Last year, the Hong Kong government set out its bold target to double the city\u2019s research and development spending in the next five years to boost innovation.<\/p>\n
A Plus asks about the strengths and weaknesses of Hong Kong\u2019s current R&D capability and what additional support is needed for technology start-ups to survive in a challenging business environment<\/p>\n
Illustrations by Gianfranco Bonadies<\/p>\n
This month\u2019s Nissin Hong Kong National Junior Tennis Championships 2018 gave budding tennis stars an invaluable opportunity to prepare themselves for the day they compete for Hong Kong in major games in Asia and beyond. For non-tennis player Victor Tan, the championships could similarly be the start of something big.<\/p>\n
At the Victoria Park Tennis Centre Court, the venue of the competition, Tan, Co-founder of sports technology start-up Infinity Cube, and his team of vie were conducting a site survey. The Hong Kong Tennis Association allowed the company to do a pilot run of their product \u2013 a tennis match officiating technology \u2013 during the quarter-finals, semi-finals and finals on 21 to 25 February.<\/p>\n
\u201cThis will be the first time it\u2019s going to be released in a public arena,\u201d says Tan, a Hong Kong Institute of CPAs member. \u201cMuch as what tennis fans worldwide have some to expect at tennis tournaments at the highest level, our system is a technology aid for umpires or linesmen to determine whether the ball is in or out. Our goal is to put a highly sophisticated system, such as this, in the hands of every tennis player. We\u2019re very close to the finishing line.\u201d<\/p>\n
Getting to this point couldn\u2019t have happened without funding support from the government, says Tan. However, like other observers, he believes more needs to be done to help start-ups and small enterprises with the research and development (R&D) activities in Hong Kong. Indeed, the city spent just 0.73 percent of its gross domestic product on R&D, lagging behind South Korea (4.23 percent), Japan (3.28 percent), and Mainland China (2.07 percent), according to World Bank data.<\/p>\n
\u201cStart-ups can benefit from a more manageable cash flow, especially when we need to compete in the market with innovative products and shorter prototype development cycles.\u201d.
\nHong Kong Chief Executive Carrie Lam\u2019s R&D-related announcements in her policy address last year were considered a step in the right direction by commentators. In her address, Lam set a goal of doubling expenditure on R&D to 1.5 percent of GDP within the current government\u2019s five-year tenure.<\/p>\n
She outlined a tax incentive that would help companies towards that goals. A 300 percent tax deduction will be offered to the first HK$2 million of qualifying R&D expenditure incurred by enterprises. A further 200 percent tax deduction will be available for any remaining expenditure. The Innovation and Technology Bureau aims to introduce the bill into the Legislative Council to April 2018.<\/p>\n
\u201cOn top of super-tax deduction proposed in the Chief Executive\u2019s policy address for encouraging the private sector to invest more in R&D, we suggest that the government provides clearer guidance when defining R&D activities and expenditures. It should also provide refundable credits for R&D investments for start-up rate for intellectual property hubs set up in Hong Kong,\u201d said Jeremy Choi, PwC Hong Kong Tax Partner, in a press release last month.<\/p>\n
Tan notes that currently, it is not easy for Hong Kong enterprises, particularly start-ups, to benefit from programmes designed to boost R&D, citing recent statistics of the Innovation and Technology Fund (ITF). The fund was launched in 1999 to provide funding support for R&D projects that contribute to innovation and technology upgrading in manufacturing and service industries. It currently has nine programmes.<\/p>\n
While approved ITF funds totaled HK$13.2 billion as of 30 November 2017, HK$10 billion of this amount was allocated to the ITF\u2019s Innovation and Technology Support Programme, which supports projects specifically undertaken by universities and the five R&D centres set up by the government to drive applied R&D in selected focus areas:
\n(1) Automotive Parts and Accessory Systems R&D Centre (APAS); Hong Kong R&D Centre for Information and Communications technologies under the Hong Kong Applied Science and Technology Research Institute; (3) Hong Kong Research Institute of Textiles and Apparel; (4) Hong Kong R&D Centre for Logistics and Supply Chain Management Enabling Technologies; and (5) Nano and Advanced Materials Institute.
