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Following is a speech by the Secretary for Trade and Industry, Mr Chau Tak Hay, at the luncheon of the Hong Kong Exporters' Association today (Wednesday):
The Information Age and the Euro Opportunities and Challenges
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Mr Lam, ladies and gentlemen,
Introduction
It gives me great pleasure to renew my association with the Hong Kong Exporters' Association and to see so many familiar faces today, after an absence of a couple of years.
It still amazes me to think that I have been away from this area of work for only 2-1/2 years, because so much has happened in this very short period. Members of the business sector do not need me to tell them why I have this feeling. The state of our economy speaks for itself. I have no pearls of wisdom to offer on how to ride out the immediate economic storm. Instead, I propose to look beyond the clouds, not necessarily for silver linings, but at two developments which will have a bearing on whether we may stay competitive in the 21st century.
The Information Age
Let me start with the Information Age. An increasingly globalised and technologically advanced world economy has radically transformed the environment of manufacture, trade and investment, and created new demands for goods and services.
The Information Age presents us with many opportunities as well as challenges. If we are able to make good use of information and communication technologies, our economic frontiers will be advanced. For they are not only high-growth industries in their own right, they are also enabling and value-adding technologies for other industries. The demand for IT products and services and the opportunities created by that demand have been growing phenomenally and will continue to do for many years to come.
The development of the Internet is a very good case in point. In 1992, there were only 50 web pages on the Internet. There are 300 million pages today and there will be over 3 billion by 2002. In 1996, less than 40 million people around the world were connected to the Internet. By the end of 1997, more than 100 million have "plugged in" including myself. And it is estimated that there will be over a billion users by 2005. Some have estimated that the global volume of sales conducted over the Internet would be in the region of US$200-300 billion by 2001, up from US$2-3 billion in 1996 - an increase of 100 times.
These figures, while impressive, do not tell the whole story. The Internet has given rise to a whole industry of Internet service providers, web-page designers, Internet shopping support services and so on. And of course there is the vast potential offered by electronic commerce. The movement from paper-based transactions to electronic ones allows us to conduct business more efficiently and thereby helps to reduce costs. Hong Kong has taken the first step towards encouraging e-commerce with the lodgement of some Government trade documents electronically. Recently the private sector has also devoted a great deal of effort to promote products and services supporting e-commerce.
Against these opportunities, challenges abound. To be able to develop the right product or service and find the niche market in a fast changing environment is by no means easy. Innovation and responsiveness are crucial. The important question is how we should equip ourselves. The potential benefits can never be realised if we possess neither the means nor the capacity to take advantage of the opportunities offered by the Information Age. Our businesses must experiment, adapt and develop these new information tools to broaden their vision, conquer new markets and create new patterns of demands. We need to keep ourselves up-to-date about developments in the IT world; especially new instruments and tools which can enhance the efficiency and effectiveness of business operations. In addition, we require the necessary hardware and software, including adequate training for staff.
Apart from these more immediate issues, we also have to confront other challenges of the Information Age. Protection of commercially sensitive data for the business operator and personal data for the individual is but one example. The ease of information flows has highlighted the need for more robust protection to prevent unauthorised access. As is often the case, the challenge is itself also an opportunity. Many are already hard at work to devise secure systems. Since there will always be hackers, there is bound to be sustained demand for professional expertise in this regard.
Another challenge-cum-opportunity is how to respond to increasingly sophisticated and diverse consumer demands. Today the smart consumer does not confine his shopping to the street-corner store. The easy availability of information on products and services available worldwide means that the consumer can well afford to compare and to pick and choose. The Information Age will therefore add impetus to the axiom that the consumer is king.
Consumers are becoming increasingly discerning. They are also more demanding in their pursuit of, for example, healthier and environmentally friendly products. In short, they need products that suit their needs. The trend towards customisation has already started even for products previously mass produced. Our businesses therefore have to be vigilant and be able to adapt to ever evolving consumer demands quickly. Here information and communication technologies are immensely useful as well - a vast array of information on the latest market trends and demands is literally at our fingertips. The ammunition is out there. Whether we will win the battle in staying ahead is up to us.
The Euro
I now turn to a different subject but is another factor affecting our competitiveness - our exposure to external circumstances. We are all too familiar with the effects of the Asian financial turmoil on Hong Kong's economy. What started off as something distant has now enveloped us. This underlines the importance of our having an adequate response to another important development on the financial horizon - the introduction of the Euro.
