A early recommendation on why InvestHK should position Hong Kong as a Knowledge-based Economy to attract high value-added inbound investments

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Asia Pacific Intellectual Capital Centre Ltd
802B Fortress Tower, 250 King’s Road, Hong Kong SAR, China,
Tel: +852 2503‐1383, Fax: +852 2503‐3645
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3rd February 2010
Mr Simon Galpin
Director-General, InvestHK
Invest Hong Kong, HKSAR Government
25/F Fairmont House
8 Cotton Tree Drive
Central, Hong Kong
Specific Measures for InvestHK to promote Knowledge-based Economy
as a new product position for Hong Kong
Dear Simon,
Thank you for seeing Fiona Donnelly of Scottish Development International (SDI-
HK) and I on 20th January 2010 at your office and for listening to the “Knowledge-
based Economy” concept. At the meeting we agreed that the appropriate policy
measures would help Hong Kong move toward the right direction more quickly
than the absence of such measures.
Please look at the specific measures we are proposing to InvestHK and let Gordon
McConnachie or I know if you would like to continue the discussion with us over
the next few weeks.
Sincerely yours,
Alan Lung
Director & General Manager
Asia Pacific Intellectual Capital Centre
Cc:
Simon Tsang, InvestHK
Fiona Donnelly, SDI-HK
Dr Gordon McConnachie, Director of Scottish IA Centre & CTO of APICC

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Specific measures for InvestHK
to promote
Knowledge-based
Economy
as a new product positioning for Hong Kong
February 2010
By:
Gordon McConnachie
Founding Chairman
Scottish Intellectual Assets Centre
& Chief Technology Officer
Asia Pacific Intellectual Capital Centre
Alan Lung
Director & General Manager
Asia Pacific Intellectual Capital Centre

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About Asia Pacific Intellectual Capital Centre (APICC)
APICC is a not‐for‐profit company registered in Hong Kong.
The team behind APICC has been promoting the
“Knowledge‐based Economy” concepts and practices in
Hong Kong and Mainland China since 2006.
Introductory seminar on the subject was presented to
Academy for Macroeconomic Research of
National Development and Reform Commission (AMR‐NDRC) and
State Intellectual Property Office (SIPO) in May 2006.
With the help of strong lobbying by Mr. Stephen Selby of the Intellectual Property
Department(IPD), an agreement that allows APICC to use European experience and contents
on a free‐of‐charge basis
in Hong Kong and mainland China was signed with the
Scottish Intellectual Assets Centre
(a company owned by the Scottish Government) in August 2008.
A symposium on China‐ASEAN cooperation on the subject was hosted by the
China National Committee for Pacific Economic Cooperation (PECC‐China)
in Beijing on 8‐9 December 2008. Further meetings were held with the
Beijing Academy of Science and Technology (BJAST),
IPR2 (joint venture between EU and Ministry of Commerce) and
Academic Commission of NDRC in Beijing in 2009.
Looking ahead, we believe that China is focused on becoming the largest
“Knowledge‐based Economy” in the world.
The “Knowledge‐based Economy”
was featured prominently by the Chief Executive in his Policy Speech and
promoted strongly in his “Letter to Hong Kong” on RTHK.
In view of the CE’s initiative, we believe we are at an opportune time
to assist mainland China in developing their “Knowledge‐based Economy”
and reap very substantial economic benefit for ourselves by
positioning Hong Kong as the
Centre of Excellence for Technology Commercialisation
for the whole of China. At the same time, Hong Kong
can transform itself from a traditional
“Trading Hub” to the “Knowledge‐based Economy Hub”
for the Asia Pacific Region in the context of
the post financial crisis world economy order.

