FB Magazine JUN 2020
Greater China Regional Managing Partner
Ernst & Young
Photo credit: HKICPA’s A PLUS magazine
The COVID-19 pandemic has pressed the “pause” button for the world and impacted us in different aspects of our lives.
“COVID-19 has been become a new normal and people need to be prepared to fight the virus on a long-term basis,” said Jack Chan, Regional Managing Partner of EY Greater China with 20,000 professionals in 29 locations covering mainland China, Hong Kong, Taiwan, Macau and Mongolia. Chan is an alumnus of The Hong Kong Polytechnic University, graduated with a Master’s degree in Corporate Finance in 2003.
Chan reckons that the pandemic will gradually come under control but will be staying with us for a while until a vaccine is discovered or when herd immunity is achieved. As for businesses, Chan highlighted that in the short run, enterprises would face cashflow and liquidity challenges, which could threaten the survival of businesses. In the medium to long term, the outbreak will urge many to look at reshaping their business models or better still, to expedite their transformation so as to get ready for the next unknown.
EY recently published a report on the influence of the coronavirus titled “Beyond COVID-19, what will define the ‘new normal’”. In the report, EY has offered insights into the new normal and considerations business leaders should factor into planning beyond the COVID-19 pandemic.
“Our research shows that businesses have to experience three stages. First, they need to grow the existing business, maximizing profitability and shareholder value, and responding to immediate obstacles,” Chan said. “Then businesses need to cope with medium-term challenges and opportunities, largely as a response from disruptions in their sector. If they are able to transform themselves – from building a resilience supply chain to adopting digital solutions that fit the business operations, they will be able to ride on the global megatrends and capture new opportunities that shall emerge in the long term.”
Chan believed that high levels of uncertainty shall continue for the global economy as we enter the post pandemic stage. He explained that the first wave of the outbreak in China was controlled in a short time. The second wave outside China has hurt some European and American countries, however countries such as Italy and the US were planning to resume business even when the pandemic was yet to come fully under control.
If the US, as the largest economy in the world cannot control the second wave effectively, the situation is expected to get worse. As the third wave is already developing in Africa and some other countries where medical competency is lacking, the outbreaks could be more destructive and potentially creating further impact in the global economy.
Chan discussed further how the real economy and virtual economy would emerge under the new normal after the COVID-19 outbreak, in particular for small- and medium-sized companies in the F&B, retail and tourism sectors that have been strongly attached to the real economy. In the past months, when lockdown and social distancing came into effect as governments tried to keep the pandemic under control, people’s everyday livelihood and activities were restricted and forced to change. As a result, many of the real economy activities have to find ways to survive via virtual means. SME operators who were quick to develop service offerings via the internet have managed to transform their business operations to cope with the suddenly vanishing physical or traditional marketplace. The use of innovation and technology has proven to be effective to support SMEs through the short and medium term challenges. Chan suggested that these businesses should consider overcoming future market uncertainties by fully embracing digitalization, including the use of big data and blockchain technology to map out customer behavior and business strategy.
Chan went on to discuss how the develop of fintech will see drastic acceleration as part of the virtual economy. EY recently released a report named Global Fintech Adoption Index 2019. The report found that China and India are leading the way with the adoption rate of fintech at 87%, while the adoption rate of fintech in Hong Kong surged from 32% in 2017 to 67% in 2019. As fintech has caught on around the world and entered the mainstream in all markets that EY studied, the report concludes with advising companies to stand out from the crowd by adopting technology to make financial services more accessible and efficient from both the B2C and B2B perspectives.
Commenting on the technological development in Hong Kong, Chan felt that there has been a misunderstanding of Hong Kong not promoting technology and fintech. “The government has actually done a lot to develop fintech,” he said. Chan quoted Cyberport and the Hong Kong Science and Technology Park as examples and said that they are digital technology clusters committed to inspiring innovation, nurturing entrepreneurs, and attracting global talents, partners and companies to Hong Kong for collaboration and business opportunities. Statistics also show that more than 600 fintech companies are now in the clusters and the fintech sector in Hong Kong has raised more than US$ 1.1 billion from 2014 to 2018.
