Many critics of Hong Kong argue that the Special Administrative Region lacks the creativity and skills to become a technology center. Although I acknowledge that Hong Kong lacks many of the attributes and variables that more successful tech centers such as Silicon Valley, Bangalore, Taipei, and Kyoto have, Hong Kong does have a strong innovative and entrepreneurial streak. Unfortunately, much of it is employed in fast money making schemes or underground technology like console mod chips, mass duplication of IP or hacking embedded technologies. However, the potential is there for the city to move beyond its reputation and its past.

When people refer to Hong Kong, we're not really talking about just Hong Kong the city alone, we really refer to the Pearl River Delta that stretches spans inside the mainland into southern Guangdong province. Hong Kong's industry have become intertwined with the factories and property markets of the Pearl River Delta. The Special Economic Zones of Shenzen, Zhuhai and even the other Special Administrative Region of Macao rely to some degree on Hong Kong business, capital and technology.

Depending on how you define innovation, Hong Kong can be seen as one of the most innovative cities on Earth. If you're looking to creating cutting edge technology at the forefront of research and science, Hong Kong is not the place to look. However, if you're looking to develop cheaper manufacturing processes, streamlined and faster sourcing of materials, scrounging resources to develop prototypes and get products to market faster then Hong Kong industry people have a definite advantage over other technology cities. No where is this skill more applied than in entertainment technology industries.

Toys and movies are two industries that Hong Kong has enjoyed past success in. Today, almost all toys are manufactured in China (the Saudi Arabia of Toys) although the companies that produce them are still Hong Kong based. Hong Kong toy companies have in effect become virtual manufacturers that can prototype, produce and distribute toys from sub-contracted factories and warehouses in China keeping capital infrastructure low and supply chains flexible.

Hong Kong's film industry which in the past had produced films in the past at an astonishing rate, has achieved a goal that not even India, with the largest film industry in Asia, did not: worldwide recognition. Hong Kong film techniques, style, special effects and even directors have become an embedded feature of Hollywood films. Due to the small size of the actual film market of Hong Kong, the industry had long ago been forced to become a regional exporter for the great Chinese market of Asia.

More recently, Hong Kong has become the hacking capital of the world for entertainment products from DVD players (to make them multiregional) to Gameboys (accessories for displaying on TV or a TV tuner itself). Although other cities may have more blatant intellectual property violations such as Thailand, the Philippines, and now China, Hong Kong has developed a global reputation for pirated DVDs, CDs, software and VCDs. For new videogames such as Warcraft 3 released July 4th worldwide (July 3rd in Hong Kong by some unscrupulous stores) copies can be obtained of the HKD 330 game for about HKD 10 in the computer shops of Mong Kok, Shamshuipo, and Wanchai districts of Hong Kong.

Piracy is still prevalent enough that shops tend to specialize in what they pirate be it DVDs (shops that sell only pirated music DVDs) to software (shops that sell only pirated pc games vs. shops that sell only pirated console games).

When Microsoft's Xbox got modded a few weeks ago (a chip that would allow the Xbox to play original games from around the world but also copies as well), it was speculated that it was a Hong Kong company that developed or at least financed the chip. I had the opportunity to show one of the Xbox teams from Microsoft visiting Hong Kong one of these computer shops selling these modded Xboxes and the ease that one can get pirated copies. They bought their own modified Xbox to bring back to Redmond for study.

Even for Sony's Playstation 2 Hong Kong remains a unique location. The Hong Kong Playstation 2 released on December 2001 is multisystem version and can display in both PAL and NTSC. The latest Playstation 2 mod chip, also only a few weeks old now allows users to play original games from Japan, UK, Europe and pirated copies with the ease of drop and play usability. Previous versions required complex disc switching and special software. The new Mod chip has caused a playstation 2 shortage in Hong Kong as people rush out to buy the console before Sony develops a new chip resistant version.

If you check other devices such as Palms and Mobile phones, you will find shops in Hong Kong that can change not just the cover of your phone or PDA but can add blinking LED lights, new buttons and sell a flood of accessories for your devices as well. Although you can find similar shops in Asia, one would be hard pressed to find the density and proliferation of these shops anywhere else in Asia.

Much of these new consumer devices and consoles may not originate from Hong Kong but once in the SAR they have a way of getting modified and accessorized beyond their developer's original designs. The Pearl River Delta can be seen as a hackers haven for manufacturing, electronics and gadgets. Even if its not from Hong Kong, the technology will eventually be brought to Hong Kong for study and for sale to a market that craves the latest features for electronic products.

Hong Kong is in the midst of one of its greatest economic hardships that it has ever faced. As one senior executive in the Hong Kong toy industry told me, he cannot remember a time in the 30-40 years that he has seen the market this tough. Its gotten to the point in Hong Kong that the government has released public service announcements on television asking Hong Kong people to not just sigh and complain but to go out there and do something (except protest). This year alone the government has instituted exceptional measures such as the waiving of registration renewals for businesses, lower water bills, rebates on certain administrative fees and even a tax refund for some who were eligible (including me to my surprise). Although they may help to alleviate the burden for many SAR citizens, the real more difficult question remains the future competitive role of Hong Kong amidst the growing role of Chinese industries and cities.

As Hong Kong becomes less of THE gateway to China and becomes just A gateway to China, the SAR will transition and remake itself into another incarnation within 10 years. The very same skill and process that had been used to develop these shadow technologies can be channeled to developing new solutions and manufacturing know how to the factories and labs of emerging China. It would be very difficult for Hong Kong to reinvent itself into a hard technology research center without further investment in education, infrastructure, and business. However, it does possess some qualities that can make it an effective technology service center within a few years from now. Although costs are still high, premium service can be provided at a premium price for the ability to provide quick or complex solutions (sort of the FEDEX of technology service) that the lower cost mainland centers cannot.

The skills and resources that made the shadow technology of Hong Kong infamous can also be repurposed and channeled into the type of technology niche that the city can provide. One comment that the people from the Xbox team of Microsoft did mention was how polite and helpful the mod chip and bootleg vendors were, "she was quite friendly and had a British accent to her English, not what you would expect from a software pirate".

Hong Kong will see a lot of changes in the years ahead.