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1. Background of Knowledge-based Economy
The Chief Executive mentioned this strategy at the beginning of the economic
development section of his latest (2009-2010) Policy Speech:
“As a mature and open capitalist market economy,
Hong Kong must constantly enhance its competitiveness and continue to
evolve into a high value added, knowledge-based economy
to maintain its leading edge over global competitors
and create more quality jobs ...”
This initiative coincides with Mainland China’s wish to upgrade its industry and
economic structure as expressed in the “11th Five Year Plan (2006-2010)” and “15-
Year Plan for Science and Technology” (2006-2020) as the first steps towards the goal
of becoming a world leader in science and technology by 2050. The battle for
competitiveness amongst nations is linked to Intellectual Property Rights and how
skilled nations are in managing their intangible “Soft infrastructure” in the
globalised Knowledge-based Economy. This concept goes beyond “IPR Protection”,
which is alive and well in Hong Kong and looks at how to make best use of IPR
within efficient and effective economic infrastructures, a concept understood by
relatively few people in Hong Kong.
While Mainland China has considerable strengths in scientific and technology
research, the Mainland can best make use of Hong Kong’s intangible advantagesi
which are often referred to as “soft power” in the Mainland:
• Efficient institutions – separate legal and administrative systems from
Mainland China;
• Freeest economy in the world;
• Corruption free government;
• Freedom of speech and free flow of information;
• An international outlook and Hong Kong’s strong integration role;
• Ease of raising capital; etc.
The key concept is that Hong Kong already has all of the “Soft Power” and with the
small addition of cooperation with regional economies in Europe that have
ambitions and commitment to work with China in the “Knowledge-based Economy”
(e.g. Scotland and Scandinavia), Hong Kong can reap very substantial economic
benefit for ourselves by positioning Hong Kong as the Centre of Excellence for
Technology Commercialisation for the whole of China. At the same time, Hong
Kong can transform itself from a traditional “Trading Hub” to the “Knowledge-
based Economy Hub” of the Asia Pacific region.
2. Economic Transformation Strategy – from the traditional “Trading Hub” to the
new “Knowledge-based Economy Hub”
The Global Financial Crisis which became acute in 2008 will have far reaching
consequences. While the world’s financial sector has recovered, unemployment in

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USA is now at 10%, there are 10 million unemployed each in Europe and USA.
Economists now predict that the world economy will have very “gentle growth” ---
i.e. a slow recovery that may take 6 to 7 years or more. Smaller economies such as
Hong Kong are now fearful of the end of multi-lateral free trade agreements and the
return of “protectionism” in the form of favoured trading clauses with favoured
economic or political partners. The impact of the China-ASEAN Agreement (a “bi-
lateral agreement” that does not include Hong Kong) on our traditional role as a
“Trading Hub” is still unknown. But Hong Kong would be wise to begins to look
into her own unique features to seek new, high value-added and sustainable
economic activities that Hong Kong can uniquely perform -- such as positioning
Hong Kong as a “Knowledge-based Economy Hub” for the Asia Pacific Region and
for the world.
A propensity in R&D and excellence in manufacturing or marketing skill alone is not
enough. In a modern economy such as Hong Kong, it is necessary to maximise
values returned from “Knowledge Assets” all the way along the supply chain. One
of the best examples showing how highest economic value was not extracted from
heavy investment in R&D and how any industry can be innovative and creative is
the “iPod”ii story. Apple created a new product concept and made use of existing
components found in the supply chain and captured the most value -- US$80 (or 36%
of the estimated wholesale price), while the Taiwan company that “manufactured”
iPod in Mainland China only captures US$0.11 (or 0.0495% of wholesale price) from
each iPod it “assembled” and tested for Apple.
The “iPod Story” provides a lesson Hong Kong should take in and learn from—there
is a need to promote a Knowledge-based approach across all industries in all sectors.
At the same time, the “Knowledge-based Economy” marketing positioning for Hong
Kong we are proposing to InvestHK does not exclude the “Six Industries”
highlighted by CE in his Policy Speech and his wish to include the “Four Traditional
Pillar Industries” -- financial services, tourism, trading and logistics and professional
services into the innovative knowledge-based industries.
By adopting the “Knowledge-based Economy” as an inbound investment strategy,
InvestHK could:
• Put content (which is NOT in the Policy Speech and Policy Agenda) and some
of the most important implementation measures into the CE’s policy initiative;
• Make best use of Hong Kong’s uniqueness and efficient institutions -- to
generate economic values and to use Hong Kong’s “Soft Power” as a key
“USP”(Unique Selling Point) to attract inbound investments;
• Help ensure a more sustainable, broader based economic development and
attract inbound investments from Mainland China as well as from the rest of
the world.
InvestHK will play a key role in helping to transform Hong Kong to the next level of