Switching to the development of the Greater Bay Area, Chan said the EY Greater China region has established a dedicated committee to explore opportunities emerging from the GBA development plan and strive to support companies that have the vision to expand business footage in the Area.
He suggests that Hong Kong should take advantage of its well established roles as an international financial centre, capital fundraising centre and its advanced position in the financial and legal systems, then applies its mature business models to capture opportunities in the GBA as well as the ASEAN countries.
Chan also thinks highly of the role that talent can play in a city’s progress. “Hong Kong should keep and train talent to serve the community, especially at a time when social moment weighs heavily on talent outflow. The government and universities could adopt a more strategic approach in cultivating talent, such as offering more training and job opportunities in the technology sector, to get our young people ready for the new normal,” he said.
Founder & CEO
CEO & Founder
The difficulty of embarking on start-ups in Hong Kong is well known, as this mature society is already well penetrated by monopolies and the city’s industry structure is monotonous - property and finance. However, there are always passionate game changers looking for opportunities over challenges, especially on the back of the government’s encouragement. Influenced by the mainland’s entrepreneurial booms, the Hong Kong government has stepped up its policy to support entrepreneurship since 2015, and the city has gradually shaken off the tag of “barren land for entrepreneurs”.
Hong Kong had 3,184 start-ups operating in major public and private co-work spaces and incubators in 2019, up 42.8% from 2,229 in 2017, with more than 12,478 employees, an increase of 97.4% over the 2017 figure, according to the 2019 Annual Startup Survey by InvestHK.
Edwin Wong and Phoenix Wan are among these passionate icebreakers. Both set up their own businesses soon after graduating from PolyU and are applying technology to change existing industry rules. Edwin graduated in 2014 with a Bachelor of Business Administration (Honours) degree in Marketing, and Phoenix graduated in 2010 with a double degree - Bachelor of Business Administration (BBA) and Bachelor in Computer Science (BSc).
Digital Platforms Starting from Zero
Edwin began his entrepreneurship journey by establishing a social enterprise where he built a website to use coupons to promote brands and sell products during his final year at PolyU. The project received HK$400,000 from PolyU Micro Fund and the Hong Kong Social Enterprise Challenge sponsored by the Hong Kong government and universities. It took the company six months to reach its breakeven point.
The first project did not work out very well, but he accumulated the experience of building brands, realized the value of endorsements in promoting products, and adopted the idea into his second project.
In July 2015, Edwin launched his second business project - an AI-powered marketing software specializing in influencer marketing and social discovery for Asia, called Cloudbreakr (https://www.cloudbreakr.com/). As Asia’s first professional network for influencers, the software provides the user with an integrated solution to conduct quick social trend analysis, influencer discovery, channel performance auditing and complete campaign management.
Five years ago when the sharing economy concept began in Hong Kong, Phoenix was inspired to create O2O (online-to-offline) platforms for various industries, including hair salons (http://hkhairsalon.com), photographers (http://photographer.com.hk/), anchors (http://hongkongmc.com) and insurance agents (http://hongkongip.com/). The idea was initially driven by his own needs such as haircuts and his interests in hosting events and taking photos. He then looked at market trends based on research to identify industries that can apply the O2O concept.
Phoenix has launched 37 O2O platforms in Hong Kong, seven in Taiwan and two in Malaysia with a similar concept.
For the first platform Phoenix created for hair salons, he did the programming himself and spent three months collecting information on 3,000 hair salons in Hong Kong for the platform.
Edwin and Phoenix both needed around six months to prepare for the setup of the company, and the most difficult part was convincing users and investors of these new business models presented by young faces.
Views on opportunity, timing control, fundraising and people management are key factors for successful operation of start-ups.
“At the very beginning, it’s more about the opportunity and the timing,” says Edwin. Initially, they spent lots of time creating the contents of targeted emails and providing free models to users. Gradually, Cloudbreakr attracted attention from the market.
“Fundraising is tough for start-ups because investors are concerned about market size. And people are also the key factor for business,” adds Edwin.
