Speech by Mr K C Kwong, Secretary for Information Technology and Broadcasting at the 39th Annual General Meeting of the Federation of Hong Kong Industries

25 June 1999

Mr Tang, ladies and gentlemen,

Thank you for inviting me to speak at the luncheon of the Federation of Hong Kong Industries today. I would like to take this opportunity to share with you some of my thoughts on the development of electronic commerce, which has been widely recognised as the engine to drive economic growth in the Information Age.

Broadly speaking, electronic commerce is the use of electronic methods, means and procedures to conduct business activities. Its rapid development, which has been spurred by the exponential growth of the Internet, is transforming the way in which business is operated.

Let's first look at the issue from the global perspective. Internet users worldwide had grown from 40 million in 1996 to more than 100 million in 1997, and are expected to increase further to 150 million within this year. Internet traffic doubles every 100 days. The value of on-line transactions, including both business-to-business and retail activities, is forecast to exceed US$400 billion annually by the year 2002, representing a growth rate 40 times that of the global GDP. The potential market that electronic commerce can tap in cyberspace is thus enormous.

Many companies, most notably those in the USA, are quick to respond to this new development. Their proactive approach have helped them to establish an advantageous position in cyberspace to capture the new business opportunities, especially those which have arisen only because of the popularisation of the Internet. Thus, Yahoo, Amazon.com, eBay and the like have emerged from practically nothing to become well known household names in a matter of a few years. By serving an increasingly populous on-line customer base, these companies are growing at phenomenal rates through the adoption of electronic commerce. Take Amazon.com as an example. A virtual bookstore started in 1996, the company had a humble beginning with sales of only US$16 million in the first year of operation. However, by 1998 that figure burgeoned to US$610 million, representing a 38-fold increase in only 3 years. And the company is branching off into the supply of other products and services.

Opportunities in electronic commerce are by no means limited to the setting up of virtual shops or the provision of content over the Internet. This new mode of business operation can also be usefully adopted by conventional businesses.

Pitney Bowes, the world's largest manufacturer of postage meters, a line of business which hardly anyone would associate with the development in cyberspace, has been using Internet technology to improve its supply chain management. It seeks to forecast demand so that raw materials and parts are ordered only when it needs them with a view to minimising on-hand inventory. While the company has installed massive hardware and software for Electronic Data Interchange and enterprise resource planning, it had encountered problems in getting its suppliers on board because the suppliers could not afford to set up similar systems for establishing the necessary linkage. Last August, Pitney Bowes switched to a web-based product which provides a low-cost linkage to its system. Soon it becomes successful in getting many of its suppliers to link up with its system, and it is already getting positive results in its supply chain management.

Companies can also make use of Internet technologies to enhance corporate management and information flow. For example, at Ford Motor all of its 100,000 employees are connected to the corporate Intranet. Over 80% of the company's employees log on daily because the Intranet gives them accurate information in respect of design history, production status, quality control procedures, delivery schedules, etc. When workers need to collect information speedily, they can find it through the web site of the company. And they also know that the on-line version is up-to-date and co-workers around the world are using the same set of data. Such a network enhances internal communication and allows businesses to be more responsive to market changes.

Turning to the local scene - what then is the situation in Hong Kong? How does Hong Kong fare amidst this global development in electronic commerce?

We have a world-class telecommunications infrastructure - a pre-requisite for sustained growth in electronic commerce. We have over 130 Internet service providers. We have also witnessed a fast development in online businesses. The number of Internet users has now exceeded 1 million and is fast growing. Recent industry estimates show that the number of Internet users making purchases over the Internet has grown by 50% (from 6% to (9%) in the past year, albeit from a relatively low base. This impressive growth rate indicates that there is a huge potential market for local businesses to tap and explore.

We have seen many cases in businesses, both local and international, which have made use of electronic commerce to sharpen their competitive edge, be it a reduction in operating costs, an improvement in corporate management, the offering of better customer service or simply an increase in sales capability. The most crucial point is that these businesses have recognised the potential benefits of electronic commerce and have made use of it to their advantage. I strongly urge you all to do the same for your own businesses.

