Following is the speech for the Postmaster General, Mr. P. C. LUK, at the Hongkong Post World Mail & Express Asia 2001 Conference and Exhibition held today (February 21): (English only)

"Building for the Future" -

Good morning, Mr. Jackson, Mr. Leavey, Distinguished Guests, Ladies and Gentlemen,

Introduction

It is indeed an honour for me to speak to you at this World Mail & Express Conference in Hong Kong. This event is particularly significant because it is the first time this Conference is held in Asia. Before I begin to talk on "Building for the Future", I would like to say something about Hong Kong for the benefit of those of you who may not be too familiar with this place. You may be interested to know that the very place you are now sitting was part of the sea! It may be hard to imagine that a tiny place with less than 1,100 square kilometres, stuck on the south-east coast of China, with basically no natural resources of any sort, Hong Kong could have transformed in just over one and a half centuries into a spectacular, dynamic and successful territory.

2. With a population of nearly 7 million people1, Hong Kong ranks 94th in the world in terms of population2. But Hong Kong is the world's ninth largest trading economy. Per capita GDP is second only to Japan among non-oil producing economies of Asia, and more than even some of the advanced economies1.

3. Our container port is the biggest in the world2. Our new airport at Chek Lap Kok is one of the busiest in the world. On average, 470 aircrafts landed at or departed from this airport daily. We are one of the world's leading financial centres - 9th in terms of external banking transaction; 7th in terms of foreign exchange transactions; 2nd largest in Asia in terms of stock market capitalization.3

4. Now all this did not appear by magic or fall out of the sky. It is the result of the diligence and versatility of our people and a system of government which lets enterprise flourish.

5. Ladies and Gentlemen, I wish to say, as the Postmaster General of Hongkong Post, I am proud of the Department which I head. Based on my contacts and experience with other postal counterparts, I consider that on the whole my staff do a pretty good job, bearing in mind the volume of traffic that goes through their hands each year and the fact that changes in staffing have not matched the trend in traffic.

6. Going into the twenty-first century, does the same formula apply? What is going on in the world with the Post? What do we need to do to survive? I will attempt today to share with you what we in Hongkong Post see of the postal environment and what we think needs to be done to 'build for the future'.

The Age of Electronic Communication

Boom of Internet

7. In today's world, the very first thing a business executive does when he arrives at the office is probably to switch on his desktop computer and read the incoming emails. I do it, and I think that I can safely assume that this is also what most of you here do everyday. Nowadays Internet has become the major channel of information flow and means of communication. Dataquest estimated that the global number of desktop computers that access the Internet will grow from 104 million in 1998 to 316 million by 20031 With technological development, the Internet Services Providers (ISP) are launching broadband infrastructure making high-speed download possible.

The Emergence of e-Commerce

8. This technology is changing the way we were living in the last decade. Apart from email which I send and read daily, as you probably do, the technology creates the possibility of developing products into digital form which can be "shipped" to the consumer directly from the producer through the optic fibre. I can name some products such as music, software application and digital photos. With the improvement in electronic security, banking is now on the net. You don't have to rush to the bank before it closes and queue up in front of the teller. You can do transactions at any time convenient to you.

9. Parallel to the increase in popularity of Internet access, the quality of consumers is changing. Since consumers are becoming more educated, sophisticated and informed, they are more comfortable with technology. With a higher expectation of service provision, they are demanding less waiting time but high product and service quality assurance. Recognising the changing needs of the consumer, dot.com companies have emerged to promote and conduct e-Commerce both in the B2B and B2C sectors. It is estimated that global B2C revenue will grow from US$3.5 billion in 1998 to US$170 billion in 2003, whereas, B2B will grow from US$35 billion to US$800 billion in 20031.

10. All these transactions can be done 24 hours a day, 7 days a week and 365 days a year between any part of the world - no border, no time difference.

Hong Kong Scenario

11. Back in Hong Kong, we have seen a gradual increase in the volume of mail handled. In 1990 we handled 868 million postal items1, whereas by 2000, this has shot up to 1,342 million2, representing an increase of 55% over a period of 11 years. On the other hand, the change in the number of mobile phone subscribers and Internet connection in minutes have been staggering. In the case of mobile phone subscribers, there were 134,000 in 19903. However, this became 5 million in 20004. The increase was 37 folds! What this means is that with our population of 7 million, every 1.4 person will have a mobile phone.

12. For Internet connection, the traffic volume recorded in 1998 was 5.36 billion minutes. By 2000, this has grown to 14.99 billion minutes5. The increase was nearly 3 folds in two years. This indicates the growing popularity of the Internet and it is expected that the demand for WAP phones will be overwhelming. All these will foster the growth of Internet shopping and e-Commerce.

