COMPARING SILICON VALLEY AND
HONG KONG’S IT INDUSTRY

Table of Contents

1.0 Introduction 3 2.0 Silicon Valley Characteristics & Special Feature 4 2.1 Inter-related industries under one hood 4 2.2 Risk Taker 5 2.3 Open source 5 2.4 Education 5 2.5 Work freedom 6 2.6 Work in diversity 6 2.7 Weather and environment 6 3.0 Comparison Between Silicon Valley and Hong Kong IT Industry 6 3.1 Business nature 7 3.2 Financial Capital 7 3.3 Infrastructure 7 3.4 Cultural factors 8 4.0 Hong Kong Limitations 9 4.1 Lack of Young IT Expertise 9 4.2 High Rental Cost for Companies 10 4.3 Lack of Local Venture Capital 10 4.4 Copyright and Patent Issue 11 5.0 Conclusion 11 References 12

1.0 Introduction

Silicon Valley is in the southern portion of the San Francisco Bay Area in the United States. It is home to many of the world's largest technology corporations and small startup companies (Ref 1). In summer 2014, we took a technology field study trip to Silicon Valley with an aim to analyze the characteristics of IT industry in Silicon Valley and compare with Hong Kong. Through our study and information gathered from the site visits, we compare the synonym and antonym of the two places from different aspects.

During the week of 18 Aug, we visited several technology companies like Google and CISCO, visited and attended lectures at 3 famous universities, and also spent the evenings experiencing local cultures. These are the highlights of these places:

Technology companies: Google Inc. | Internet related services and products, online advertising, search engine, Android | Presentation by Julian ChuGoogle mission statement, company culture | NetApp Inc. | Network data-storage system solution provider | Presentations by Scott Dawkins, Carlos Richardson and Chad LewData storage for Amazon, virtual storage controller | NeuroSky, Inc. | Brain-computer interface company, biosensors | Presentation by Jake CheongWearable biosensors | Acxiom | Enterprise data, analytics and software company | Privacy, big data | IBM Innovation Center | Provides industry solution support, entrepreneur support and academic community support | Help for startups, IBM SmartCamp, IBM Innovation Centers, IBM Bluemix, trends that are reshaping the IT industry | CISCO Corporation | Design and sells networking equipment | Presentation by Victor ToCollaboration, IOE, WebExCisco Information – Security Overview, by Steve MartinoCisco Services – Derek Mak | DiCon Fiberoptics Inc. | Optical components, integrated modules in fiber optics industry, LED lamps | Presentation by Dr HO Shang Lee“Supply over Demand”, LED lights |

Universities visited and lectures: Stanford University | Early research institute, result in technology in present day | The Spirit of Silicon Valley, by Prof Walter MokSV history, startup companies | San Jose State University | Public institution, oldest public school of higher education | Service Design Basics – from System to Business Modeling, by Prof Stephen KwanService systemSuppliersoft.com – on-demand supplier relationship managementThiriving as an IT Consultant in the USA, by Manash Bardoloi | The University of California, Berkeley | Public research university | Technology and Sustainability, by Prof Oma Romero-HernandezEnvironment, WalMart, Brand conception |

Experiencing local culture:
Costco Supermarket, Lombard Street, Golden Gate Bridge, Fisherman’s wharf, Downtown San Francisco Waterfront, Crab House at Pier 39, Gilroy Premium Outlet, In-and-out Burger

2.0 Silicon Valley Characteristics & Special Feature

Many places have been trying to replicate the success of Silicon Valley by imitating its business model and characteristics. However so far none of them have even come close to succeed. So what does it take to become a Silicon Valley? Silicon Valley has many characteristics, features and eco-system that make it unique and difficult to copy. Many of them including (but not limit to) the following:

2.1 Inter-related industries under one hood

Silicon Valley is not just about high-tech companies. From dream to success it takes not just a great idea. Many important factors have to come into play. You need to find money, talents, partners, lawyers and accountants just to name a few. These can all be found in Silicon Valley. If you are a startup and you need to find VC to invest in your idea, talent people to work with you, lawyers to protect your IP. They will most likely be right next door or just down the block. You do not have to go too far looking for them.