I also urge you to respond quickly. The Information Age has arrived and new developments take place at a phenomenal pace in cyberspace. In the conventional business environment which is bound by time zones and geographical barriers, it takes a considerable time to build up a business. To expand that business overseas takes even longer. But in cyberspace, a virtual business can reach a worldwide audience as soon as it is set up and put online as the Internet world knows no boundaries and operates round the clock.

If you do not act quickly, chances are that your competitors will and you will lose out in the race in cyberspace. Consider the case of Dell Computers, a global computer supplier. It was one of the first major companies to move to electronic commerce. In mid-1996, Dell began selling its products through the Internet. It's online business quickly rose from US$1 million a week then to US$14 million a day now. Being the first to establish itself in cyberspace has allowed Dell to become the world leader in that market.

The Government fully recognises the importance of electronic commerce in driving our future economic growth. It is our aim to provide a favourable environment for electronic commerce to take hold and flourish in Hong Kong.

We understand that one of the most important concerns over the conduct of transactions through the Internet is security. To enhance public confidence in electronic transactions, we will provide a safe and secure environment for the conduct of electronic commerce through a local public key infrastructure supported by the establishment of certification authorities. With the use of digital signature and public/private key mechanism, we will be able to establish the identity of the parties to an electronic transaction, authenticate electronic messages transmitted, guarantee the integrity and confidentiality of the messages exchanged and ensure that the transactions made with these messages cannot be repudiated. Government will take the lead in the establishment of a public certification authority through the Hongkong Post. The department has recently awarded the contract for the supply of the public key infrastructure system and is aiming to offer public certification services to both businesses and individuals by the end of this year.

We will also develop a clear legal framework to enhance certainty in the conduct of electronic transactions. We will shortly introduce an Electronic Transactions Bill into the Legislative Council. The Bill will seek to give electronic records and digital signatures used in electronic transactions the same legal status as that of their paper-based counterparts. The Bill will also seek to establish a framework which will promote and facilitate the operation of certification authorities in Hong Kong.

To further encourage the public to engage in electronic commerce, Government will become a leading participant in electronic commerce through the launching of the Electronic Service Delivery (ESD) Scheme. Under the ESD Scheme, we will provide Government services to the public through the Internet and other electronic means in a seamless manner, round the clock, and through an open and common information infrastructure. Our aim is not only to provide more efficient and better quality services to the community through electronic means, but to encourage the community to accept electronic commerce as an integral part of their daily lives. Furthermore, the open and common information infrastructure to be developed for the Scheme will at a later stage be open to businesses for the conduct of electronic commerce in the private sector.

The tender for the implementation of the first phase of the ESD Scheme, which will cover a wide range of services of ten departments and public agencies, was closed on 9 April 1999. We received a total of six bids submitted by consortia comprising both international and local companies with solid background and experience. We are now carrying out the evaluation work and plan to award the tender contract by September or October this year, so that the first phase of the ESD Scheme can be launched in the latter half of next year.

We will also mount a series of publicity and promotional activities to encourage the business community as well as the general public to adopt electronic commerce. You may have noticed the launch of the Cyberweek '99 by my bureau yesterday. Within this Cyberweek, we will present a series of promotional activities on electronic commerce and wider use of information technology in the community including seminars, roving exhibition, the implementation of a scheme to provide free electronic mail service to the public, the debut broadcast of APIs on television and radio, the installation of computer facilities for public use at community halls and the launch of the e-community ambassador (a converted container vehicle for holding mobile exhibitions on the wider use of information technology) at the community level. All these are part of our efforts in promoting electronic commerce, and you can look forward to Government further stepping up its efforts in this important area.

I see adoption of electronic commerce as the way forward to re-invigorate our economy. However, Government action alone is not enough. We need the full support and participation of industries and businesses. I therefore urge you all to work hand in hand with Government and take full advantage of the environment which we are creating for electronic commerce. And I wish all success in this great endeavour.

Thank you.

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