13. e-Commerce will be further promoted by the lead the Hong Kong Special Administrative Region (HKSAR) Government has taken to introduce the "ESD (Electronic Services Delivery) Life" project. It is the HKSAR Government's vision that Hong Kong will be developed into a CyberPort in accordance with its "Digital 21 IT Strategy". The aim is to build a broadband infrastructure to promote Hong Kong as an e-Commerce hub. "ESD life" will enable the public to access Government services, such as applying for driving licenses, paying tax, booking of appointments etc., through Internet workstations in public areas. The push will undoubtedly make electronic transactions more popular.

14. According to the study on "The Internet Market in Hong Kong", International Data Corporation (IDC) estimated that, as security in the technology advances, the total e-Commerce revenue will grow from US$61 million in 1998 to US$3.16 billion in 20031 an increase of 51 times.

15. Given the phenomenal development in electronic communication, what are the threats and opportunities for the Post?

Threats to the Posts

16. Does it sometimes strike you that you receive far fewer letters than you did ten, or even five years ago? How many letters, even including business letters, did you write last week or last month? Did it increase when compared to last year? I think in most cases the number will have decreased.

17. Indeed, we are getting more and more dependent on the Internet as a means of communication. So much so that email has become the second most common form of office communication, after the telephone. Therefore, it is small wonder that we are receiving fewer letters from business associates through the post.

18. The Internet is also increasingly used by the Post's largest customers, such as utilities and banks, in sending bills to their customers. In Hong Kong, Internet Service Providers and some mobile phone operators have started to send electronic bills through the Internet a few years ago, thereby diverting quite a portion of our traffic away from the postal system. Worse still, things are not going to stop there. The advancement of technology has made it possible for us to settle our bills, transfer funds between bank accounts by means of the telephone, or on-line through the Internet. We no longer need to send a cheque by post, or go personally to the bank or some other payment offices. The impact on the Post will be significant.

Opportunities and Building for the Future

19. But I am not saying that the Post is doomed. Far from it! As we will recall, this is not the first time that the Post has faced threats to its existence. In the same way as the Post has survived those threats and prospered, I believe that it will continue to do so. In saying so I am fully aware of the danger of being seen as complacent. But I have reasons to be on the optimistic side, because there are opportunities that the Post can seize in this new era of e-Economy.

20. In the past, Posts have mainly concentrated in managing the throughput of their core physical processes, i.e. the collection, sortation, transport and delivery of mail. These physical processes can provide a great deal of data. The network economy of today requires us to turn that data into knowledge, enabling us to become an integral part of the e-Commerce by addressing the areas in

* Customer relationship management (CRM)

* Supply chain management (SCM)

* Business intelligence (BI)

21. Now, I wish to share with you what we see the opportunities are, and how we can build for the future by grasping these opportunities.

Customer Relationship Management (CRM)

22. Competition in the new economy is intense and to tackle the challenge of retaining customers, we have to go beyond simply satisfying them. Customer relationship management is one of the tools that provide insight to customer needs, and help us to maintain and grow their business. To achieve this, we need to make use of the enormous amount of data passing through the Post and convert them into useful data showing, for example, the customers' buying habits. Through analysing and structuring the data, they can be used to help improve postal products.

23. Continuous quality improvement is another area we need to focus in meeting the keen market competition. We in the Post need to conduct internal as well as independent customer satisfaction surveys to monitor customers' views on our service. By capitalising on our strengths in operating a large retail network, we should be able to provide quality and a diversified range of services. Striving for Total Quality Management and continuous improvement, especially in customer service, we need to benchmark our services with the market's best practices, and identify and implement changes to enhance our performance to meet and exceed customer expectations.

24. The Post also has to develop customer account management, through which we are able to understand individual customer's needs, and consider what we have to offer. We should aim to provide postal solutions that are most suited to the needs of our clients. In addition, by analysing our customer database, we will be able to identify what needs to be done to enhance our customer relationship management programme.

25. Under CRM, we in Hongkong Post, have but one ultimate objective: to meet our customers' needs and in the process exceed their expectations.

26. Under such a guiding principle, we will have much more to offer our customers, and among these, Supply Chain Management (SCM).

Supply Chain Management (SCM)

Hybrid Mail

27. We have discussed the threat of e-Billing. We may imagine one day we will receive no physical bills but only electronic ones. However, I do not foresee that this will happen for a long time. In the meantime, what can the Post do to take advantage of technology development? One obvious opportunity is Hybrid Mail.