It took many years for Silicon Valley to become what it is now. Besides high-tech companies, it has also attracted companies and institution of different areas to set up companies and campus in the area over the years. Many high tech companies, such as Facebook, moved their headquarters to the area in 2011, in order to get closer to all the innovation resources. Carnegie Mellon University, a highly recognized academic institution for its computer science and engineering program based in Pittsburgh, PA, also has a campus in the area to attract students and professionals into its program.

Many companies in Silicon Valley cooperate and support each other. For example, Facebook works with Axicom in analyzing managing customer data. NetApp corporates with SalesForce in customer relationship management. SupplierSoft uses SalesForce’s platform to create its own program in management supplier’s data. Cisco provides most of the networking equipment to the major players in the area. Even competitors are working together on innovative ideas. Everybody is in close proximity and it is very easy to find support. Silicon Valley is THE place for anyone in the high-tech industry.

2.2 Risk Taker

Silicon Valley is all about risk taking. Every day new ideas come up. Some of them become reality but many of them fail. Very often, Silicon Valley innovators are all about “do first, ask later”. When a new idea comes up, they do not always evaluate the PROs and CONs or if the project can generate a feasible income. Making money is not always on the top of the priority list. It is this type of culture that makes Silicon Valley the fearless innovator.

2.3 Open source

Programmers learned a programming language through the traditional way of reading books or learning in school in 10-20 years ago. With the internet, this has totally changed. People can learn a programming language very quickly through forums, discussion group and websites. People can even create their own programming language and get the supports from fellow peers on the internet. Everyone has the freedom to modify the source code and release to the public. People are willing to share resources and helping each other out. Silicon Valley is all about open source. For instance Facebook and IBM Bluemix (Ref 5) software are all written in open source language. It is such type of openness in the industry that makes Silicon Valley grows so rapidly and remains unique.

2.4 Education

Silicon Valley is the home of many well-known academic institutions that educated many major IT players. UC Berkeley, Stanford University and St Jose State University just to name a few. Many graduates work in the Silicon Valley to bring in fresh innovative ideas into the companies. Universities cooperate closely with the industry in research of new products and ideas. Silicon Valley has a collection of brain power coming both commercially and academically which makes it the innovation capital of the world.

2.5 Work freedom

In Silicon Valley many companies do not required their staff to be sitting at the office cubicle from 9am to 5pm. Some companies do not even need their staff to work at the office. It’s all about getting things done in time, no matter when they choose to do it. At Google, people can take a nap any time of day, or play a game of volleyball when they feel like it. On-site canteens are always open when people feel like eating. T-shirt, shorts and flip-flop are their business attire. People are given the freedom to work at their own pace.

2.6 Work in diversity

Silicon Valley population consists of a mix of local and foreign talents and people from different demographic groups. The region’s population growth has accelerated over the last year due to 52% increase in foreign immigration in 2013 vs 2012 (Ref 6). The net foreign immigration is +19,194 while net domestic migration is -5,428. This gives people different perspective of viewing things.

Event such as Hackathon gathers talents around the world to compete. Very often people form group on the spot with others they do not know. People coming from different backgrounds and cultures are sharing experiences, information and talents together without holding back. Quite a number of companies actually are originated from such event. Such selfless culture keeps Silicon Valley always ahead of the game.

2.7 Weather and environment

The nice weather in Silicon Valley plays an important role in innovation. The coolest is in January, temperature ranging from 6 ~ 14 degree Celsius. The warmest is in July, temperature ranging 14 ~ 28 degree Celsius. The humidity level is relatively low and most of the time it is sun shining. The area is also close to the mountains and oceans. People can enjoy variety of activities such as surfing and hiking. People living in such environment are normally happier and not to mention healthier. This natural advantage cannot be replicated by other cities.

3.0 Comparison Between Silicon Valley and Hong Kong IT Industry

Before we can conclude whether Hong Kong be the next Silicon Valley, we will analyze the current situation of the two places and make a comparison on some aspects that we are inspired during the Field Trip.

3.1 Business nature

In Silicon Valley, most of the business initiated from a Dream. People have an idea in their mind, and they will freely share it with their peer or friends, if they found someone with similar thoughts and have different talents, then a business proposal can easily be shaped and a business is started to breed. Even well-developed companies like Google, staff are always encouraged to bring in new ideas and have their own time, 20% of working time, to work on their own project which they are interested in.

