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= Technology Voucher Programme in Hong Kong = Technology Voucher Programme (Chinese: 科技劵計劃), commonly referred to as the TVP, was implemented in Hong Kong on November 2016 to subsidize technological services and solutions for local small and medium enterprises (SMEs). It was implemented as a sub-programme of the Innovation and Technology Commission (ITC). The programme has been implemented on a pilot basis on a proposed three year initial period, to improve business productivity and to upgrade or transform business processes. Within this three-year initial period, the government plans to review the TVP in 2018, to ensure that it is working as expected and to make any changes if necessary. The programme itself has been funded with HKD $500 million, for the three year pilot basis, from the Innovation and Technology Fund (ITF).

The voucher programme is the latest government effort to increase added value, productivity and competitiveness of economic activities in Hong Kong. By targeting SMEs and other private enterprises, the TVP aims to create an environment conducive to innovation and technology development. Furthermore, by focusing on the innovation and technology sector through TVP funding, the government hopes to encourage more private sector investment in the industry, to improve the industry's productivity and long-term competitiveness in Hong Kong.

Background
Although Hong Kong has the largest pool of venture capital in Asia, Hong Kong has been underperforming in terms of financing new technology-based firms. The lack of investment in start-up firms and funding technology upgrades can be credited towards several features of Hong Kong’s business environment, largely absorbed from colonial practices.

As a result of historical banking practices, adopted by the British in Hong Kong, business culture has tilted to favour a short-term investment mentality. With this mentality, focus has been on industries and services that are not as technologically advanced and that are deemed lower risk thresholds for investment. As a result of this short-term investment mentality, there are aversions to long-term investments, like the innovation and technology industry, which require more time and development to turn profits. Additionally, because of effective lobbying from the banking and financial sector in Hong Kong, the government has continued to make policies with these industries in mind. This has further reinforced a short-term and quick-return attitude in society, which has prevented public investments from reaching their full potential and thereby from spurring innovation. As this mentality has penetrated society, it has created a general fear that capital inputs into the advancement of innovation and technology may not guarantee returns. This has resulted in a trend of corporate innovation and technology investment focusing on commercial applications, rather than the development of intellectual property. This focus on commercial applications is because services that are already available in the market are cheaper to access and less of a risk than developing intellectual property. Rather than actively intervening in the market, the government instead has largely relied on market forces to develop the innovation and technology industry in the past. While Hong Kong’s laissez faire policies characterized the region’s industrial process in the past, they evidently did not aid the region’s innovation and technology industry. As a result of their prolonged use of positive non-interventionism, Hong Kong’s innovation and technology industry has lagged behind those in other East Asian countries. This is because the government did not interfere in the private sector or manipulate market forces to help develop the industry. The government only acted when they “recognized a responsibility” to “respond when industries with social obligations ran into trouble” or “when an institution needed regulation to prevent inequitable practice.” Therefore, Hong Kong’s innovation and technology industry could not develop as quickly as it did in the other newly industrialized East Asian countries. For this reason, the government stopped their use of positive non-interventionism in the 1990s and began to actively intervene to try and boost the industry.

Since the early 1990s, various factors have made the Hong Kong government more adamant about expanding financial support and strengthening policies and institutions to support the innovation and technology industry. Firstly, the government wanted to ensure Hong Kong’s economic competitiveness and raise the region’s living standards. By the late 1990s, neighboring Asian Tigers and Organisation for Economic Cooperation and Development countries of similar size and development had already drawn up formal, coordinated innovation policy. Furthermore, because the Asian Financial Crisis in 1997 resulted in economic downturn, the government realized that a heavy reliance on the tertiary sector could be risky. They hoped that by developing their innovation and technology industry they could help the economy. Secondly, because many businesses in Hong Kong had their manufacturing branch(es) in the Pearl-River Delta, rising production costs in the area in the late 1990s made changes, like upgrading their production technologies or changing to value-added manufacturing procedures, such as mechanization, feasible solutions.

Initiatives launched by the government included programs like Invest Hong Kong and funding mechanisms such as the Applied Research Fund (ARF) and the ITF. The government also began to develop infrastructure to help boost the innovation and technology industry.

