Doing business in Hong Kong (Full Episode)

Doing business in Hong Kong (Full Episode)


– Welcome to Hong Kong, Asia’s financial hub and
the gateway to China. I’m Tim Harcourt, the Airport Economist, and I’m gonna show you how to do business in this part of the world. Whether you’re here to do a deal, set up shop, or enter the Chinese market. Operating overseas can be scary but don’t worry we’ll
guide you through it. We’re gonna quiz Hong
Kong’s top business gurus, learn about the local culture and hear from companies
cashing in on strong demand, quality overseas products. But first, let’s learn
about this fascinating city, a global metropolis where
east truly meets west. Hong Kong sits right in the middle of Asia on the south eastern coast of China. And as an airport economist would know, half of the world’s
population can be reached in a five hour flight
from Hong Kong Airport. Hong Kong has a population
of just over 7 million people of which 94% are ethnic Chinese. It’s a truly bilingual city with both Cantonese and English as the official languages. The economy is growing
at around 2% a year. It’s the world’s 34th biggest economy and has the 18th highest GDP per capita. Unemployment is running at just over 3% and the major industries are financial services and shipping. 70 of the world’s largest
100 banks have offices here and it’s home to the world’s
sixth biggest stock market. Hong Kong’s strategic location and deep natural harbour make it an ideal global trading hub. Here you’ll find the world’s
busiest air cargo center and third busiest container port. A Hong Kong base allows
companies to operate in an established business framework while gaining access to the
world’s second biggest economy. The manufacturing
regions of Southern China are within easy reach. And exporters can directly target 1.3 billion Chinese
customers across the border. Charles Ng is Associate Director-General of Invest Hong Kong. He says Hong Kong gives you
the best of both worlds. – We are the business capital of Asia and also China’s global financial centre. Where really all the opportunities that the second largest economy
in the world is happening and we are really right
in the middle of it. – And is it easy for
foreigners to do business in Hong Kong? – Absolutely, the free
flow of information, free flow of capital, free flow of, movement of people and goods make it really an ideal
place for businesses from all over the world to come here and use Hong Kong as a platform for their regional headquarters or even for some of the
global functions in Hong Kong. – [Tim] Hong Kong is rated
the world’s most open economy, freedom of trade,
investment, and fund flows consistently give it
the number one ranking on the Index of Economic Freedom. Unlike many other Asian economies, corruption is very low and
the government enforces intellectual property laws. Hong Kong’s low tax rate also makes it a very attractive
place to do business. Salaries tax is a maximum 15% and a top business tax rate is just 16.5%. There’s no sales tax or capital gains tax and there are virtually
no tariffs or barriers to foreign investment. Do you see Hong Kong as
an entry point to China? Or a significant economy in its own right? – I think the answer is both because it depends on what you’re looking for. Hong Kong’s, our economy
is a really small economy but we’re quite a significant
economy in a sense. As companies use Hong Kong to bring in their investment
to grow in China and in Asia, we also a springboard for
mainland Chinese companies wanting to go global. – [Tim] Hong Kong neighbours
China’s Pearl River Delta, the mainland’s biggest
manufacturing region. It’s home to 120 million people in cities like Guangzhou and Shenzhen. This is the cradle of Deng Xiaoping’s modern economic revolution and the pin-up for China’s success. It’s only getting easier
to access this area from Hong Kong as transport links improve. Soon you’ll be able to do the
142 kilometers to Guangzhou in just 48 minutes on the train. Telstra is one of the biggest
telecommunications companies in Asia. Hong Kong has been its regional
headquarters for decades. I spoke to Cynthia Whelan, the company’s Head of
International Business to find out why. – There’s a couple of
reasons why Hong Kong is a great market for us
to have our headquarters. Firstly of course is
its geographic proximity not only to China but to
many of the important markets for us in Asia-Pacific. But also Hong Kong in it of
itself is a great market. And importantly as a
telecommunications company, for ourselves and for
many of our global peers, there’s a large amount of infrastructure that runs through Hong Kong. So it makes a lot of sense for us to have our headquarters based in
such an important market. – And when choosing Hong Kong
