Four recommendations for I&T development in Hong Kong - EJ Insight



Four recommendations for I&T development in Hong Kong

As the Central Government has clearly shown its support to Hong Kong to develop as an international innovation and technology (I&T) centre, we should seize this golden opportunity. I would like to put forward four recommendations for our I&T development as follows :

Firstly, we should increase the research and development (R&D) investment from 0.99% to 1.5% of gross domestic product (GDP). The government did step up its financial support to develop I&T, but the investment is far from enough to enable us to be ranked among the top in the global competition.

The success of Israel, nicknamed "startup nation", is mainly contributed by the continuous investment in R&D of innovative and high technology over the past five decades. Since the 1970s, the country has been keen on developing I&T. In 2018, its R&D spending accounted for 4.94% of GDP, over twice the Organization for Economic Cooperation and Development (OECD) average of 2.26%.

Years of investment have yielded remarkable results. Especially under the COVID-19 epidemic, modest adverse impact was seen in Israel compared to other developed countries. Today, the high-tech companies account for 40% of Israeli Tel Aviv Stock Exchange 35 Index (or TA-35, a benchmark equivalent to Hang Seng Index in Hong Kong), and contribute more than 40% of the country's exports.

If we want to have breakthroughs in the field, the investment in R&D must be persistent and intensified, or we may lag behind others and waste much of our previous investment.

Secondly, we need to have more diversified investments.

The government has identified four key areas in the 2018-19 Budget, namely biotechnology, artificial intelligence (AI), smart city and financial technology (FinTech). In the face of the epidemic, it is logical for Hong Kong to focus on the development of life and health sciences, while AI and robotics are the major technology trends. However, if the biotechnology development fails to achieve results in the short term, it looks like our HK$150 billion investment fails and there is no way out, and it will be difficult to secure the public's support in future.

The founder of OurCrowd, one of Israeli 10 most active venture capital (VC) platforms, said that the general principle of investment was diversification, because "you never know which field will excel in the next moment". The company's investment covers AI, information security, e-commerce, medical care, food technology, and more. Since 2017, the company has more than 260 investment projects, including JUMP, a bike-sharing company acquired by Uber, CyberX, a cybersecurity company acquired by Microsoft, insurance platform Lemonade and plant-based meat Beyond Meat listed in New York. The company has demonstrated how to put eggs in multiple baskets.

Among Hong Kong's four key areas, FinTech should have great potential. As an international financial center, we have a large pool of financial talent, and a deep understanding of the market needs and wants, together with a well-established legal system. According to the Economist, China has far fewer FinTech unicorns (privately held startup companies with a valuation of at least US$1 billion) than the world average. The magazine looks at the distribution of unicorns in four major areas, namely software, deep technology, FinTech and consumers, China's FinTech companies only account for about 5% of its total number of unicorns, much less than the global average. Can Hong Kong ride on its own advantages to make up for the deficiency?

Thirdly, to uplift the quality of the talent is crucial.

The success of smart city development depends on the ability to build a strong technology talent base. It is especially important to attract academic high-achievers to pursue degree programmes related to science, technology, engineering and mathematics (STEM) in universities. However, many top students opted for Medicine (based on the best six subjects in the 2020 HKDSE, median entrance scores: 45), Business (Business Administration in International Business and Global Management: 45) and Law (38), but not STEM subjects (Engineering: Best 5 subjects, 25; Science: 23).

At the same time, Hong Kong is transforming into an advanced smart city, there is a mismatch between local degree graduates and higher-skilled job positions. According to an analysis from the Legislative Council Secretariat, the unemployment rate of graduates of research postgraduate has been higher than that of graduates of bachelor's degree programmes over the past 20 years. The former recorded 5% jobless rate in 2019, while the latter was 2.8%, and the Hong Kong overall was 2.9%. Due to unfavourable employment prospects, the number of local research postgraduate students funded by the University Grants Committee dropped by 41%, from 2,575 to 1,510 between 2002/03 and 2019/20.

It's a chicken and egg problem. If there is no booming ecosystem, why would parents encourage their high-achieving children to take science and engineering courses? That's why I started a business after graduation 25 years ago. To promote the geographic information system (GIS), a digital mapping method, we must first create an ecosystem where market demand drives talent supply. Over the past 20 years, GIS has been widely adopted by the government, public and private enterprises, GIS courses have grown from just within the University of Hong Kong to a number of other local universities as well, which greatly expanded talent training and helped attract top students.

What can be done now, apart from continuing to subsidise companies to employ STEM graduates or considering a substantial reduction in tuition fees, the authority needs to review how graduate degree programmes can match the market demand, and actively collaborates with companies to launch on-the-job training courses to improve quality of talents.

Last but not the least, to set appropriate key performance indicators (KPIs) to track the effectiveness of the R&D spending is critical for the long term development of I&T.

The government has invested HK$10 billion in the InnoHK clusters, a flagship project of Hong Kong's I&T, recruiting 28 research laboratories from 11 economies. This has strengthened our capability in basic scientific research. The question is how do these clusters benefit the society at large? To ensure we have a reasonable return on investment, we must set up KPI and timetables, while at the same time taking into account sustainable development in the future.

KPIs not only evaluate the effectiveness of R&D, it can also be used to compare with other places, allowing the authority to understand whether their R&D investment in the current market sentiment and competitive context is fruitful, and whether they are achieving their goals over time. It also helps people understand whether public funds are used properly.

At the same time, KPIs should be simple and easy to understand. According to consulting firm McKinsey, there are two R&D conversion metrics that can serve as KPIs. One is the ratio of how the R&D spending is converting into new-product sales, that is, the average revenue from new product sales for every dollar spent on R&D; the second one is new-product sales-to-margin conversion ratio, which looks at each dollar of new-product sales and sees how much gross margin is generated. Besides, the years each industry takes vary. The innovation cycle of consumer products is generally shorter, a three-year period is suitable for measuring gains and losses; however, for specialties such as chemicals or specialty materials, a five-year period is more common.

The epidemic has accelerated the development of science and technology. Hong Kong has a solid foundation in basic scientific research, which must be used wisely so that it will not become a white elephant. After all, the ultimate goal of I&T is to boost the economy, improve people's livelihood and solve problems. Chief Executive John Lee pointed out that the next five years would be crucial for Hong Kong to transform from governance to prosperity. We hope that through effectively promoting I&T, together, we can open a new chapter for Hong Kong.




Dr. Winnie Tang
Adjunct Professor, Department of Computer Science, Faculty of Engineering; Department of Geography, Faculty of Social Sciences; and Faculty of Architecture, The University of Hong Kong