Friday, May 15, 1998

Is High Technology in Hong Kong's Future

I wrote this commentary for the May 1998 issue of Asian Venture Capital Journal two months after visiting Hong Kong as a guest of the new government after the handover.

Recently I had the pleasure of visiting Hong Kong as a guest of the government. The "theme" of my visit was to explore how Hong Kong will develop a high tech industry. While there, I paid particular attention to questions relating to government, capital and people. Thanks to the efficiency and hospitality of my hosts, I met over 60 individuals in the public and private sector to discuss this issue.

In recent action is any indication, the post-handover government is clearly eager to make sure that high technology is in Hong Kong's future. Shortly after my visit, Chief Executive C.H. Tung appointed Chang-lin Tien, former Chancellor of University of California at Berkeley, to chair his Commission on Innovation and Technology. At the same time, Executive Councilor Raymond Ch'ien led a 30-strong delegation from Hong Kong for match making meeting with high tech companies in Silicon Valley.

To be or not to be?
Dr. Ch'ien's view that Hong Kong will either join the "head table countries possessing advanced technology" or risk losing its strategic place of eminence is one shared by many that I spoke with. He argues that Hong Kong must and needs to install a second tier stock market to facilitate investments into high tech ventures. Of course, he understands that an NASDAQ type of stock market in Hong Kong is only part of the conditions necessary to nurture and grow high tech companies. The other major conditions have to do with availability of capital and techno-entrepreneurs.

Hong Kong is world renown as the place where fortunes are easily won by betting on real estate. Why risk money on high technology is a natural question. Before the handover, the Hong Kong government was actually constrained by the Joint Declaration, negotiated in 1984 between Beijing and London, which limited the amount of land that could be made available for development every year. Now no longer under such constraint, the Chief Executive has declared the government's intention to make more land and housing available. This is not only good news for people living in Hong Kong, but slowing down the rate of return on property investments should also enhance the appeal and help divert local capital toward high tech investments.

Besides availability of capital, Hong Kong will need projects worthy of investments. To turn ideas into projects that become funded ventures requires talented, trained and motivated people. Hong Kong has plenty of bright and talented people but are they properly trained and motivated about high technology? In the past, careers in property development and management, trading, banking and government service, all appeared more attractive to Hong Kong's Young people. Consequently, Hong Kong has seen a heavy tilt in the enrollment of their university students towards the soft sciences, e.g., real estate management or business administration.

Few wanted to embark on the steep slope of attaining a technical degree. Even those that made the climb often drifted toward more financially rewarding careers in investment backing and the like. The minority attracted to high tech careers find themselves ending up in places such as Silicon Valley where they can get proper training, funding and an opportunity to form a critical mass of fellow entrepreneurs needed for high tech ventures. There are a few exceptions to the rule in Hong Kong such as VTech. Typically there have not been funded by venture capital but by boot strapping from a modest initial investment and growing the business from retained earnings.

Mediocre in training and motivation
Hong Kong now has seven universities and colleges, all heavily subsidized by the government. There are now plenty of "seats" available for those Hong Kong residents that aspire to a higher education. Too many, some people in Hong Kong feel, because the students are not challenged and can muddle through. Akin to the problem plaguing the California K-12 educational system, the students are not forced to jump over a high bar. If they spend the required time in school, they graduate. Unfortunately this ease of entry and exit has led to a general body of college graduates that are mediocre in training and in motivation.

Opening enrollment, immigration
One solution is to open the universities to significant outside enrollment. Motivated students from mainland, Taiwan and elsewhere will raise the academic standard and benefit the entire student body. If there are sufficient inducements to remain in Hong Kong after graduation, these students will join the nucleus needed to start and develop high tech ventures. Though not be design, this is exactly how Silicon Valley came into being. As much as 50% of the undergraduate and graduate students majoring in technical disciplines attending Stanford and U.C. at Berkeley are either foreign students or first generation immigrants. They keep the standards high and many enter local workforce when they graduate.

In the same vein, Hong Kong needs to selectively loosen its immigration policy and facilitate an influx of skilled technical professionals to live and work in Hong Kong. The secret of Silicon Valley's success has been its diversity and continuous influx of immigrants from other parts of the world. Contrary to superficial first impression, these people create jobs--by starting companies--and not take away jobs from the local population.

Singapore and Taiwan's successes in developing their native high tech industry are not suitable for emulation by Hong Kong, because they possess comparative advantages that are absent in Hong Kong. Most notably, Singapore has an aggressive hands-on government with the world's highest per capita foreign reserve at its disposal. Taiwan enjoys the support of a stock market that is absolutely in love with high tech listings and a technical workforce peopled by significant reverse brain drain from the U.S.

However, Hong Kong has one major comparative advantage with the potential of outweighing all others: namely, the potential synergy when combined with the resources of Mainland China. These can solve the near term shortfall until Hong Kong starts to generate a significant crop of high tech workers and entrepreneurs. Offering access to China's huge market is also part of the advantage for Hong Kong. This can be used to attract high tech partners from the West that are seeking to build a successful base in China.

A dark cloud
A dark cloud looming in Hong Kong's future in the threat of its children becoming victimized by local politics. A movement is afoot to teach in mother tongue only. Mother tongue in Hong Kong means teaching in Cantonese. Such a more will surely consign Hong Kong's future generations to a dismal future. Even now, Hong Kong is accused of producing a crop of students fluent in neither English or Mandarin or written Chinese. In a contemplated move, some 100 elite schools with long traditions in Hong Kong, representing less than 20% of the total number of schools, will be allowed to continue teaching English as the second language. The rest will teach in Cantonese only. The response is predictable. Wealthy families will send their children to preparatory schools and private, high tuition, international schools. The rest of the population will be condemned to second class citizenship because of their illiteracy in English and Putonghua or Mandarin Chinese, the most important languages of commerce the the next century.

If mother tongue teaching in favor of Cantonese wins the ongoing debate, the future of Hong Kong will be dismal. Period. Cities such as Shanghai, Singapore, Manila and Taipei will all become serious contenders for the regional headquarters of multinational corporations. Dreams of developing a high tech industry will evaporate faster than a puddle under Hong Kong's noonday sun.

Government incentives
The Hong Kong government is telling the world that they are going to be friendly to high tech ventures in Hong Kong. They can't offer much of a tax break because their tax rate is already one of the lowest in the world. They can offer the Industry Technology Center with space at below market rates as incubator for ventures at their infancy; and a Science Park in the New Territories for more mature enterprises. Hopefully, they will be successful in changing the culture of Hong Kong and make the people of Hong Kong more aware of the importance of technology in their future. Through government's efforts, young people in Hong Kong can begin to see the glamour in pursuing high tech careers.

Many venture capital firms operating in Asia are based in Hong Kong even though they have not been actively locally. They have a vested interest in helping the government chart a course favorable to formation of ventures that will merit their consideration for investment. While only a few have already made their mark in technology ventures,more will surely find their way in. The venture investment firms in Hong Kong are in the best position to help this along and become the first to find and fund the professionally invested high tech ventures to be born in Hong Kong.

No comments: