Fortune 500 companies have for years set up shop in Hong Kong to access the huge Chinese market, making the region home to more than 90 per cent of the world’s biggest brands.
But not even China is recession proof, and it has seen its once formidable double-digit growth ebb with the economic misfortunes of its primary trading partners in Europe and North America.
Now, like companies looking to grab more market share, it’s reaching out to small businesses by presenting itself as a panacea to anemic growth at home. With that goal, Hong Kong pitchmen have been circling the globe, trying to drum up more foreign direct investment (FDI) by luring startups.
The road show recently came to Canada, with stops in Toronto, Waterloo, Ont., and Vancouver.
Hong Kong’s pitch is simple, but powerful.
- It’s a launch pad to mainland China and half the world’s population.
- It’s Asia’s financial capital and a global leader in initial public offering (IPO) equity funding.
- It’s a stone’s throw from the world’s largest manufacturing hub.
- English is an official language.
- Intellectual property is protected.
- It’s an innovation hotbed, with the biggest conglomeration of technology companies outside of Silicon Valley.
“Companies in Canada feel very comfortable doing business in mainland China and Asia using Hong Kong as a base,” says Charles Ng, who runs the international operations for InvestHK, a government agency that attempts to entice Chinese and overseas companies to establish a presence in Hong Kong.
Canadians are flocking there in droves – driven by the allure of Hong Kong’s strategic position as the gateway to an Asian market that boasts 3.5 billion people. With 300,000 Canadians calling it home, Hong Kong could be its own province. It has more Canucks than Prince Edward Island, Yukon, Northwest Territories and Nunavut combined.
That population would also make Hong Kong the 16th-largest city in Canada, eclipsing both Regina and Saskatoon.
Outside of the United States, it’s the most popular destination for Canadians living abroad. Most are ethnic Chinese and former Hong Kong residents who left prior to “the handover” back to China in 1997. Others, such as retail entrepreneur Allan Zeman, have even renounced their citizenship and embraced life as a “Hong Konger.”
“This is a hotspot in the world,” says Evan Wilcox, acting director of the Canadian Chamber of Commerce in Hong Kong, which helps the more than 200 Canadian companies based there. “What you see now is a lot of those people who moved in the ’80s and the early ’90s return to Hong Kong for opportunities.”
Vancouver-based architecture firm Bing Thom has focused more on Hong Kong after a deal fell through in mainland China, and earlier this year it won a $347-million contract to build a 14,000-square-foot opera house in Hong Kong’s West Kowloon Cultural District. InvestHK helped Bing Thom broker the deal, though Mr. Ng says Canadian companies shouldn’t expect to come over to greater China and enjoy immediate success.
“It's very daunting for a small Canadian company wanting to get into the market. The behaviour of people in the north, south, east and west is very different,” says Mr. Ng, whose team has about 50 offices around the world and conducts about 6,000 face-to-face meetings annually. “You can slowly, step-by-step, penetrate the China market and Asian markets and in a very safe and familiar environment.”
To further help entrepreneurs Mr. Ng and his team launched StartMeUp Hong Kong Venture Program, a global initiative with the aim to attract innovative startups in the environmental, biotech, health services, medical device, telecommunications and information communifications technology (ICT) sectors.
The program received nearly 400 applications, from which 22 are still vying for 12 spots to pitch their startup ideas to a panel of Hong Kong judges in December. Three are from Canada: Global Spatial Technology Solutions – an Ottawa-based data monitoring firm – Toronto-based clean-tech company Phoenix Depot International Inc., and RnR Associates, a design firm with a Canadian division in Calgary though its headquarters is in Florida.
Once the 12 finalists are chosen, they will be invited to attend a four-day program in Hong Kong in December to pitch potential investors, to network, and to meet with mentors.
“We aren't asking startups to leave their home market and just go to Hong Kong,” Mr. Ng clarifies, adding the hope is that these businesses will launch their international expansions from China. “We believe that startups can create a lot of jobs and bring in a lot of economic benefit in terms of technology transfer. Hong Kong has a very unique ecosystem."
Unlike operating in mainland China, Canadian firms don’t have to worry about state-owned entities competing with them, copycats, knock-offs, or having their patents and intellectual property (IP) trampled by a business culture that is based less on the rule of law and more on personal relationships and handshake agreements.
“Contracts are not always respected (in China) to the degree that they should be,” says the Canadian Chamber’s Mr. Wilcox, noting Hong Kong has an almost identical legal structure to Canada. “Going into China is a very difficult task, you can start with Louis Vuitton and go right down to a chemical company. They need a lot of controls to protect their IP. It's still not a concept in China that is respected.”
Technology entrepreneur Jason Tryfon was told his IP would be stolen and that setting up a Shanghai branch of his Mississauga, Ont.-based automotive software solutions firm, Vital Insights, would be a “nightmare” when he started seriously thinking about it a year ago.
“It's an arduous process to getting incorporated, but it's not anything that I would deem to be frustrating to the point where I would tell my peers not to do business there,” said Mr. Tryfon, who officially opened his office in July and promptly landed a deal to supply its customer experience management system (CEM) to Jaguar Land Rover’s 125 China dealerships.
But Mr. Tryfon is the exception and not the rule, notes Wendy Dobson, professor and co-director of Toronto’s Rotman Institute for International Business. Ms. Dobson, who previously worked as the associate deputy of finance in Ottawa and authored China’s Economic Transformation: Global and Canadian Implications, says despite the temptation of rapid growth, most small firms just don’t have the time and money to invest in breaking into China.
“Far too many have gone and found their technology was copied by their esteemed partner because they didn't spend enough time building their relationship,” she adds. “It's pretty tough if you're not Chinese to go it alone.”
Having a native Hong Konger as its founder was not enough to protect Bing Thom from losing a deal to build an opera house in the southwestern China city of Yuxi.
“There was a change of mayor and all of a sudden the project died,” said Michael Heeney, a partner in the 40-person firm. “That was our introduction to the fickleness of doing work in China.”