OUTPUT 5: COUNTRY PROJECT REPORT

Entrepreneurship and Business Development (MBA-9)

Lucas, Benson H.

Lucas, Ivy B.

Salvatierra, Mary Anne L.

Salvatierra, Royce Neil M.

Table of Contents
I. Introduction .......................................................................................................................................... 1
II. Political Environment ............................................................................................................................ 1
Political System and Structure .................................................................................................................. 1
Political Risk .............................................................................................................................................. 1
III. Legal Environment ............................................................................................................................ 2
Legal System ............................................................................................................................................. 2
Legal Issues in International Business ....................................................................................................... 2
Legal Risk ................................................................................................................................................... 3
IV. Economic Environment ..................................................................................................................... 4
Economic System ...................................................................................................................................... 4
Main Products and Services ...................................................................................................................... 4
Economic Risk ........................................................................................................................................... 5
V. Monetary Environment......................................................................................................................... 5
Currency System ....................................................................................................................................... 6
Currency Risk............................................................................................................................................. 6
VI. Trade Environment ........................................................................................................................... 6
Major Exports and Imports ....................................................................................................................... 6
Main Trading Partners .............................................................................................................................. 7
Regional Economic Integration ................................................................................................................. 7
Tariff and Trade Barriers ........................................................................................................................... 7
Government Incentives for Business ........................................................................................................ 7
VII. Cultural Analysis ................................................................................................................................ 8
Cultural Determinants............................................................................................................................... 8
Cultural Dimensions .................................................................................................................................. 8
VIII. Challenges and Opportunities........................................................................................................... 9
Challenges ................................................................................................................................................. 9
Opportunities ............................................................................................................................................ 9
IX. Guidelines for Success in Doing Business in Hong Kong ................................................................. 10
I. Introduction

Nestled at the crossroads of East and West, Hong Kong stands as an economic powerhouse

and a global hub for trade, finance, and innovation. With its unique blend of tradition and

modernity, Hong Kong has carved a niche for itself as a vibrant and dynamic business

destination.

II. Political Environment

Political System and Structure

Hong Kong operates under a unique political framework known as "one country, two

systems." As a Special Administrative Region (SAR) of China, it maintains a high degree of

autonomy in its internal affairs while being a part of the People's Republic of China. The

Basic Law, a mini-constitution, outlines the legal framework for Hong Kong's governance.

Political Risk

1. Pro-Democracy Movement: The push for greater democratic rights has been a defining

aspect of Hong Kong's political landscape. Protests and demonstrations advocating for

universal suffrage and greater political autonomy have sometimes resulted in clashes with

authorities, leading to political volatility.

2. National Security Law: The introduction of the National Security Law by China in 2020 has

raised concerns about the erosion of civil liberties and freedom of expression in Hong Kong.

The law empowers authorities to target acts of secession, subversion, terrorism, and

collusion with foreign forces.

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 3. Relations with China: Balancing the "one country, two systems" framework amid China's

increasing influence is a critical challenge. Ensuring the preservation of Hong Kong's

autonomy while adhering to Beijing's policies presents ongoing political risks.

4. International Relations: Hong Kong's political dynamics are also influenced by its relations

with other countries. Developments in diplomatic ties can impact its standing on the global

stage, particularly regarding trade, investment, and human rights.

5. Legislative Council Elections: The structure and role of the Legislative Council (LegCo)

contribute to the political landscape. Elections to the LegCo can influence the balance of

power between pro-democracy and pro-establishment factions.

III. Legal Environment

Hong Kong's commitment to creating a conducive business environment is evident in its pro-

business policies and low taxation regime. The city's efficient regulatory framework, minimal

bureaucracy, and ease of doing business make it a haven for startups, SMEs, and

multinational corporations alike.

Legal System

Hong Kong boasts a legal system deeply rooted in English common law principles. The legal

framework is based on the principle of judicial independence and upholds the rule of law.

Key features of Hong Kong's legal system include a robust judiciary, a separate legal

profession, and a commitment to the protection of individual rights and freedoms.

Legal Issues in International Business

Hong Kong's legal environment is conducive to international business and trade. The city has

established itself as a prominent global financial center, driven by its business-friendly legal

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framework. Some notable legal aspects relevant to international business in Hong Kong

include:

● Contract Law: Hong Kong's contract law is well-developed and aligns with international

standards. Contracts are legally binding, and the legal system provides effective

mechanisms for dispute resolution.

● Intellectual Property (IP) Protection: Hong Kong offers strong IP protection through a

comprehensive legal framework. Businesses can register and safeguard their

trademarks, copyrights, and patents.

