Hong Kong Start-Up Survey: Opportunities and Challenges in the Greater Bay Area

The Guangdong-Hong Kong-Macao Greater Bay Area (GBA) is making great efforts to build an international technology and innovation centre as well as develop into an innovation-driven economy. According to the Greater Bay Area Startup Ecosystem White Paper published by Hong Kong start-up community and power connector WHub, as of 2019 the GBA was home to 43 unicorn companies engaged mainly in e-commerce, health technology, robotics, financial technology, and biotechnology, worth a combined US$1.1 trillion (HK$8.53 trillion). The Global Innovation Index 2020 ranked the Guangzhou-Shenzhen-Hong Kong science and technology cluster, formed by the innovation and technology industries in the three cities, second in the world, trailing only the Tokyo-Yokohama science and technology cluster. The GBA’s innovation achievements and its direction of development mean that it is undoubtedly one of the major markets for Hong Kong start-ups seeking outward expansion.

HKTDC Research conducted a questionnaire survey and in-depth interviews¹ with local start-ups in mid-2020. The aim was to achieve a better understanding of the development and performance of the domestic start-up ecosystem, and also to identify growth opportunities available in the GBA. The survey found that local start-ups find the huge market size and lower cost of doing business in the GBA appealing. Nearly half of the respondents said they were interested in expanding into the GBA market. Different institutional systems in mainland GBA cities and the uncertain market conditions there have exacerbated the difficulties Hong Kong start-ups face when they try to enter this market. However, opportunities still exist for them in the GBA depending on the nature of their business, with start-ups whose activities are in line with the directions of the GBA’s overall development poised to benefit.

Huge Market

The survey found that 20% of the respondents have set up offices in mainland GBA cities. 71% of those that had done so had chosen Shenzhen and 22% had opted for Guangzhou. Other mainland GBA cities, however, had not proved to be so popular. 34% of all respondents have business operations within the GBA, mostly in research and development (R&D) and some in sales and sourcing activities. 43% expressed their interest in expanding further into the GBA market, and 38% were in the process of identifying business partners there.

The survey looked into the factors attracting Hong Kong start-ups to venture into the GBA. Among those that have already entered the GBA market (e.g. opened offices, started business operations, or participated in study missions there), 67% recognised the huge consumer market there, with 45% of them saying this was the most appealing element of the GBA. At the company interviews, a number of start-ups pointed out that the small size of the Hong Kong market has hindered the growth of their business to some extent, and because of this, they have ventured into markets outside Hong Kong. As well as looking towards traditional European and American markets and emerging ASEAN markets, they have also turned to the GBA.

When asked about the difficulties and challenges they face, 37% of the local start-ups replied that the rising cost of doing business in Hong Kong has made it more difficult for them. This is another major reason given by them for expanding into the GBA, with 37% of the respondents pointing out that the cost of doing business in the GBA is lower. 18% of respondents said that the cost factor is even more important than market size as a reason to expand into the GBA. Some respondents also highlighted a greater access to funding and investors (29%), proximity to their Hong Kong office (24%), and the presence of a workforce with a higher level of technical skills (17%) as important attractions of the GBA.

Different Business Environments

Lured by factors like the huge market size and the lower cost of doing business, nearly half of the respondents expressed their interest in expanding further into the GBA market. Yet the survey found that only about one-third of the start-up companies have business operations there. 43% of respondents said that the different institutional systems (e.g. tax, legal) there hindered their expansion plans. As Hong Kong companies have to devote extra resources to understanding and aligning with mainland business practices and work flows, start-ups are often put off because they do not have enough resources to do so.

39% of the respondents were also concerned about uncertain market conditions. During the company interviews, it became clear that some local start-ups believe that mainland government policies are unpredictable and subject to change overnight, which explained why they were not too keen about developing their business in the GBA. Moreover, local start-ups moving into the GBA have to deal with cultural differences, which not only affect their daily communications with mainland customers and staff, but also their ways and means of doing business. For instance, one of the difficulties encountered by many companies when marketing in the mainland is access to social media. Facebook and Instagram are widely used in Hong Kong while WeChat and Xiaohongshu are the common marketing channels in the mainland. Another barrier to doing business in the GBA market mentioned by 34% of the respondents is opaque market information, which increases the worry of Hong Kong start-ups about the lack of certainty of market conditions in the mainland.

When asked about the performance of Hong Kong’s start-up ecosystem, the respondents were in general more satisfied with Hong Kong’s connections with overseas markets than with the access it provides to the mainland market. However, when interpreting the survey findings, it should be noted that the survey was conducted between June and July 2020, and that global developments such as US-China trade friction and the Covid-19 pandemic may have had an impact on the views of the respondents.

Start-Up Needs Not Met

In the past two years, the Hong Kong government has been working hard to help local start-ups, especially young entrepreneurs, venture into the GBA. Existing policies encouraging young people from Hong Kong to innovate and start businesses in the GBA include:

• In March 2019, the Youth Development Commission rolled out the Funding Scheme for Youth Entrepreneurship in the Guangdong-Hong Kong-Macao Greater Bay Area and Funding Scheme for Experiential Programmes at Innovation and Entrepreneurial Bases in the Guangdong-Hong Kong-Macao Greater Bay Area under the Youth Development Fund. These two schemes aim to finance Hong Kong non-government organisations providing entrepreneurial support and incubation services for young people starting a business in Hong Kong and mainland GBA cities.
• The 2019 Policy Address announced that an Alliance of Hong Kong Youth Innovative and Entrepreneurial Bases in the Greater Bay Area would be established and organisations from Guangdong and Hong Kong, such as innovative and entrepreneurial bases, universities, non-government organisations, scientific research institutes, professional bodies and venture funds, would be invited to join the alliance and jointly set up a one-stop information, publicity and exchange platform.

