SWOT Analysis of Hong Kong as an International Business Hub: Current Strengths

To understand how Hong Kong leverages its strengths and how enterprises in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) make use of Hong Kong’s functions and advantages to develop their business, PricewaterhouseCoopers Advisory Services Limited (PwC) carried out a SWOT (strengths, weaknesses, opportunities, threats) analysis of Hong Kong’s overall development and six key functional areas. The analysis was based on the results of in-depth interviews, a questionnaire survey and desk research conducted earlier. Hong Kong’s strengths and weaknesses as an international business hub for the GBA were assessed in four aspects - connectivity, infrastructure, market environment and talent. The opportunities and challenges facing Hong Kong in its role as an international business hub were also examined. In the six key functional areas, an in-depth systematic survey was undertaken among senior business executives in the GBA to gauge how they use these areas and what they thought about the way Hong Kong is capitalising on them. Their opinions on how Hong Kong can continue to enhance its status as an international business hub were also collected. The questionnaire survey results, a quantitative analysis of respondents’ views towards Hong Kong, senior business executives’ insights collected at in-depth interviews and desk research outcomes were all taken into consideration in the SWOT analysis.

Current Strengths of Hong Kong

Hong Kong has long been positioned as an international financial, transportation and trade centre and global aviation hub in the GBA. The city boasts a robust legal system, open business environment, free economy, well-established infrastructure and transportation system and an international talent pool. These advantages have been used by Hong Kong to help fuel the mainland’s development. Hong Kong’s role is to facilitate the GBA’s internationalisation and economic growth, while also being an important platform helping GBA enterprises enter the global market and overseas companies penetrate the GBA.

Respondents in the survey generally agreed that Hong Kong’s strengths as the international business hub for the GBA were related to its connectivity, infrastructure, market environment and talent. They were asked about each of these factors in turn and how much they agreed that they were important in making Hong Kong a strong international business hub. Connectivity commanded the highest level of agreement (Figure 1), followed by infrastructure and market environment. The survey also found that senior business executives in the GBA gave due recognition to Hong Kong’s role as a bridge connecting overseas companies with GBA enterprises, with the city’s open market environment and well-established infrastructure proving the main attractions for GBA enterprises using Hong Kong as their business development platform.

Connectivity

Situated at the heart of the Asia Pacific region, Hong Kong is able to both capitalise on the strengths of the mainland and engage with the rest of the world. The city is not just an external window for mainland enterprises, it is also a world-renowned cosmopolitan city in its own right. Its prime location has made it an international financial, shipping and trade centre and an aviation hub, linking up mainland China and the global marketplace. The city plays a significant role in China’s dealings with the outside world in many spheres, including trade, logistics and transportation and capital flow.

The survey found that senior business executives in the GBA generally agreed with these views. In terms of connectivity, they strongly agreed that the city’s well-established transport network via land, air, rail and sea, offering efficient transport and logistics connections to the world, is the city’s greatest advantage (rated at 4.0, see Figure 2). Respondents also agreed that Hong Kong provides strong business connections for overseas companies that want to enter the Chinese market and for GBA companies that want to expand into overseas markets.

This finding confirms Hong Kong’s long-standing and important role as a “window” linking mainland China with other parts of the world. According to one software development and service provider in the GBA, Hong Kong’s status as an international business hub is based on this geographical advantage. The city is also the starting point for many GBA enterprises looking to venture into Belt and Road countries and a significant gateway connecting the mainland with the South-east Asia markets.

Infrastructure

66% of the respondents agreed that Hong Kong’s economic infrastructure is one of its main strengths. In particular, they like Hong Kong’s present tax regime (rated at 4.0, Figure 3). This finding aligns with comments made during the in-depth interviews, in which respondents generally agreed that Hong Kong’s tax regime is simple and competitive and benefits business owners. Hong Kong is seen as a city which has one of the lowest tax rates and the least number of forms of taxation in the world. Compared to other GBA cities, its advantages - especially in the areas of salary taxes on individuals and profits tax on businesses - are indisputable.

