Last month, I shared some basic thoughts immediately before Chief Executive Carrie Lam’s maiden address. Let’s do a quick recap on her policies aside from housing (although an important topic, but not the focus of this particular newsletter).
The underlying message conveys a vision for Hong Kong to head towards a “let’s bunker down and create a better Hong Kong for the next generation”. Which begs the question, has Hong Kong simply been treading water the past 15 years OR is this atypical “spin-doctoring” to win votes but with no real execution plan or milestones for accountability?
It seems that the government is looking to double down in Innovation & Technology (I&T) and Creative industries where Hong Kong has a “competitive edge and much potential.*” Take a look at the numbers:
Innovation & Technology – Total $14.2 billion
- $10,000 million for University research funds
- $3,000 million for student scholarships along with postgraduate programmes
- $500 million in a “Technology Talent Scheme”
- $700 million to develop Hong Kong into a Smart City
Creative Industries (apparently specifically the design industry) – Total $1billion
- $1 billion into the CreateSmart Initiative
Roughly $15 billion in investing in the future. Not bad in isolation, but comparatively, the Shatin to Central Link cost roughly $100 billion ($79.8 billion + $20 billion) **? Suddenly, $15 billion doesn’t seem like much.
More specifically, $0.7 bilion to develop Smart City projects is extremely low. Especially compared to Singapore’s S$2.4 billion (HK$13.7 billion) budget to spend on Smart City initiatives***. Perhaps, a more objective question, what Smart City deliverables should we expect from a $0.7 billion investment?
Let’s take a look at two items that will directly benefit SMEs.
Tax Rate Reduction
We have all by now heard of the 8.25% profit tax (for the first HK$ 2 million profit). How the rate will evolve afterwards is still unclear, but there aren’t many nations in the world that provide such a simplistic and incentivized tax scheme for corporations.
How is your business ready to benefit from this? Perhaps after this legislation passes in 2018, it’s simply a good time to register a profit? Or more complex matters such as potential entity restructure within the new tax boundaries?
Sadly, Hong Kong has had incentivizing tax rates for a long time now, but will the benefit of this additional tax reduction smooth over the difficulties in Talent Acquisition, Office/Storefront Rental or Archaic Beauracracies? Let’s not forget the increasing difficulty to open a company bank account which is one of the most basic necessities for any business (there are organizations out there that can help you with business banking facilities. Check out Neat).
Research and Development Deductions
I suppose the biggest carrot would be in R&D. A 300% tax deduction for the first $2 million spent on eligible R&D was stated in the address. Coupled with a halved corporate tax rate, that’s a huge incentive, but also opens up issues such as “what is eligible research and development?” and “does the Inland Revenue need to re-interpret their stance on R&D conducted by HK companies in light of the increasingly common, digitally nomadic (offshore) work culture crucial to this business phase?”****
Details on her statement need to be clarified, but just as importantly how will your firm start accounting for the R&D that’s performed to benefit from this policy?
Get ready to capitalize on these policy changes. Obviously, as an accountancy firm, our shameless sale line – make sure your accounts are in good shape to start!
As Cornerstone services SMEs in the Hong Kong Special Administrative Region, we also eagerly await for Chief Executive Carrie Lam’s policy address on Wednesday, 11 October. Rumor has it, or better yet, if she stays true to her previous sentiments, a tax reduction to 10% for SMEs of your first HK$ 2 million dollars in profit is in store. That’s a HK$ 130,000 in savings per year or HK$ 10,833 per month from taxes if you’ve hit the HK$ 2 million mark in profit, which isn’t the case for all the players.
