Infiniti, Campbell Soup, and Mandarin Oriental.
For a B2B play, this represents an excellent opportunity to find partners and do customer development with corporations. If you were in the US, you would likely have to be located in NYC or LA, Toronto or Montreal to have the same kind of access to non-tech corporations.
As the Hong Kong startup ecosystem matures, the landscape will continue to evolve. Already there are a number of successful overseas entrepreneurs (Danny Yeung of Groupon HK and Patrick Lee of Rotten Tomatoes) who have decided to return or situate in Hong Kong.
If you’re a B2C play, Hong Kong is a more challenging place to operate. With a population of 7.3 million, four per cent of which comprise expatriates, four per cent domestic helpers and approximately 10 per cent mainland Chinese, the market can be quite fragmented. Most consumer-facing startups will need to consider a global strategy or focus on the China market as it would be difficult for a business to be viable simply from the local population standpoint.
For international connections
With over 300,000 expatriates (four per cent of the population), Hong Kong has a large expatriate population. Within business, banking and finance sectors, the representation is even higher. It is very likely that a colleague or business associate has come from overseas and it is equally likely that these contacts will again be transferred overseas one day. For startups looking for connections or insight to other countries, this represents an easier opportunity to make the connections and gain valuable insight on a company, country, or corporation.
As a gateway to China
Even if you are not in hardware, Hong Kong makes a great landing ground to explore business opportunities in China. It is for this reason that 33 per cent of China’s foreign capital flows through Hong Kong.
For logistics and shipping expertise
Hong Kong has four pillar industries. These are trading and logistics, financial services/banking, professional services and tourism. Of these four, the largest by far is trading and logistics. Close to 30 per cent of Hong Kong’s GDP comes from import/export and logistics. Because Hong Kong is a major shipping port, many products depart from Hong Kong.
For those doing hardware startups, logistics can be an often forgotten but critical aspect of the business. Being based in Hong Kong reminds startups of this step and also allows you to have a better understanding of logistics and export operations.
For its government incentives and programmes
The Hong Kong government is very supportive of startups and has a number of grants and programmes in support of entrepreneurs. (I am currently trying to hunt these down, here are a few to start.)
Hong Kong’s low corporate taxes (it ranks number one in Asia for economic freedom) and low incorporation costs makes it a good place to establish a business. That being said, the low corporate tax rates also means that social security nets such as unemployment insurance are minimal.
For its stable legal system
Just as Delaware is a state that many startups prefer to incorporate within the US, Hong Kong’s robust legal system serves to derisk the operating environment for startups. There is a history of fair case precedents, and the legal system is relatively corruption free.
Who is Hong Kong ideal for
If you’re already based in Hong Kong, have strong ties or connections, Hong Kong is a great starting ground. Alternatively if you are participating in an accelerator with good connections and you’re doing something hardware or IoT related, Hong Kong is a good bet. Even if you arrive with a blank slate, there are quite a few industry events, organisations and opportunities to build networks over time (Hardware Massive, Startup HK, Cyberport, Web Wednesdays.) Since the startup ecosystem is small you can quickly be recognised as a regular.
Who might look elsewhere
For all its apparent benefits, Hong Kong is not ideal for every startup. For those that need to raise money, Hong Kong is still a somewhat conservative society. If you land here with no connections and no reserves, Hong Kong is an expensive place to live and it takes some time to build connections.
Compared to San Francisco, there are some cultural differences. Whereas most residents of Silicon Valley are familiar with or somehow connected to startups, here in Hong Kong startups still represent a small fraction of the overall activity in the city, and most residents have very little interaction or understanding of startup entrepreneurs.
The views expressed here are of the author, and e27 may not necessarily subscribe to them. e27 invites members from Asia’s tech industry and startup community to share their honest opinions and expert knowledge with our readers. If you are interested in sharing your point of view, please send us an email to writers[at]e27[dot]co
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