Political paralysis is no excuse for inaction: Role of Business and Philanthropists

Hong Kong is facing an unprecedented political gridlock. Yet amidst all the economic, social and environmental challenges, the city is ill afford to stay put. It is high time for businesses, philanthropists and foundations to provide the impetus for change.

The economic and social well being of a community is closely intertwined with business performance and profitability. More and more businesses now understand that CSR as a marketing concept is no longer adequate. To attain sustainable growth, business has to first and foremost address the needs of a society and give due regard to the interests of multiple stakeholders. ‘Doing good’ is not a responsibility and an after thought, but a pre-requisite to ‘doing well’. Such belief has led more and more business leaders taking a more proactive role in addressing economic and social challenges. 

Unilever and GE are clear examples of how business turn social and environmental problems into new business opportunities through innovative offerings and practices. 

The Itasca Project in America’s Minneapolis–Saint Paul region demonstrates how business can work together for the collective good. Established in 2003, it is an employer-led alliance seeking to revive the economic competitiveness and the community well being of the region.  Working closely with government, educators and NGOs, business leaders lead task forces on key strategic issues such as generating quality job-growth and forging stronger collaboration between business and universities.

Mark Zuckerberg led a new approach to philanthropy by creating a limited liability company for for-profit investing in new technologies and public policy advocacy to solve the world’s biggest challenges.

Traditional philanthropists and foundations can also become drivers of change by investing in startups that can make a difference. Earlier this year, the Rockefeller Foundation and Unreasonable Institute in the US launched the ‘Future Cities Accelerator’ to encourage revolutionary solutions to complex urban problems.

Hong Kong has a vibrant business community, the largest number of HNIs in Asia and a strong tradition as a free wheeling community. The current political stalemate should not be an excuse for doing nothing. The above international best practices have shown that:

• Business can take the leadership in driving economic and social prosperity. The dividing line between for-profit business and NGOs (or social enterprises) are blurring. 
• Philanthropists and foundations should innovate their charity giving approach by supporting for-profit  startups in creating innovative and sustainable social changes. More funding also needs to go into public policy research.

How relevant is R&D spending to innovation development?

Hong Kong’s ability to reinvent itself as an innovation-led economy is in the spotlight again, in the wake of the latest release of the World Economic Forum’s Global Competitiveness Index. There are calls from various quarters that Hong Kong has to increase its spending in research, scientific and technology development (commonly referred to as R&D). 

It should be clearly understood that technology is but one element of innovation. Hong Kong should ride on its unique DNA as a service economy and a trading hub in its pursuit of innovation. Li & Fung, Lan Kwai Fong, HKBN and startups like Go Go Van and Handy are good examples of service, process, customer experience, management and business model innovation. 

Some believe that reindustrialization can help spearhead innovation. The reality is that service inputs make up an increasing proportion of manufacturing activities.  Instead of bringing in more production lines, Hong Kong should continue to offer manufacturing services – albeit with a stronger dose of innovation. This also means that STEM education is important, probably not because we need more engineers but more designers, lawyers, accountants, marketers and business development specialists who can understand and commercialise technology.

If technology is not the only innovation driver, heavier investment in R&D should not be a pre-requisite to innovation development. Creating value in the 21st century is not about ownership but the sharing of knowledge. Countries are trading patents, copyrights and other intellectual property. With the exception of the US, Japan, the UK, Germany, and 
France, all other OECD countries obtain over 90 percent of their productivity growth from ideas that originated abroad. The key to innovation is therefore not so much the amount of R&D spending but the ability to scout for, integrate and commercialise new ideas and inventions. In order to do this, Hong Kong should further enhance its understanding of the global markets and broaden its international network. This is also the most that Hong Kong can contribute to China’s high tech development.

Hong Kong is an ideal test bed for new products and services. 
To catalyse innovation development, we should create demand for innovation to thrive. The government, businesses, universities and foundations should start to create challenge funds, innovation prizes and demonstration projects and seek innovative solutions from around the world. Hong Kong should aspire to become the role model for innovative and sustainable solutions for densely populated cities.

