Startups: How HK and Shenzhen can complement each other

October 13, 2017 09:59
Graph: The Global Entrepreneurship Monitor 2016/17:Hong Kong&Shenzhen report.

China has been at the forefront of the internet economy in recent years. Many tend to compare Hong Kong with its neighbor Shenzhen. Some believe the two cities are competing with each other, while others said the two can complement each other for a win-win situation.

The number of startups has surged over the past seven years in Hong Kong and Shenzhen, and both cities have the world’s leading entrepreneurship ecosystems, according to The Global Entrepreneurship Monitor 2016/17: Hong Kong & Shenzhen report.

Shenzhen leads in terms of early-stage entrepreneurship rates and the number of people involved in startup business.

Around 20.5 percent of informal investors invested in early-stage ventures in Shenzhen, while only 6.5 percent did so in Hong Kong, said Kevin Au Yuk Fai, who co-founded the CUHK Center for Entrepreneurship.

But Au said quality startups are hard to find, and the investment ratio in early-stage ventures in Hong Kong is quite high already. The number in Shenzhen is higher, but that could mean investors are not able to concentrate on companies with good potential and that may eventually lead to waste of resources.

Some Hong Kong-based startups have moved to the mainland after obtaining funds from Chinese investors. Au said that may not be a good idea as the business culture on the mainland is quite different from that in Hong Kong.

Meanwhile, Hong Kong entrepreneurs may face intense market competition on the mainland, undermining their chances of success.

He suggested instead that local startups should look for partners on the mainland, citing the tie-up between Hong Kong-based logistics startup GoGoVan and its mainland partner 58 Suyun as an example.

The report suggests several areas for cooperation between the Hong Kong, which excels in its access to global markets, funding and talent, and Shenzhen, which has strong manufacturing and supply chain capabilities.

To start with, the two cities can work together in accessing both China and international markets. They can also share resources and cooperate in research and development. Cross-border education and exchange programs are also recommended.

The governments of the neighboring cities can even coordinate their policies for entrepreneurship.

While Hong Kong has been criticized for its stagnant technology development in recent years, mainland cities such as Shenzhen and Hangzhou have made big strides in this area.

However, Au said one cannot really make simple comparisons between the two as each city is different.

Hong Kong does have several unicorns (private startup companies with valuation above US$1 billion) such as SenseTime, WeLab and Tink Labs.

Each city has its own industry mix and unique strength, which will give rise to different types of successful startups, Au added.

He suggested that the government help local young entrepreneurs network with their peers in other parts of the world.

In the internet era, the business wisdom of the old generation may not apply any more.

It’s better for young entrepreneurs to learn from each other rather than following in the footsteps of old-economy companies.

This article appeared in the Hong Kong Economic Journal on Oct. 12

Translation by Julie Zhu with additional reporting

[Chinese version 中文版]

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Hong Kong Economic Journal