\nTan\u2019s company is part of the ITF\u2019s Enterprise Support Scheme, which has approved funds amounting to a comparatively modest HK$115.2 million. The rest of the funds go to the remaining programmes such as the University-Industry Collaboration Programme, which aims to encourage local companies to leverage the resources of universities for R&D projects, and the Public Sector Trial Scheme, which provides funding support for the production of prototypes and conducting of trials. \u201cWhen the pot increases, the major beneficiaries are definitely not the start-ups, sadly, says Tan.<\/p>\n
For those who believe the private sector should play a bigger role in future innovation investments, the Chief Executive\u2019s announcement was positive news. \u201cWhile the government\u2019s latest proposed enhanced R&D support\u2026will significantly reduce R&D costs for lots of Hong Kong companies, the companies should in turn increase their own R&D investment. It is in line with the international trend in which the private sector, not the public sector, should be the key driver for R&D,\u201d says Lawrence Cheung, Director (Technology Development) of Hong Kong Productivity Council (HKPC).<\/p>\n
As of 30 November 2017, approved funds under the Hong Kong government\u2019s Innovation and Technology Fund for research and development projects totaled HK$13.2 billion.<\/p>\n
Will it help ?
\nSurfwheel is an electric skateboard developed by Koofy Development, a Hong Kong start-up established in 2014. \u201cMe and my close friend from high school, Ondy Ma, had a bright idea to power a skateboard, so that we can go for long rides without getting tired. We started our company and signed up with Jong Kong Science and Technology Parks\u2019 (HKSTP) Incubation Programme,\u201d explains Felix Lio, Co-founder and Managing Director at Koofy. Two years later, with advice and support from HKSTP, Surfwheel was launched. This year, the lithium-battery powered skateboard will go on sale in the United States and Europe through Amazon and Toys \u201cR\u201dUs.<\/p>\n
Lio is confident his company will benefit from the recently announced tax incentives. \u201cIt will improve our cash flow, thus we will have greater flexibility when it comes to prototype development,\u201d he says. \u201cStart-ups can benefit from a more manageable cash flow, especially when we need to compete in the market with innovation products and shorter prototype development cycles.\u201d<\/p>\n
E. Tech Dynamic Technology, an electric automotive company is also looking forward to the enhanced deduction scheme, particularly as it focuses on developing different weight-classifications of electric trunks. In October last year, the company unveiled its 16-tonne pure electric truck, a zero-emission solution that can be used to transport construction and building material waste, created in collaboration with the APAS, the R&D centre of the HKPC. \u201cWith the 16-tonne electric trunk released, we are currently working on getting the 5.5-tonne electric truck out to fulfill the needs of the different customers. We aim to have an entire line of electric trucks, \u201csays August Or, Project Manager at the company.<\/p>\n
\u201cR&D helps our company to achieve our long-term goals, but to do, we also need to the continued support of the government for these fields,\u201d he adds. \u201cBecause technologies for electric vehicles are changing so frequently, we need to stay up-to-date on the newest technologies from countries around the world as we perform our R&D. This helps to ensure that our products are using the newest and most advanced technologies available.\u201d<\/p>\n
Productive R&D
\nThe enhanced R&D support from the government should provide companies and start-ups with the extra incentive to invest in the R&D of high value-adding products, says Cheung at HKPC. But for businesses to really get to the next level, they must first create the necessary environment for R&D, instead of engaging in R&D work upfront.<\/p>\n
\u201cThis includes integrating their various information and production systems to link up data, resources, process, and services. Also, they must be encouraged to apply various smart technologies such as 3D printing, robotics, sensors, virtualization and human-machine interfacing in the R&D process,\u201d says Cheung.<\/p>\n
Cross-industry R&D collaborations that would result in new innovations, should also be explored. \u201cFor example, the fashion industry can collaborate with the electronics industry on the development of smart clothing which can constantly track their wearers\u2019 vital signs, monitor their emotions and even interact with a variety of services including music and map apps,\u201d he says.<\/p>\n
A waiting game