In 1993, the ARF was established by the Applied Research Council, a council formed by the government. The fund contained HKD $750 million to support local companies in their technology ventures or their research and development projects with commercial potential; however, the fund’s long term goal was to enhance competitiveness and increase technological capabilities in Hong Kong. The ARF stopped making new investments after March 2005, after about only half of their funds were invested. This was partially due to public criticism of the ARF, as the funding mechanism suffered losses that cost more than HKD $240 million. The ARF left a grudge between the innovation and technology industry and the government, reinforcing the idea that investment in new technology and startups were not a suitable or attractive option in Hong Kong.

In 1997, the government continued to expand financial support for research and technology transferring activities at universities in Hong Kong; however, it was not until 2004 that the government began targeting small enterprises to improve innovation in the region.

In 1999, government announced the Cyberport project, to support the development of a high technology industry. However, government strategies hindered the development of this project, because they did not recognize the differences between knowledge-intensive and traditional industries. For example, research and development, as well as commercialization to marketization were treated as a linear process. Furthermore, the government failed to foster interactive relationships and creative learning. Since they failed to notice such differences, they invited banks to the Venture Capital Scheme. The vetting criteria that banks used for investment returns was too high for innovation and technology companies to satisfy, resembling the traditional investment model of the colonial government, which stressed quick financial returns.

Another government initiative included the creation of the Invest Hong Kong department in 2000. Invest Hong Kong is meant to promote foreign direct investment in Hong Kong; however, their overall mandate is framed at making Hong Kong a desirable economic environment for local and foreign businesses to invest and operate in. As a result of this, Invest Hong Kong does not pursue any industrial policies that provide special incentives for industries, like the innovation and technology industry, leaving development of industries up to market forces.

In addition, the government also established ITC in July 2000, to provide funding for specific innovation activities. The ITC in turn created the ITF, to develop the innovative capacity of local companies by increasing productivity and encouraging competitiveness. The funding mechanism was specifically to aid in the transition of local industries from labour-intensive manufacturing to higher value-added activities. In 2004 the fund was used to establish a Small Enterprise Research Assistance Program (SERAP), which was meant to finance research and development start-up companies. SERAP initially offered loans up to HKD $2 million, or USD $250 000, but recently raised loans to HKD $4 million. Attached to these loans are terms of repayment; however, repayment is only required if projects become profitable or are bought out. Out of the many government initiatives to develop the innovation and technology industry, SERAP is considered to be one of their few successful initiatives.

It was not until 2004 that the government directed their target towards SMEs, who at the time accounted for over 98% of the total number of enterprises in Hong Kong. The Small and Medium Enterprise Fund was created to help SMEs improve their financing capabilities and competitiveness. Many SMEs that qualified to draw on the fund's allowance of HKD $8 million did, allowing them to purchase advanced equipment and to undergo marketing and training to improve their operational capabilities and performance. However, as a result of the high qualifications to meet the funding requirements, many SMEs, specifically start-up SMEs, were unable to access this funding. Therefore, while this fund was slightly beneficial to some SMEs, it was ultimately unable to increase the capabilities of many SMEs to help boost the innovation and technology industry.

Another obstacle in the development of Hong Kong’s innovation and technology industry was the reputation of stock markets in the Asia-Pacific region. The stock markets, known for their higher risk natures, have further deterred investments in the industry. Although the Growth Enterprise Market, established in 1999 to address the lack of investment in technology firms, aimed to facilitate business development and expansion in the innovation and technology industry, the technology and internet “bust” in 2001 created a lot of investor cynicism and skepticism towards technology investments.

Consequently, despite government interventions to encourage development of innovation and technology, there was not significant success, as Hong Kong continued to lack a knowledge-intensive economy. According to a survey conducted by the Hong Kong Trade Development Council in 2008, 53.3% of corporate respondents intended to upgrade their technology and 29.9% intended to boost mechanization in operation processes; however, they lacked sufficient resources for this transformation. It is unclear whether these corporate respondents had the sufficient knowledge in technology and licensing procedures to adopt new innovative measures and technologies. Furthermore, as SMEs usually have limited exposure to and relationships with public knowledge providers, like universities and research organizations, they are less able to facilitate the transfer of knowledge.