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economic development -- an international “Knowledge-based Economy Hub” to
service the Mainland and international firms that would like to do business with
China.
3. Scottish and European Perspectives
In March 2000, the European Council set out the Lisbon Strategy to create in Europe
“the most dynamic and competitive knowledge based economy in the world.” It
was a political initiative created by the Heads of State of the European Union and a
visionary agenda designed to allow the European Union to catch up with the USA.
The performance indicators were couched in macro-economic terms – “jobs”,
“growth” and “social cohesion”. However, the Lisbon Agenda has fallen short on
fulfilling its objective from the pan-European perspective.
To be successful and to create results according to the Lisbon Agenda, governments
need to lead to achieve organic growth within businesses and academia across the
broad geography of the European Union. Such an event is no longer a political
initiative but rather a cluster of long term, organic and practical business activities
within companies and academia in some local and regional economies. For the
economic transformation to take place there is a requirement for:
• The business advantages of transformation into a Knowledge-based Economy
to be known and understood and;
• A support structure for businesses and academia to be available.
However, in many regions and countries the support structures in place have either
not been sufficient to provide the awareness raising, counselling and support that is
required or there is a lack of commitment from governments.
Smaller regional economies such as Scotland have been more successful in
establishing a foothold in the Knowledge-based Economy. For many years, Scotland
has been known for excellent universities, strong R&D and strong innovation.
However, Scotland is also known for its poor commercialisation capacity. In
response, Scotland has put in place, the national economic development authorities -
- Scottish Enterprise and Highlands and Islands Enterprise. These government-led
initiatives have provided an excellent support to businesses from their very
inception right up to maturity, based on the premise that upgrading the quality and
quantity of jobs in Scotland would lead to development, improved living standards
and an entry into the Knowledge-base Economy.
Scottish Enterprise and Highland and Islands Enterprise have developed over the
years, by finely balancing their support offerings with the needs of their customers.
This activity now supports the Lisbon Agenda but in fact developed quite
independently of it. The fact is economic development requires regional and local
governments to put the money where their mouth is. Success is unlikely to occur at a
continental level but can be achieved at a regional level or even at national level.

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Europe now talks about the Silicon Glen in Scotland and the Skane Region of
Denmark and Sweden. In Hong Kong’s case, there is the Pearl River Delta-Hong
Kong region that was originally built on labour intensive industries. These regions
often have no interest in physical custom or national boundaries. In fact they ignore
them. This development in regions occurs because there is a critical mass of interest,
activity, skill, investment and common will to allow it to happen. The creation of
clusters of excellence in certain regions is a phenomenon Hong Kong and the Rest of
the World could observe and learn from. Implementation is carried out mostly by
interested businesses, academia and investors and is assisted by governments.
Scotland is committed to economic development and is interested in working with
Hong Kong and Mainland China. Such commitment was consistently shown by
regular visits to Beijing by Scottish Ministers, the assistance offered by the Scottish
Intellectual Assets Centre to APICC and initiatives made by Scottish Enterprise and
by Scottish Development International’s offices in Hong Kong and in Beijing.
4. Mainland’s Perspectives
China does not want to remain a low and mid-level manufacturer of goods that
other people design. Such sentiments were expressed very clearly in China’s “11th
Five Year Plan (2006-2010)” and, at the highest level, reinforced in President Hu
Jintao’s “Report to the Seventeenth National Congress of the Communist Party of
China” on Oct. 15, 2007.
Closer to home, Mainland China has initiated:
• The planned Guangzhou Knowledge City project in collaboration with
Singapore’s Keppel Corporation (March 2009);
• The planned Qinhai Service Park in Shenzhen in collaboration with Hong
Kong (June 2009);
• Expressed interest to further open up Guangdong to Hong Kong’s Service
Industries through CEPA (Closer Economic Partnership Agreement) during
Mr Henry Tang’s (Chief Secretary of HKSAR Government) visit to nine cites
in Guangdong (July 2009);
• Through the National Development and Reform Commission (NDRC)
requested input to China’s 12th Five Year Plan (2011-2015) from Hong Kong
through Mr Stephen Lam, Secretary for Constitutional and Mainland Affairs
Bureau (CMAB) of HKSAR Government (January 2010).
Despite strong commitment and good strategic sense, there is not enough realization
of the cultural, institutional and business-structure barriers built into the fabric of
business and society that could hold back scientific, technological and business
innovation significantly and, therefore, stop or delay China from moving to the next
level of economic achievements. Companies in Mainland China are innovative.
There is no shortage of funding and investment. However, missing elements are, for
example efficient systems and institutions, culture, knowledge and implementation