Critics say that the Chief Executive is throwing out very easy ear bait for SMEs. Investing in Hong Kong definitely has another advantage, further lowering of simplistic tax rates, from the previous 16.5% now to 10%. How awesome is that? Not that I don’t appreciate the initiative, but let’s take a quick walk around and “tire-kick” and see how great of an incentive this really is…
This incentive is supposedly to be put in place so that we, Hong Kong collectively, can regain some competitive advantages against Singapore and other regions (north of the wall, cough cough) in the startup and SME space. If the tax rate drops to 10%, the Hong Kong government is looking to lose HK$ 10 billion in annual revenue*. Which really is generous, but it doesn’t tackle the fundamental challenges that startups and SMEs face, which are:
1. Talent Acquisition
2. Office/Storefront Rental
3. Archaic Bureaucracy
Finding, acquiring and retention of talent is probably one of the largest challenges in Hong Kong for SMEs. First off, finding suitable talent for startups and SMEs where success rate is already extremely low, hinges heavily on finding the right talent. Besides wearing multiple hats, success relies upon how well one can excel in their core job function. In the F&B and retail space (if you have a physical store front), acquiring and retaining good store talent is practically a full time job in itself. With living expenses continue to rise in Hong Kong, this just adds additional pressure to business owners. How far does HK$ 10,833 cover for you?
Depending on your storefront size, HK$ 10,833 definitely helps a bit, actually any bit will help. How many less shirts, jewelry, coffee, drinks, products will you need to sell? Don’t you feel like everyone is taking a small fee out of your hard earned revenue? Unfortunately, rental space isn’t just a small fee in Hong Kong, but a large chunk of expense for every SME. How does Shenzhen or Singapore tackle this problem? Oh wait, they don’t need to because rental space isn’t as crazy as it is in Hong Kong. I’ll probably take the HK$ 10,833 for this, but again, really doesn’t fix the underlying problem does it?
By labeling this, I bet all of you are thinking of bank related regulations, guess what? I’m not. I’m thinking of all the other unfortunate regulations and or bureaucratic necessities that plague Hong Kong, where forms and paper dominate the minds and time of processing minions. I’m quite passionate about this space as you can tell. Can’t wait for blockchain technology to really revamp, overhaul and destroy this sector… for good.
But in all seriousness, how much time do startups and SMEs waste from over-engineered and outdated form filling/document collating that range from bank KYC requirements to any type of public governance or an application of some sort of SME government funding? Again, I may accept the HK$ 10,833 for this one, because depending on your type of business, hopefully you’ll only encounter it a few times a year, because the other times, you just forgo it altogether.
I suppose one should probably not just rant on these issues, but provide potential solutions. So, after a beer and a shot of maotai (don’t tell Adrian), here’s a few that the HK government can look into:
1. Draw international talent and incentivize them, not for large corporates who can afford it, but specifically for startups and SMEs. Hong Kong does such an amazing job for domestic workers, why can’t we do it for recent graduates? Most likely because it’s too expensive. Fortunately there is more and more discussion about co-living and co-working. Incentivize those companies with your HK$ 1 billion for the specific task of recruiting talent back to Hong Kong and performing triage on the “talent bleed”**
2. If I knew how to lower commercial rental fees, I’d be running for office. So, the following suggestion is a shot in the dark. If the government can provide affordable residential projects, then should they also create affordable work-space projects***?
3. Smart cities initiatives are sprouting throughout the world. Hong Kong was the innovative leader with the introduction of the Octopus card back in the 90s. When did we start looking backwards and rely so heavily on paper when many other top cities are looking towards a paperless work environment? Once leadership focuses, drives and executes on innovation and technology initiatives, it’ll be surprising to see how quickly that permeates amongst its citizens.
Well, I’m excited!! Let’s see what comes out next Wednesday.
It’s been a while since I last wrote but a recent clash of titans caught my eye – no not the McGregor vs. Mayweather, but the Musk vs. Zuckerberg twitter exchange on AI.
Far from the cutting edge of artificial intelligence (AI) or machine learning (ML), needless to say, I am a proponent of technology development that improves our lives, personal or business.
We’ve all seen the proliferation of companies building software/hardware and services to streamline tasks, social network, disrupt and improve archaic processes within industry sectors. For ease of communication, in this article, I will refer to the aforementioned phrase in italics simply as “products”. Some of these products have made a fundamental difference in the way we operate, others are just being created to capitalise on the “now”, “quick-fix” and our self-indulgent nature.
This latter group multiplies exponentially – today there are so many apps and wearables* with a new feature that is instantly captivating yet disposable. What these lack, in my opinion, is a customer stickiness that has, at its core, elements that address a digital Mazlow’s hierarchy.
Oversimplified, both diagrams suggest that if basic lower levels are not met, there is no desire or purpose to pursue higher levels.