● Arbitration: Hong Kong is a hub for international arbitration. It has a modern and

efficient arbitration ordinance that facilitates dispute resolution for businesses engaged

in international trade.

● Taxation: Hong Kong's tax system is straightforward, featuring low tax rates and a

territorial tax regime.

Legal Risk

While Hong Kong's legal system generally provides a stable and secure environment for

businesses, there are legal risks to consider:

● National Security Law: The implementation of the National Security Law in 2020 has

raised concerns about potential legal implications, especially in cases related to national

security, subversion, and collusion with foreign forces.

● Extradition Law: Proposed changes to the extradition law in 2019 led to widespread

protests. While the bill was eventually withdrawn, it highlighted concerns over legal

reforms that could impact the rights of individuals.

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 ● Political Influence: The evolving relationship with mainland China and potential changes

in legal interpretations can create uncertainty for businesses regarding the legal

environment.

IV. Economic Environment

Hong Kong's economic journey has been nothing short of remarkable. From its humble

beginnings as a trading port, it has evolved into a world-renowned financial center and one

of the most competitive economies globally. With a GDP of 359.84 billion USD in 2022, Hong

Kong continues to thrive, driven by its commitment to free trade, low taxation, and

business-friendly policies.

Economic System

Hong Kong boasts a dynamic and open-market economy characterized by free trade, low

taxation, and minimal government intervention. It follows the principles of laissez-faire

capitalism and has earned a reputation as a global financial hub.

Hong Kong operates as a free-market economy, with limited government intervention in

business activities. The city also levies low taxes, including a simple and competitive tax

system with no value-added tax (VAT) or goods and services tax (GST).

Main Products and Services

Hong Kong's economy is diversified, with a strong focus on financial services, trade, and

logistics. Key sectors and industries include:

● Financial Services: Hong Kong is a global financial center with a robust banking sector,

stock market (Hong Kong Stock Exchange), and a thriving asset management industry.

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 ● Trade and Logistics: The city serves as a gateway to mainland China and the broader

Asia-Pacific region, making it a major trading and logistics hub.

● Tourism: Hong Kong attracts millions of tourists annually, offering a vibrant blend of

culture, shopping, and culinary experiences.

● Professional Services: The legal, accounting, and consulting sectors contribute

significantly to the economy, serving both local and international clients.

● Innovation and Technology: Hong Kong is fostering innovation and technology, with a

growing startup ecosystem and investments in research and development.

Economic Risk

While Hong Kong's economy is resilient and prosperous, it faces certain economic risks.

Given its dependence on international trade and financial services, Hong Kong is susceptible

to global economic fluctuations and geopolitical events. High property prices and an

overheated real estate market have led to concerns about housing affordability and

financial stability. Hong Kong’s aging population also poses challenges for healthcare and

social welfare systems, potentially impacting labor supply.

V. Monetary Environment

At the heart of Hong Kong's economic prowess lies its robust financial sector. Renowned for

its transparency, stability, and regulatory framework, Hong Kong is a magnet for global

investors, multinational corporations, and financial institutions. The Hong Kong Stock

Exchange ranks among the world's largest and most advanced stock markets, contributing

to the city's reputation as a financial hub.

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 Currency System

Hong Kong's official currency is the Hong Kong Dollar (HKD). The currency operates under a

currency board system, where the Hong Kong Monetary Authority (HKMA) issues HKD and

backs it with foreign exchange reserves, primarily U.S. Dollars (USD).

Currency Risk

Despite its stable currency regime, there are certain currency-related risks to consider.

While the HKD is pegged to the U.S. Dollar, unexpected shifts in global economic conditions

can lead to fluctuations in exchange rates. Since Hong Kong's economy is closely tied to

international trade and financial markets, economic developments in major trading

partners and global financial markets can impact the exchange rate. Differences in interest

rates between Hong Kong and other major economies can influence capital flows and,

subsequently, the exchange rate.

VI. Trade Environment

Hong Kong's strategic location within the Asia-Pacific region positions it as a gateway to a

vast and diverse market. The city's connectivity extends beyond borders, facilitating

seamless access to markets across China, Southeast Asia, and beyond. Its status as a major

logistics and transportation hub further enhances its attractiveness to businesses seeking to

expand their global footprint.

Major Exports and Imports

Hong Kong's trade activities are characterized by its role as a global trading and logistics

hub. While Hong Kong does not have significant natural resources, it excels in re-exporting

goods and services. Major exports include electronics, clothing, textiles, watches, jewelry,

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machinery, and medical equipment. Major imports include raw materials, semi-

manufactured goods, consumer goods, and food products.