Currency is no longer just a medium of transaction; it has become a commodity as well. Changes in the trading volume, value and denomination of currencies directly affect the price competitiveness of products, and hence the profitability of our businesses. It is therefore imperative that we seize every opportunity to reduce exchange related costs. The introduction of the single European currency, the Euro, in 1999 presents one such opportunity.
A few months from now, 11 European Union members qualified for Euro participation will join hands to bring full implementation of European economic and monetary union closer to fruition. At present, according to one study, for a product to cross borders and travel one full circle in all economies which will join the Euro scheme, the need to convert one currency to another will add roughly 60 per cent to the costs of the product. The introduction of the Euro is aimed at reducing such costs as well as the risks arising from currency fluctuations. This will in turn lead to increased trade and greater economic efficiency among the participating European Union members. In addition, the discipline required of economic policies for the Euro zone is expected to help ease inflationary pressure and lead to lower interest rates. This in turn should generate an environment conducive to trade and investment within the zone.
So what is there in it for us? The implications of the Euro and the Euro zone certainly go far beyond the participating European Union members. Our firms too will be able to benefit from the currency and treasury management improvements which the single currency is expected to bring about. In addition, the faster economic growth within the zone will spur employment expansion and consumer spending, and hence stimulate demand for products and imports. This has tremendous importance to potential suppliers, including Hong Kong. The Euro zone accounted for 10 per cent of our total exports in 1997. It follows that the trade opportunity out there is not to be missed.
And the opportunity does not stop on the trade front alone. If the Euro zone does turn out to be economically more robust, the scope for direct investment will increase correspondingly. In any case, Hong Kong businesses will need to consider establishing a foothold in Europe directly so as to stay level with their European counterparts as competition there heats up. At the same time, we should not lose sight of the potential investment in the other direction. With the advent of the Euro and the more competitive market environment that it will bring about, European companies are likely to be under more pressure to search for export platforms and potential markets outside of Europe. Here Hong Kong's position as a regional business centre as well as a window to the Mainland should position us favourably.
At a time when we are feeling the effects of the liquidity crunch, the ability to tap various funding sources should not be lost on us. Here the Euro is also relevant. For monetary convergence will see the emergence of a zone with a relatively high household savings rate of over 10 per cent. Over time, the Euro market could well develop into a good source of funds which is not to be overlooked.
As others have undoubtedly drawn similar conclusions, however, the competition is likely to be intense. The extent to which we can benefit from the European Union's move towards monetary union will largely depend on how ready we are to embrace the change. We shall lose out if our preparations lag behind.
So what should we do? The collective economic clout of the Euro zone and the removal of transaction costs involved in multiple European exchange rates are likely to see the gradual adoption of the Euro as the currency of Hong Kong - European Union trade. Thus, operationally we should review our accounting and invoicing systems. Put simply, we should be able to invoice customers and receive payments in Euro. We should also assess the impact of the Euro on existing contracts and take any necessary preventive and/or remedial measures now.
Looking beyond the very short term, strategically, we need to analyse carefully what the Euro may mean for our corporate strategy. Relevant aspects may include, for instance, the denomination of future contracts, the implications on equity and debt financing as well as the hedging strategy for the company. The impending change in the business environment of the Euro zone also requires a rethink of our marketing and production strategies. How best to serve the diverse demands in a unified market will be a continuing challenge. We need to ensure that our staff are adequately trained and apprised of the possible implications of the Euro as well as the progress in its implementation.
Finally, of course, we need to be extremely vigilant in monitoring developments as the Euro is introduced and as it gradually evolves. Here organisations such as the Hong Kong Exporters' Association as well as the Hong Kong Trade Development Council should be able to help in bringing the latest news and developments to our business people. But make no mistake - how to use the information to their advantage is entirely up to our business people.
Conclusion
Certainly the Information Age and the introduction of the Euro are not the only events that will affect our competitiveness as we move into the next century. I have chosen them as two examples today to draw out a simple message. This message is that the increasingly globalised and knowledge-based world economy presents vast opportunities as well as significant challenges. Our businesses need to equip themselves the best that they can both in terms of both software and hardware. Those who are able to respond to changes quickly and to innovate in finding the right product or service for the right market will stay ahead of the game.
Thank you.
End/Wednesday, September 23, 1998
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