\nOne of the main frustrations for companies related to the government\u2019s sluggish pace in approving R&D projects for funding. \u201cThe guys who are monitoring us, they all have PhDs, so they understand the research process, but they have to follow the rules. They have to be very careful with what they do with taxpayers\u2019 money,\u201d says Infinity Cube\u2019s Tan. \u201cSo on the one hand, Hong Kong wants to be the tech hub of Asia, but the infrastructure or the bureaucracy does not allow that to effectively happen.\u201d For him , the funding application process took nine months. \u201cIn the start-up world, even six months is like a lifetime, so many things can, and will, change.\u201d<\/p>\n
Lio at Koofy agrees and notes that government policy to help drive technology is sometimes too slow and that often opportunities are lost. \u201cWe very much appreciate the government\u2019s support for SMEs, such as providing SME loans, with the low interest payments. However, the process of applying and receiving funds takes a very long time. By the time we received the funds we need to build a prototype, we missed the chance to bring the product earlier to the market. We could have taken at lead in the marketplace if only we received the funds earlier,\u201d he says.<\/p>\n
Boosting R&D in the city takes more than just funds. Companies note that attracting and retaining the right researchers for product development is an on-going challenge for local businesses and start-ups. \u201cTalent is the highest priority when it comes to R&D work. It\u2019s important that we can pay our engineers to deliver good work, and make it attractive enough for them to work for us,\u201d says Lio, adding that this is where the tax incentives would help. \u201cWe believe businesses will use the resources to attract good talents with attractive remuneration packages.\u201d<\/p>\n
Despite the criticisms, some acknowledge that in recent years the government has been stepping up its efforts to support R&D through a series of new infrastructure and funding initiatives, such as the science park expansion project and the ITF\u2019s Technology Voucher Programme.<\/p>\n
\u201cBy the time we receive the funds we need to build a prototype, we missed the chance to bring the product earlier to the market.\u201d<\/p>\n
\u201cI think it\u2019s better than before. In 2014, there was just Cyberport and science park funding then in 2015, Technology Start-up Support Scheme for Universities funding came out which provided another channel to get funds to do the R&D and even for go-to-market budget,\u201d says Oswis Wong, Chief Executive Officer and Co-founder of Air Button, a start-up that focuses on smart hardware. Its core technology is Air Button, a wireless and battery less shortcut button that sticks on the back of mobile devices. \u201cYou can set preset functions using our app so that once you press the button it will launch the preset function immediately,\u201d explains Wong.<\/p>\n
In 2012, it received a HK$100,000 grant from the Cyberport Creative Micro Fund programme, and then joined Cyberport\u2019s incubation programme in 2014. Because of the complexity of hardware projects, companies benefit from extra support as they tend to produce a lot of prototypes, Wong notes.<\/p>\n
Where even more support is needed, he adds, is in the patent application process. \u201cWith the current policy, you can apply for the patent assistance grant so that the first patent can be granted by government. For the second and third patent, they do not support you. Just one patent is not enough to protect the product for hardware projects. I would need over 10 to protect our products,\u201d Wong explains.<\/p>\n
Hong Kong heroes
\nR&D is the backbone of a successful and sustainable technology business. \u201cThere different models \u2013 you can either be the reseller with someone else building the technology, or you can be a producer. Who makes the money ? The producers,\u201d say Tan. \u201cThe IBMs, the Ciscos, the Huaweis are global producers who own the technology. They have the intellectual property, which locks you in as sole producer. If you don\u2019t do the R&D then you can only be a reseller.\u201d<\/p>\n
He adds that Hong Kong is at present mainly made up of companies that focus on selling and marketing existing overseas technology rather than producing proprietary research.<\/p>\n
To move away from this and to build a sustainable start-up ecosystem that attracts talent and capital, Hong Kong needs to foster more successful start-up ecosystem start-ups, such as AI company SenseTime, specialized in face-recognition technology, and on-demand logistics company GoGoVan. Both are valued at more than US$1 billion. \u201cIt\u2019s good to have a few good names,\u201d say Tan, \u201cbut we need more heroes, then this city will really take off as a start-up hub.\u201d<\/p>\n
#Source from A Plus \u2013 Issue 2\/Volume 13\/February 2018<\/p>\n","protected":false},"featured_media":2191,"template":"","class_list":["post-2427","blog_en","type-blog_en","status-publish","has-post-thumbnail","hentry"],"yoast_head":"\n