as an Asian headquarters, was tax and a skilled workforce important in choosing Hong Kong? – Well, certainly Hong Kong is
an easy place to do business and so there are certain
conditions in the Hong Kong market that make it a very logical place to set up a headquarters. Tax of course is one of them, English is well-spoken in Hong Kong. The legal system in Hong Kong is also, makes a lot of sense and it’s
quite easy to understand. But for us the main reason
was just its proximity, its location. And Hong Kong is an easy
place to get in and out of, you know, there’s a lot of multinationals, there’s about 4,000 multinationals and large companies that have got their headquarters in Hong Kong. And the reason that a
lot of companies do that is because it is not only just physically located very close to China but the Hong Kong Airport is phenomenal, it’s incredibly efficient
and so it’s an easy place to get in and out of and to use as a hub for the Asia-Pacific region. Now, Hong Kong’s a very competitive place, what do you practically need
to do to set up a business? – Well, the first thing
is you need to decide whether or not you
wanna take office space. And office space, like
all rental in Hong Kong is really expensive. And so probably the best thing to do is decide which part of Hong Kong you actually wanna be based. Do you actually need to be in the CBD or can you be a bit further out because the further away from the main
business district you are, the less expensive the rent is. Secondly, look at local talent, make sure that you’re hiring
local staff as well as bringing in capabilities
perhaps from outside. Hong Kong has got a
fantastically well-educated and well-trained workforce. So you will be able to find good resources and good
talent in Hong Kong and so make sure you balance bringing in expats with also bringing in the local talent. And then the final thing I’d say about setting up a business in Hong Kong is understand the local nuisances and the local culture. There’s a few things in Hong
Kong you may have heard about, a couple of aspects, particularly, I’m thinking about things like around Chinese New Year, giving out red packets. This is all not familiar
to us in Australia but it is critically important, it’s not a huge financial outlay but it’s a critically important symbol to make sure that the team
that you employ in Hong Kong and the business that
you have in Hong Kong is seen as respectful and seen as part of the community. So make sure you understand the culture and the nuisances in Hong Kong and that will then lead you
to have a much, much happier and more engaged workforce. – Hong Kong is a place
with a fascinating history, in a space of 100 years it
grew from a small Chinese fishing village to a
global financial center. 5% of world trade comes
through the port behind me. This unique city welcomes
foreign business, operates in English, and
is an easy place to launch if you want to get into
the Chinese market. Hong Kong is a special
administrative region of China and operates under the one country, two systems principle. It will continue to do so until at least 2047. The city has its own basic law and a high degree of autonomy. In true business style, the head of government is known as the Chief Executive of Hong Kong. Both Chinese and British influence has shaped Hong Kong. The local economy prospered under capitalist colonial rule and became a busy trading port. Embargoes placed on
China in the 50s and 60s meant all business to
and from the mainland had to go through Hong Kong. Chinese refugees flooded in as they fled civil war on the mainland. And foreign businesses moved
offices down from Shanghai. China’s loss was Hong Kong’s gain. Immigrants brought expertise
and funding for manufacturing and textile industries
which propelled the economy. Over the decades living
conditions improved as public housing, free education, and labor reforms were rolled out. Hong Kong developed
world-class infrastructure and by the 1990s was regarded
as one of the world’s three global financial centers along with London and New York. British rule ceased when Hong Kong was handed back to China on the 1st of July, 1997. Hong Kong’s strategic position and unique relationship with China make an attractive place to do business. You have the ease of running
a business in Hong Kong but the opportunity to sell to the massive mainland market. Blackmores is an Australian
health supplements company that’s gone global. It has a major presence in Hong Kong including three flagship stores. It’s not only targeting the
aging affluent Hong Kong market, it’s also selling to
health conscious visitors from mainland China. I caught up with marketing
manager Moon Chow to find out why the company has set up shop in Hong Kong. – Hong Kong is a free port and there is no any consumption test on most consumer goods. So, many of the Chinese tourists they will buy our product in Hong Kong, especially the high quality
