As we have seen over the last few years, we are living in a world where startups have become the key driver of economic growth and job creation while large corporations cut down on their workforces. Many governments have experimented and have been successful with initiatives to grow innovation and entrepreneur ecosystems, to create their own version of Silicon Valley.
As JF Gauthier of Compass writes in a recent article, the importance of assessing and growing the relative strength of an ecosystem is informed by Michael Porter’s business cluster concept, first described in the ‘Competitive Advantage of Nations’. The ‘geographic concentration of interconnected businesses, suppliers, and associated institutions’ in a particular sector or industry increases the average productivity of each entity, driving innovation and the creation of new businesses (startups). In this way large and balanced industry clusters benefit from a sustainable competitive advantage over other locations and may gain a dominant position (e.g. Silicon Valley and Hollywood).
As it released its report on the Hong Kong startup ecosystem, Gauthier says, “Hong Kong cannot afford to rest on its past achievements and legacy industries. Furthermore, as software has become a building block for all other innovation sectors such as biotech, nanotech, life sciences and clean technology, tech startups have not only become an important growth sector, but also a strategic one.”
The report says Hong Kong is not only a fast growing tech startup ecosystem, but also one with great potential for acceleration due to its unique strengths. Its world-class financial industry and its prime location next to the hardware manufacturing cluster of the Pearl River Delta provide the city with timely strategic opportunities just as fintech and IoT (internet of things) have become key growth areas of the tech sector.
The need to invest in the ecosystem
However, in order to capture those opportunities, Hong Kong needs to invest in programs that help its tech entrepreneurs catch up to global know-how and close its talent and angel funding gaps.
Hong Kong will never be Silicon Valley and should not try to be—and this is true of all other startup ecosystems. Each of the top 20 ecosystems has successfully grown by taking a different path, leveraging its own unique assets and ending up with a different set of strengths and mix of startups.
Hong Kong is fully capable of successfully developing a strong tech startup ecosystem. Hong Kong has as many, if not more, strengths and strategic assets to build on than several of the top 10 ecosystems. In fact, it possesses vastly more resources than the rest of the top 20 ecosystems. Furthermore, the Compass report suggests that Hong Kong has been growing so fast that only five of the top startup ecosystems are growing as fast or faster. Clearly Hong Kong is on the right path and can be encouraged by its results.
However, despite its strengths, Hong Kong’s tech startup ecosystem ranks significantly below the top 20 and is still at an early stage of development, far from being self-sustainable. Combined with the fact that the tech sector is the object of fierce global competition for resources means Hong Kong needs to make aggressive investments if it is to catch up.
The immediate goal is not to become a top 10 startup ecosystem, but for Hong Kong to diversify its economy, ensuring long term prosperity and positioning itself as one the world’s leading cities by embracing innovation and growing its tech startup ecosystem.
The 65-page Hong Kong Startup Ecosystem Report can be downloaded here.