Another strength which was scored highly by the respondents was the transparency and simplicity of Hong Kong’s government procedures for businesses (e.g. company registration, intellectual property rights registration, property transfer and licence application) (rated at 3.9). Respondents also agreed that Hong Kong’s physical infrastructure and facilities (e.g. utility supply, data centre, telecommunications, and so on) are adequate for their business (rated at 3.8) and that the rule of law and legal system in Hong Kong are trusted and reliable (rated at 3.8). GBA enterprises planning to use Hong Kong’s services may find that the city’s facilities and infrastructure could tempt them into actually establishing a presence in Hong Kong.

Although respondents largely agreed that infrastructure as a whole is one of Hong Kong’s strengths, they were much less likely to agree that the R&D capability and technology infrastructure for technology advancement in Hong Kong are sufficient (rated at 3.4).

Market Environment

Hong Kong’s competitiveness and market environment have gained high recognition worldwide. In the World Competition Yearbook 2020, published by the International Institute of Management Development (IMD) in Switzerland, Hong Kong is ranked the fifth most competitive of 63 economies around the world. The city secured top marks for competitiveness in government efficiency, business efficiency and economic performance, while its infrastructure was also highly placed. The Doing Business 2020 Report published by the World Bank recently also ranks Hong Kong among the world’s top economies in terms of its business environment.

In the survey, respondents generally agreed that Hong Kong’s market environment is one of the city’s strengths. 71% either agreed or strongly agreed with the statement that “Hong Kong provides a full range of professional services which support my business”. This was largely seen as the greatest advantage conferred by the city’s market environment (rated at 3.9, Figure 4). Other statements that were met with strong agreement were “the business environment for business activities and commerce in Hong Kong is open and fair which encourages competition” (with 73% of the respondents agreeing or strongly agreeing, rated at 3.9) and “Hong Kong offers a wide range of financial services and products which suit my business needs” (rated at 3.8), along with “Hong Kong offers extensive business opportunities and potentials for my business with a cluster of businesses and companies”. These findings suggest that positioning Hong Kong as a “window” or “platform” for China and overseas countries not only allows the city to exploit its own advantages, but also helps GBA enterprises expand their business. To enhance its status as an international business hub further, therefore, Hong Kong must do everything it can to create a favourable market environment.

Only 48% of the respondents, however, agreed or strongly agreed that “the Hong Kong government offers adequate incentives in developing new types of business” (rated at 3.4), a clear sign that the incentives offered by the Hong Kong government are inadequate and that there is room for improvement in this regard.

The study also looked at Hong Kong’s market environment and its role in GBA business development by examining the ways in which GBA cities have used or are using Hong Kong’s services. Figure 5 shows that the most frequently used and most popular with GBA enterprises are the city’s financial services, with 62% of respondents saying that their companies are using them now or have used them in the last two years. This is followed by legal and dispute resolution and other professional services, which have been or are being used by 54% of respondents. 31% said that they have used or are using logistics and transportation services, 28% are using or have used trading services, while the figure for innovation and technology services was 27%. It is clear from this that Hong Kong’s financial services, legal, dispute resolution and other professional services play a big part in Hong Kong’s role as an international business hub for the GBA.

PwC also asked respondents to comment on the quality of the services that they have used. The results show that the services that GBA enterprises rate the highest in terms of quality are Hong Kong’s legal, dispute resolution and other professional services (including business and management consulting, accounting, auditing and tax consulting services) (rated at 12.0 out of 15). These services rank highest in terms of accessibility, quality and efficiency with ratings of 4.1, 4.0 and 4.0 respectively. The next most highly valued services were trading services with an overall rating of 11.7. Respondents were particularly satisfied with the accessibility and quality (both rated at 3.9) of Hong Kong’s trading services.

These results are consistent with the opinions obtained from in-depth interviews, in which respondents who have used Hong Kong’s testing and certification services expressed the greatest satisfaction with the services provided. The high ratings for trading services can be attributed to Hong Kong’s trading environment, international network and free port policy.

Although GBA enterprises use Hong Kong’s financial services most frequently, the rating of 11.7 they give them is below that for legal, dispute resolution and other professional services and trading services. Figure 6 shows that this is mainly because respondents do not find the city’s financial services very efficient (rated at 3.8), although they are by and large satisfied with the services’ accessibility and quality (rated at 4.0 and 3.9 respectively). During the in-depth interviews, respondents complained that the threshold for opening bank accounts in Hong Kong is quite high and that the relevant laws and regulatory requirements are complicated. It is time-consuming to prepare the required documents, and not much technology has been applied to help in the process. These have all impacted on users’ opinions on financial services. However, given Hong Kong’s diversified financing channels, enterprises still like to use the city’s investment banking services (such as IPO and corporate finance) and foreign exchange services (e.g. RMB settlement).

