The TIF Forum on E-commerce in Hong Kong
Speech by Mrs Jessie Ting, Deputy Secretary for Information Technology and Broadcasting

16 March 1999

Chairman, ladies and gentlemen,

I am very pleased to take part in today's Forum to share with you some of my thoughts on the subject of electronic commerce. Electronic commerce is now widely recognised as the engine of economic growth. So what does electronic commerce mean to businesses, in particular small and medium sized enterprises (SMEs), which make up some 95% of all businesses in Hong Kong? Far from being a threat to the survival of SMEs, electronic commerce offers a powerful tool to stay ahead of your competitors and to break into new markets.

Let us first take a look at the Internet-enabled environment in which businesses operate today. Internet users world-wide had grown from 40 million in 1996 to more than 100 million in 1997, and are expected to increase further to 150 million in 1999. It has been forecast that the number of computers with Internet connection will rise to 1 billion in six years' time. Internet traffic doubles every 100 days. For the last Christmas, on-line purchases in the US totalled US$2.8 billion, compared with US$1.1 billion in 1997. Analysts are forecasting total electronic transactions, covering both business-to-business and retail transactions, of over US$400 billion by 2002. This growth rate is 40 times that of the global GDP.

How does Hong Kong fare, compared with our regional or global competitors? Are we ready to join the e-commerce club? The answer is YES. We now have more than 1 million Internet users and over 130 Internet service providers. There is already in place a world-class telecommunications infrastructure over which Internet traffic flows and our broadband coverage is fast expanding. So how can our businesses take advantage of this favourable environment, which offers an alternative and better means to do business?

The development of electronic commerce has completely transformed the way in which business is conducted. For the first time, smaller businesses stand a chance to venture beyond the confines of the local market. Company size is no longer an impediment for those ambitious enterprises with a keen interest to break into the world market. In what ways, then, is electronic commerce able to provide new business opportunities?

First, development of new markets. Electronic commerce has eliminated geographical boundaries and time zone barriers. Through electronic commerce conducted over the Internet, we can reach the far corners of the earth and develop new markets which may be too costly to explore through conventional means. This is particularly useful to SMEs, which can ill afford the costs of establishing physical presence overseas to tap those markets. Amazon.com developed its virtual bookstore on the Internet in 1996. Its sales increased immediately from under US$16 million that year to US$148 million in 1997. Now, it is a household name the world over. A local example is the Chinese Books Cyberstore, which has carved out a new market for selling Chinese books published in the Mainland, Hong Kong and Taiwan over the Internet.

With the adoption of electronic commerce, business can scale down their sales and marketing forces, or alternatively handle an increased volume of business with the same staffing level. Under the conventional mode of conducting business, there are numerous constraints for businesses to expand their sales and marketing forces quickly in response to market demand, e.g. the lack of suitable candidates, lack of experience in managing a large team, etc. Electronic commerce has removed these constraints. It allows sales activities to expand with minimal additional costs and efforts. In many cases, this involves only a simple expansion of the capacity of the network servers. Take the example of Boeing. A couple of years back, the company put its spare part business on the Internet. With the same number of data entry staff, Boeing processed 20% more shipment per month in 1997 than it did in 1996. In addition, there were fewer phone calls to customer service representatives, a reduction of about 600 calls every day. This means considerable savings in staff costs and other resources.

Electronic commerce facilitates communication up and down the supply chain, with the result that the inventory level can be cut down. This is of particular importance to SMEs. Hitherto, SMEs have often had to forego large orders because of their limited ability to hold a sufficiently large stock. Through closer and more direct contact with both customers and suppliers via the Internet, businesses can now trim down unproductive inventory, shorten the production cycle and reduce the throughput time. Geffen Records, for instance, sells and distributes music recordings over the Internet. Customers world-wide can now purchase the recordings on-line and download the music directly from the company's web-site. Geffen is thus able to avoid the expenses and efforts normally incurred in the manufacture and distribution of the records.

In a competitive business environment, better customer relations are crucial for gaining a firm foothold in the market. By putting information on product description, support services and order status online, businesses will be able to provide more efficient and effective services to their customers at lower costs. Such services can also be customised for individual customers to build up customer loyalty. Take the example of Federal Express. Customers can now track the status of their delivery orders in the company's web site. I understand that the Hongkong Post is following suit.

