Making Hong Kong
“Asia’s World City” - Again
Transforming The Hong Kong Economy Through A Culture Of Innovative Disruption
During my first 8-year stint working in Asia in the late 1990’s-early 2000’s, I always considered Hong Kong to be the “big leagues” – the true business capital of Asia. With a modern new airport and express train connection, the world’s first contactless payment system, the most efficient mass transit system in the world, and the regional headquarters offices of most MNCs, Hong Kong was the place to be. Hong Kong was brash, proud, even arrogant. Hong Kong had enough chaos to be interesting, but enough order to work, and work it did. Everything was under budget and ahead of schedule.
Fast-forward to 2015. After living in Silicon Valley for 11 years, I returned to Hong Kong. It felt as if nothing had progressed – in fact, I’ve joked that “Hong Kong invented the Octopus, then went to sleep for 20 years”. Suddenly Singapore, Shanghai, Beijing seem far more important places to be, certainly for technology, but increasingly for just about any kind of business.
Hong Kong Needs A Culture Of Innovation - NOW
Hong Kong seems to have fallen into the trap of using past results as an indicator of future performance – the disclaimer you read on any financial product marketing material. More so than ever, Hong Kong feels like a rent-seeking, transactional economy, dependent more than ever on its traditional source of government and personal wealth, the property market.
However, it has never been more essential for Hong Kong to embrace innovation, disruption, and change. After 9 months of unrest and pandemic-related interruptions, Hong Kong’s economy is contracting, local and foreign talent is leaving, and the government is running huge deficits providing emergency economic relief. Hong Kong’s excellent educational system continues to produce high-caliber graduates – but there are fewer and fewer opportunities for fresh graduates. Housing remains exorbitantly expensive, and salaries have not grown in 20 years, giving rise to a sense of futility and despair.
Without substantial new growth vehicles and employment opportunities, the potential for ongoing unrest is high. As “an idle mind is the Devil's playground”, highly educated talent without constructive outlets will inherently become destructive.
Moving From Rent-Seeking To Creative Disruption
For several years, the Hong Kong government has taken a critical first step to building a startup ecosystem, seeding startups through a multitude of different programs. Hong Kong has produced some successful start-up “unicorns”: Klook, Lalamove, Gogovan, WeLab, SenseTime. And there have been a few successful acquisitions of Hong Kong startups, such as SoFi's acquisition of 8 Securities.
But overall, Hong Kong has not created the type of sustained innovation and technology ecosystem required to build a truly successful startup engine. Foreign VC activity and interest is minimal; a 2019 unicorn has already failed; there are few notable acquisitions of Hong Kong startups by Hong Kong corporates; the sense of despair remains.
Even worse, Hong Kong corporations appear addicted to old business models and practices. After all, rent-seekers don’t like disruption, change, or new business models. They like to occupy a position, then charge others for the privilege of doing business with them out of lack of choice.
Disruption Success Keys For Corporates And Startups
Hong Kong’s business community can embrace 4 keys to reigniting growth and maintaining Hong Kong’s long term competitiveness and relevance:
Embrace relationships, not transactions: New, digital business models such as “anything-as-a-service” create lasting value from recurring, sticky customer relationships instead of one-off transaction fees. Several companies such as Adobe Systems and Cisco Systems have made this difficult transition; it can work, if you have the experience.
Embrace disruption: It’s better to cannibalize and disrupt your own business, than to let someone else do it. Again using an outside example, Adobe Systems moved to subscriptions in order to avoid the competition of its own, legacy products - and piracy. Hong Kong companies can bring on world-class entrepreneurial and technology talent, with a disruptive mindset and a track-record of successfully driving new business models and opportunities.
Embrace the talent already here: Mark Zuckerberg once famously said “young people are just smarter”. Given my age, I don’t necessarily agree, but fresh blood with drive, ideas, creativity, self-reliance and passion make for successful disruption. Hong Kong companies can develop a mindset of talent acquisition and nurturing, and “failing forward”, rewarding efforts to change instead of adherence to rigid corporate guidelines.
Embrace corporate ventures: Hong Kong companies can also embrace venture investments as a critical capability, instead of a “nice to have”. This also requires bringing in outside talent capable of identifying disruptions and capable disruptors, separating hype from substance, and mentoring startups.
Hong Kong startups also need to change their mindset, embracing 3 keys to create more opportunities for financing rounds and successful IPO and acquisition exits:
Embrace smart capital: Companies do not lack access to capital, especially seed funding, in Hong Kong. However they do lack access to smart capital: people with knowledge and experience in value-creating disruption. As an angel investor, I avoid companies with pitches full of buzz-words clearly targeted at inexperienced investors. Start-ups should welcome “tough love” investors and advisors with real experience in disruption.
Embrace incremental success: With plenty of seed funding but limited opportunities for second rounds, and corporates more interested in the status quo than in acquiring disruptors, it can be easy for entrepreneurs to found a company, get seed financing, let it fail when the seed financing runs out, then start again. This cycle needs to be broken. Having mentors and board advisors with disruption experience can help build lasting businesses.
Embrace focus and differentiation: With only 7 million people, Hong Kong is not a scale play. As an angel investor, I regularly pass on startups trying to be the “(insert famous startup name here) of Hong Kong”. But Hong Kong does have areas of advantage over larger neighbors, notably in healthcare, law, intellectual property, and global exposure. We need talent with experience in identifying disruptions and creating lasting, defensible businesses within these verticals of advantage.
Over the next few weeks, I will elaborate on each of these key change opportunities, identifying specific best-practices from my experience for corporates and start-ups.
I have worked on successful business model transformations in three of the world’s leading technology companies. Are you looking for a strategic “secret weapon” to advise you on your business model transformation? I’d be delighted to discuss this with you. Send me a message or schedule an appointment and let's have a conversation about your needs.