28. Utility companies and government agencies have a large customer base in terms of population and the number of households. At regular intervals, they have to send out bills. Although the volume of mail is big, the company may find it not cost-effective to maintain a print site of their own because the mailing only occurs on a few days each month. More and more companies are now considering outsourcing their printing and mailing functions to enjoy economies of scale and to reduce operating costs. However, in selecting an agent to perform these functions, there is concern that their customer database may be revealed to a third party.

29. The Post, with the traditional trust it has built up through delivering mail for the community quite naturally assumes the role of trusted third party. The development of Hybrid Mail enables the Post to provide a total solution to customers who need to send standardised mail, such as bills or statements, at regular intervals to a large number of customers. Through the use of this technology, the Post can receive data electronically from customers; sort the address data according to the delivery zones; send sorted data electronically to the print site where the mail pieces are to be delivered; print out the bills or statements as previously segregated and envelop them; and finally sort and deliver the mail to the recipients.

30. The advantages of Hybrid Mail are quite obvious. Firstly, the printing cost will come down due to economies of scale in the Post. Secondly, service quality improves as Hybrid Mail dispenses with a significant part of the physical movement of mail.

Direct Mail Marketing

31. We all now recognise that e-Commerce has explosive growth potentials. Such forecasts as sales over the Internet will grow to so many trillion US dollars in five years is no longer stimulating to us. On the Internet, any business, irrespective of its size, can have penetration to sell to a national or even global market through the setting up of a web site. But the problem is, with the vast number of web sites on the Internet, how can a vendor make sure that customers know of him and attract them to visit a particular web site, especially if the business is not among one of those dot.com companies that enjoy frequent media coverage? In a global market, how can they, operating from Hong Kong, introduce their products to potential customers?

32. This is where the Post can have much to offer. We in the Post can penetrate the anonymity of email addresses and deliver marketing literature to potential customers locally and internationally. Direct Mail, as we call such kind of literature in the Post, is one of the most cost-effective means of marketing for big and small businesses alike. This is true not only to small and medium enterprises seeking business opportunities in a national or global market, but also big businesses. Our own experience has shown that the boom in e-Commerce and the intensification in the competition within the telecommunications market resulting from increased deregulation, have generated substantial demand for Direct Mail marketing. In the past few years, we have recorded double-digit growths in our Household Circular Service, (a service for the delivery of unaddressed items to targeted households and businesses), which is increasingly being used as a direct marketing tool.

International Express Mail (EMS)

33. The fact goods ordered on the Internet cannot be delivered by modems etc is plain to all of us here. The development of e-Commerce and the wide adoption of the just-in-time (JIT) production technique in the manufacturing industries generate great demand for package delivery services. IATA predicts that freight will grow at an average annual rate of 5.5% in the period of 1999 to 2003.

34. In a wider context, technological advancement brings in international division of labour. One single product is assembled from probably hundreds of parts which are produced in various economies with the least manufacturing cost involved. The JIT concept requires shipment of parts, semi-products, as well as final products all over the world. Posts in collaboration will run an excellent delivery network universally. With concerted effort, we can definitely render the best service world-wide.

35. To capitalize on the opportunities we need to provide customers with quality services at competitive prices. We must remember that choices abound for customers. We in Hongkong Post fully recognise this. In the case of EMS, we have introduced time certain service for documents to selected cities and are working to expand the coverage of the service. We are also exploring ways to lower the delivery cost of the EMS items, thereby stimulating the traffic of heavy weight EMS items. We will continue to benchmark the best practices in the trade and meet the changing needs of our customers in refining our service offerings.

Logistics Service

36. If we go one step further than the delivery of packages, we will be able to see potential in a new area, namely, logistics.

37. Logistics is an integral and critical part of a company's business value chain. Increasingly, greater attention is directed at logistics management operations, as it is now regarded by many as a competitive tool. There are several factors that led to this shift in management focus.

38. Firstly, competitive pressures in the marketplace have compelled enterprises to re-engineer their logistics systems in order to achieve JIT inventory level and time-to-market objectives. As product and technology life cycles become shorter, the need to adapt to a rapid turnaround solution has become compelling.

39. Secondly, globalization has resulted in the movement of large volumes of components, semi-finished and finished products between manufacturing locations and the marketplace. Managing and implementing such a flow of goods and information is a complex task.

40. Lastly, management realises that a good logistics system can reduce operating cost through reduced inventories, shipping errors, storage space requirements and administration efforts. These savings can amount to a significant cost advantage to a company.

41. The outlook of the logistics sector in Hong Kong remains favourable. With increased degree of integration of Mainland China's economy with that of the rest of world, we can expect an increase in the flow of goods in and out of Hong Kong, which provides support services to the Mainland's manufacturing bases.