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skills that would enable China to rise to the top of the technological value chain and
compete with the best in the world. These are still not fully understood and
implemented in the Mainland.
“Reform and Opening” that releases productivity in China started 30 years ago in
collaboration with Hong Kong in the low-end manufacturing sector, there are now
opportunities for further collaboration with Hong Kong by make best use of Hong
Kong’s efficient institutions and systems to move China fully into the Knowledge-
based Economy of the world. From Mainland China’s perspectives, Hong Kong has
a significant role to play in upgrading China’s “Soft Power” and to find a role and
market niche for Hong Kong by reaping economic benefits and helping China’s
economic development to the next level at the same time.
The Mainland’s patience with Hong Kong’s inactivity, however, is running short.
Such sentiments were traditionally expressed privately; but are now increasingly
expressed publicly in the presence of senior HKSAR Government officials. The
project to work with Singapore on the “Guangzhou Knowledge City” project could
also be seen as a clear expression of such impatience.
5. InvestHK’s Perspectives
One of the important missions of InvestHK is:
“Encouraging more Mainland, Taiwan and overseas enterprises to invest
and set up offices in Hong Kong … and undertaking joint promotional
efforts with the Mainland authorities to promote the combined competitive
advantages offered by Hong Kong and the Mainland.”iii
InvestHK was rated very positively by the Efficiency Unit (an internal management
consultancy unit of the HKSAR Government) in terms of cost effectiveness and
capacity use. It is also going through a restructuring effort at the Head Office.
Specific sector teams in the Head Office are strengthened to generate and handle
additional projects.
Specific roles and relevant implementation measures to be undertaken by InvestHK
over the next three years include:
• Promote the advantages offered by the economic integration of Hong
Kong and Mainland China;
• Strengthen Investment Promotion Units (IPUs) targeting markets in
Beijing/Tianjin and East China;
• Increase joint marketing activities with the Pearl River Delta (PRD)
municipalities and
• Strengthen the team responsible for Mainland coordination in InvestHK’s
Head Office (Special Project Unit for Mainland China).
The Special Project Unit for Mainland China is working with the Ministry of