Do HK Startups have the ambition for the global market? (Chinese only)

香港初創企業  有否打入國際市場的野心？

初創企業  缺乏國際市場潛力  

根據以三藩市為基地的Compass在上年7月發布的2015年全球生態系統排名，香港在全球發展最快的新創企業生態系統中排名第五位，總體排名則為全球第25位。 「香港是完全能夠發展強大的新創企業生態系統，但創業者必先提升國際化及視野。」這是Compass在2016年1月29日發布關於香港新創企業生態報告的最重要訊息。許多投資者認為香港新創企業生態系統看似缺乏風險資本，其中最重要原因便是缺少具國際市場潛力的初創企業。

筆者最近擔任一個本地初創企業比賽的評判，在30隊決賽隊伍中，幾乎沒有一隊有打入亞太區域或國際市場的計劃或野心。跟據一些非正式的統計，現時香港大約一半的初創企業是外藉或是曾在海外升學或就業回流到港的人士，而這些企業也是較國際化。香港作為一個小型城市，再加上在全球化經濟體驗系下，「走出去」是不容置疑的。但過去十多年，除了這金融行業外，香港似乎跟「國際化」的距離愈來愈遠。相反鄰近的新加坡與國際接軌的速度，無論在企業或是政府層面，都有著神速的發展，作為帶動城市發展的火車頭。 「聯繫力」是全球化、數碼化和知識經濟的新貨幣。其實，香港作為一個國際貿易中心，應有足夠條件發展其「超級聯繫人」的角色，將世界各地的構想、資本、人才、生產設施和市場連起來 。

吸納創新方案  香港不比新加坡進取  

提及新加坡，很多人希望香港特區政府能更積極協助初創企業發展。既然缺乏風險資本不是一個基本問題，那政府其實可以做甚麼呢？近年投資推廣署積極推動香港作為初創企業之都，功不可沒；但光是一個部門的熱誠和努力，當然是不足夠。若各公營部門能扮演 「需求創新者」的角色，在採構制度下，能容許空間與新創企業合作，對本地初創企業的發展，一定幫助不少。新加坡政府在這一方面，便比香港更積極進取。香港一初創企業便曾經向筆者透露，正當創辦人不停被公營部門婉拒，新加坡政府卻對其創新方案大感興趣，主動邀請他往獅城提供服務。

此外，政策制訂者與規管者要明白新創企業的營商本質，在確保公眾利益獲得保障的大前題下，應與時並進，容許打破舊有模式的創新行為。中國內地和新加坡政府在金融科技規管上的進取，便相當值得香港參考。

台灣新創競技場：世界就是你的競技場！

除了新加坡，台灣亦非常積極推動初創企業國際化。於2014年核定的「創業拔萃方案」，其三大策略包含積極排除法規障礙、引入國際專業資金、打造國際創新創業園區。以 “The World is Your Stadium!” 作為口號，去年成立的台灣新創競技場的任務便是協助台灣初創企業發展國際業務，建構國際化科技創業的微型生態圈。

連起各界  推動科研商業化

最後，社會上有不少聲音認為香港須加大科研的投資和科技人才的培養 。香港雖然長遠需要發展科學、技術和研究能力 ，但其實香港是不乏世界頂級科硏人才，我們缺乏的是把科硏商業化的能力。如以此角度看，香港不僅需要更多技術優才，還需要設計師、產品開發與行銷專才，了解技術與創新的專家，以及商業化的專家。 換而言之，香港是需要提升整個社會不同界別人士對創新的興趣，認知與能力。這當然不是一朝一夕可以做到，但卻是刻不容緩。其中最重要的，還是香港人需要提升我們的國際視野和網絡，做個世界級「超級聯繫人」!

Hong Kong as a Startup Hub: Mavens, Connectors and Salesmen

Hong Kong as a Startup Hub in a Network Economy

(This article is an extract from HONG KONG AS A STARTUP HUB: Mavens, Connectors and Salesmen published on 29 Jan 2016 by Prof Richard Wong, K C Kwok and Rachel Chan.)

Each startup ecosystem is unique with its own economic, social and political underpinnings.  Hong Kong could not emulate directly the success of Silicon Valley, or that of other startup hubs in the world.  

Hong Kong Needs More Than Tech Talents

Globalization and technology have made it much easier nowadays for people from different locations to work and collaborate with one another. It also means that it does not matter where scientific discoveries and breakthrough technologies originate — the important thing is who commercializes them.  Seen from this perspective, Hong Kong needs not just more tech talents, but also designers, product development and marketing specialists as well as professionals who understand technology and innovation and are experts in commercialization. 

