Hong Kong: Nurturing the GBA’s Premium Financial and Professional Services Sectors
08 September 2020
As a global financial centre, Hong Kong is home to a large cluster of world-class professional-services providers lending needed support to companies for business growth. Kevin Wang, Vice President of Finance and Business Development of O-Net Technologies (Group) Limited, considers Hong Kong to be an indispensable international capital platform, with a clear edge in offering a full range of professional services. Wang says the advantage of Hong Kong’s professional-services sector lies in its strong international connectivity, especially in the areas of accounting practices as well as legal and regulatory matters. He adds that the city should continue to focus on sectors in which it enjoys a clear advantage, such as financial, legal and dispute-resolution services.
Specialist in Optical Network Solutions
O-Net Technologies was founded in Pingshan, Shenzhen in October 2000, and listed on the main board of the Hong Kong stock exchange in April 2010. O-Net offers innovative application products and solutions to clients, including telecoms applications, high-speed transceivers and other related components used in the optical network market, machine vision systems and sensor products for industrial and sensor markets, fibre-optic devices, optical components, and modules and subsystems for the fibre laser markets. The company has been designated under China’s Torch Programme as a new and high-tech firm.
Global Reach with Roots in the GBA
O-Net is a National Enterprise Technology Centre, with offices in Beijing, Hangzhou, Hong Kong, North America and Europe, and employs more than 5,000 people. The company’s headquarters are located in Pingshan, Shenzhen, and are primarily responsible for manufacturing, sales, operations, and research and development (R&D). Shenzhen was the ideal location for O-Net to set up its headquarters as it is close to Dongguan and Huizhou, where a large cluster of electronics manufacturers and telecoms companies help O-Net effectively communicate with its suppliers and clients. O-Net’s Hong Kong office has six employees, who are in charge of listing-related compliance matters, handling accounting and other legal issues, and communications with regulators.
For high-tech firms such as O-Net, R&D is crucial in enhancing competitiveness. Over the past 20 years, O-Net has built up a strong team of seasoned engineers and specialists to support continual R&D activities and train new staff. O-Net also has R&D and sales operations in multiple locations overseas, leveraging the capabilities of local talents for product development and R&D activities. These include a technology and R&D headquarters in Silicon Valley, California, and an R&D team specialised in semiconductor materials in France. The company also has a base in Canada mainly to produce parts for optical communications equipment.
Hong Kong’s International Network
With regard to Hong Kong’s advantages, Wang believes the city serves as an important international capital platform. Because of its market-oriented capital market and transparent legal and regulatory systems – and the Hong Kong dollar-US dollar peg, which helps mitigate forex risks – O-Net chose to list in the city in 2010. Wang says the city still has a great advantage in terms of connectivity with the international community.
Wang believes the diversity of Hong Kong’s professional-services industry is one of its advantages, especially for listing companies and firms with business overseas such as O-Net. Hong Kong’s professional-services practices are largely in line with international standards, especially on accounting, legal and regulatory matters, and there is a large pool of trusted providers with different specialisations. O-Net has benefitted greatly from this strength through hiring professional-services companies with international experience to conduct due diligence, advise on capital structure and financing strategies in acquiring targeted businesses, and offer guidance on the strategies to navigate the US-China trade war and comply with shareholder communications issues.
Hong Kong as Global Services Hub
Wang believes the Guangdong-Hong Kong-Macao Greater Bay Area shares many similarities with the San Francisco Bay Area. The Californian city used to be the centre of the San Francisco Bay Area, yet after tech giants such as Google, Facebook, Apple and Intel moved to nearby Silicon Valley, San Francisco became a hub for providing support services such as finance, accounting and legal. A parallel can be drawn between Shenzhen in the GBA and San Francisco in the San Francisco Bay Area, as the Chinese city now houses a number of tech giants such as Tencent, Huawei and ZTE. On the other hand, like San Francisco, Hong Kong plays a supportive role and provides quality support services for Shenzhen and other GBA cities.
