Hong Kong needs to figure out its own form of innovation

City's bureaucrats must be careful when trying to capitalise on the booming technology sector

PUBLISHED : Monday, 26 May, 2014, 5:06am
UPDATED : Monday, 26 May, 2014, 5:06am

Like an action movie sequel, the current technology boom is more exciting and excessive than its previous version. An avalanche of social media business plans fills inboxes. Worst of all, public officials dream about cultivating their own Silicon Valley as if it can be built like an actual valley. Hong Kong's current government has proposed forming a technology department. However, defining what innovation and technology means in Hong Kong is difficult, but necessarily important.

Schools, investors and government bureaucrats hope to discover the perceived charisma or genius of successful entrepreneurs and replicate their formulas. Actually, it is more useful to cultivate what the late management professor Peter Drucker called "the entrepreneurial economy" than try to repeat history.

Reject the notion that entrepreneurial activity requires a certain kind of personality and that personality is probably a poor manager or unlikely to be a corporate manager. Don't treat entrepreneurship as an untouchable domain of celebrity geniuses. Treat it as a task that can be organised by almost anyone who is willing to learn a set of skills.

Hong Kong's location can be a competitive advantage for certain tech companies

Understanding the nature of innovation in Hong Kong and separating it from just plain business is important before the city's government embarks on misguided spending on tech-themed parks and investments. Before the government builds another near-empty Cyberport and companies abuse the prefix "cyber" or "e-" as a prefix for every activity, they should ask what are they truly innovating?

Entrepreneurship cannot simply be equated with hi-tech firms. More jobs are being created by entrepreneurs in Hong Kong and the mainland outside technology in small and medium-sized businesses like food and beverage and manufacturing. This is where development of entrepreneurial behaviour should be focused and improved. But the term can't be applied to every risk-taker who starts a small business. When you start a wonton noodle shop you're doubtless taking risks, but you are not an entrepreneur because you are doing something familiar.

The current social media frenzy can distort entrepreneurship. There's a difference between making many cool apps and creating great technology. Traditionally, every boom and bust must be accompanied by a madness of the crowds. And in this tech boom never have so many people with advanced science degrees been employed in activities that ultimately involve ramming ads through websites or running what amounts to an electronic bulletin board to post messages, images or cute cat videos.

Hong Kong's location can be a competitive advantage for certain tech companies. ASM Pacific Technology is a listed firm that is an international leader in designing and producing robotic and automated equipment that assembles semiconductors. It is headquartered in Hong Kong primarily because most of its customers - electronic component makers - are in this region. Being near manufacturers and suppliers is necessary and advantageous for understanding product trends.

Whether or not it can be defined as a truly innovative business or the result of enlightened public policy, Hong Kong's role as a wine hub was a natural opportunity. It harnessed all of the city's historical advantages - import/export, logistics, trade and retailing. Since wine duties were abolished in 2008, wine imports have jumped from HK$2.8 billion to HK$8 billion in 2013. Local entrepreneurs opened up demand for wine in China by leveraging the city's infrastructure.

But many Hong Kong firms still cling to outmoded management and business models based on exploiting cheap labour. Most cannot imagine how to manage or retain today's most intelligent people. Enriching and encouraging employees with stock options is an almost loathsome concept. US start-ups must be prepared to issue 10 per cent to 20 per cent of their stock to employees in the form of options. The artist who painted a wall mural at Facebook's first office decided to take payment in stock options and he is a millionaire today. Stock options are an inseparable part of the American tech and entrepreneurial culture and Hong Kong needs to embrace that practice.

At stake is not just public spending. Hong Kong must successfully manage or chronically suffer from the results of its de-industrialisation, which has been continuing since the early 1990s. Government officials seeking to rejuvenate any kind of local entrepreneurship need to understand their limitations and role.

Peter Guy is a financial writer and former international banker