Claudio Murri, EIF Asia Advisor, reports on the start-up culture in HK and games industry in the South East Asia

22 May 2015 Author: Claudio Murri, Asia Advisor to EIF

Local entrepreneurs, venture capitalists and government officials are determined for Hong Kong to diversify from its key pillars of finance and real estate and become a key start-up hub, or ‘Asia’s Silicon Valley'.

The value of promoting innovation is clear. A recent study by the Chinese University (CUHK) Center for Entrepreneurship’s estimated that an increase of two per cent among newly registered businesses per year would create more than 338,800 new jobs and boost the city’s GDP by an additional 0.24 per cent in the next four years. The same study reveals that the Hong Kong start-up ecosystem has grown by almost 300 per cent since 2009, with several local firms landing high-profile investments. This data, according to CUHK, points to a bright Future for Hong Kong Entrepreneurs

Hong Kong's big push to drive technological innovation and cultivate a successful start-up culture

Technologically savvy, wealthy, minimally taxed, and with strong links to the world’s second largest economy – but without the restrictions and risks of doing business in China proper - Hong Kong seems ideally suited to being a major regional start-up and innovation hub. However, major hurdles still remain in the way of realizing these objectives.  One of them is the perceived conservatism of Hong Kong investors, which leads to difficulty in raising capital for young entrepreneurs. Traditionally investors have thrived very well on financial services and property, sectors that can generate high profits very quickly, so there is less incentive to invest in science and technology. Another issue is that Hong Kong, like many other thriving economic areas, has a significant shortage of technology talent. Although children in Hong Kong perform well in science and math against their international peers, it is still hard to convince young people and their parents to consider science as a career instead of the traditional emphasis on banking and finance.

The government believes it has a role to play to ensure a coherent and sustained support for science and technology from all levels. In his 2015 budget speech, financial secretary John Tsang Chun-wah was bullish about the city’s start-up environment and promised the government would do more to support it, including expanding the Hong Kong Mortgage Corporation’s micro-financing scheme and injecting HK$5 billion into the Innovation and Technology Fund. Also, the chairperson of Hong Kong Science and Technology Park (HKSTP), Ms. Fanny Law Fan Chiu-fun, believes that university research departments can promote innovation in Hong Kong by shifting the reward focus from the number of papers published to transforming research work into businesses.

South East Asia the world's fastest growing market for the games industry

Until recently, the only notable Asian markets for the games industry were the well established economies of Japan and South Korea or the already vast and rapidly burgeoning China. However, a new report from research firm Newzoo has indicated that, not only are there countries where gaming is growing more quickly, but these territories could also prove to be more profitable. 

In its Southeast Asia Games Market Report, Newzoo claims that the region is the world's fastest-growing gaming market, ripe for engagement from Western mobile tudios. Between them, Vietnam, Singapore, The Philippines, Malaysia, Thailand and Indonesia make up 99 per cent of the billion dollar revenues generated by Southeast Asian gaming in 2014 - but that figure is expected to more than double to $2.2 billion by 2017. 

Largely, that growth is down to the rapid modernisation of the region, particularly the growth in internet users. Because these are territories which have lacked some of the infrastructure to provide extensive, stable wired internet, their economies are leapfrogging directly to mobile internet, much in the same way that India and South America's have. However, Newzoo's figures paint a picture in which the region's growth far outstrips other areas in similar positions, partly thanks to a sharper increase in local GDP. Southeast Asia is growing beyond other similar regions such as Latin America. Projections show 85 per cent of games industry growth by 2017 will come from Asia.

As well as the encouraging economic and infrastructural conditions, South East Asia also shares some common cultural ground with the West, factors which Newzoo believes should also contribute to healthy investment returns. Alongside with as relatively high knowledge of the English language (up to 80 per cent in Singapore and 57 per cent in the Philippines.) the region also shares similar tastes in social networks. Each of the region's big six countries, for example, shows extremely high rates of Facebook usage, alongside Twitter and Instagram, making targeted marketing and user acquisition much more straight forward.

Already, more than half of the top 20 grossing mobile games in the area are from Western companies.

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