Dearth of growth? Why new-age Indian businesses are flocking to Hong Kong
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A survey conducted by the Government of Hong Kong finds that there are 1,065 registered start-up companies in Hong Kong and most of them are overseas players. Hong Kong, the gateway to the Mainland China market and a central business location in Asia, offers a perfect base for many overseas businesses looking to expand globally. Almost 40 per cent of the start-ups polled in this survey last year revealed that many businesses had set up their base in Hong Kong from overseas.
The question is why the city is such an attractive destination to do business. The fact is the city has all ingredients to foster business growth – economic freedom, pro-business government, multiple resources for start-ups, an international talent pool, low and simple tax regime, and most importantly, a booming start-up community. Indians looking for starting a business venture outside the country can definitely try Hong Kong now. Doing business is always tough in India due to stringent tax laws, bureaucratic hurdles and procedural bottlenecks.
Although the business climate in India is showing signs of relief, still many things have to be streamlined in near future. The rolling out of the Goods and Service Tax (GST) by next financial year is an utmost thing. The GST is all set to replace indirect taxes levied on goods and services by the centre and states, which will provide respite to Indian entrepreneurs.
What makes Hong Kong attractive?
Hong Kong is one of the best business destinations that have emerged very quickly. It has a long history as a centre for business and has eventually gained dominance as a best place to do business. Simon Galpin, Director-General, InvestHK, says, “Hong Kong is one of the easiest markets in the world to set up a business - It takes only one hour to do online registration and minimal HK$1 as capital and one director who don’t need to live in Hong Kong.
“We have uncensored Internet, hence Hong Kong is one of the few places in the world where you can have unfettered access to a wide range of social media sites including those from Mainland China (weibo, youku, wechat, etc.) and western platforms (twitter, facebook, linkedin, flickr, instagram, youtube, etc). This allows retailers to reach all their customers and market their products and services all over the world from Hong Kong,” he further says.
E-commerce can shine
The recent trend is that a significant number of e-commerce players has been using Hong Kong as a base for expanding their global presence due to its well-organised ecosystem. The Hong Kong Government says that today well-known multinational e-commerce companies, such as Alibaba, Tencent and eBay, are using Hong Kong as a base for expanding various lines of business.
“E-commerce has tremendous potential in Hong Kong, particularly in sectors such as gems and jewellery, electronics, auto-components, apparel and textiles, footwear, life-style products, wellness and beauty products. E-commerce in India is now growing very rapidly, and I would suggest Indian companies to market their products at portals meant for Hong Kong so as to attract more buyers for their goods,” says Ajay Sahai, Director General, Federation of Indian Exporters’ Organisation.
“The cost of credit and the rate of taxation are much low in Hong Kong,” further says Sahai. For instance, the corporate tax in Hong Kong is 16.5 per cent, salary tax is 2.15 per cent, and personal tax is at 15 per cent unlike mainland China or India. Jimmy Chiang, Associate Director General, InvestHK, says, “In Hong Kong, logistics and trade goes hand-inhand.
Hong Kong does not have taxes on wine or other alcoholic substances. Pharmaceuticals products have no import tariffs. Moreover, 7,500 companies are operating in Hong Kong.” “Hong Kong has a thriving start-up ecosystem, evident partly in terms of the number of coworking spaces or incubators. Just a few years ago, Hong Kong only had three incubators, and today the city has over 40 coworking spaces offering affordable spaces for founders from around the world,” says Galpin.
“The fact is that founders can rent a seat at these coworking spaces for less than $200 a month, which helps to encounter the common misconception that Hong Kong is an expensive place putting off investors. Instead, we are witnessing a stream of founders in different areas coming to Hong Kong in recent years amid the global start-up trend as a result of sluggish economies in the US and Europe alike. There are also many communities and weekly events for start-ups,” he adds.
Experts believe that another important factor that attracts global founders to Hong Kong in particular is the city’s proximity to Mainland China’s manufacturing base, which offers efficient, quick prototyping for start-ups that need to get their products out to the market ahead of rivals. It takes less than an hour to go to Shenzhen from Hong Kong, an option which is not usually available in other start-up hubs.
Hong Kong: A free market
The city believes in a free market principle. Hence, Hong Kong has least regulations, but where critically required, Hong Kong has one of the best functioning regulations, for example, many such over investor protection in terms of stock and portfolio investment. For other business activities, it is relatively a free economy for founders with very low entry barriers. “This echoes the reply in first quarter results, and is one of the reasons why MNCs and start-ups
alike are coming to do business in our city,” Gaplin adds. Vipul Shah, CEO & Managing Director, Asian Star Co. Ltd, says, “The demand for gems and jewellery is good in Hong Kong. We have scope in rough and polished diamonds. It is an open market, and the system here is different from that of Mainland China’s, which makes trading profitable for us.”
Hong Kong also has varied types of government supported schemes for SMEs and start-ups aimed at transferring business vision into reality.
The government-run Hong Kong’s Science and Technology Park and the Cyberport, provides low rent office space and various incubation programme for outstanding start-ups or technology companies. The Hong Kong Government has a dedicated start-up platform ‘StartmeupHK” to support overseas start-ups in the city. Currently, Hong Kong and India are negotiating a Comprehensive Double Taxation Agreement, the conclusion of which will encourage more mutual investment between two sides. In fact, foreigners are allowed 100 per cent shareholding in a Hong Kong company and no special approval is required for the same.