In 2014, innovation and technology utilization was mainly confined to large and medium-sized corporations. However, it was evident that larger companies, in the three pillar services (finance, trading and logistics) and other major industries, only had low-to-medium levels of innovation and technology utilization. They frequently ignored the use of tracking inventory data, real-time sales, access to business-critical information or creating a web page. As a result of this, there was a lack of understanding among SMEs as to how innovation and technology could help their businesses.

Content of Voucher
In Hong Kong’s 2016 Policy Address, published in January 2016, the government announced that they would set aside HKD $2 billion for the establishment of an Innovation and Technology Venture Fund to co-invest with private venture capital funds on a 2:1 ratio. Additionally, John Tsang Chun-wah, the Financial Secretary, announced the allocation of HKD $500 million to launch the TVP, under the ITF, in Hong Kong’s 2016-2017 budget. To ensure the success of the TVP, a Committee was set up to vet applications and oversee the implementation details. It is comprised of both non-official members from business, technology and professional services sector as well as past office members of relevant government departments. Currently, the Committee is chaired by Professor Eric Yim Chi-ming.

In November 2016, the TVP was finally implemented.

Application Conditions
To be eligible for funding under the TVP, local small and medium enterprises must
 * 1) first and foremost, fulfill the government definition of what a SME is
 * 2) * a local small and medium enterprise must be a manufacturing business employing less than 100 people in Hong Kong or a non-manufacturing business employing less than 50 people in Hong Kong;
 * 3) be registered in Hong Kong under the Business Registration Ordinance;
 * 4) have at least 1 year of substantive business operation in Hong Kong, which must be related to the project under application consideration at the time of application.

Use of Funds
Each enterprise is eligible to receive up to HKD $200 000 of TVP funding, however they are required to contribute at minimum a third of their total approved project cost in cash. Furthermore, funds under the TVP are subject to several conditions of use. They can be used to cover TVP funding cannot be used to cover an enterprise’s normal business operating costs.
 * 1) technology consultancy
 * 2) * consultant companies must be local companies, organizations or research institutions registered in Hong Kong. The maximum amount that a company can receive to subsidize consultation fees is 10% of the funding they receive;
 * 3) purchase, rental or subscription of customized equipment, hardware, software and/or technology services or solutions that are essential to the project;
 * 4) purchase, rental or subscription of off-the-shelf or readily-available equipment, hardware, software and/or technological services or solutions that are essential to the project.
 * 5) * these costs should not exceed more than 50% of the project cost;
 * 6) project auditing
 * 7) * only applicable for enterprises with approved funding that exceeds HKD $50 000.
 * 8) * audit fees are counted towards total project costs and cannot exceed HKD $3000.

Conditions Attached to Funding
Enterprises are not allowed to begin their project until they are approved for TVP funding and these projects should be completed within 12 months. Each enterprise can submit multiple projects for funding projects, however only three projects from one enterprise may be approved for TVP funding. Furthermore, enterprises are only allowed to undertake one voucher programme project at a time, to ensure proper focus on project implementation. Enterprises who are undertaking projects that are funded by the TVP are not allowed to receive funding support from other local public funding sources. If an enterprise has received TVP funding, they must gain prior written approval from the ITC if they wish to make any modifications to their approved project.

Application Procedures
Enterprises can apply throughout the year for TVP funding, as the application depends on funding availability. To apply, an enterprise needs to provide several documents of proof.
 * 1) copy of Business Registration Certificate;
 * 2) copy of form 1(a) of Business Registration Office or form NAR1 of company’s registry;
 * 3) evidence of substantive business operation
 * 4) * includes invoices, receipts, audited accounts, commercial contracts etc;
 * 5) Mandatory Provident Fund records;
 * 6) copy of identification proof of signatory on the application form;
 * 7) copy of Business Registration Certificate of technology consultant;
 * 8) all issued quotes or tender invitation documents;
 * 9) copy of quotes from expenditure items.