Not So Much About Funding – But Capacity Building

Many stakeholders believe that the seemingly lack of risk capital is just a symptom of the early stage development of the Hong Kong startup ecosystem.  Hong Kong should invest in attracting global accelerators to Hong Kong and developing special access for local startups in accelerator programs located in top startup ecosystems.

Positioning Hong Kong

Hong Kong is a city that works and works fast. It is well positioned to be an accelerator for startups to build and scale their international business and to realise their global ambitions. Hong Kong should:

• Plays to its strengths as a service economy: Innovation (whether it is technology or non-technology related) is likely to accelerate in many services, within the service sector itself as well as through the “servitisation” of the manufacturing industry. Hong Kong is a service economy, and should take pride in and ride on its achievements.
• Be A Super Connector to the World: Connectivity is the new currency in a globalised, digital and knowledge economy. In a network economy, Hong Kong is well positioned to play the role of a ‘Super Connector’ in linking ideas, capital, talents, production facilities and markets.
• Serve as a Test Market: Hong Kong is an ideal place for market validation – for both B2C and B2B businesses. 

Catalysts for Growth

To fully realise Hong Kong’s potential as a startup hub, different players in the ecosystem need to build and strengthen their global footprints and connections. Hong Kong also has to strengthen its role as a “Customer” of innovation. Both the private and the public sectors need to see the value of working with startups as their innovation partners.

Policy makers and regulators have to understand the nature of startup businesses, striking a balance between enabling disruption to happen and ensuring that public interests are protected. The Hong Kong startup ecosystem should not be restricted by the geographical confines of the HKSAR but is intimately connected with the ecosystems in the Pearl River Delta and to the world.  

What is a startup?

What exactly is a startup? Most people in Hong Kong equate startups with entrepreneurs, and more specifically many think that startups are newly established businesses. This should not be the case.

Startups should be able to provide an innovative solution to a real problem. They should have a scalable business model and carry high growth potential. The innovation does not necessarily have to be technological, it can be innovation in the business process, business model, customer experience or even in the way the business is managed. Yet technology very often plays an important role in enabling the startup business to scale.

Startups are growth engines of every society, as they create substantial economic and social benefits. Cities around the world are vying to be the next Silicon Valley or the next Startup Nation (Israel).  Hong Kong is the freest economy in the world with rule of law. It is fast and efficient. It is a compact city with a small but sophisticated market, which is ideal for prototyping innovative solutions. All these attributes are very favorable to the development of startups. Many people attribute the high rental in Hong Kong as the major barrier to the development of startups. This is actually an exaggeration. If we understand the nature of startup business, the rental is never a major cost component. The high rental will only be an issue if one aspires to open a retail outlet in the main commercial districts – yet these are not startup businesses.

In moving up the value chain, Hong Kong has good potential to become a startup hub of Asia Pacific – not just for the home grown ones but also as the platform for Mainland and overseas startups to scale their businesses globally. The Financial Secretary has announced a package of measures to support the growth of startups in Hong Kong. The Government does have a role to play in enabling the development of startups. However, money (or the lack of it) is not the the crux of the issue. Investors are hungry for deals and money will come where there is a critical mass of good deals. The Government should not play the role of investors.

Yet the Government has the responsibility to provide a startup-friendly policy, notably a visa policy that can enable startup talents to come to Hong Kong easily.  Given the disruptive nature of startups, Hong Kong needs a regulatory regime that can allow innovation to happen. Equity crowd funding is a case in point.  Whilst the Singapore Government is facilitating the development of equity crowd funding, the Hong Kong authorities have yet to adopt a clear policy. The Government should also step up its marketing role with unifying messages across all departments and quasi-government agencies – in promoting home grown startups with high growth potential and also Hong Kong as a startup hub in the region. 

Finally, Government has a vital role to play in strengthening entrepreneurial education in our schools. Our children need to understand from a young age what it means and takes to be a startup. It does not mean that every child will grow up to run startups. But a good entrepreneurship education will enable our next generation to become more innovative. To become a startup hub, we need not only innovative founders but also innovative clients and employees. Hong Kong will become a true startup hub if a 10-year old can tell the difference between a startup and a small business. The child will know that opening a small coffee shop is not a startup!

Making Impact Investing More Impactful

There has been a lot of hype about impact investing since the term was coined 5 years ago. It is often described as an emerging asset class with an estimated market opportunity up to USD 1 trillion.  A lot of the ‘enthusiasm’ focuses on how impact should be measured, but advocates of impact investing reckon that the actual volume of transactions remains minimal at best.