healthcare supplements because they trust Hong Kong product and because they believe that this 100% from Australia. – So why are western healthcare products very popular in Hong Kong as opposed to local products? – I think the reason is the quality, the Hong Kong people, they
will buy the health supplement product, they will concern on the quality. And Blackmores has very
high quality product, especially our fish oil. – Blackmores isn’t the only company benefiting from strong local appetite for high quality overseas products. Foreign agricultural
exporters are cashing in on Asian demand for
clean and green produce. Here at Ocean Park Hong Kong, premium South Australian
food and wine is on the menu. It shows that countries
like Australia can move from the mining boom to the dining boom. Ferguson Australia exports live lobster and other seafood products
from South Australia to Asia’s boutique supermarkets
and high-end restaurants. It started out in Hong Kong’s prime Michelin star restaurants, it’s now expanding into the retail market and online. I visited founder Andrew
Ferguson to find out more. How is Australian seafood regarded overseas particularly in Asia? – It is very highly regarded with the cleanliness of the seas and our factories and what not, so yeah, very highly regarded. – And is the clean, green, safe image of Australian seafood more
important than price in Asian markets? – If you really seek out the
right niches in the market, yes, and that’s what we endeavour to do when we’re marketing. It is a challenge to start off with, to try and find those right markets, particularly for a high value product. But if you stick at it long enough, you eventually find the right places. As the market changes, we’re sort of switching from a food service side, we’re still in it, food service through the
distribution network but switching more into retail and eCommerce as the market changes. Trying to find the right
products for those markets. – If you were giving advice
to a business out there looking at Hong Kong, what would be your three tips? – Look I’d say for a start, be prepared to put some hard yards in and travel a bit, and meet the people, and get to know your potential customers, your potential supply chain participants, or your partners in the supply chain. But be prepared to
stick at it for a while, don’t expect to kick goals
straight off the bat because it is built on relationships and that trust needs to be fully understood from both sides. And once you start to build that trust, you can expect to see the fruits and be rewarded for it. – Well, what great insight
into doing business in Hong Kong and China. Next up we’ll find out how
you can start selling into this market or even start
your own business here. Low tax, few barriers to entry, and a billion people on your doorstep, sounds like the ideal place
to start a new business or expand an existing one. But how do you actually do it? There are a number of organizations that can give you information
and help you get going. Government groups like Invest Hong Kong offer free advice and
services to help you set up in Hong Kong. Local and foreign chambers of commerce are also extremely helpful. They can connect you with
potential partners or clients and provide information
on local business issues and opportunities. Actually establishing a business
in Hong Kong is quite easy. The first thing to do is decide on a name and a company structure. Limited liability companies
are a popular choice. You only need one director, who can live outside Hong Kong and also be the sole shareholder. And a company secretary, which can be a body corporate
or registered office. Advisory firm Grant Thornton can guide you through the process. I sat down with chief
executive, Greg Keith. And what’s it about
Hong Kong that makes it attractive for multinationals? Is it the low tax environment? Is it the skilled labor force? Is it its location? – Look, the location is the obvious from those that are not actually
involved in Hong Kong because it is on the doorstep to China. But I believe the strength
in Hong Kong is the people in Hong Kong. It has a wealth of knowledge, it has people that have huge amount of regional expertise, they have a lot of cultural understanding. It’s the head office for
a lot of Asian businesses and as a consequence, you’re dealing with decision makers. So you can go to one location and meet people who really
understand the issues and they can assist you
in doing business in Asia through Hong Kong, particularly for China. – And if you’re a foreign business looking to do business
actually in mainland China, is it wise to have your tax
and your accounting operations situated in Hong Kong? So there’s a couple of
different issues there, they are different businesses, one business would be in Hong Kong, which would ordinarily
