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Hong Kong has a high level of nascent and new business entrepreneurship in 2007, more that triple the annual rates of the years 2002 to 2004, a study on entrepreneurship by The Chinese University of Hong Kong indicates.

The early-stage entrepreneurial activity index (measured as starting up new business) was 10%, much higher than that of many Asian cities such as Tokyo (2%) and Singapore (6%), yet still far behind that of China (16.4%). Together with already established business rate (5.4%), 15 out of 100 people in Hong Kong are entrepreneurs.

The study is part of the Global Entrepreneurship Monitor (GEM), an international consortium founded by Babson College and the London Business School in 1999 which consists of over 200 scholars from more than 42 economies and measures entrepreneurship worldwide.

The 2007 GEM sampled 146,533 adults worldwide and the Hong Kong report is compiled by the Center for Entrepreneurship of the Faculty of Business Administration, The Chinese University of Hong Kong.

“For the years 2002 to 2004, Hong Kong’s annual entrepreneurial activity rate was only 3% which was among the world’s lowest. It is not surprising entrepreneurial activities have grown significantly when we consider the low level of confidence and few perceived business opportunities in the uncertain years from 1999 to 2004,” Professor Hugh Thomas, Director of the Center for Entrepreneurship, CUHK explained.

A typical entrepreneur in Hong Kong is male (for every five male entrepreneurs there are only two female ones), between 25 to 34 years of age, well educated and well off. Most (55%) entrepreneurs have experience in starting up business before.

“It is interesting to see more educated people join the echelon of entrepreneurs as their opportunity cost of giving up a high-paid job is high. This indicates that Hong Kong entrepreneurs are starting a business to pursue an opportunity rather than being forced by necessity,” added Professor Thomas.

New enterprises in Hong Kong are overwhelmingly service oriented with consumer services and business services accounting for 59% and 18% respectively. And the market impact of Hong Kong start-ups is relatively low, with most entrepreneurs entering markets with competitors and using mature technologies. About two thirds of the early stage entrepreneurs provide no market expansion.

Financing continues to be an area for improvement. Informal investment is the largest source of financing in addition to owner's savings in a startup. 43% of the entrepreneurs planned to fund the startup completely on their own; and 57% will find formal or informal investors. One in twelve adults in Hong Kong is an informal investor, which is considerably higher than the GEM average. They are mostly friends (54.4%) or family members (41.4%). Entrepreneurs who planned to find investors for their business expected to enlist a median investment of HK$250,000, compare to the actual median investment of HK$100,000 by informal investors, which implies an existence of an early-stage investment gap.

The study also finds the saying that “90% of new businesses fail in the first year” is not true. The discontinuance of ownership rate in Hong Kong is only 4.4%; among which 55% are due to financial problems. However, most entrepreneurs who had discontinued a business are either owner-manager of another business (39%) or actively trying to start another business (37%).

Mr Toby Marion, Chair of the Entrepreneurs Committee of the American Chamber of Commerce commented: “HK business has been associated with high levels of entrepreneurial activity for a very long time, owing to the people’s high level of skill and flexibility. Also, setting up a new business is both fast and relatively inexpensive. On the other hand, downsides are the high costs in HK, the small local market and highly fragmented regional markets, which hinder growth. HK would do well to provide courses in how to set up a small business. These have proven effective for multi-national professionals in the U.S. who decide to go it alone. HK does have large challenges today, ranging from the huge number of HK factories already in China and Asia, to the talents and high tech abilities of the mainlanders.”

To further improve entrepreneurial activity, Professor Hugh Thomas recommends that educational institutions should offer practical business training courses with input from and meeting the needs of business Hong Kong. Hong Kong should integrate more closely into the Pearl River Delta. Applied R&D funding from the government should be increased and universities should place more emphasis on facilitating technology transfer to industry. The government should limit its intervention in the economy but reduce bureaucratic impediments to business. The society should cultivate an entrepreneurship culture that values creativity, intellectual property and the successes of entrepreneurs.

Some of Hong Kong's most active entrepreneurs will join the Forum titled “The State of Entrepreneurship in Hong Kong” jointly organized by the Center for Entrepreneurship of The Chinese University of Hong Kong and the Entrepreneurs Committee of the American Chamber of Commerce this Thursday at noon at CUHK MBA Town Centre, 1/F Bank of America Tower, 12 Harcourt Road, Central. Speakers include Professor Hugh Thomas, Professor Kevin Au, Associate Director of CUHK Center for Entrepreneurship, Mr Arthur Chang, a veteran in the Information Technology industry with 15 years of broad experiences at reputable blue-chip IT companies and founder of Green Tomato, and Mr Alvin Ho, Managing Director and Head of China-Growth/ Expansion Capital, CLSA Capital Partners (HK) Limited.