Cultivate Young Talents Through Technological Education to Reverse Brain Drain
 
Hong Kong entrepreneurs and young people agree that Hong Kong's innovation & technology (I&T) ecosystem is well-positioned to become a hub for collaboration between China and the rest of the world. However, Hong Kong needs a comprehensive strategy to bolster integration with other cities in the Greater Bay Area (GBA) and encourage a risk-taking culture to foster innovation amid intensifying global competition for young talents, according to a joint survey by Deloitte China and Alibaba Entrepreneurs Fund ("AEF").
 
The report, titled Rekindling Hong Kong's economic growth through innovation, explores Hong Kong's progress in establishing itself as a world-class innovation hub and assesses the city's role as part of the GBA's I&T ecosystem development. One hundred and fifty-three Hong Kong-based entrepreneurs and startup executives and 1,382 Hong Kong-based university students were surveyed.
 
The study found that close to 60% of interviewees agree that Hong Kong is well-positioned to become an Asian hub due to its advantage of geographical proximity to the China and Asia markets. Slightly more than 55% believe that access to talent is the top challenge. Among the startup executives surveyed, the top five sectors in Hong Kong that are well-positioned to become an innovation hub are Fintech, Health & Medical, Big Data & Analytics, Biotechnology, and E-commerce/Supply Chain.
 
Riding on the policy tailwind, startups express aspiration in tapping into the GBA initiative with 63% of startups surveyed expressing strong interests in expanding into GBA cities over the next three years. The survey also highlights the three significant advantages of the GBA that entrepreneurs value most: opportunities to access a larger market (65%), reach strong talent pools (40%), and gain exposure to and partnership opportunities with large corporations (30%).
 
"There is no doubt that the GBA is one of the crucial platforms to commercialize Hong Kong's innovation ideas and scale-up Hong Kong startups' development," said Cindy Chow, Executive Director of Alibaba Hong Kong Entrepreneurs Fund. "Cross-border business support, particularly legal advice and professional services, should be further strengthened, so that startups could be more equipped to expand into other cities in the GBA."
 
Regarding creating the overall atmosphere, over 40% of the startups agreed with the policy's effectiveness in cultivating an ideal entrepreneurial environment, boosting public confidence in adopting startup-led digital solutions, and supporting I&T startups.
 
Although 60% of students have entrepreneurial intentions, only 33% want to work at a startup, and 23% want to establish their own startup, with 77% of students preferring to work at a large corporation upon graduation. This is likely due to the traditional mindset of Hong Kong citizens, who tend to prize jobs with stable career trajectories. Hong Kong needs a more risk-taking culture to foster innovation amid intensifying global competition for young talent, capital and startups. Entrepreneur success stories and startup heroes need to be showcased to inspire the next generation.
 
"Hong Kong needs to cultivate young talent and reverse the brain drain in an intensifying global race for talent," said Chow. "As we are seeing more unicorn companies and startups on the road to IPO, we should consider policies to retain the founders of these companies to continue to invest and mentor budding entrepreneurs in Hong Kong. Active participation by serial entrepreneurs as role models can help attract more talents to join the startup community."
 
The study finds that most of the entrepreneurs surveyed see significant gaps in the commercialization of university research, given that Hong Kong's total spending on research and development (R&D) only accounted for 0.92% of GDP in 2019. “To spearhead I&T research and innovation development, Hong Kong should establish an independent research-industry consortium to forge long-term collaboration across academia, R&D centers and industry.” Said Bong Chan, Southern Region Leader, China TMT Industry of Deloitte China. “To begin with, Hong Kong should provide clear governance and guidelines on joint research, commercialization and intellectual property for universities and the private sector.”
 
From an investment perspective, Hong Kong has seen a record high venture capital activity in 2021. According to Preqin, for the first ten months of 2021, more than HK$28.7 billion was raised successfully across 45 deals, more than double the total amount raised in 2020. Another key finding is that Hong Kong's venture capital funding has begun to cover the whole startup funding journey. Mid-to-late-stage financing in Hong Kong accounted for 46% of venture capital deals between January and October.
 
According to the study, a majority of the startups plan to raise funds in the next two years. More than half (61%) may seek less than HK$122 million, while a quarter (26%) may target between HK$122 million and HK$600 million. Only less than 10% intend to raise between HK$600 million and HK$1.22 billion.
 
"The results reveal that Hong Kong's funding ecosystem has matured, allowing startups to access funding and capital across the stages of growth," said Falcon Chan, Partner, Strategy, Analytics and M&A of Deloitte China. "To maintain this vibrancy, Hong Kong should enhance its co-investment programs including the Innovation and Technology Venture Fund (ITVF) to more aggressively inject funding into high-risk, high-impact and scalable startups. We should also encourage more private investors to invest in ventures within the GBA. This is an opportune time for companies to plan their M&A strategies and further expand their digital capabilities to stay competitive in this fast-evolving digital transformation era."
 
In addition, Hong Kong's startup ecosystem remains robust despite the pandemic. According to InvestHK, the number of startups grew by 12% year-on-year to a record high of 3,755 in 2021. However, the impacts of the pandemic continue to be a headwind for startups, given that nearly half (46%) of entrepreneurs surveyed found it difficult to interact with customers, while about one-third (29%) were struggling to manage a decline in revenue.
 
For more information, please click here for the full report.