June 3, 2016 5 min read

Opinions expressed by Entrepreneur contributors are their own.

In Asia, Hong Kong is seen as the "gateway to China" and is a target destination for entrepreneurs in the fintech, logistics and hardware realms.

According to a Compass ecosystem report, Hong Kong is a densely-populated city of 7.3 million people but is known among international business circles for its “ease of doing business, sound legal environment and advantageous geographical location.” It also ranks first across the globe for economic freedom, scoring the top spot for 21 consecutive years.

The report notes that the city-state’s proximity to China’s Pearl River Delta makes Hong Kong an ideal place for IoT (Internet of Things) startups to land -- mainly due to Shenzhen’s position as a “globally competitive hardware prototyping and manufacturing” hub.

To top it all off, it’s mobile and broadband penetration is also one of the highest in the world which makes Hong Kong an attractive place to run a global business.

Related: Hong Kong: A Business Traveler-Friendly Destination

With all of this being said, should you, as a U.S.-based IoT startup founder, follow in the footsteps of tech entrepreneurs who already have moved to Hong Kong?

Bay McLaughlin, the co-founder and COO of IoT accelerator Brinc moved to Hong Kong after spending a decade in Silicon Valley. The serial entrepreneur and ex-Apple employee built his career in the software space but came to Asia to get involved in the hardware movement.

“Just as it was obvious to be in San Francisco for software back in the 90’s and early 2000’s because other cities weren’t as accepting and supportive of software startups then, Hong Kong is now the most supportive place for hardware and IoT startups,” he said.

McLaughlin believes that Hong Kong has all the elements that IoT startups need to thrive and thinks it has to do with a combination of cultural acceptance and a history of making, financing and distributing physical goods.

“As a new hardware entrepreneur, you need all the support you can get and it’s really refreshing to be in a place that understands and relishes physical trade-based businesses,” he added.

Related: Overcoming Startup Obstacles, Hong Kong Style

He also said that a surefire sign Hong Kong is becoming a hub is the “droves” of western IoT startups setting up shop. “Every quarter we see more and more IoT founders funded by well-known investors showing up on our doorstep,” and lists Lumos, Bluesmart and Eight (formerly Luna) as a few examples.

Brinc’s Co-founder and CEO Manav Gupta echoes McLaughlin’s sentiment and shares two examples of IoT entrepreneurs who have moved from the western world to Hong Kong to build their business.

“Founder and CEO Paul Lee is from Hong Kong and also a former Silicon Valley veteran who returned to Hong Kong to launch his startup, Aumeo Audio, maker of the world’s first tailored audio device which optimizes audio quality by customizing sound to suit each user’s unique hearing profile,” he said. Aumeo raised almost $300,000 from Indiegogo and was also backed by angel investors with an additional $250,000.

Soundbrenner, makers of the world’s first wearable for musicians, another shining example. Co-founder and CEO Florian Simmendinger, started Soundbrenner in Berlin but ended up relocating and incorporating his company in Hong Kong. Then, the good news kept on pouring in.

Related: 4 Reasons to Be Excited by the 'Internet of Things'

After raising $200,000 in pre-sales and closing a $500,000 seed round Soundbrenner began shipping globally and received numerous accolades including ‘Best in Show’ at the HKDTC Consumer Electronics Fair and at NAMM (the world’s largest tradeshow for music products). Simmendinger was recently added to the Forbes 30 under 30 in Asia list.

“Having started in the first batch of startups at Brinc, he’s now gone on to become a founder of a global business with seven employees across Hong Kong, Los Angeles and Berlin. He’s truly a great indicator of why Hong Kong is a great place for promising and talented entrepreneurs to set up and IoT company,” said Gupta.

Another Brinc portfolio company, Kello, makers of a smart alarm clock, also moved from Europe to Hong Kong in order to be closer to manufacturers. The founders originally hail from France and decided to relocate to Hong Kong to build their product. Since their move, they’ve validated the product design and features through Brinc’s head of manufacturing and has already started on their functional prototype.

Although Hong Kong has a lot of the elements needed to build an IoT hub, the Compass report notes a number of challenges.The World Economic Forum’s "Global Competitiveness Report" points out that Hong Kong’s main challenge is “to evolve from one of the world’s foremost financial hubs to an innovative powerhouse.” But fostering innovation has been a challenge for Hong Kong.

The Global Entrepreneurship Development Institute (GEDI) also notes that Hong Kong ranked 40th on their 2016 Global Entrepreneurship Index (they were ranked 30th in 2012). This indicates that support for entrepreneurs in Hong Kong is not as globally competitive as it should be.

To combat this, Compass recommends that Hong Kong invest more into programs that help entrepreneurs think globally and also close the gaps in talent and angel funding.