Vetting Process
The ITC is responsible for choosing applicants who are to receive funding under the TVP. To sort between candidates, the ITC must After this, the TVP Vetting Committee is responsible for assessing applications on individual merits and case-by-cases basis. They will likely approve funding if
 * 1) check the eligibility of each applicant;
 * 2) conduct preliminary screenings of enterprises upon receiving applications;
 * 3) seek clarification or supplementary information from an enterprise, if necessary.
 * 1) proposed projects are relevant to the applicant’s business
 * 2) * projects should also enhance a business’ competitiveness through
 * 3) ** improving productivity
 * 4) ** developing or expanding business
 * 5) ** reducing cost or enhancing efficiency
 * 6) ** upgrading, improving or transforming business processes;
 * 7) budget details are reasonable
 * 8) * assessments will be made with reference to market prices of technologies required for the project
 * 9) * items of expenditure must be essential and directly related to project implementation;
 * 10) implementation details are reasonable
 * 11) * concrete and quantifiable project outcomes should be set;
 * 12) the applying enterprise provides records of consultants and/or service provider(s).

SMEs
While local small and medium enterprises are affected by public innovation policy, they have been largely neglected in policy making. In 2004, small and medium enterprises accounted for over 98% of the total number of enterprises in Hong Kong. There were approximately 282 000 SMEs in Hong Kong at the time, which was why the government began to focus on SMEs in their innovation and technology development efforts. By effectively utilizing technological services and solutions, SMEs can enhance their efficiency and foster business opportunities.

Albert PK Lau, the President of the Hong Kong's Small and Medium Enterprises General Association, has expressed concern that the maximum amount of TVP funding available to SMEs, HKD $200 000, is too little to improve business productivity or to upgrade or transform business processes. He claimed that the amount was only enough for purchasing basic facilities and overlooked the need for businesses to update or maintain their technological devices and applications. Furthermore, Mr. Lau noted that because many SMEs are comprised of middle-aged employers or employees, or they belong to the services sector, they are less aware of the need for new technology. Legislator, Mr.Chan Chi-Chuen claimed the same thing, as he thought that financial resources available to SMEs would not be enough for them to develop innovation and technology solutions. Since the TVP is a one-time financial aid, SMEs have to bear the costs of updating or maintenance if they purchase new services. Mr. Chan urged that more long term investment in the industry and more strategic funding would solve this issue.

Innovation and Technology Bureau (ITB) and ITC
The department that launched and administers the TVP, known as the ITC, is monitored and overseen by the Innovation and Technology Branch of the ITB. As a result of this joint initiative, the ITB is responsible for formulating comprehensive strategies involving the TVP, while the ITC is responsible for the execution of these strategies.

Due to the demand for the development of the the innovation and technology industry in Hong Kong, the ITB has prioritized relevant innovation and technology policies and collaborations in both the public and private sector. For this reason, the TVP is a crucial pilot scheme to evaluate the effectiveness that voucher funding has on promoting the industry.

The 2016-2017 budget speech emphasized the importance of the TVP, as there was a clear focus on SMEs in the series of new measures announced by the ITF. The Secretary for Innovation and Technology, Mr Nicholas W. Yang, highlighted the TVP as a highly valued programme to the government. He claimed that it was a sufficient programme to provide incentives to SMEs and increase confidence of investors, namely from the private sector, investing in the innovation and technology industry. It is evident that SMEs play an increasingly important role in the private sector and local economy, as they accounted for 50% of the private sector workforce in 2016. Due to their increased role, there are hopes that with more government intervention and aid, like through the TVP, these SMEs will be better able to make use of the new innovation and technology to improve the living standards of people.

Hong Kong Legislative Council
Since its implementation, the TVP has been discussed in the Legislative Council several times. These discussions have mainly focused on public criticism regarding the effectiveness of TVP.

Soon after the implementation of TVP, legislator Wong Ting-kwong expressed concern that many SMEs were not prepared to adopt new technologies in their business operations. He quoted a study report that over 70% of SMEs had no plans to apply for TVP, spawning concerns about the returns of technological investment. In January 2017, Chief Executive C.Y. Leung agreed that lack of innovative culture and awareness were valid reasons as to why SMEs may not be very interested in upgrading their businesses technologically. Furthermore, he acknowledged that the government must promote an innovative atmosphere to encourage SMEs.

However, the Information Technology (functional constituency) in Legislative Council welcomed the TVP. They recognized the programme as a great achievement in response to the long time calls for more government action to help the innovation and technology industry.