Looking at the human chart, the fact you are reading this article on a phone, tablet or computer, I can assume that you are safely beyond the initial basic needs and are wandering in the upper wedges along with the rest of humanity. With the rapid advance and adoption of the Digital Age, millions of us are using apps/wearables as part of our search to satisfy our upper needs – we are driving demand and supplying data in parallel.
Looking at IoT diagram, one can infer that the current phase of products is a pre-cursor to Artificial Intelligence (AI) or Machine Learning (ML). Think about it – multiple data collection points (social apps, business apps, lifestyle apps, wearables etc) all designed to satisfy the immense AI/ML data need with consumer products that satisfy the bottom three. We’re all heading down this path whether we like it or not, unless you decide to go “off-grid” Jason Bourne-esque. And even he came back online.
Philosophically, the three upper wedges of each hierarchy are almost symbiotic which affirms the depth at which our lives are intertwined with digital technology.
Today, self-actualisation/smart needs are being achieved using integration – basically apps that talk to one another. We’re creating multi-app ecosystems that improve our daily lives, businesses which in time will provide the data framework for AI/ML algorithms.
Practically, what choices are you making in business apps to streamline your operations and “buy” you time?
The current challenge is twofold for users:
- To curate and integrate relevant, practical yet fragmented products from the plethora of choices in the market and
- satisfy the upper wedges in both hierarchies.
Using the accountancy sector as an example, practical applications of AI/ML are still in infancy stage***, however this interim period allows us to move towards this automation nirvana using integrated software with human oversight, insight and intervention.
It’s about as close to Tesla self-drive that we have now – @cornerstonehk, we coin it as “low-touch accounting”.
*broadly speaking, the internet of things (IoT)
After arriving from New York 8 months ago, everything felt familiar. Transitioning from one large metropolis to another, and also having some passing familiarity to the city as I lived here when I was a teenager. Initially I hoped my transition will be easy. As I began to settle in, I began to notice subtle differences that I took for granted back at home.
As I function primarily digitally, back home everything was at the touch of a smart phone, or computer. As I navigated Hong Kong’s digital presence, paying bills was challenging, online shopping is less convenient, making reservations went through traditional phone calls, just to name a few inconveniences. Websites are antiquated, or even worse, a Facebook community page. There is no Amazon for easy shopping, only Taobao which requires Chinese reading ability. Even one of the most popular sites, Open Rice, suffers from the same language issue. The site might be in English but the content (ie the reviews) are in Chinese.
Why hasn’t HK evolved its digital footprint? I assumed Hong Kong would be close to its Western counterparts or its neighbor China. It wasn’t.
Hong Kong has a unique issue, they have too many different audiences. Generally speaking, there are 3 major groups, local HK-ers, Mainland Chinese, and Ex patriots. One of the biggest obstacles is how to capture all audiences that have different digital maturity and behaviours.
Zooming in on this issue, language is an obvious barrier. A platform will have to decide which user base do you want to capture. Does it go after the local base, and support traditional Chinese? Or should it support Simplified to capture the ongoing traffic from mainland China? English has almost become the defacto localisation language due to the large ex pat community (and its associate spending power). The MTR is successful at this. It supports all 3 of these main groups. Audio and visual queues support multiple languages, and the support staff are multilingual. MTR figured this out because they understand who their users are. If companies followed suit and invested in researching UI/UX needs, a much better product will come out.
Despite these growing pains, I can see Hong Kong maturing their digital presence quickly. In the last 8 months, I have seen companies try to start innovating. HSBC has started trying to do a payment app similar to Venmo called Payme. Uber is available and becoming more and more popular to the point where you can catch rides from Tesla owners. There are at least 3 food delivery apps (Food Panda, Deliveroo & Uber Eats) out there along with their motorcycle fleets. Jousun and Honestbee have attempted to take a crack at the grocery shopping space. Online booking reservation systems are beginning to surface (Chope), and GoGo Van has captured the small moving business.
The next 12 to 18 months will be interesting. All I need is better online shopping or learn how to read and write Chinese…
Kevin Tan is from New York City with a background in Finance before switching over to UI/UX 3 years ago. He is currently a Hong Kong based User Experience consultant, trying to help companies transform their products to be more user focused.
Connect with him on LinkedIn.