Sourcing base or digital hub: Hong Kong aggressively courts Indian startups for Asia expansion

Hong Kong joins a list of cities such as Singapore that are aggressively courting Indian startups and SMEs to set up a launchpad for expansion across Asia, and a number of Indian companies are weighing the advantages and challenges of setting up in Hong Kong as a sourcing base or digital hub.

Investment promotion agency InvestHK presented Hong Kong’s credentials to startups at a recent event hosted by TiE Bangalore (the Bangalore chapter of The Indus Entrepreneurs). YourStory earlier this year also hosted a meetup for InvestHK and published an interview with Simon Galpin, Director-General of Investment Promotion, InvestHK.

Free trade is the lifeblood of Hong Kong, and it is both a gateway to opportunities in Mainland China as well as a regional base for expansion across Asia, according to Charles Ng, Associate Director-General of Investment Promotion at InvestHK. Ng specialises in innovation, financial technology, knowledge management and international operations.

Invest Hong Kong (InvestHK) is a department of the Government of Hong Kong Special Administrative Region, and leverages the city’s unique role in the ‘one country, two systems’ setup with Mainland China. InvestHK has launched The StartmeupHK Venture Programme to help innovative and high impact ventures launch or develop their global businesses through Hong Kong. The competition offers benefits worth over US$500,000 for the winners.

Wifinity and YourStory Sociopreneurship 2010 winner Forus Health were two ventures from India chosen among the 12 finalists of 2013 StartmeupHK Venture Programme (see YourStory coverage here). Wifinity, an Internet-of-Things semiconductor startup, was later declared one of the winners of the programme.

In its ‘second revolution,’ China’s Greater Pearl River Delta region to which Hong Kong is a gateway is moving from low-end goods to high-end manufacturing such as private jets and semiconductors. The population of this region alone is around 64 million and generates US$1 trillion in GDP, according to Ng. ZTE, Huawei and TenCent are some of China’s Internet giants headquartered in Shenzhen.

As for lifestyle, Hong Kong offers a global cosmopolitan environment for its seven million inhabitants in a city with an iconic skyline – as well as one of the densest urban populations in the world. New high-speed trains will cut the travel times to Guangdong from two hours down to 45 minutes, and a new seabridge to Macau will be completed in a couple of years. Within a five-hour flying radius from Hong Kong, it is possible to cover a population base of 3.5 billion people in Asia, said Ng.

The city is a hub for global procurement for a range of MNCs, but Hong Kong realises that the Silicon Valley culture is different from the earlier manufacturing era in which it excelled, and is moving to a different kind of entrepreneur culture. Fortunately, it already has a healthy capital base, low tax rates (lower than Singapore and Shanghai), rule of law, high mobile penetration, fast and cheap Internet, and freedom of speech.

Capital flow volumes into and out of Hong Kong are ranked in the Top Five in the world (India is nowhere in the Top Ten of this list), and Ng hopes the new government in India will act speedily to remove double taxation rules.

Hong Kong has an estimated 600-800 startups with less than five employees each, and 80% of their founders are non-local. Most founders are in their 30s, and specialise in sectors such as Internet, financial technology, retail and engineering, said Ng. Co-working spaces such as The Hive, IncuLab, Cyberport, Cocoon and The PaperClip are expanding in Hong Kong.

Accenture has launched a fin-tech accelerator programme in Hong Kong, and the city is also active in the Open Data movement to unlock another wave of startups. Over 90% of Hong Kong’s GDP is accounted for by SMEs, said Ng. Hong Kong investors are also targeting startups in countries such as Israel.

There is an influential Indian community in Hong Kong and a number of corporate service providers help Indian companies set up base there, according to Mumbai-based Shammi Hattangdi, Principal Consultant in India for InvestHK. A number of Indian companies present at the meetup also weighed in with their assessments of Hong Kong.

“For hardware related businesses, the proximity to some of the biggest production belts in China is a huge advantage if you are seeking to undertake several rounds of test manufacturing and so on,” said Vivek Srinivasan, managing director of Prudence Advisors.

“You can set up and run businesses in Hong Kong very easily. The bureaucratic red tapism that we are so used to in India is virtually absent in Hong Kong. It is much easier to source European and US clients when you are in Hong Kong. There are also very vibrant VC and angel fund communities,” added Vinod Menon, director of KnowledgeWorks Consulting.

Cumbersome process of exports and relatively poor logistics in India are the reason companies such as CampusSutra are looking at other countries for setting up a new base. “Hong Kong does well on both the parameters of export processes and logistics. Its proximity to sourcing bases in China and Vietnam makes it attractive,” said Dhiraj Agarwal, partner, CampusSutra, a youth brand for campus merchandise.

The Hong Kong government has a number of pro-active initiatives to support startups, and access to the large Chinese market becomes easier, said Jolly Jose, founder of Biz Cost Savers, a marketplace for alternate cost saving solutions which is considering expansion to Hong Kong or Singapore.

But adjusting to the local culture will be a challenge for Indian startups, as well as managing workflow across time zones. “Being able to attract talent either from local markets or international markets will be also a challenge,” added Prudence’s Srinivasan.

“Cost is a major concern. Hong Kong is not a cheap city. And though English is an official language, the ease of communicating in English is limited. Talented resources with English speaking skills are scarce,” cautioned Menon of KnowledgeWorks.

“The startup ecosystem in Hong Kong has started late and therefore will take time to mature to provide the quality support systems,” observed Jose of Biz Cost Savers. Availability of skilled manpower, especially in IT, will also be a challenge for startups.

However, a number of Indian companies are stepping in to provide advice and support for startups to expand to Hong Kong. KnowledgeWorks offers accounting and payroll services as well as joint venture advisory consulting, and has offices in Bangalore, Mumbai, Hong Kong, Singapore and Kuala Lumpur. Prudence Advisors provides mentoring services.

“We plan to expand to Hong Kong for the international business that we are looking to launch in the next three to six months,” said Agarwal of CampusSutra.

In the coming years, it will be interesting to see how Indian startups engage with Hong Kong to expand to mainland China, east Asia and overseas markets in general.