In short, electronic commerce is a versatile tool with which businesses can explore new frontiers in the global market. Whether or not to adopt electronic commerce is entirely a business decision. But Government can play an important role in providing the necessary infrastructure and environment to facilitate this decision-making process.

How, then, does Government tackle this?

To demonstrate the benefits and cost-effectiveness of electronic commerce, Government has decided to become a leading user of electronic commerce by launching the Electronic Service Delivery scheme, or ESD in short. Under this scheme, public services will be available round the clock at no extra charge to the users. We envisage that the infrastructure developed for ESD will at a later stage be made available to the private sector for the conduct of electronic commerce. We are now calling tenders for the supply of the ESD system. The ESD contract is expected to be awarded by the end of September this year. We aim to launch the first phase of the scheme, which covers a variety of services provided by 10 government departments and public agencies, in the latter half of 2000.

In preparing for the implementation of the ESD, we are concurrently looking into a number of related issues with a view to providing a favourable environment for the Scheme to take hold. This will also provide a sound foundation for electronic commerce to develop in Hong Kong. These issues are : the establishment of a public key infrastructure, the provision of a clear legal framework for electronic transactions, and the development of a common Chinese language interface. Let us look at these issues one by one.

Concerns about the security of transactions conducted over open networks have often been cited as the reason for shunning from electronic commerce. To address these concerns, Government will establishment a public key infrastructure in Hong Kong with the assistance of the Hongkong Post, which will start providing a public certification service by the end of this year. In its recent tender for the design, development and implementation of a public key infrastructure system, Hongkong Post has received thirteen bids from a broad range of renowned companies in this field. So Hongkong Post will be well-placed to choose the technology that best suits Hong Kong's requirements. I should mention that we do not intend to impose a ceiling on the number of certification authorities to be set up in Hong Kong and will leave this entirely to market forces.

On the development of a clear legal framework, our objective is to provide certainty in the conduct of electronic commerce by giving the same legal status to electronic records and digital signatures as their paper-based counterparts. We also seek to provide legal backing for the operation of certification authorities in Hong Kong. We shall shortly introduce an Electronic Transactions Bill into the Legislative Council to establish this legal framework.

For electronic commerce to flourish in Hong Kong and to reach out to all potential customers, we must cater for those who prefer to communicate electronically in Chinese. This points to the need to resolve problems arising from the use of different internal coding systems in different Chinese-speaking communities. Government takes an active part in the ongoing discussions in the International Standards Organisation on the development of a new "10646" standard, which is intended to encompass all written scripts, including the "Han" characters in various Asian languages.

On the publicity front, we shall work closely with other organisations, such as chambers of commerce, the Hong Kong Productivity Council and the Trade Development Council, to encourage the private sector, especially SMEs, to adopt electronic commerce. For instance, in the Hong Kong Information Infrastructure Expo 1999 held jointly by my Bureau and the Trade Development Council earlier this month, we set up a "Government On-line" pavilion to showcase public services currently available on-line as well as simulations of ESD services which will be on offer next year. A record number of some 78,000 people visited the Expo. We are also much encouraged by the overwhelming response to the "Interactive Government Services Directory" launched last week. We shall continue our efforts in this respect so as to foster interest in the business potentials offered by electronic commerce and to give the average citizen a better appreciation of the convenience of electronic commerce.

My speech will not be complete without a mention of the Cyberport project announced by the Financial Secretary in his Budget Speech earlier this month. The Cyberport project, at an estimated cost of $13 billion, aims to provide a specially designed environment for the development of leading edge IT applications and services. IT services companies, big or small, local or overseas, will make use of on-site facilities such as multi-media laboratories and broadband telecommunications network to provide dynamic, multimedia content for distribution in the region. We envisage that the Cyberport will provide a key element of our technological and economic infrastructure. With careful nurturing, the Cyberport will become a valuable means to develop a new IT services industry in Hong Kong and to further the development of some of our traditional economic activities such as trading and financial services. We are very encouraged by the positive reaction from the IT industry and the general public to the Cyberport project. For those who are still hesitant, let me make it plain that electronic commerce is here to stay and excellent support is at hand to launch you into the cyberspace.

I hope the foregoing gives you a flavour of how the business environment has changed with the rise of the Internet and how businesses can survive in this new era with the aid of IT, in particular by adopting electronic commerce. On the part of Government, we shall do all we can to provide a conducive environment for private sector businesses to stay ahead in the fast expanding global market.

Thank you.

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