Main Trading Partners

Hong Kong's trade is diversified across regions. A significant portion of Hong Kong's trade is

with mainland China due to its proximity and economic ties. Hong Kong's trade relationship

with the U.S. is substantial, with re-exports being a key component. The EU is also an

important trading partner for Hong Kong.

Regional Economic Integration

Hong Kong participates in regional economic integration through Closer Economic

Partnership Arrangement (CEPA), an agreement with mainland China promoting trade and

investment liberalization, and Free Trade Agreements (FTAs) with several economies.

Tariff and Trade Barriers

Hong Kong maintains a simple and low-tariff regime, contributing to its attractiveness for

trade. The city levies low import and export duties, with the majority of goods entering

duty-free. Hong Kong's customs procedures and trade-related regulations are streamlined,

facilitating efficient trade flows.

Government Incentives for Business

Hong Kong offers various incentives to promote business activities and trade. Hong Kong's

FTAs provide preferential access to certain markets and reduce trade barriers. The

government also offers incentives to attract foreign direct investment and enhance

competitiveness.

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VII. Cultural Analysis

Hong Kong's cultural tapestry weaves together influences from the East and West, fostering

a diverse and innovative business ecosystem. The city's openness to different cultures

encourages cross-cultural collaboration, while its dynamic workforce embraces change and

innovation. This blend of tradition and modernity sets the stage for creative ventures.

Cultural Determinants

Several cultural determinants impact business in Hong Kong:

● Confucian Values: Confucianism has a significant influence on Hong Kong's culture,

emphasizing hierarchy, respect for authority, and a strong work ethic.

● Collectivism: Hong Kong values collectivism and group harmony, which may affect

decision-making and teamwork in business.

● Face and Reputation: Maintaining face (prestige and honor) is crucial, and actions that

cause loss of face are discouraged.

● Hierarchy and Seniority: Age and seniority are respected, and titles are important in

business interactions.

Cultural Dimensions

Examining Hong Kong's culture through the lens of cultural dimensions can provide insights

into its business environment:

● High Uncertainty Avoidance: Hong Kong has a relatively high uncertainty avoidance

culture, preferring stability and structured business environments.

● Individualism: While Hong Kong values collectivism, it also exhibits elements of

individualism, especially in business and entrepreneurship.

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 ● Long-Term Orientation: There is an inclination towards long-term orientation,

emphasizing perseverance, thrift, and savings.

● Power Distance: Hong Kong's power distance is relatively low, with a preference for

egalitarianism and open communication.

VIII. Challenges and Opportunities

Hong Kong's allure is not without its challenges. The city's limited land resources and sky-

high real estate costs can pose hurdles for businesses seeking physical presence.

Additionally, navigating the intricacies of conducting business in a globalized yet culturally

distinct environment requires cultural sensitivity and adaptation. However, Hong Kong's

resilience, adaptability, and skilled workforce often turn challenges into opportunities.

Challenges

Hong Kong's business environment is highly competitive. The cost of living and operating a

business are relatively high, including office space and housing. The city's limited land and

space can also be a constraint for businesses requiring physical infrastructure. While Hong

Kong has a skilled workforce, competition for top talent can be intense, particularly in

specialized industries. Navigating complex regulations and bureaucratic procedures can

pose challenges for businesses, especially newcomers.

Opportunities

Hong Kong's proximity to mainland China offers businesses a gateway to tap into the vast

Chinese market. Its strategic location and efficient logistics network make Hong Kong an

ideal hub for global trade. The city's robust financial sector and well-developed banking

infrastructure make it a hub for international finance and investment. Hong Kong's free

trade agreements provide access to global markets with reduced trade barriers. The

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 government's initiatives to promote innovation and startups create opportunities in

technology and innovation-driven sectors.

IX. Guidelines for Success in Doing Business in Hong Kong

To succeed in the dynamic landscape of Hong Kong, businesses are advised to understand

local business etiquette and cultural norms, leverage the city’s strategic location for regional

and global expansion, capitalize on the city's financial expertise and innovation ecosystem

and establish strong local partnerships for market entry and growth.

● Understand and respect the cultural norms and values of Hong Kong. Build strong

relationships based on trust and mutual respect.

● Be prepared to adapt your business strategies to the dynamic and competitive business

environment in Hong Kong.

● Establish a strong network of local contacts, partners, and clients.

● Familiarize yourself and adhere to all legal and regulatory requirements.

● Conduct thorough market research to identify trends, customer preferences, and

potential competition.

● Carefully manage costs and financial resources due to the city’s high operating

expenses.

● Embrace innovation and technology to stay competitive.

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