The Global Impact Investing Network (GIIN) defines impact investing as investments made with the intention to generate measurable social and environmental impact alongside a financial return. This I believe is a broad enough definition that can encompass a wide spectrum of investment approaches, from creating social value as the key driver on one end to generating financial value on the other. 

Impact First

Most of the discussions on impact investing centre around the notion of channeling private capital to improve the life of the Bottom of the Pyramid (BoP) and the disadvantaged, especially those in emerging economies. These impact driven investments can have different rates of return, from below market to above market. Investors may take the profits or reinvest them back into the business, in parts or in their entirety. In developed economies, this type of impact investing is often associated with community investing. 

Finance First

Impact investing could also be a concept applicable to investments made with financial returns as the key driver, though this is less talked about. Investors will look at the investment returns but they will also base their investment decisions on sustainability considerations.  This is where impact investing and socially responsible investing (SRI)[1] overlap. The recent global financial crisis has led to a critical rethink of some of the foundational beliefs that underpin the financial markets and investment models. Jack Welch’s about-face remark that ‘shareholder value is the dumbest idea in the world’ epitomized the market sentiment for a more responsible capitalism. More mainstream investors have begun to see the case to integrate Environmental, Social and Governance (ESG) factors into their investment decisions, as a means to mitigate risks and identify companies with long term financial performance advantages. Some finance first investors also see their investment as an opportunity to help change the world for the better, in addition to the monetary returns. This is what Victor Hwang in his book "The Rainforest: the Secret to Building the Next Silicon Valley" referred to as "extra rational motivations". 

Whist impact investments with ESG considerations are largely applicable to companies with large market capitalisation,  the concept of impact investing is also highly relevant to innovative, small to mid cap ventures that seek to improve the well being of mankind. The Investors’ Circle, for example, was founded in the US over 20 years ago to catalyze the flow of capital to high impact entrepreneurs. It has so far propelled US$168 million plus US$4 billion follow on investments into 269 enterprises dedicated to improving the environment, education, health and community. So impact investing is by no means 'new'. Depending on how one defines impact investing, it may not be entirely correct to say that the volume of transactions is small.

Impact Investing Goes Mainstream

Hitherto the impact investing agenda has largely been shaped by foundations and non-profit organisations with philanthropic objectives. This is good, but not good enough. Impact investing should by no means be restricted as a humanitarian or community development tool. If impact investing is to achieve world-changing impact, we need more mainstream investors to join the discussion and more importantly the action. Traditional impact investments are private equity securities with very limited liquidity. Some analysts believe that publicly traded companies with ESG portfolios will unleash a new market for mainstream investors and bring in the largest dollar amounts of assets. We also need more angels, venture capitalists, and family offices to invest in entrepreneurs who seek to change the world for common good with innovative, sustainable and scalable solutions. And beware that these entrepreneurs come in different forms and shapes – they do not necessarily label themselves as social entrepreneurs.  Not only do we need thought leaders like Jed Emerson, we also need more visionary investors like Timothy Drapers and Peter Thiel who back entrepreneurs who seek to change the world through disruptive innovations.  This is particularly the case for Asia, as angel and venture capital investing are still at a nascent stage of development. 

Impact investing is far from being a single and discrete investment category. We should refrain from applying value judgment on whether a particular class of impact investing is more impactful than the others. Take job creation as an example. One may argue that all things being equal, there is no reason why creating job opportunities in developed economies should have less impact than in developing economies. Some businesses can also benefit both the BoP/disadvantaged segment and mankind in general. Clean technology is one obvious example. So are medical and health breakthroughs, which are not very often discussed in impact investing fora. Essentially, impact investors can have a portfolio of investment spanning across the whole spectrum, from finance first to impact first investment. One can also begin with finance first investment and then gradually migrate towards impact first investment over time.  

Indeed if impact investing is to gain market traction, a lot more work needs to be done with mainstream investors who are driven by financial returns. There is probably no need to position impact investing as a new asset class as such. From the asset allocation perspective, impact investment is no different from venture capital or private equity investment in terms of the structure and tools of investment[2].  From the risk and return perspective, impact investing is also similar to socially responsible and sustainable investing. After all, impact investing will only be able to achieve its impact if one day the majority of investors realise that doing good also means doing well in the long term. 



