It was one of the four Asian tigers that witnessed exciting economic growth from the 1960s to the 1990s.
Despite its small market population of over 5.7 million in 1990, Hong Kong found its niche in North Asia, and thrived in finance and marine trade. It also ranked highly as a business-friendly environment for companies to incorporate.
But with the surge of economic activity in China and now businesses bypassing Hong Kong and going straight to China, how does Hong Kong keep itself relevant? Could the startup ecosystem be the new shining light that will direct Hong Kong’s economic future?
To answer these questions, I asked five locally-based entrepreneurs about the changing economic climate in Hong Kong, and the opportunities that arise from it.
High degree of financial literacy
Operating in a financial hub has its advantages. Mikaal Abdulla observes, “Hong Kong consumers have a very high degree of financial fluency compared to many of their other Asian counterparts.
Hong Kong is a well-established financial hub and its population has a strong understanding of products and services. This is different from emerging markets, which require a great deal of customer education.”
To capitalise on this financial literacy, he co-founded and is CEO of 8 Securities, which is Asia’s first robo-advisor and zero commission stock trading service. Mikaal shares that 8 Securities serves over 60,000 clients through their licensed offices in Hong Kong and Tokyo.
Changing the way secondary education tuition is done
It’s sad that only 18 percent of students in Hong Kong enter a publicly-funded university, a stark contrast to 80 percent in South Korea.
“This has led to a strong demand for after-school tuition,” says Bradley Chiang, co-founder of Snapask. Indeed, according to a University of Hong Kong report, the tuition market is a bustling US$348m.
Having grown up experiencing cram school culture first-hand, Bradley and his founders felt that there should be a better way of personalising learning experiences.
With this differentiation, they built Snapask, which uses elements of social media to bring tutors and students together, where tutors would answer questions students post online.
The company is now getting 1,500 new registered users each day across the markets they operate in.
Falling retail sales leading to more vacant spaces
Kit Chan gives his take on the retail scene.
“The Hong Kong retail industry is going through some challenging times with the decline in tourist arrivals and lower retail sales. Landlords of prime retail spaces are facing rising vacancies for the first time in over 10 years, and rents are falling by as much as 15 percent.
More retailers are exploring short-term popup stores.
Luxury brands have been cutting back on their investment in Hong Kong with the drop in Chinese mainland tourists arrivals, and smaller retailers have started to move their businesses online, as they are no longer able to afford retail rental rates in Hong Kong, still one of the highest globally.
This landscape has allowed for a shift in the market, as more retailers are exploring short-term popup stores. Popup stores allow retailers to promote their products in prime retail spaces without the risk of committing to long-term leases. This concept, already common in North America and Europe, is quickly catching on in Hong Kong.”
Kit co-founded PopUp Angels, an online marketspace for short-term retail spaces. He coins it as the ‘Airbnb’ of retail, where brands and retailers are connected with short-term spaces to start popup shops for a variety of reasons like promoting new products, hold clearance events or simply creating a new experience for their customers.
Selective and tech savvy online shoppers
Adding to the woes of the retail market, local consumers are always trying to find the best deals, both online and off.
“Hong Kongers are very tech savvy,” said Juliette Gimenez, co-founder and CEO of Goxip, “and consumers are willing to spend hours going through websites and forums to find the best quality with the lowest price.
This behaviour also creates a habit where consumers try out clothes in physical stores, but end up buying the items online, as they know it would be at a lower price. This leads to a strong culture of pop-up stores, which brings the shopping experience consumers are looking for by allowing them to try on items physically, but encouraging them to shop online instead.”
To satisfy this deep hunger for the best deals, Goxip was created to give shoppers a faster, more efficient way for them to discover, search, follow and purchase the latest fashion trends. Social and ecommerce elements were merged together on one platform where users can like, comment or create posts to socially engage others, and shop at the same time.
Challenges faced in this market
Slow developing fintech sector
According to Mikaal, Hong Kong is dominated by three banks with a combined 90 percent market share. “Incumbents are not motivated to innovate and challenge existing products and business models,” he said.
Despite Hong Kong’s recent announcement of a fintech sandbox by HKMA, which promotes fintech innovation, it is still a far cry from other cities with more developed initiatives. It is also a dampener to startups, as only banks may apply. “The regulatory framework is not purposed for innovation,” Mikaal bemoaned.
For fintech startups, a good product alone will not be enough.
Despite this, Mikaal advises that the complacency creates opportunities for startups to challenge traditional distribution (mobile versus branch), products (digital versus offline), and user experiences (simplicity versus complexity).
He also highlights the need to build trust with consumers.
“The brand is vital,” he said, “The reality is that most Asian consumers are risk averse, and are unlikely to move assets to a startup, compared to an established bank. It is important that fintech startups understand that they need to invest in their brands and build trust, because a good product alone will not be enough.”
