With crossborder greenfield project numbers in decline across the globe, many locations are waking up to the importance of cultivating organic business growth by supporting entrepreneurs and small and medium-sized enterprises (SMEs). Hong Kong is no exception. With stagnation in Europe and other developed markets causing some SMEs to look elsewhere for growth, the city-state is making a play for a share of these potentially lucrative businesses. And it is enjoying considerable success.
Take digital marketing firm Innity, for example. Innity bills itself as a provider of interactive online marketing platforms and technologies for advertisers and publishers. The company already has a strong foothold in south-east Asia with offices in Malaysia, Singapore, Indonesia, Thailand and Vietnam. In 2012, it looked to extend its reach even further by opening an office in Hong Kong to target both the domestic market and the huge market in mainland China.
“Hong Kong is the regional hub of Asia,” says Bernard Tam, digital sales manager at Innity. “The opening of Innity’s branch here is part of the company’s continued geographic expansion initiative to increase its presence in Asia-Pacific, as well as to tap into the city-state’s huge digital growth potential.”
It is not just local players that have been attracted to Hong Kong. Veco Group, a Swiss external asset management firm, wants to bring the Swiss independent advisory model to the city-state, and is setting up its regional headquarters there to enable it to do so.
“Before we decided to set up our Asian hub in Hong Kong, we did a lot of research and looked at a number of cities, including Singapore, Shanghai and Hong Kong,” says Peter Lee, the managing director of Veco Invest (Asia).
The final decision was based on a number of factors. First, the company considered the city-state to be Asia's leading hub in terms of geographic location, breadth and depth of the financial market. Second, it deemed Hong Kong to have a fast-growing economy with vast opportunities, excellent financial market infrastructure, and a transparent regulatory regime, which, the company says, provided an ideal platform to enter into Asia. Third, while the cost of running a financial services company in Hong Kong is not low, costs are offset by the city-state's high efficiency.
Mr Lee thinks that Hong Kong has the potential to be a leading wealth management centre in Asia, since its financial sector's infrastructure is well developed and can provide a platform for products such as private banking and external asset management to evolve in Asia. He considered the recent rule changes announced by the Hong Kong Monetary Authority to distinguish private banking from retail banking as the first step in this evolutionary phase.
The company currently employs five people in its Hong Kong office, but plans to expand this to 15 within the next two years by hiring local professionals. The large pool of talented and skilled financial services professionals in Hong Kong was one of the factors that attracted the company to the city-state. That, and the fact that these professionals are attuned to the economic and social environment in mainland China.
While Hong Kong acts as a gateway to the Chinese mainland for non-Chinese companies, there are also companies from mainland China that are interested in tapping the city-state's considerable domestic market.
ChangYou.com, a leading developer and operator of online games in mainland China, recently opened an office in Hong Kong to capitalise on the city-state’s diversified online games market as part of its overseas expansion. The new office will provide operational and marketing functions for ChangYou.com Gamepower (HK) in both Hong Kong and Macao.
“Hong Kong contains a wide range of game players, which can provide significant information for analysing different market segments,” says the general manager of ChangYou.com Gamepower (HK), Wang Zheng. “The result is extremely useful for us to develop new products and enhance our overseas markets strategy. Our goal is to establish a high-quality online entertainment brand and reach out to more overseas markets.”
Simon Galpin, director-general of investment promotion at Invest Hong Kong, stresses how cultivating home-grown businesses is part of Hong Kong’s mission. He says that it also seeks to attract “economically and strategically important overseas and mainland companies to invest in Hong Kong".
“SMEs form the backbone of Hong Kong’s economy, as they do in many developed economies worldwide,” he says. “Offering a positive and business-friendly environment for SMEs is important for Hong Kong and crucial in keeping our economy vibrant, diverse and sustainable.”
Mr Galpin is keen to stress that Hong Kong is the world's freest economy with no restrictions on the movement of capital or people. “At the core of this free-market mechanism is a level playing field for business – there are no foreign ownership restrictions,” he says. “We believe that such a business-friendly environment allows companies large and small to succeed, which is in the long-term interests of the city-state's continued competitiveness and overall economic development.”
He attributes the city-state's current appeal among SMEs to a combination of both push and pull factors. “On the push side, uncertainty in Western economies is encouraging many entrepreneurs who would otherwise have expanded into a neighbouring country to move to Asia to take advantage of opportunities resulting from strong local and regional economies,” he says. “On the pull side, Hong Kong’s central location in Asia and its proximity to mainland China gives entrepreneurs access not only to markets but also to talent and capital.”
Hong Kong’s relationship with mainland China also provides a huge draw for investors. Schemes such as the Closer Economic Partnership Arrangement (CEPA), which provides Hong Kong-incorporated companies with preferential access into the mainland Chinese market and various tax waivers, can be highly lucrative to businesses looking to tap into China's large domestic market.
The past few years have also witnessed an increasing number of companies from mainland China using Hong Kong to reach out to the world. “These mainland firms need professional help to ‘go global’, hence there are ample business-to-business opportunities for overseas entrepreneurs that offer professional support services such as law, accounting, technology, design and branding,” says Mr Galpin.
“On the retail front, a significant number of visitors to Hong Kong [48 million in 2012, of which 70% were from mainland China] also makes Hong Kong an ideal testing ground for global brands and smaller retailers to test customers’ acceptance of their brands before entering the Chinese market.”