25 May 2006

CUHK Study Finds Hong Kong Government Policies Help Stimulate
High Growth Innovative Firms and Recommends Further Initiatives

Stimulation of high growth, high technology start-ups is part of industrial policies of interventionist governments. Since the return of Hong Kong to China, Hong Kong, in a departure from traditional laissez faire positive non-interventionism, has attempted these policies. The CUHK¡¦s Center for Entrepreneurship, in a comprehensive study, ¡§Innovation Policy and High Growth Startups¡¨ looks at the issues of stimulating high growth startups and assesses the government¡¦s ongoing efforts to intervene effectively in the economy.

The research is part of a multi-country study, undertaken by the Global Entrepreneurship Monitor Consortium, an international team of some 150 researchers in more than 40 countries who periodically poll entrepreneurship internationally. The research is led by Professor Erkko Autio, Director of Institut Stratˆmge of HEC Universitˆm de Lausanne in Switzerland to benchmark best practice in stimulating high growth startups. Professor Autio, in Hong Kong this week at the invitation of CUHK, notes that only some 3-5% of all new firms can create up to 50-75% of all new jobs. Professor Bee-Leng Chua, Director of the Center for Entrepreneurship and leader of the Hong Kong team, made up of Professors Kevin Au (CUHK), Erik Baark (Hong Kong University of Science and Technology) and Hugh Thomas (CUHK) said, ¡§Entrepreneurship brings growth, employment and flexibility to economies and governments set policies to stimulate entrepreneurship. Yet, only a small fraction of entrepreneurship contributes to a substantial impact of the economy. Our study therefore examines the government¡¦s policies in stimulating high growth entrepreneurship and how these measures have influenced high growth startup firms in Hong Kong.¡¨

Using a combination of survey data from a half a million interviews worldwide and in-depth interviews with 16 Hong Kong policy makers and implementers, the Hong Kong study finds that while Hong Kong has a low rate of startups (3% as compared with 8% worldwide), the rate of startups expected to achieve high growth is 0.7%, which is approximately equal to the world average which is 0.8%. The rate of high growth expectation measures the percentage of the population starting firms that anticipate hiring over 20 persons within five years. High growth expectation entrepreneurship, in Hong Kong and throughout the world, is dominated by wealthy, young males worldwide. But the research shows that, unlike the case in the rest of the world (including Shenzhen), in Hong Kong high growth expectations startups entrepreneurs are no better educated than low growth expectations entrepreneurs. The research team believes this suggests that our education system does not train our youth to spot and take advantage of entrepreneurial opportunities. The study sees that the long standing examination-oriented education system stultifies cultivating creativity, curiosity and independent thinking and applauds recent education reforms to address these problems.

Even though high growth expectations startups are not equivalent to high tech startups ¡V in particular high growth expectations startups in Hong Kong focus on consumer services ¡V the study reviews the strong economic theoretical reasons for government subsidies to R&D intensive startup activity. The study recommends that the government should improve its capacity for effective intervention in formulating technology policies. Hong Kong¡¦s lack of engineers and scientists, a result of insufficient opportunities in the past, today hinders innovation and commercialization of new technologies. The government should develop more proactive and strategic ways to attract R&D talents from overseas and Mainland and instead of passively waiting for the inflow.

Since the early years of the Tung administration, the government has moved from a linear view of stimulating innovation and technology to support a policy of promotion of clusters in targeted industries. It has entered and then exited direct financing of venture capital. It has encouraged and now is reassessing the Growth Enterprise Market board. The study seeks to bring open debate of these substantial changes of Hong Kong policy.

Professor Autio maintains that, in structuring policies to encourage startups, policy makers should focus on quality not quantity: Hong Kong should adopt policies which address the needs of the high-growth firms in order to nurture them. Sophisticated support for private-sector angel investors and venture capitalists can boost high-growth entrepreneurship. It is crucial to identify the right talents to start new firms by setting up policies to address entrepreneurial career trade-offs and facilitate mobility so as to foster an entrepreneurial mind-set and opportunity pursuit and recognition. It is also necessary to create social norms that reduce the stigma of failure in the society so that entrepreneurs are encouraged to take risks. Only if future employment opportunities are not adversely affected by failure will highly educated youth take the risks of starting up high-growth ventures. Finally, policies aimed at supporting high-growth entrepreneurial activity should be closely coordinated with innovation policy.

The collaborating organization for the study is the Division of Social Science of HKUST with Professor Erik Baark¡¦s contribution. The study is supported by CUHK¡¦s Asia-Pacific Institute of Business. Findings of the research were released at a Forum titled ¡§Innovation Policy and High Growth Startups¡¨ at JW Marriott Hotel Hong Kong today, and the complete study is available on the website of the CUHK Center for Entrepreneurship (http://www.cuhk.edu.hk/centre/entrepreneurship).

	From left: Prof. Erik Baark, Associate Professor, Division of Social Science, HKUST Prof. Kevin Au, Associate Director, Center for Entrepreneurship Prof. Bee-Leng Chua, Director, Center for Entrepreneurship Prof. Erkko Autio, Director of Institut Stratˆmge of HEC Universitˆm de Lausanne in Switzerland Prof. Hugh Thomas, Associate Director, Center for Entrepreneurship