Need to educate businesses on new concepts
Fergus Clarke is CEO and co-founder of Lamplight Analytics. His product is a social media analytics tool that sifts through over 20 million social media sources to aid businesses in knowing what their customers think about their brand, their products, their marketing and their competition.
“Previously, companies had to use expensive, time consuming surveys and focus groups to know what just a handful of people think,” he observes, “Now they can use our technology to get the same results instantly, at scale and at a fraction of the cost.
But Hong Kong businesses can be quite conservative and risk-averse. We often play an educational role first in explaining the benefits of our product, more so than with our overseas and MNC users.”
Hiring good talent
Recruiting the right talent seems to be on the minds of most founders.
Fergus explains this unique situation. “As a financial hub, the salaries in the financial industry are attractive to many graduates, and that has an impact on the technologies they choose to specialise in, which often conflicts with what startups need.
The other part is culture. Grads may often face pressure to take a job at a ‘brand-name’ company instead of at a startup. Despite these challenges, we’ve are proud to have put together an excellent engineering team.”
Juliette agrees. “Not many people prefer to step outside their comfortable corporate jobs to experience the instability of the startup life with more workload, less structure, longer working hours and possibly less pay. All you can do is to persuade them with your passion and vision of how the company can eventually become, and hope they can see it as well.”
Bradley mused at the lack of computer science graduates willing to work for startups. And rightfully so, given that so few pursue further studies in publicly funded universities.
Startup scene and funding
Hong Kong has much to be proud of in their startup ecosystem.
According to Startup.hk, the ecosystem has over 1,558 startups, 34 co-working spaces and 10 accelerators/ incubators in 2015. The Hong Kong government has also supported the ecosystem with over 20 funding schemes.
Evolving from a humble start
“The startup scene in Hong Kong has evolved a lot in the past five years,” observes Mikaal. “A slowdown in the economy forces people to think of alternatives to a traditional career. The infrastructure now includes accelerators, work spaces, education and funding.”
Fergus echoes the sentiment that the startup scene has come a long way. He highlights one interesting point that “corporate titans like Swire, AIA, Infiniti and KPMG have embraced the startup world without expectations of direct or immediate returns. This partnership between large establishments and innovators will be fascinating to watch as it develops.”
Hong Kong is in an advantageous position to develop its startup ecosystem.
Juliette chimes in about an early ecosystem that is now flourishing. “With more accelerators coming up, Alibaba setting their million dollar fund here and Web Summit hosting its signature RISE tech conference in Hong Kong shows that we do have potential to be the next startup hub.
Kit attributes this rapidly growing ecosystem to the geographic advantage of Hong Kong being next to China. “This also helps to draw significant interest from investors, both domestic and international, as they seek to grab a piece of the fastest growing economy in the world early on,” he said.
Bradley finds that Hong Kong is in an advantageous position to develop its startup ecosystem.
“Being Asia’s financial center, strong demand and a huge pool of financial talent provides a good ecosystem in building fintech startups” he said, “Hong Kong is also very suitable for startups with innovative business models. With a high population density and fast moving lifestyle, Hong Kongers demand a more convenient urban life. Therefore, startups like Gogovan have the advantage to grow and sustain its business in Hong Kong.”
Room for improvement
Lack of funding seems to be a common theme amongst the founders.
Juliette explains, “There is still a lot of room to grow, especially in the funding side, since there is limited seed stage investors or options to help young startups kickstart their amazing ideas.”
Kit agrees, and finds the startup scene extremely competitive. “Attracting investment is both difficult to navigate and time consuming,” he said.
Mikaal finds an imbalance between the number of startups and local venture capital. He said, “It is very difficult for any startup to raise money outside its own geography. As such, we need more venture funds with a focus on Hong Kong. There might be more successful startups and exits this way. The capital will follow success.”
Bradley finds a need for a global mindset. “A lot of entrepreneurs are actually building something very specific for the local market, and not necessary a scalable product that can easily expand to Southeast Asia.”
Advice to startups
So what advice is there for startups keen on operating in Hong Kong?
Kit highlights that Hong Kong is a fast growing and dynamic market, with the added upside of being a gateway to the mainland Chinese market, but it is easy to get distracted as one tries to grab every opportunity out there.
“Our experience tells us that staying focused on specific themes/areas helps to achieve better traction, and also makes much better use of the limited resources that every startup founder has,” he said.
Fergus finds that Hong Kong is a great place to do business, but given that it is a small market, startups will need to build for users regionally or globally to succeed. “The second piece of advice is to plan for the ups and downs,” he said, “Prudent planning is incredibly important.”
Bradley sums this article up. “Hong Kong is a place where dreams can come true, where you can meet all kinds of people, and get all kinds of opportunities. However, the key is to be aggressive. Try hard and fight hard to meet the right people, to explore the right opportunities, and to learn from each other to succeed.”
This is the 9th article of the ‘Through local eyes’ Series, where local startups give their take on Asian startup ecosystems.