Implementation of Voucher
For the implementation of the TVP, seven staff members have been hired. Their total salary costs for 2017-2018 have been estimated at HKD$5.8 million. Until mid-February 2017 the ITC cooperated with different business associations, such as the Hong Kong Trade Development Council, to organize nine briefing sessions for SMEs, where there were 1,300 participants. These sessions were to introduce TVP, share experiences by previous successful applicants and question-and-answer sections. In the future the ITC is considering organize more briefing sessions to promote TVP.

Enterprises are required to register for applications to the TVP. After their registration, they can lodge application documents. As of October 2017, the total number of registrations, including online registrations, for TVP applications exceeded 2,500 cases. Furthermore, 1,500 cases were said to be preparing for application. Meanwhile, as of November 2017, there were 690 applications in total, of which 207 were approved and obtained HKD $130,000 funding on average. Of these cases, only 230 were rejected or had pending statuses, because they were lacking supplementary documents. The Secretary for Innovation and Technology, Nicholas Yang, claimed that 130 applications did not include important documents, like a copy of their Business Registration Certificate, while another 230 applications lacked things like evidence proving their substantive operation for at least one year or their Annual Return of Companies Registry. He also claimed that there were another 220 applications still waiting to be reviewed for eligibility.

Although the rate of application rejections dropped significantly from 70% in August 2017 to 35% in November 2017, it is estimated that there will still be 2,000 applications in total for 2017-2018. Under the initial three year pilot basis, the sum of HKD $500 million is expected to fund 2,500 applications. The average time from the submission of applications to release of funding is approximately 30 working days.

According to a government statistical breakdown, by January 2017 there were 21 approved applications totalling HKD$2.77 million, of which wholesale and retail and information technology businesses were the major enterprises applying to the TVP. The major types of technological services that SMEs have adopted with TVP funding are the document management and mobile access system, enterprise resource planning solution and/or the electronic inventory management system. To ensure that the implementation of the voucher is free of conflicts of interests or unfairness, measures are carried out by the ITC in the TVP application approval process. Furthermore, the strict membership structure in the TVP Committee ensures that conflicts of interests between applicants and committee members do not occur. The Chairman of the Committee also has the right to request that certain members refrain from discussions, if conflicts of interest are reported.

The ITB has proposed conducting a comprehensive review of the TVP in 2018. This review will focus on the mode of operation, maximum amount of funding and overall effectiveness of the TVP funds.

Debates and Improvement Demanded
There are four major improvements demanded of the TVP.

Demand for simpler application procedures
Many SMEs believe that there needs to be simpler application procedures. In the early stage of the TVP implementation, the failure rate was higher than 70%. Among 136 applications, only 21 cases were approved. It has been suggested that the ITB should provide concise guidelines or performance pledges to applicants regarding application procedures due to the complicated requirements. Furthermore, as application procedures obligate applicants to submit a proposal regarding their plans of how to use the fund, SMEs with limited personnel face more challenges. As it has been noted that the Hong Kong government favours sophisticated proposals over simple ones, SMEs with less disposable funds are less able to hire external consultants to write their application proposals, lowering their chances at obtaining TVP funding. This in itself also poses difficulties, as only 10% of the funding can be used on consultation fees. Choosing an appropriate consultant poses another challenge. These factors lower SMEs’ incentive to apply TVP.

To mitigate this problem, Charles Mok, the legislator of the Information Technology (functional constituency), has suggested to create a fast track system for enterprises that have previously applied for the TVP. This will allow SMEs to skip some vetting procedures, such as conduct screening. In response to this, the Hong Kong government has simplified the application by referring applications to the Vetting Committee when applicants intend to purchase typical technological services in TVP Guidance Notes.

Demand for more flexibility in fundable items and mode of funding
Many believe that the TVP funding is not flexible enough, in terms of the mode of funding and items funded. Regarding funded items, the list of services that satisfies the requirement of enhancing productivity or transforming production processes is seen as too narrow. Industries demand a relaxation on lists of excluded items, including off-the-shelf computer software for customization or configuration for enterprises. Also, as there is a budget cap on the purchase of established software and hardware (lmust be less than 50% of the total project cost) but not on the development of customized systems, SMEs may opt for more costly personalized systems rather than standard services. However, this may result in the  misallocation of resources, as standard services are usually the most basic and needed improvements that SMEs should make to enhance their innovation and technology capabilities. Typical examples of standard services include storage, accounting or office software. As a result of these funding restrictions, applicants have to compare service prices and choose the cheapest services before submitting their proposals. This has caused the Internet Society of Hong Kong to express concerns over the quality of these services.