In Hong Kong, the first priority is Money. People prefer doing something which can make money. We can always learn from other countries and bring in their ideas to Hong Kong in order to gain the first mover advantage. This is the common way to form a business. A relatively low percent of startup companies are purely focus on new innovation, due to the fact that return on investment (ROI) is not sustainable.

3.2 Financial Capital

Venture capital is the most common financial capital for startup in the Silicon Valley. This ecosystem helps to drive innovation, like IBM, they encourage talented people around the world to provide variety of new ideas. IBM opens a platform for smart people or immigrants to contribute their thoughts by setting up Innovation Centers in different countries and organizing SmartCamp and Business Plan Competition and Challenges to achieve the purpose of innovation.

In Hong Kong, we seldom heard of Venture Capital, not many companies encourage innovation. Local companies are focusing on money-making ideas and profitable products. If the products or services bring in money, no one cares if it is innovative or old ideas. Recently, we can see some Business Plan competitions and innovation workshops organized by Local companies, it is a good sign to indicate the increased intention in innovation, however, the intensity and effort is minimal compared to that in Silicon Valley.

3.3 Infrastructure

In Silicon Valley, there are a wide range of educational institutions and facilities, not only focused in traditional college, the education system there encourage students to think and train up their creativeness. Students can freely develop their ideas, if the idea is attractive enough, companies will hire them to their company prior to the graduation. The environment is just like a community that link up outstanding graduates and innovative industries in the region, graduates can easily develop their new and creative ideas and make these conceptual ideas come to reality.
Staff working in the community really loves their job, they delicate most of their time to make their dreams come true. The passion towards the job will greatly increase the efficiency and effectiveness, and most importantly, the productivity.

In Hong Kong, there are mainly traditional colleges and universities. Students have well defined syllabus and examination system to test their understanding and rank their ability according to the examination result. Creativity is not the first priority in the courses of education. Sometimes it is required, but it would not be the largest component of the marking scheme. Students are trained to be more analytical and well organized, innovation and new ideas are relatively less important. If students have a great, innovative new idea, it is not easy to find an opportunity to develop it into reality.

Hong Kong’s workforce in general is not really doing what they love to do, they just follow their boss instructions. Even if they do not like their job or not agree on the idea or direction of the company, they will still be working for the company due to the attractive salary or stable working hours. This will greatly affect the productivity and which is not beneficial to the society.

3.4 Cultural factors

There are many aspects of cultural differences between Silicon Valley and Hong Kong, we will discuss the following key ideas:

A. Management Style
In Silicon Valley, management is more result-oriented style. Take Google as an example, for every project, manager discuss the project timeline with the team and align the deliverable in each stage of the project. The team can freely arrange their time and resources to fit in the timeline and what the manager concerns is on-time deliverable. The detail on how to get the result is not the manager’s concern unless there is a risk or issue arises.

In Hong Kong, most of the managers are detail-oriented and quantify the staff by the length of working hour, the longer the staff stays in the office, the better job that can be done by the staff. Sometimes, employees realized this rule of game, they will just sit there or surf the web and wait until the boss leaves office; thus they pretend hard working as working very long hours. This is not healthy as the productivity is low with low efficiency and low effectiveness.

B. Sharing & Collaboration
In Silicon Valley, people are very willing to share their ideas. Take CISCO as an example (Ref 4), the use of open source, and the service of IOE, Internet of Everything, not directly connecting people, but the protocol connects people, things and data, through system processes, they “learn” the pattern, “see” more unprecedented opportunities and “explore” and create shareable customer views. People are willing to take risk and share their failure, when they have similar ideas, they are willing to share the information and collaborate with others who have different skill set which is essential to succeed the business.

In Hong Kong, collaboration is becoming more common, people or companies with different strength will work together to gain the benefits from each other. However, sharing of information is still with lots of obstacles. Since Hong Kong people treat the key of success of the business as a top secret, only part of the key can be shared, the most important will keep as company asset which cannot easily disclose to others. This will hinder the information sharing and growth of the society.

