Is Hong Kong Startup Friendly?

For startups gearing up to launch a new product, Hong Kong is a good place to start

Piloting a solution in the market is one of the most pivotal points in the early days of a startup journey. Along with determining the future course of action in product development, it also has a pronounced effect on the growth and operational strategies of a business.

This is why it is important for startups to select the right market for testing. The right market is not only characterized by a visible need for the startup’s product or service, but also the factors which allow a startup to acquiring customers and deliver solutions effectively.

As the Asia Pacific region cements itself as a leader in the innovation sector and the successor to Silicon Valley, Southeast Asian countries are emerging at the top of the leaderboard. With over 3000 startups in 18 industries and investments touching $720 million in 2019, here are three reasons why Hong Kong stands out.

  1. A Regional Advantage

Hong Kong has been often referred to as a gateway to China, but that encapsulates only a part of its location advantage. While the Chinese mainland lies to its north, making it a strategic port for trade, the rest of Southeast Asia is a only quick flight away from Hong Kong.

Hong Kong is also a great microcosmic representation of the entire region. Southeast Asian countries have interconnected relationships, and the region is mostly seen as ‘a side of the world’ rather than individual countries. As an immigrant-friendly region, Hong Kong’s community is a mix of locals and expats who are well versed in global businessese.

For startups, this means that not only is it easier to source talent from Hong Kong, but it is also a favorable environment for beta testing and market research with focus groups, owing to the diversity it offers.

  1. A Business-Friendly Ecosystem

The startup community in the region is bolstered by a plethora of incubators, accelerators, and curated events, such as Brinc, Cyberport and StartmeupHK, which can provide support in the product development stage.

Getting an office is a notorious challenge in Hong Kong due to skyrocketing real estate prices, but Hong Kong’s co-working spaces have given startups a way out. These co-working spaces provide all the services and infrastructure that a business may need, including meeting rooms and office address services, allowing founders to direct their cash to operations instead of steep office rents.

From an ecosystem perspective too, a 2019 World Bank report that analyzed businesses across the world ranked Hong Kong fourth for ease of doing businesses, in a list that included a whopping 190 countries.

  1. A Supportive Government

At a rate of 15% or 16.5% depending on the incorporation status of the company, Hong Kong demands the lowest tax rates in the Asia Pacific region. Additionally, businesses are taxed at half that rate for the first HK$2 million in profits – a win for micro and small enterprises who want to extend their product line.

Arguably, other countries in the Asia Pacific such as India or Taiwan also have low tax rates (especially when the exchange rate is factored in), but they lack the other regulatory infrastructures that Hong Kong provides.

Additionally, in response to the economic fallout due to the COVID-19 pandemic, the Hong Kong government will guarantee 100% of loans taken by small and medium enterprises (SMEs) under the SME Financing Guarantee Scheme. This is a big plus for financing the product and market testing stage.

Although known in insider circles for not having a particularly welcoming banking system for SMEs, Hong Kong has enjoyed a global reputation as a stable financial hub overall, until its geopolitics took a downturn with last year’s pro-democracy protests.

Suddenly, investors were wary of funding startups in the area, and business itself took a big hit in all the turmoil. However, to assume that the region has lost its sheen on account of these circumstances would be an underestimation of Hong Kong’s potential.

While it was widely assumed that Hong Kong lacked entrepreneurial spirit because of its stability, social agitation has in fact proved that the region is not afraid of change. After the COVID-19 pandemic, this could be just the thing to give Hong Kong startups a new lease of life.

Header image by Aleksandar Pasaric from Pexels

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