In addition to this, the Central Government in Beijing promulgated 16 policy measures in November 2019 to support the establishment of the GBA. In the innovation and technology sector, steps would be taken to support the development of the Shenzhen-Hong Kong Innovation and Technology Co-operation Zone, facilitate customs clearance of imported animal-derived biomaterials, and relax the limitation on exporting mainland human genetic resources to Hong Kong and Macao.

Nevertheless, when the respondents were asked about the elements attracting Hong Kong start-ups to establish a foothold in the GBA, only 14% named favourable government policies available in the market there as an attraction. This suggests that there may currently be a mismatch between the needs of start-ups and government policies. To Hong Kong start-ups, the integration of institutional systems in Guangdong, Hong Kong and Macao is more important than monetary support. In view of this, mainland GBA cities should be putting more effort into integrating the different institutional systems and explaining the differences to businesses. This would help to attract Hong Kong start-ups to expand further into the GBA and promote the growth of the start-up ecosystem across the entire area. At the same time, the Hong Kong government should help local start-ups gain a better understanding of the business environment in the GBA and provide more transparent market information so that businesses can become more confident about making a foray into the GBA.

Type of Business a Decisive Factor

Although Hong Kong start-ups encounter a number of barriers when trying to begin operating in the GBA, the survey found that opportunities still exist in the GBA for different industries. According to the findings of the questionnaire and the information obtained from the company interviews, the following types of start-ups have obvious advantages when looking to develop the GBA market:

Companies that conform to the overall development directions of the GBA

One example of an industry aligned with the GBA’s development is biotechnology and healthcare. As the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area states that emphasis is to be placed on growing the healthcare sector, Hong Kong companies in this sector looking to expand into the mainland market stand to benefit. However, the sector is subject to close supervision by the mainland government, so whether industry players can capture the opportunities available in the GBA really depends on the integration of institutional systems between Guangdong and Hong Kong. Lydia Leung, CEO of Beluntech, pointed out that the Hong Kong Medical and Healthcare Device Industries Association (HKMHDIA) has lobbied the Hong Kong government to negotiate with the GBA on integrating the relevant rules and regulations of the two places so that any future medical device regulations can apply to both the mainland and Hong Kong.

Businesses subject to mainland import regulations

These companies are advised to set up factories in mainland GBA cities as a base for entering the mainland market. For instance, Gordon Tam, founder of Farm66 Investment Ltd, contacted the Hengqin Science & Technology Industrial Park in Zhuhai through Hong Kong’s Cyberport, and was subsequently invited by the Hengqin government to set up an indoor aquaponics farming plant there. The newly reorganised Hengqin Science & Technology Industrial Park is very attractive to Hong Kong start‑ups as it offers a complete range of support facilities such as logistics and town planning, as well as various preferential policies, including government 1:1 match funding. By setting up an aquaponics farm in Hengqin, the vegetables grown indoors by Farm66 will be able to be supplied directly to the mainland domestic market.

Hong Kong start-ups in other sectors, however, may not regard the advantages of developing their business in the GBA as being very prominent. Take information technology for example. Start-ups in this industry wanting to tap into the GBA market need to inject a great deal of money and resources into developing a system that is compatible with and can be applied in mainland cities. Patrick Tu, co-founder and CEO of Dayta AI, a local start-up focusing on artificial intelligence application, said his company has no plans to venture into the GBA market for the time being because their streaming technology is not supported on the mainland.

In conclusion, a company’s ability to exploit opportunities in the GBA depends largely on the nature of its business. With this in mind, Hong Kong start-ups should constantly try to keep abreast of development trends in the GBA. If the trends are suitable, then the GBA, given its huge market size, can undoubtedly be a major market for Hong Kong start-ups seeking outward expansion. Businesses can also take full advantage of the advantages available in the GBA, such as the lower cost of doing business, sufficient human resources and better technical skills, to boost their growth.

¹ See Appendix for background information on the survey.

Appendix

259 Hong Kong-based companies founded during the past eight years responded to the online questionnaire survey conducted by HKTDC Research from June to July 2020. The survey aims at achieving a better understanding of the development trend and performance of the local start-up ecosystem, and collecting views about the opportunities emerging from the Guangdong-Hong Kong-Macao Greater Bay Area (GBA). During the survey, in-depth interviews were held with 25 stakeholders and analyses of key cases were made. The survey covers major sectors of the local start-up ecosystem, including biotechnology and health, information technology and hardware manufacturing, innovative services, the new economy, and new retail.

Related Articles

Hong Kong Start-Up Survey: Ecosystem Overview

Hong Kong Start-Up Survey: Entrepreneurs and Businesses

Hong Kong Start-Up Survey: Strengths and Weaknesses of the Ecosystem

Related Case Studies

Start-Up Hong Kong: Agricultural Transformation Via Industrial Premises Repurposing

Start-Up Hong Kong: “Made in Hong Kong” Helps Instill Consumer Trust

Start-Up Hong Kong: Winning Ways with Local Resources

Start-Up Hong Kong: Smarter Consumers Prove Boost to Inno-Tech Sector

Start-Up Hong Kong: Stay-at-Home Boosts E-Commerce

Start-Up Hong Kong: Vigour and Drive Pay Off for Young Entrepreneurs

Start-Up Hong Kong: Inno-Tech Development – The Case for State Support

Start-Up Hong Kong: Reinventing Hong Kong’s Fintech Regulatory Regime

Start-Up Hong Kong: Boosting Local R&D Via Enhanced Test Facilities

Start-Up Hong Kong: Government Looks to Incubate Design and Fashion Talent

Start-Up Hong Kong: An Eyewear Designer’s Entrepreneurial Journey