C. Economic & Environment
In Silicon Valley, venture capital companies and government greatly support innovation and new ideas. Starting up a new business is easier in terms of time and resources. The cost of running the business is less since rent and labour cost may be a little bit lower. With more pleasant environment in the workplace, this will help the staff to be more productive and more clear-minded to innovation and avoid mistakes.

In Hong Kong, startup business can only be self-supported or seek help from SME Funding Scheme by the government. The cost of running the business is high, as a startup company may not have great revenue at the beginning, but it need to support high rental cost and labour cost. This is a threat of the business sustainability. Due to the high rental cost, the environment is very crowded and less recreational space for refreshment, pollution problem is getting more serious and all these discourage the clear mind for innovation.

4.0 Hong Kong Limitations

Though Hong Kong play an important role on the world on finance and economics, the IT industry does not play a main character in the ecosystem. That means, Hong Kong does not position as a hi-tech city like Silicon Valley. The following are some observation we summarized about the Hong Kong situation which would limit the IT industry expansion.

4.1 Lack of Young IT Expertise

In the past ten years, less and less local top student chose to study in IT fields in higher education. The annual report of university admission can tell the sad fact. One main reason is that, the future of IT industry does not look bright and easy. While the “entrance of admission” become low, the quality of students become lower at the same time. The teacher may need to rearrange the course contents to help the students understand the knowledge. However, this move made the Hong Kong IT education lag behind the world standard gradually. As a result, lesser outstanding software engineer or excellent programmer are inputted to the society and hence the possibility of innovation from younger generation is restricted.

The curriculum of secondary school in information technology, named “computer science and application” named by HKCEE or HADSE, is outdated and cannot follow the latest technology. The curriculum can never teach students to read the open source of famous technology. Compared to other countries, the technology like programming skills are not new enough to let the student connect the knowledge they learn in daily life. Despite the teachers are not IT expertise so that they cannot efficiently teach the students, academic is separated from life and hobbies also lowered the passion about IT for junior students. As a result Hong Kong has only little world-class expertise. The expertise would prefer working in other countries to develop their career. According to Hong Kong statistics, the number of persons engaged in ICT sector declined by 2.7% in 2012 compared to previous year (Ref 7).

4.2 High Rental Cost for Companies

High rental cost has become a major challenge for Hong Kong companies for long time. In the past few years, the dramatic rate increase in all, no matter it is new or old, commercial districts made their life even harder. The scary cost discourages badly the youngsters or fresh graduates for attempting own startup business. Instead, they prefer joining large companies for a steady job, and civil servant job openings become hot picks. The job preference shift made less innovative idea come out while daily job of new generation does not need creativity and brainstorming. IT industry become boring and most of the project are enhancement instead of interesting new invention.

The Hong Kong Government actually realize the difficulties the people want to do startup company will meet. To encourage IT people, she offers support through policies for ambitious adventurers. Examples of those supportive policies include, the companies can enjoy a free office in the Science Park for one year for starting up new technology business, or a financial grant of 200k Hong Kong dollars funding as maximum for by submitting feasible and well-planed business proposals. These policies do help on the most difficult part of startup companies cost. However, the startup companies are still far away to become success.

4.3 Lack of Local Venture Capital

In Hong Kong, high technology is not the mainstream of the ecosystem. The big companies or organization seldom invest big money to new IT idea. It is easy to imagine that they would prefer high beneficial margin project with low cost and uncertainty. Investing new project which never appear on the market is rare. New idea with limited resource would be wasted when those founders failed to find financial or technical support. Sometimes, similar idea would be implemented by people in other countries who are able to find venture capital support. Having said that, HKSAR provides The Innovation and Technology Fund (Ref 9) to increase the added value, productivity and competitiveness of economic activities.

In the smartphone age, some Hong Kong companies invented new Apps on game and transport field and gained good reputation since they are fun and useful. There were some local game apps which made big money in short time. Also the transport app which provide ease of finding rental car for big luggage transportation are widely welcomed. They finally lured some investors to support their development and attracted some commercial advertisements placing on their interface. Though there were success stories in Hong Kong, the general situation remain unchanged.