be the holding company. There are distinct
advantages in setting up a holding company in Hong Kong because if you wanna sell
the business in China at a later date, it is much easier to sell the
shares of the holding company and repatriate the cash out of Hong Kong given the ability to move funds. However, if you’re selling the
business in mainland China, you need a lot more government
support and approval, so I would ordinarily
recommend that you have a business set up in Hong Kong that the accounting and
the financial records are set up with an advisor there. But you need a local advisor for your business that’s in China. – So is operating in Hong Kong fundamentally different than operating in any Chinese city? – Absolutely. Hong Kong is based on English common law and as a consequence of that you’re working under the
same sort of contracts, you’re working on a similar
legal system, similar culture as what you would be
working on in America, or in England, or Canada,
Australia, et cetera. When you’re working in mainland China it is a different legal system that is influenced by the government. You need to rely on your relationships and you need to be present. You need to ensure that
you’re continuing to build Guanxi with the parties
that you’re engaging with. And it is a completely different culture that you need to understand. So the differences are quite stark. – So in starting out, how do you gain and
access local knowledge? – There’s probably three or
four key areas you need to have assistance. The first would be from
an accounting side, to assist you in structuring, Grant Thornton would love to
help everybody in that space. You also need to have a legal practice that’s
able to assist you with your type of law. And there are a number of fantastic leading firms that can do that. You need to have a financier that’s able to transact on the mainland. And you also need to have someone who has industry knowledge. – [Tim] The China, Hong
Kong free trade agreement gives local companies
special access to China. With all goods exported to the mainland, tariff-free. In fact, almost a third of Chinese trade goes through Hong Kong ports. Hong Kong is a free port
and doesn’t charge duties on imports and exports, except tobacco and alcohol. Hong Kong is known as one of the world’s shopping hot spots. According to Australia Post,
it’s not just in malls, a whopping 70% of the
population shop online. – Hong Kong consumers spend
about 2.5 billion online each year. It is a small territory,
only about 7 million people but they have a real passion for shopping, and conversely, a real
passion for shopping online. – So what’s unique about the
Hong Kong online shopper? – So the Hong Kong online shopper tends to spend more per transaction. They have a higher basket size, how much they spend online
where they actually go and do a transaction ’cause they do desire prestige goods. – So how can foreign businesses access the Hong Kong
market to sell online? – So marketplaces are a great strategy to access the Hong Kong consumer. They like to shop on Alibaba, especially Tmall which
is a Chinese marketplace but they also use English
speaking marketplaces like Amazon and eBay too. So you can actually launch
your product into Hong Kong on an English speaking website without some of the
barriers around language. – You can find out more
tips from Australia Post on our website. It’s hard to succeed in
business if you don’t understand the local culture. You need to learn how partners,
competitors, and customers think and operate. It’s so important to try and
understand cultural issues instead of seeing them as a barrier. You don’t have to be an
expert or linguist to succeed but a bit of effort goes a long way. Ivy Au Yeung is chief
executive of ANZ Hong Kong, she explains how Hong
Kong is truly unique. – If you look at Hong Kong
it’s a very unique place, so it has both the western, benefit of the western world and also the eastern culture. Being a British colony, it has the legal infrastructure and the way of doing things that the western company will understand. It have a simple tax regime, it have absolutely no effects
control or sort of thing. So it’s very easy to understand and it’s easy to build trust. – [Tim] Here are Ivy’s top
tips for your first dealings with Hong Kong Chinese
partners or customers. – I would say, you know, establish relationship and
trust first is important. Get to know the person, understand the background
and where they’re coming from before talking about business, will make things more easy. And I would say sometimes, you know, especially if you do
business with the SME, a lot of the situation
is husband and wife, son is running the business as well, so it will be good to know the dynamics. Who is doing what, making what sort of decision
