Hong Kong to brace for threatening challenges by 2020

Can Hong Kong hold its competitive position by relying on an open economy, low taxes, rule of law, and excellent infrastructure?

The past fifteen years have been good to Hong Kong as economic expansion has cemented its position, alongside New York and London, as a global finance center. Looking towards 2020, challenges such as innovation, integration, and virtualization threaten Hong Kong’s position as the most competitive economy in the world. ⁱ

Innovation
During his recent visit, Chinese President Hu Jintao noted that Hong Kong must continue to increase its competitiveness.ⁱⁱ One threat to Hong Kong’s competitiveness is lagging investment in research and development.

According to the World Bank, global research and development expenditure averages 2.15%, as a percentage of GDP. In Hong Kong however, research spending accounts for less than 1% of GDP, compared to 2.6% by Singapore and almost 2.8% by the US, whilst Japan and South Korea allocate close to 3.4%.ⁱⁱⁱ

Room for Improvement

One example of under-investment is the university system; four local universities rank amongst the top 200 in the world however, endowments of universities in the UK and the US are exponentially larger.

To power innovation, businesses and universities must work together to develop human capital and world-class facilities. This can be achieved through joint research projects, tailoring the curricula to meet the demands of the workforce, and by harnessing Hong Kong’s unique position as a hub for venture capital to develop incubators.

Integration
It is the integrators who successfully pull value from innovations across their value chains. Increasingly business leaders are shifting from isolated silos of development to an integrated approach.

An example of value chain integration is Li & Fung; they have implemented a new operating model, moving beyond trading, to offer end-to-end solutions that increase flexibility and convenience while reducing system cost.

Integrated Value Stream

Another integration challenge for Hong Kong is the evolution of Greater China. Economic integration will blur the barriers, yet leaders who mix the best of Hong Kong with the best of other regions in China will have a sizable advantage over their competitors.

Virtualization Trends to Watch

Virtualization
According to Downes’ Law of Disruption^IV, social, political, and economic systems change incrementally, but technology changes exponentially. Virtualization is redefining how we value labour by dramatically reducing the requirement for human capital. Financial services are not immune and in many ways are leaders in virtualization.

Globally, graduate unemployment is near record levels, as many lack the skills required for a virtualised workplace. To maintain a competitive advantage, leaders must explore collaborative opportunities with universities. This approach will ensure that the resources and skills required for the post-industrialized world are available to their organizations.

The time is now
For Hong Kong to be the most competitive economy in the world in 2020, leaders must successfully innovate, integrate, and virtualize. Adaptation is in Hong Kong’s DNA, but delays could prove costly as others gain ground. The time is now, as competition is only getting tougher.

^IIMD. (n.d.). The World Competitiveness Scoreboard 2012. Retrieved July 4, 2012, from IMD International: https://www.imd.org/research/publications/wcy/upload/scoreboard.pdf

ⁱⁱ Fang Yang. (2012, July 1). President Hu says Hong Kong should enhance competitiveness. Retrieved July 3, 2012, from Xinhua Net: https://news.xinhuanet.com/english/china/2012-07/01/c_131687395.htm

ⁱⁱⁱ World Bank. (n.d.). Research and development expenditure (% of GDP) . Retrieved July 3, 2012, from World Bank: https://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS

^iv Downes, L. (n.d.). The Laws of Disruption. Retrieved July 3, 2012, from Larry Downes: https://larrydownes.com/the-laws-of-disruption/

Gregory M. Thomas is Managing Director of Foundation Consulting: We love challenges! | We love what we do! © | We deliver results!