Phoenix reckons that the industry was not quite ready for such O2O platforms when he originally started. “Only 30% of hair salons had email addresses when we tried to collect information,” says Phoenix. He admits that they might have looked too young to approach investors for fundraising, given that the average age of their team was around 23 years.
Look into Southeast Asia Markets
Edwin’s business had been growing rapidly until the COVID-19 pandemic. Last year, it expanded into southeast Asia, set up a new office in Thailand and confirmed serval partnerships in Indonesia and Taiwan. It reached its yearly revenue target for 2019 within six months.
“Now is the time to rethink our business strategy. Before we relied a lot on big companies’ marketing budgets, but now we shift more to small and medium sized enterprises (SMEs) because they have become more aggressive and active in social media promotion due to COVID-19,” says Edwin. His company will resume expansion and launch more new products after the virus outbreak subsides.
In terms of market potential of the digital sector in southeast Asia, Edwin thinks that Indonesia comes in first place, supported by its population, high penetration of mobile devices and its citizens’ preference to use social media. Next comes Thailand, which has developed fastest in the region in digital transformation, has lower costs, and is close to Hong Kong. He is also interested in Malaysia, the Philippines, and Burma. Although India has the biggest market, language barriers exist.
Unless you have a solid network and dedicate considerable time, you cannot enter the Chinese mainland market, according to Edwin. It is not easy because the data and tech industry moves very fast on the mainland. However, he is interested in helping mainland brands go overseas and seize opportunities under the Belt and Road and Greater Bay Area initiatives.
For the next step of his business plan, Phoenix would like to set foot in Taiwan, Malaysia and Singapore and to find other industries to adopt the O2O concept.
Even though the current COVID-19 crisis weighs on the commercial world, especially small and medium sized companies, Phoenix says his business revenue is stable and balanced. Some of his platforms that operate over the internet, such as the insurance agent platform, have benefited from the virus outbreak. He thinks that after this virus outbreak, online business will be more popular and that SMEs will turn to move their business online.
Advice on Entrepreneurship
Edwin thinks the Hong Kong SAR government has done a lot in the past two years to encourage start-ups and that start-ups’ connection to capital should be enhanced with the support of government.
His advice to people who would like to start their own business is to “follow your heart”. It is a cliché but true. “You can adjust your approach, but you cannot forget the value you hold and what you wanted to do at the very beginning,” says Edwin.
Phoenix thinks that education regarding how to start a business is more important than financial support by government and university.
To support entrepreneurship through his own efforts, in May 2011 Phoenix co-founded Youth Entrepreneur Warrior, a networking platform for entrepreneurs in Hong Kong, with his partner James Wong to provide information and services for start-ups. The platform now has more than 5,000 members.
Regarding management and leadership, Phoenix adopts the motivation approach rather than the punishment approach.
Edwin believes that people always come first. He thinks highly of empowerment and encourages teammates to make decisions on some tasks.
|George Liu Dongbai||Steve Gao Bo
Sigma (International) Investment Management Co., Limited
If you have come from the Chinese mainland to study or work in Hong Kong, the name “Gangpiaoquan” (港漂圈) won’t be new to you. This online community is now the largest one-stop online social platform for mainland people to seek practical and useful information about living in Hong Kong.
“Gangpiaos”, aka “Hong Kong drifters”, is a term coined in mainland internet chat rooms to refer to educated individuals from north of the border who now live and work in Hong Kong.
Gangpiaoquan was initially established by two Gangpiaos in 2013 and has become a must-visit platform that has attracted 280,000 fans to its WeChat public account and 220,000 followers to its Weibo account, the mainland’s Twitter-like microblog service. One of the founders, George Liu Dongbai, is a graduate of The Hong Kong Polytechnic University who majored in marketing from 2007 to 2011.
Since George came from northeast China to Hong Kong to study, more and more mainland students have followed the same path, supported by government and university policies.
The admission of talent policy in Hong Kong was expanded in 2008 with a one-year visa extension, the IANG visa, for graduating mainland students. The Hong Kong SAR government also implemented several talent admission policies to attract talent to Hong Kong, including the Admission Scheme for Mainland Talents and Professionals in 2003 and the Quality Migrant Admission Scheme in 2006.