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Commerce of China and the Liaison Office of the PRC Government in Hong Kong is
now positioning Hong Kong as a destination for outbound investment for China.
The positioning used was:
立足香港，邁向國際
Face the world by setting foot in Hong Kong
In view of InvestHK’s overall mission and specific task of strengthening cooperation
with the Mainland, adopting a “Knowledge-based Economy” positioning seems to
be a uniquely feasible and highly focused strategy that could strengthen InvestHK’s
existing initiatives.
6. Tool Kit and Practical Examples of Knowledge-based Economy Implementation
Hong Kong SAR has a tremendous opportunity to become one of the Knowledge-
based Economy hubs of Asia. One of Hong Kong’s traditional strengths is to accept
world best practice. There are many practical examples of how the Knowledge-based
Economy brings new capacity to perform.
The results of the Scottish Intellectual Assets Centre, as one example, are a classic
demonstration of how training and counselling has led SME companies in Scotland
to take a good look at what they are doing to manage and mine the sum total of their
structural capital, intellectual property and people skills for value leading to a
refocus on stronger future performance.
Those examples and experience have been made available to Hong Kong through an
MOU. Specific examples include the “Cohort Programme” to fast track train SME
companies and this can be provided through APICC. The Scottish Intellectual
Assets Centre in Glasgow, and other centres like the Syrian Enterprise Business
Centre in Damascus, have created a tool kit to work with their customer base to
achieve their objectives more effectively.
These tool kits are a combination of instrumental tools (see http://www.ia-
centre.org.uk/what_we_do/key_services/index.cfm?szSection=Tools ) supported
by face to face counseling by business coaches. Some of the specific case studies and
tool kits of the Scottish Intellectual Assets Centre can also be seen through the link:
http://www.ia-centre.org.uk/case_studies/ . The best result is obtained by using
business coaches with significant hands on industrial or business skill.
InvestHK can take the lead to create an Advertising and Communication Strategy
which position Hong Kong as a “Knowledge-based Economy”. A Tool kit to sell
Hong Kong SAR as a “Knowledge-based Economy Hub” and management level
training can also be created with assistance from APICC and our network including
the Scottish Intellectual Assets Centre.
At Hong Kong level, the Intellectual Property Department has also produced a tool

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kit called “ICM Light” to promote some of the practices of “Knowledge-based
Economy”. InvestHK can also take the lead and cooperate with trade organisations
and government-owned companies such as Cyberport and Hong Kong Science &
Technology Park (HKSTP) to create many case studies and tool kits.
7. Cooperation and Coordination
Since May 2006, APICC has come across a wide range of networks, government
departments and agencies that have shown interests in pushing forward the
“Knowledge-based Economy” for Hong Kong. InvestHK probably has good access
to many of the organisations.
APICC can also help InvestHK to work with the other skill centres:
1. Scotland -- Scottish Intellectual Assets Centre, Scottish Enterprise, ITI-
Scotland etc.;
2. Intellectual Property Department(IPD) – and access to SIPO (State
Intellectual Property Office of China) and WIPO (World Intellectual
Property Organisation of the UN) through SIPO;
3. Commerce & Economic Development Bureau (CEBD) -- CreateHK,
HKSTP and Cyberport;
4. Constitution & Mainland Affairs Bureau (CMAB) – in charge of
coordinating Hong Kong input to China’s 12th Five Year Plan and the
HKSARG’s Representative Office in Beijing (where InvestHK-Beijing is
attached to);
5. The Financial Secretary’s Office – in charge of “Six New Industries” and
Hong Kong’s overall economic development;
6. European Union – EU’s delegations in Hong Kong and in Beijing, EU’s
FP-7(EU’s R&D Funding Agency) team in Beijing, EU-Brussels team in
charge of IPR;
7. IPR2 – a joint venture between EU and Ministry of Commerce (MOFCOM)
of China in Beijing;
8. Pacific Economic Cooperation Council of China (PECC-China) – an
NGO that reports to the Ministry of Foreign Affairs of China. PECC-China
also has the task of coordinating “Soft Diplomacy” initiatives between
China and ASEAN;
9. Beijing Academy of Science and Technology – the research arm of the
Municipal Government of Beijing;
10. National Development and Reform Commission (NDRC) – Academy of
Macro Economic Research and Academic Commission of NDRC;
11. GTZ-Beijing Office – the Beijing office of a company owned by the
German Government (GTZ-Beijing coordinate economic cooperation
between China and Germany);
12. Intellectual Capital Centre networks around the world – including the IP
Academy of Singapore;
13. Chambers of commerce and universities in Hong Kong and Mainland
China;