As the cost of manpower is relatively low in Shenzhen and land is readily available, it would be more cost efficient for companies that require a lot of space and labour resources for R&D activities to be located there. Therefore, Wang believes Hong Kong should focus more on enhancing its position in industries with competitive advantages, such as finance, legal, dispute resolution and other professional services.
Greater Government Support Needed
With regard to the development of technology and innovation industries, Wang notes that Hong Kong’s R&D activities are more commercially driven, as companies have to be accountable to their shareholders, and they tend to invest in projects with shorter lead times to generate financial returns. However, a lot of R&D activities may require long-term investment before making a profit, and so government support would be required. A number of forefront R&D projects (e.g. semiconductors) in the US, for example, are not carried out by commercial institutions but by government-funded research institutes.
Therefore, Wang believes that if the Chinese government is willing to invest in establishing publicly funded research institutes in Hong Kong and provide funding for research projects, it would help develop a local talent pool and enhance universities’ R&D capabilities – and bolster the forefront R&D capability in Hong Kong. Both Hong Kong and the Central government would benefit from this initiative, but to achieve such long-term collaboration, detailed planning is required by both parties.
Leveraging Hong Kong’s Advantages
As for how Hong Kong should enhance its existing advantages and cope with future challenges, given the different issues it is currently facing, Wang has the following advice. Firstly, he reckons Hong Kong should make better use of the “One Country, Two Systems” policy. For example, the Hong Kong government should encourage local start-ups to conduct R&D and testing of new ideas and technology in Hong Kong and expand into the markets in mainland China to scale up the businesses, allowing these local start-ups to grow in much bigger markets.
Secondly, he believes the GBA initiative provides a great opportunity for Hong Kong to collaborate with Shenzhen and other GBA cities. For example, in terms of the development of technology and innovation industries, Hong Kong should be more proactive in seeking opportunities to collaborate with Shenzhen to develop an ecosystem that is essential to foster start-ups. Shenzhen has established a complete scientific research ecosystem, which is conducive to the incubation and growth of technology and innovation enterprises. In this process, Hong Kong should give full play to its advantages and provide talents and support services for the development of the GBA.
Thirdly, Wang says Hong Kong can focus on the development of asset-light technology industries, such as cryptocurrencies, social media and video games, rather than asset-heavy industries that require a considerable amount of labour and machinery for production, since it is difficult for the latter to develop in Hong Kong given the limited land supply. He believes Hong Kong could also focus on developing medical-related technology industries, as the city has a large pool of biotechnology and medical talents, and the machines for R&D and production in this field don’t require a lot of space.
Finally, as more low-end manufacturing plants are being relocated to Southeast Asia, companies in the GBA have to move up the value chain. If government authorities aim to develop the GBA into a world-class technology and innovation centre and improve regional competitiveness, they should provide support to develop the hardware ecosystem for technology developments for related companies. For example, the high cost of semiconductor manufacture may exclude many private companies from setting up their own fabrication plants, and instead they must rely on foundries in places such as Shanghai and Zhejiang. Wang says in order to build a hardware ecosystem, the government authorities in the GBA should co-operate at a strategic level and jointly invest in the construction of these types of heavy-asset facilities. This would attract more companies from related industries, helping industrial clusters to form and therefore achieve greater regional competitiveness.
Company interview conducted by PricewaterhouseCoopers Advisory Services Limited
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Note 2: This English version of the case study is translated by HKTDC based on the Traditional Chinese version prepared by PricewaterhouseCoopers Advisory Services Limited. Should there be any inconsistency or ambiguity between this English version and the Traditional Chinese version, the Traditional Chinese version shall prevail. PricewaterhouseCoopers Advisory Services Limited will not have or accept any liability, obligation or responsibility whatsoever for any loss, destruction or damage (including without limitation consequential loss, destruction or damage) however arising from or in respect of any use or misuse of or reliance on the English version of this case study.
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- Hong Kong
- Mainland China
- Hong Kong