Another inflexibility is that applications can only be enterprise-based. Legislator Dr. Elizabeth Quat believes that it would be more effective if different enterprises in the same industries were allowed to apply together, for example, through trade associations, so that they could aggregate their funds to develop software or applications for all SMEs in the same sectors.

A more fundamental problem is the rationale behind the types of items funded. Only purchases that can be bought with one-off payments are subsidized. However, with changing company tactics, many software companies no longer offer one-off purchases, instead they choose to grant licenses to users on the basis of monthly or annual payments. Microsoft Office is an example of this. Recurrent expenses are categorized as “normal operating costs” and are therefore not eligible for subsidies. This phenomenon draws similarities with the traditional budgeting philosophy of the Hong Kong Government. Eric Yeung, a candidate for the Information Technology (functional constituency), has criticized the outdated funding approach and claimed that it is unable to catch up with the needs of industries.

Demand for refining beneficiaries of the TVP
Many think that the scope of beneficiaries of the TVP needs to be further refined. Regarding SMEs, as there are still many varieties amongst them. While some SMEs are start-ups, others are actually leading companies in their fields. As a result of these discrepancies, scholars worry that without more stringent application conditions, competition for funding would be too broad to help those really in need. As there are no limitations on the locality and experience of applicants in the TVP applications, SMEs can be leading companies in their fields despite being operated in a small-scale. Or SMEs may register in Hong Kong, they are not composed of local employers or employees. This means that local companies may need to compete with leading or more established international companies for TVP funding. Therefore, to combat this issue, the Chamber of Hong Kong Computer Industry recommended a mechanism to limit this, similar to one in Singapore, where 30% of employers and employees in companies that apply for technology fund must be local residents.

Demand for lightening vetting and monitoring procedures
The ITB has considered lightening the vetting and monitoring procedure for TVP funding. However, because of the challenges to doing this, which include ensuring that public money invested in the industry is properly managed and that the allocation of ITF money is appropriate, these changes have not been made yet.

Czech Republic
In the Czech Republic, innovation vouchers have been implemented since 2009. These vouchers are small lines of credit that are provided by the government to SMEs and are meant to be used to purchase services from public knowledge providers. These vouchers are meant to support SMEs financially, to direct their attention to introducing new or better products, processes and/or services to their business operations. This voucher program is also used to increase collaboration between research institutes and companies. The innovation voucher program is a success in the Czech Republic, with vouchers in 11 regions in the country and 1456 applications and 462 vouchers issued in 2013.

Guangzhou, China
In 2015, Guangzhou introduced Innovation vouchers for scientific research services. These vouchers were targeted towards SMEs as a government effort to boost development in the innovation and technology industry. The vouchers provide SMEs with much needed funding, so that they can purchase technological services, with a discount of up to 70% from services from public research institutions. Therefore, these vouchers provide SMEs not only with economic aid, but also help them build closer relationships with public research institutions, to ensure more long-term collaboration and thereby innovation and technological advancements between them.

Ensuring Hong Kong’s Success
Taking from the success of innovation vouchers in the Czech Republic, it becomes clear that keeping administration and implementation procedures as simple as possible is important in ensuring the success of such a program. Furthermore, this case has shown that success was also dependent on effective advertising and promotion of the voucher program to SMEs.

Learning from innovation vouchers in Guangzhou, it seems that by fostering relationships between public research institutions and SMEs, SMEs are better able to continue pursuing innovative and technological projects or advancements with less government intervention and aid. By fostering these relationships, SMEs and public knowledge providers are more able to approach one another with innovation-related problems and have more incentive to work together.

By looking at other innovation vouchers, notably vouchers in the Netherlands and Ireland, it is evident that as the nature of such vouchers are often small in sum, they should be simple and involve easy administrative procedures.

It is clear that in many of these cases simplicity and advertisement of these vouchers is pivotal to the success of these vouchers, as it ensures that it can be easily adopted in the region.