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14. Hong Kong Science and Technology Park and Cyberport.
8. Specific Measures and Projects for InvestHK
The synergy between Hong Kong and the accumulated knowledge within and
available to APICC and the Scottish Intellectual Assets Centre is clear. The tried and
proven tools from Scotland, Syria and elsewhere that are shown to work well in
these small markets in bringing awareness and focus to managing the knowledge
base for value can be applied with significantly more effect in the larger Hong Kong
and Mainland China markets.
Specific measures that can be undertaken by InvestHK to make the Knowledge-
based Economy happen more and more for Hong Kong include:
1. Taking the CE’s political leadership and adopting “Knowledge-based
Economy” as a new product positioning for Hong Kong to attract inbound
investment from Mainland China and the World Economies;
2. Research and flesh out the substance of the Knowledge-based Economy
as a regional economic cooperation project through collaboration with the
Mainland organizations such as the NDRC and European institutions such
as Scottish Intellectual Assets Centre, the European Union and GTZ of
Germany;
3. Establish a Knowledge-based Economy coordination unit, probably in
collaboration with the Commerce and Economic Development Bureau
(CEDB) and the Financial Secretary’s Office and seek cooperation and
assistances from other HKSAR Government departments;
4. Develop a well crafted Marketing and Communication Strategy for Hong
Kong’s Knowledge-based Economy positioning with help from APICC;
5. Execute the strategy – producing the Knowledge-based Economy sales kit,
PR materials, videos and sales tool kits with the help of experience
consultants and communication specialists:
• Brief InvestHK’s offices in Mainland China and overseas;
• Brief the foreign consuls and international chambers of commerce in
Hong Kong;
• Seek support and hold joint promotional events from the Hong Kong
chambers of commerce;
• Brief the chambers of commerce and governments agencies in
Mainland China;
• Establish a support team and capacity to execute the strategy;
6. Establish performance measures that point Hong Kong towards a
sustainable, high-value added economic transformation into a Knowledge-
based Economy.
9. Critical Success Factors

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The Knowledge-based Economy is one of the factors causing a gradual shift in
emphasis in world trade with the BRIC Nations (Brazil, Russia, India and China) and
many Asian nations – particularly Singapore and Malaysia -- finally beginning to
occupy a more equal and representative position in the world economy. There will
in the future be winners and losers. Those regions and countries which put the
money where their mouth is will become Knowledge-based Economies and prosper
more than those which do not overcome the inertia and conservatism which inhibits
change.
The lessons to be learned from the European experience and applied to HKSAR and
Mainland China are:
1. Visionary political initiatives must be translated into action on the ground
in order to lead to the creation of the required skill upgrade and increased
business or academic potential;
2. Drive implementation to fulfill the needs of businesses and academia
including SME;
3. Provide on the ground consultancy to help businesses and academia
identify, manage and capitalise on their knowledge rich attributes and
keep the support system simple and non-bureaucratic;
4. Import, localise and use best practice from Scotland (Intellectual Assets
Centre, Scottish Enterprise, Highlands and Islands Enterprise), Singapore
(IP Academy and supporting organisations), Syria (SEBC) and the rest of
the world alongside local knowledge;
5. The benefits for partners sharing development (e.g. China including
Hong Kong SAR and Scotland) are (i) easier access to more knowledge, (ii)
better understanding of one another’s culture and market and (iii) better
understanding of technologies available for transaction.
11. Next Steps
“Knowledge-based Economy” is not a new subject. Some would even argue that
Hong Kong is already a “Knowledge-based Economy” and nothing more need to be
done. However, to speed up the transformation process and to move Hong Kong to
the next level of economic development, we suggest that:
• InvestHK should consider the new “Product Positioning” and measures
we proposed in the paper and;
• continue the discussion with APICC, Scottish Intellectual Assets Centre
and Scottish Development International over the next few weeks.
i
“Hong Kong’s Intangible Advantages”, by Fiona Donnelly of InvestHK (Published by The Hong Kong Knowledge
Management Society in September 2005)
ii
“Who Captures Value in a Global Innovation System? The case of Apple's iPod”, Personal Computing Industry
Center (PCIC) of University of California, Irvine, June 2007
iii
2009‐2010 Policy Agenda of the Commerce, Industry and Tourism Branch of CEDB as presented to the
Legislative Council in October 2009 and discussion paper on promotion of Inward Investment presented to the
Legislative Council in January 2009.