Despite the fast pace at which companies and organisations are spreading their footprint across the globe, setting up shop in a new market is never an easy process. Starting a business requires a certain amount of predictability so as to properly plan the growth of the business and the amount of investment needed.
Foreign companies and investors are often faced with the dilemma of whether they should set up an office in Singapore or Hong Kong. The toss between these two countries which have consistently been ranked as top places to do business makes the decision even harder. Here are three different environments one should take into account when making a decision.
1. Business Environment
Singapore and Hong Kong have been locked in a constant battle vying for the top spot as the best place to do business in the world. In 2014, the Economist Intelligence Unit (EIU) ranked Singapore as the topmost country to do business in. In fact, Singapore has been consistently ranked from 2009-2013 and 2014-2018 to be the best, according to the EIU. On the other hand, the IMD World Competitiveness Scoreboard ranked Hong Kong as the 2nd most competitive economy, with Singapore in 3rd place. With so many indicators pitting one country against the other, how best can a potential business owner decide?
Putting aside considerations of market saturation and interest, amongst a business owner’s biggest concerns are taxes and the legal environment. According to PWC’s Paying Taxes 2015 report, Hong Kong has been ranked 4th for the ease of paying taxes and Singapore is in the 5th place. In Hong Kong, salaries tax is a maximum of 15 percent while in Singapore, income tax starts at 2% and is capped at 20% for salaries above $320,000. Corporate tax in Singapore is at 17% flat whilst profits tax in Hong Kong is capped at 16.5%.
Whilst both countries offer competitive tax rates, it is important to consider the tax incentives offered by the government. For instance, Singapore offers start ups full exemption on the first $100,000 normal chargeable income and a further 50% exemption on the next $200,000.
Another consideration is the legal environment as disputes are inevitable. Hong Kong prides upon itself as Asia’s arbitration hub, with the establishment of its International Arbitration Centre (HKIAC) since 1985. Singapore has followed suit and established the Singapore Arbitration Centre in 1991. Most recently, the launch of the Singapore International Commercial Court has also bolstered the country’s reputation as a leading hub for dispute resolution. Additionally, the country has also offered tax breaks for arbitration, further incentivising quality arbitration work. On the other hand, lawyers have commented that in Hong Kong, there is some concern by non-Chinese companies that they would not be treated fairly by arbitrators or enforcement agencies in a Chinese city. HKIAC, however, has denied this.
2. Working Environment
Both Singapore and Hong Kong have highly educated workforces. Singapore has a largely English speaking workforce. On the other hand, while English is the main language used in business communications in Hong Kong, the bulk of its workforce speaks Cantonese and Mandarin.
A key factor for business owners in deciding between the two places is market access. Hong Kong allows businesses to tap on the Greater Chinese and North Asian markets. Travel to major Chinese cities such as Beijing and Shanghai can be completed in a day. On the other hand, Singapore’s geographic location and diversified pan-Asian workforce makes it an ideal location to tap into the ASEAN markets such as Vietnam, Indonesia and Thailand.
Labour cost is another factor to consider. According to a study by Rivkin, employment costs are generally higher in Hong Kong. It is also worthy to note that whilst both Singapore and Hong Kong have highly educated workforces, Hong Kong passed its Minimum Wage Bill in 2010 and the Statutory Minimum Wage is prescribed. On the other hand, Singapore has no minimum wage.
3. Living Environment
It is clear that Singapore and Hong Kong are on par in regard to their business and working environment. However, the scales tip in the favour of Singapore when it comes to liveability. Whilst it is undeniable that employees in both countries are workaholics and both locations are infamous for their lack of work-life balance, Singapore wins hands down as the most liveable location in Asia and in the world. The country topped the Location Rankings study by ECA International this year.
According to Leo Quane from ECA International, Hong Kong’s socio-political instability last year along with its poor air quality has caused it to tumble down the ranks. Singapore, on the other hand, topped the charts because of its good air quality, infrastructure, world class medical facilities and low crime rate. Nonetheless, the cosmopolitan lifestyle in both cities will assure every potential business owner a vibrant network, be it for work or leisure. Ultimately, preference for living environments is always subjective.
While Singapore has surpassed Hong Kong in numerous ranking studies, numbers and positions should only serve as a guide for potential business owners. Eventually, the success of a business is dependent on many other factors such as one’s business network and a competent team. Speak to us if you would like to find out more about how you can expand your network in Singapore and Hong Kong.