References:

Spectrum of Impact Investing, AVPN (www.avpn.asia/about-us/avpn-background/)
Values Based Investing, UBS (www.ubs.com/globsl/en/wealth_management)
World Economic Forum (http://www.weforum.org/content/impact-investing-how-do-we-harness-hype)

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[1] SRI also includes negative screening of companies that do harm to the society and/or the environment.

[2] Dr Christine Chow, Founder, Homage Consulting

Is Social Enterprise a Passing Fad?

The backlash against the deficiencies of capitalism has led people to rethink the purpose of businesses. Governments are advocating the development of social enterprises as a viable alternative to public service delivery. Impact investing has emerged as a new asset class. There are stock exchanges established specifically for social enterprises. Business schools are setting up social entrepreneurship programmes one after another.

Amidst all the interest and enthusiasm, there is still no shared consensus on the essential nature of a social enterprise. Many people think that social enterprises exist to help the underprivileged by building up their capacities and creating opportunities for them. Some believe that social enterprises must be non-profits.

Wikipedia defines a social enterprise, based on the book “Understanding Social Enterprise: Theory and Practice” (Ridley-Duff and Bull, 2011), as "an organisation that applies commercial strategies to maximize improvements in human and environmental well-being, rather than maximising profits for external shareholders." A social enterprise can be structured a for-profit  or a non-profit. This is a very broad definition, and certainly encompasses more than just organisations with a charitable purpose.

If we take a look back at history, the function of business was to provide the goods and services that a society needed. It is largely in the last 100 years that the meaning of "business" has been distorted. Instead of satisfying needs, companies now “thrive on” creating wants and desires and value creation has become synonymous with returns on shareholder value on a quarterly basis.

The relentless pursuit of profit has wreaked havoc on our economy, society and environment. It is also unsustainable for businesses themselves. The average life expectancy of a Fortune 500 company is between 40 and 50 years. The pace of corporate funerals is set to accelerate, according to a Yale study.

Studies have shown that the companies that perform best over time are purpose-driven organisations. These companies make money but profit is not their raison d'être. They improve the lives of people, address environmental issues, provide meaning for their employees and build sustainable businesses in the interests of all stakeholders.

My favourite example of such a purpose-driven organisation is Zappos. Tony Hsieh, CEO of the online retailer, says Zappos is all about “making customers and employees happy.” By demonstrating the crucial link between the purpose of an organization and sustainable growth, the Zappos culture is influencing companies around the world in a big way. Nonetheless, most people would not equate Zappos with a social enterprise.

Instead of singling out social enterprises as a desirable category of business, there is a strong case to be made that every business should integrate a social purpose into its core. Instead of teaching social enterprises as an elective, business schools should inculcate in every student the imperative of building for-purpose organisations. We need to encourage all aspiring entrepreneurs to think about in what ways they can make a difference to society. It is with this objective in mind that we launched the Make a Difference (MaD) Venture Fellows Programme in Hong Kong last year.  The Programme celebrates and supports young, innovative, doing-good and doing-well entrepreneurs. 16 MaD Venture Fellows from Hong Kong and 9 countries participated in an intensive 4-day programme, meeting with mentors, potential investors and business partners, as well as inspiring other entrepreneurs.

The three 2013 MaD Venture Stars, selected through an expert judging and crowd-voting process, demonstrate the myriad possibilities for a business to create a better world through innovation:

·       Insight Robotics, Hong Kong (www.insightrobotics.com) applies robotics technology to protecting critical infrastructures and key resources around the world. It detects and visualises remote incidents such as forest fires, oil leaks, water pollution, floods, droughts and security breaches for management authorities and assists them in devising the most efficient disaster recovery and contingency plans.

·       Wibbitz ,Israel (www.wibbitz.com) has created text-to-video technology that automatically turns any text-based article, post or feed on the Web into a video within 20 seconds. It helps reduce costs and production time for SME publishers and content providers, breaks down language barriers and has tremendous application potential in education.

·       Wifinity Tech, India (www.wifinitytech.com) applies simple and cost-effective wireless technology and artificial intelligence to help enterprises and buildings monitor, manage and economise on energy and water consumption. Enterprises and public institutions can reduce energy bills by 20% and water wastage by 15%, with ROI in less than 12 months.

None of these MaD ventures identify themselves as social enterprises, but their founders definitely have the vision to change the world for the better. It is cool to talk about social enterprises these days. We hope that this will just be a passing fad, as one day all businesses should have a social purpose. It is time to get back to the basics.