4.4 Copyright and Patent Issue

Even if there are new idea of technology has been launched, since the IT laws in Hong Kong is not yet sophisticated enough to protect the idea owner. A popular idea could be duplicated very quickly. It is even worse if the copycat reach the venture capital support before the original designer. The better resource on promotion and strengthened technology will defeat the original designer and his technology will be faded without any revenge power.

Protection of IT companies is essential for Hong Kong to develop a sustainable IT industry. Copyright and patent need to be reinforced with clear regulations and serious execution. A frightening challenger of new IT innovation would be mainland IT experts. They are capable to copy the idea within very short period of time with added features. While more functions which probably fit the mainland users more properly, and due to the huge population as users base, they can expand rapidly and attract more opportunity and investors. There are many extremely strong venture capital who never hesitate to pay to support IT project trial. Managing the “copy risk” and “chance of venture capital assist” explained the reason why Hong Kong innovators prefer to go to foreign countries to pitch their idea.

5.0 Conclusion

We have reviewed the characteristics of Silicon Valley and compare these with Hong Kong. Although Hong Kong has established good infrastructure in telecommunications, transportation and financial services, Hong Kong lacks land, office space, and investment funding and talent. The economy is based on financial services, real estates and retail business.

Silicon Valley has the three ingredients, namely human capital, financial capital and technology, that encourage startup companies to furnish. However, Hong Kong does not have enough human capital in the sense that the universities have relatively short history and R&D expenditure is low compared to other Asian countries. In 2012, Hong Kong R&D expenditure was HK$14,616 million, representing 0.73% of GDP (Ref 8).

Although financial capital is abundant in Hong Kong, the local culture does not embrace trust in sharing ideas and startups tend to seek funding from family and friends instead of venture capital companies. The Cyberport and Hong Kong Science Park, and recently The Hive and Cocoon (Ref 2), help to bridge the gap between technology startup companies and VC, but it is not as effective as IBM Innovation Center which also provide technical support to startups.

The Hong Kong Government 2014 Digital 21 Strategy consultation study report (Ref 3) listed out the recommendations for the technology development in the coming years. The aim is focused on “Smarter Hong Kong, Smarter Living” and leverage today’s technologies and CEPA relationship with China. This is a far cry from what Silicon Valley is doing. The shortage of land is a dead end. Google pulled out of data center in Hong Kong was due to “cost and difficulty of acquiring suitable land” (Ref 2).

We conclude that Hong Kong will not have a blooming IT industry in the near future. Our findings concur with the Global Competitiveness Report 2014 - 2015 (Ref 10) that Hong Kong must improve on higher education and innovation, and address the quality of its research institutions and the limited availability of scientists and engineers.

References

1. Silicon Valley, Wikipedia, http://en.wikipedia.org/wiki/Silicon_Valley 2. IDG Connect, “Hong Kong: Silicon Harbour or Silicon Failure?”, http://www.idgconnect.com/blog-abstract/8356/hong-kong-silicon-harbour-silicon-failure 3. 2014 Digital 21 Strategy, IBM Consultation Study Report, http://www.digital21.gov.hk/eng/relatedDoc/download/IBM-ConsultancyStudyReport_eng.pdf 4. CISCO IOE, Internet of Everything, http://internetofeverything.cisco.com/ 5. IBM, “What is IBM Bluxmix?”, http://www.ibm.com/developerworks/cloud/library/cl-bluemixfoundry/cl-bluemixfoundry-pdf.pdf 6. 2014 Silicon Valley Index, published jointly by JointVenture Silicon Valley and Silicon Valley Communication Foundation, http://www.siliconvalleycf.org/sites/default/files/publications/2014-silicon-valley-index.pdf 7. Hong Kong as an Information Society, 2014 Edition, Census and Statistics Department, Hong Kong Special Administrative Region, p.5 Table 1.1 8. Latest Statistics, Science & Technology, Census and Statistics Department, Hong Kong Special Administrative Region, http://www.censtatd.gov.hk/hkstat/sub/so120.jsp 9. The Innovation and Technology Fund, HKSAR, http://www.itf.gov.hk/l-eng/about.asp 10. The Global Competitiveness Report 2014 – 2015, published by World Economic Forum, http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2014-15.pdf, p.22