Hong Kong’s logistics and transportation services scored the same overall rating with GBA businesses as the city’s financial services (rated at 11.7), and their weighted ratings in accessibility, quality and efficiency were also identical. Innovation and technology services scored the lowest overall rating (at 10.9). During the in-depth interviews, respondents said that Hong Kong, with its ‘underdeveloped’ innovation ecology, is lagging behind other GBA cities (e.g. Shenzhen) in innovation development, leaving room for improvement.

Figure 7 was compiled using the same statistics as those in Figure 6, showing the respondents’ ratings of the various services and the number of companies using those services. It indicates that there are relatively more GBA enterprises using financial services and legal, dispute resolution and other professional services, with close to half of the respondents having used Hong Kong’s commercial banking services. The next most popular are accounting, auditing and tax consulting services which have been used by 37% of the respondents. Only 15% have used Hong Kong’s innovation and technology services (e.g. telecommunication services and computing services).

Talent

The IMD published its World Talent Ranking 2019, which assessed 63 economies in three areas: investment and development of home-grown talent, readiness (i.e. availability of skills and competencies) of home-grown talent, and appeal to overseas talent. Hong Kong was placed 15^th overall, up three positions from its 2018 ranking. In the area of home-grown talent’s readiness in terms of skills and competencies, the city ranked fourth. Specifically, it was among the top four in terms of the percentage of female labour force, Programme for International Student Assessment (PISA) and availability of competent senior managers. During the in-depth interviews, senior business executives in the GBA indicated that in certain sectors (like financial, legal and professional services), Hong Kong has an abundant pool of international talent with rich professional knowledge and experience, backing up Hong Kong’s position as an international financial centre and legal and professional services hub. Hong Kong has done much to help the development of the GBA’s insurance sector, sending a large number of professionals to mainland cities and passing on extensive professional knowledge and management experience. In the past few decades, a number of successful Hong Kong entrepreneurs have invested and established production bases in a wide range of sectors in the GBA, bringing their sophisticated management experience and industry and professional knowledge to the mainland. Respondents from manufacturing industry commented that Hong Kong has made great contributions in enhancing mainland personnel’s quality, skills and knowledge. Likewise, in the innovation and technology sector, the tremendous support from Hong Kong’s scientific research experts has helped groom a talented pool of entrepreneurs.

When it comes to nurturing local talent, Hong Kong’s education system is widely known to be well aligned with the international system, with many talented people being sent abroad every year to further their studies. Respondents from the GBA unanimously agreed that of all the GBA cities, Hong Kong houses the greatest number of top-level tertiary education institutions. These include the University of Hong Kong, Hong Kong University of Science and Technology, Chinese University of Hong Kong, City University of Hong Kong and Hong Kong Polytechnic University, all of which are at the forefront globally when it comes to research standards. This means that Hong Kong is well-positioned to become the GBA’s education hub. One respondent in the smart technology and internet application service sector said his company set up a research institute in the city to develop new products and technologies and drive technological upgrade because it was attracted by Hong Kong universities’ innovation and technology talent pool and research strengths. Hong Kong has also rolled out measures like the Admission Scheme for Mainland Talents and Professionals, Quality Migrant Admission Scheme and Technology Talent Admission Scheme in order to attract first-rate talent from around the world and provide policy support to global companies in manpower recruitment. However, some respondents from the logistics sector and innovation and technology industry warned that Hong Kong is short of talent in their sectors. An analysis of this is found in SWOT Analysis of Hong Kong as an International Business Hub: Future Challenges.

For the background information about this report, please refer to the appendix in Hong Kong as the International Business Hub for the Greater Bay Area (Executive Summary).

_{The Chinese version of the report is prepared by PricewaterhouseCoopers Advisory Services Limited. The English version of the report is translated by the Hong Kong Trade Development Council based on the Chinese version. Should there be any inconsistency or ambiguity between the English and Chinese versions, the Chinese version shall prevail.}

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