42. A prospective point of business entry for logistics service providers is to be a fulfilment agent of e-Commerce companies. As all we know, Posts own a large retail network, universal coverage of delivery services etc. These assets can benefit e-Commerce business as the Post can help to provide a total solution comprising:

ƒÙ Delivering marketing literature, sales catalogues etc to customers in the national or global market.

ƒÙ Collecting from e-Commerce companies packages containing goods that their customers have ordered on-line or by post.

ƒÙ Distributing these packages according to the standard of service which the e-Commerce companies stipulate and delivering them to the recipients' addresses within the service pledges.

ƒÙ Delivering cheques which purchasers send to e-Commerce companies for payment of the goods ordered, and also handling goods which customers want to return to the vendors for whatever reasons.

43. This indeed is a total solution in the traditional sense of the postal service. But do we have to stop there? I certainly do not think so.

44. Building on its traditional strengths, the Post certainly has the capability of providing a whole range of value-added services, such as warehousing, order processing, pick and pack service, consolidation, product configuration as well as web-based support such as real time inventory information, track and trace and proof of delivery of packages. In this way the Post can be integrated into the supply chain of the customer.

Certification Authority

45. Security on the Internet is another crucial factor affecting the growth of e-Commerce. This relies greatly on the development of a reliable public key infrastructure. Throughout the world, postal administrations have emerged as natural trusted third parties by virtue of their neutral status which make them ideal candidates to serve as Certification Authorities. Serving as a Certification Authority opens up new opportunities for postal administrations in the electronic world to leverage their valuable trusted and neutral status to support the development of electronic commerce and generate new business for the Post.

46. Hongkong Post has already set up a Certification Authority (CA) here to offer certification services by means of a local public key infrastructure. The CA service has spurred the use of public key infrastructure technology in new on-line services provided by both the public and private sectors, like on-line stock trading, Internet banking services, Government services provided to the public through electronic means, and secure wireless transactions. It is our intention to work closely with other postal administrations and overseas certification authorities to explore opportunities for cooperation to jointly develop services and applications for the efficient and effective use of information technologies in the postal world of tomorrow.

Regional Logistics Network

47. Ever since international mail was exchanged, the postal fraternity has worked closely to form a single territory and to render Universal Postal Service. Nowadays, we need to work even closer to form Logistics Network. It has been said that the Post owns the last mile. We operate a delivery service covering every residential and business address. And we can upgrade our service to become a truly seamless logistics solution. Seamless in the sense that customers do not need to bother about having to deal with overseas postal administrations. No matter where their warehouses are or where their customers are located within the region, and whatever postal products they use, they only need to deal with the postal enterprise in their own country, as if the Post is one regional company. Collaboration between Posts in this respect can translate into a powerful competitive edge.

Business Intelligence (BI)

48. The Post, I believe, is the largest distribution network in the world. Everyday, our postal staff, be they working in the branch outlets, delivery teams, telephone hotlines, mail sorting operations, are in close contact with our customers. No other company will know more than Post does about the habits and characteristics of their customers. If we could turn this information into knowledge and sales intelligence, we will be very powerful indeed.

49. One of the most valuable assets Post can have is a well structured and meaningful address database. I have just mentioned that Direct Mail will be the prevailing marketing tool that marketers will use to promote their net or services. That's exactly what Kim M. Bayne, writer of "Internet Marketing Plan", said on the topic of "the future of wireless marketing". She commented that, even after vendors have incorporated wireless devices into their marketing arsenal, they still have to get the word out to their established customers that they can be found on an Internet-enabled phone. If they are smart, they will grasp firmly into the Web and the more traditional marketing media. There will still be a large percentage of customers who haven't and won't switch their information-gathering habits to wireless devices for years to come1.

50. Fellow postal colleagues, I wish to stress that business intelligence is a very important asset. I suggest you cultivate an awareness of this and make efforts to keep close track of what your customers want and what your competitors are doing so that you can devise appropriate strategies to meet the challenges.

Conclusion

51. Summing up what I have said, I am optimistic that despite the growing threats facing the Post, provided we keep track of what is happening, work closely among ourselves to improves our service performance and develop new services and products to meet the changing needs of our customers, we too can benefit and grow in the new e-technology era.

52. Finally, as the Postmaster General of Hongkong Post which is a government department, I would like to share with you a few principles taken from the book "Reinventing Government" by David Osbourne and Ted Gaebler1, which I think would be beneficial for postal administrations to bear in mind when examining the role they play and services they provide:

* The ownership of the service is the community and not the bureaucracy

* The question is what to achieve and not how to achieve

* Funding is for the outcomes and not the inputs

* The one on the driver's seat is the customer and not the bureaucracy

* The service has to leverage change through the market.

53. It has been a pleasure talking to you.

End/Wednesday, February 21, 2001

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