After graduation, George worked with an exhibition company for eight months. Having witnessed more and more mainlanders moving to Hong Kong to study, and inspired by his own study and work experience in Hong Kong, he had the idea to set up an online platform for Gangpiaos. Coincidently, it was around this time that he met his present partner Zhao Lei, who shared his experience of studying and living in Hong Kong in Weibo which attracted a large readership – tens of thousands of fans. They clicked easily and spent half a year creating a new company. That’s how Gangpiaoquan started.
First, they devoted considerable effort to organizing offline events twice a week to build momentum. It did not take very long for the platform to take off. Their revenue relies mostly on advertisement.
“This start-up experience has had a huge impact on my mindset and has made me unafraid of solving problems. Starting from zero to one gives me tremendous courage to overcome obstacles,” said George.
In future, Gangpiaoquan plans to launch (on WeChat) a mini-program to reach a larger audience via multiple channels, according to George, and the focus will be more on capturing hot topics on both sides of the border to boost content and consultation services.
George is currently pursuing a Master’s degree in Business Administration at China Europe International Business School in Shanghai. He plans to accumulate experience in large enterprises after graduation to facilitate his start-up business.
Serial Entrepreneur Injects Vitality
The Gangpiao group is actively fitting in with Hong Kong society and injecting vitality into the local entrepreneurial circle. In the same cohort is another graduate from PolyU - Steve Gao Bo, also a Gangpiao entrepreneur, who has made his name known in the circle. He graduated with a management major in 2011.
In the final year of his Bachelor’s degree study at PolyU, Steve created an O2O internet platform that received HK$100,000 from the PolyU Micro Fund. After graduation, he moved the business to Cyberport with the support of HK$ 1 million from the Hong Kong SAR government, 80% in the form of a non-cash fund such as subsidies for rent, marketing activities, employment and legal services. He operated the platform for a year and a half and then sold the project out.
While working at a French family-run business named Maison Herbard, which focuses on alternative investment, and Tempus Group, Steve co-founded a restaurant called Chang’An Taste with two partners in August 2014 to promote the food of his hometown in Shaan’xi.
They spent three months researching ingredients and setting the menu and six months on store preparation, and finally launched their first restaurant in Hung Hom. The monthly turnover of the restaurant is around HK$400,000, and it attracts local Hong Kong customers in addition to gangpiaos.
Branches of Chang’An Taste can now be found in Sheung Wan and Sai Wan as well. The founders plan to introduce new dishes, inspired by the popularity of the recently launched steamed stuffed bun, according to Steve. He admits that the real and financial economies have been greatly affected by the coronavirus outbreak, so they are cooperating with group catering service providers to deliver food to customers and talking with Chinese companies about providing take-away food for their employees.
Steve is now only a finance investor of Chang’An Taste. He pulled out of the restaurant business after it went into stable operation and established an asset management company, Sigma Invest, in 2017 with offices in Hong Kong, Shenzhen, Xi’an, Wuhan, Suzhou and Shanghai, to draw on his experience in finance and business management.
As a serial entrepreneur with knowledge of both the mainland and Hong Kong, Steve reckons that the start-up boom on the Chinese mainland that emerged in 2015 has entered a precipitation and deleveraging period in recent years, but given the government’s clear policy of stimulating technological innovation and development, he believes that many opportunities remain, especially in the high-tech sector.
As for the Hong Kong government’s support regarding start-ups and technology, Steve thinks enforcement is not adequate. “For example, although the government encourages start-ups to set up offices at Cyperport, the location is not convenient for business,” said Steve.
Although he is full of entrepreneurial spirit, Steve doesn’t encourage students to establish their own businesses right after graduation and encourages them to first accumulate experience from large firms. “When you feel you are capable of feeding a company for at least six months, then consider doing it,” said Steve.
George and Steve both believe that partners are key to the success of a business and that partners should be reliable, responsible, capable and willing to solve problems.