PRD faces domestic R&D threat

http://www.cw.com.hk/computerworldhk/article/articleDetail.jsp?id=447201

The recent research report released by the Federation of Hong Kong Industries shows that the economies of the Yangtze River Delta region are outperforming the Pearl River Delta region in their relative levels of competitiveness. The overall Business Environment Ratings, comprising the five major areas of government policies, legal protection, production operations, social, cultural and natural environment and also the infrastructure and support services, show that the Yangtze River Delta surpass those of the Pearl River Delta region.

This clearly signals a warning to Hong Kong as well as the PRD region. If we do not act fast and force through transformation and upgrading of the manufacturing industries in the PRD, there is a distinct risk that we will be left behind in the race for global competitiveness.

The report titled: "Made in PRD: The Changing Face of HK Manufacturers" points out that research and development activities are not common in the Pearl River Delta region. Around 65% of enterprises do not endeavor in any research and development activities. This means that these enterprises are still engaging in low value-added businesses and staying in the low-end of the value chain. Even for those who conduct some forms of R&D work, their R&D expenditures still comprise only 2-3% on average of their total revenue. In the face of up-and-coming competitors from other mainland cities in China, the strategy of these PRD enterprises in continuing the tradition of "low cost and low input" would doubtlessly be a recipe for losing market share and being put out of business in the next five years.

Rising competitionThe competition from the Yangtze River Delta region is clearly becoming significant. The annual growth rates of R&D expenditure and R&D staff in the YRD region are 28.9% and 12.1% respectively. These compare with 15.5% and 8.1% for the PRD region. Moreover, the growth rates of populations with tertiary education background in the PRD region and HK are 10.4% and 8.4% respectively, which pale in comparison with that of 11.2% in the YRD region.

Despite that the R&D productivity of the PRD region is not worse than that of the YRD region, and that the total R&D expenditure as a percentage of the GDP of Guangdong Province is 1.09%, which ranks 3rd after Beijing and Jiangsu and is higher than that of 0.7% of Hong Kong, the challenges from the rapid growing YRD region is still very much apparent and unmistakable. While Guangdong Province, Beijing and YRD region are striving to develop to become the regional R&D centers, what is HK's position and our road ahead? Can we restore our technology leadership and become the leader of our home country in the future years of technology development? This is a pivotal question that demands we all deliberate carefully.

Why are there so few enterprises involved in R&D work? What are their concerns? High R&D costs, difficult to recruit high-caliber R&D experts and insufficient intellectual property protection are the three major factors behind this. In addition, about 53.5% of the enterprises point out that it is difficult to obtain technology transfer and to identify or source R&D partners. All these are concrete obstacles that we need to overcome if we want to promote a higher R&D input from HK enterprises.

I really hope that the Hong Kong government can learn from the successful cases of Singapore, South Korea and Ireland, and take a bold step to propose policies such as tripling the R&D tax deduction to encourage more R&D input by small and medium enterprises. This is necessary for the SMEs to transform successfully in the knowledge-based economy. This also helps attract more overseas technology enterprises to set up R&D centers in Hong Kong, and ultimately this will benefit the technology development of Hong Kong.

Article published in Computerworld