will be very important. And I would tend not to jump into conclusions so soon. Ask a lot of questions to make sure you understand
what they mean because sometimes both side may
have different assumptions of what they’re trying to do. – [Tim] The ANZ Opportunity Asia Report shows that Australian businesses in Asia are far more profitable and have better growth prospects than their domestically focused peers. Can your business really afford not to consider the
opportunities that Asia presents? Read the ANZ Opprtunity Asia on thesbhub.com.au. In all my travels working and teaching in Hong Kong and China, I’ve learnt a few valuable lessons. Never address people by
only their first name, especially when you’ve just met. Use their last name and title correctly. Remember Chinese people
write their surname first, so Lee Choong would be Mister Lee. Always present your
business card with two hands and take the time to
read the business card you have just received to show respect. China is a conservative place compared to many American
and European countries. So make sure you always dress smartly, especially when you first
meet a business associate. I visited the Grand Hyatt Hong Kong to find out how to build
good business relationships in the city. What’s the key to building
good relationships in Hong Kong? – Well, I would say trust, trust means a lot in Hong Kong, business like world. And you have to build this trust and this will become a relationship for years, and years, and years. Respect the culture but also enjoy the diversity of Hong Kong. Hong Kong still very much
Chinese influence, right? In a way because the
majority of the population is still Chinese. – How important is the greeting and the presentation of
business cards, for example? – Very important because a lot of people and I think they, sometimes they joke also, they said that in Hong Kong you will need to have a stack of
name cards all the time. That’s very true because I think in Hong Kong it means like you are leaving a connection. – Yes – And which is for you
to connect, you know, for future. – Are there any major guidelines to follow when you’re entertaining
clients or partners in Hong Kong? – I think most importantly
is just be discreet. With all these changes, you know, in the past
like five to 10 years, that I don’t think that now put up a lavish dinner or go to the karaoke is still the trend. But I think to pick a restaurant which is according to the favor or
the preference of your guest, that will be important. – [Tim] Great advice there, I checked in with the hotel’s concierge to find out how to get around town. – If you’re arriving into Hong Kong as a business traveler, efficiency is most likely
key on your agenda, you have a place to be at a certain time. Generally we recommend
taking the Airport Express, it’s only 100 Hong Kong dollars from the airport downtown. 23 minutes and you know exactly
how long it’s gonna take. – And if I’m taking a
client or business partner out to eat, where are the best places,
areas in Hong Kong to dine? – For dining, SoHo over in Central is definitely one of
the hot areas right now. You can get from quite
literally any cuisine you wish from Argentinian steakhouses, Japanese ramen, and Neapolitan pizzas, even local cuisine as well. – A lot of travelers may have a weekend or a day away from the office here, what are the sort of hidden
gems that you can go to in the Hong Kong area? – I personally find that
one of the underappreciated aspects of Hong Kong is nature, that we do have nature here. So 20 minute taxi ride from
where we are right now, you can be by the beach over in Shek O or Big Wave Bay. My personal favorite is over at, on Kowloon’s side at the New Territories. And I promise you when you’re there, it’s as if you’re by
the beaches in Thailand, it’s really beautiful. – It’s definitely worth
considering Hong Kong if you’ve got a good business idea or looking to expand into Asia. What did we learn on our
journey around Hong Kong? Be culturally respectful but be yourself. Know how to present business cards and learn about local customs. You don’t have to learn Chinese to succeed in business here. Get help from Invest Hong Kong, government bodies, and
chambers of commerce to get started. Mix east and west, get to know locals as well as expats. Treat Hong Kong as a significant
economy in its own right as well as a gateway to China. Head over to our website, theairporteconomist.com where you can watch
extended guest interviews, discover exclusive
offers from our partners, and find out where we’re flying to next. Well that’s it for this episode, thanks for joining me on this
journey around Hong Kong. I look forward to seeing you again for our next business adventure. I’m Tim Harcourt, and I’m the Airport Economist.

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