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Following is a speech by the Secretary for Commerce, Industry and Technology, Mr Henry Tang, at the Hong Kong Information Technology Federation Luncheon today (August 7):

Charles, Ladies and gentlemen,

It gives me great pleasure to speak at this luncheon today. This is the first time I address the information technology (IT) industry since I took up my portfolio as the Secretary for Commerce, Industry and Technology. I would like to take this opportunity to share with you on how I see we should drive the development of our IT industry in order to sustain Hong Kong's economic growth as a leading digital city, connecting Asia, connecting the world.

Following the recent re-organisation of the Government structure under the new accountability system, "Commerce and Industry" and "Technology" are brought together under my purview. I would wish to highlight two points about this merger.

The first point is, IT is very much, and will remain, a crucial part of my "Technology" portfolio. I am very committed to driving Hong Kong's IT development into the future. The Information Technology and Broadcasting Branch of my Bureau will continue to be responsible for policy formulation and to support our IT industry. We are committed to the implementation of the Digital 21 IT Strategy and the development of new initiatives for our IT sector.

The second point is, through this merger, we have put innovation technology, IT and SME support all under one roof. This will serve to enhance policy coordination so that we will be able to fully utilise the $5 billion Innovation and Technology Fund, and also be able to utilize the $1.9 billion SME funds, and the $750 million Applied Research Fund, in a more focus and efficient manner. There are other different funding schemes that have been set up to support the growth of the local IT industry and also these funds serve the purpose to promote e-commerce adoption in our business community.

You can be assured that these priority items will be very much top of my policy agenda.

I like to turn to the IT industry specifically. I appreciate the situation you are all facing now and the problems that need to be addressed, with the bursting of the dot.com bubble, and given the current economic climate. Private sector budget for IT development has been shrinking, with many projects are now frozen. Venture capitalists have also become much more cautious in funding IT ventures. Competition worldwide is as keen as ever. And if everything under globalisation, it will become even more keen. Our industry needs to actively explore new markets in order to broaden its client base and also to develop new business opportunities.

Our Government has a strategic role to play in supporting the local IT industry to go through this challenging period. There are four specific areas which I believe we should focus on.

First, Government investment in IT. While the private sector IT budget has been trimming, the Government will continue to invest in our IT infrastructure and systems. We will press on with the E-government strategy. For the current financial year, we have earmarked $1.75 billion to meet our capital expenditure on IT projects. This represents an increase of 12% compared with the approved provision for the last financial year. These figures in a tight budget year clearly reflect our strong commitment to sustain a continuous roll-out of Government IT projects.

And the momentum will continue. As you are surely aware, we have adopted a vigorous outsourcing strategy in order to ensure that the industry will benefit from the many business opportunities from such government projects. In the year 2001, we outsourced over 80% of our IT projects to the private sector, with a value of $1.2 billion. We will continue to actively implement this strategy, outsourcing not only new Government IT projects but we will also outsource application maintenance work that are currently being handled in-house by our departments.

In addition, where circumstances permit and without affecting Government operation and efficiency, we will roll out projects of a suitable size that will encourage the participation of the small and medium enterprises in our local IT industry. One good example is that we recently broke up the IT Professional Services Agreement of the Information Technology Services Department into separate parts and categories so that this agreement is now taken up by 12 different contractors, and over 60 sub-contractors, many of whom are SMEs. The agreement, with an estimated drawn-down value of around $660 million over a 30-month contract period, should go some way in helping our industry, including the SMEs in the field, to tide over this challenging period.

The second point is the quality of service. As market competition becomes increasingly keen, we have to stand out from others by identifying our niche areas and constantly improving on them. With the expertise and experience of the local IT industry in areas such as project management, software quality control, we need to maintain a leading edge. Without improving our quality standard, we will not be able to compete internationally. The possession of international quality standard certification has now very often become the pre-requisite for participating in IT projects in overseas markets. Quality standard has thus become something that is absolutely essential, and not just desirable or something that is nice-to-have.

I know that many of our IT companies are very active in seeking ISO certification. I am also delighted to know that our industry has started to focus on the promotion of Capability Maturity Model, or CMM in short, which is a world-recognised quality standard in software development. Several industry organisations, including the Hong Kong IT Federation, have this foresight and this vision to seek support from the SME Development Fund to carry out these activities, which aim to promote the adoption of CMM amongst local software SMEs. This direction is certainly in the right direction and we will work together to actively drive this important area for the future development of our local IT industry.

To help showcase Hong Kong's IT excellence, my Bureau is now developing a website which will feature the winning entries of the various local IT awards. This will give us a readily available as well as representative instrument for illustrating to our potential partners what quality standard Hong Kong is up to in IT work. We will roll out this web site very soon. We will also actively participate in renowned international IT award competitions in order to raise Hong Kong's profile internationally. You will recall that winning the prestigious Stockholm Challenge Award last year by the Government Electronic Service Delivery Scheme has helped to put us firmly on the international map of E-government development. Our ranking in the international E-government league compiled by Accenture has also risen. We will continue with these efforts tirelessly.

One such initiative that is coming up very soon is that we will support the Hong Kong Computer Society and take part in the Hong Kong delegation to the Asia Pacific Information & Communication Technology Award, which will be held in Malaysia in the early part of next month.

The third area which I wish to focus on is helping the industry to explore new markets. Our local market alone is very small, and we must aim wide in this globally connected world. Hong Kong has signed MOU on IT co-operation with countries, which are advanced in the use of IT. We have done so with eleven countries already. Experience has shown that these MOU indeed help to raise the profile of Hong Kong in the international IT arena, and also it will enhance collaboration between the industries of Hong Kong and our signatory partners.

One recent successful story is the joint venture between a Hong Kong IT company and a Canadian IT company that specialises in land registration system to secure a $150 million contract over the next 10 years from our Land Registry to develop and to manage an advanced Integrated Registration Information System. I wish them all the best.

I intend to make the full use of these MOUs to help local IT industry to explore overseas market, to broaden our network with overseas counterparts, and to identify strategic partners which could enhance the operation of the local industry here in Hong Kong as well as in other markets.

Under the auspices of the MOU we have signed with Canada, I will lead a Hong Kong delegation to visit Canada and attend its major IT show "Softworld" in this September. I hope this will help our industry in tapping the Canadian market, and I strongly appeal to members of the IT industry to join this Hong Kong delegation. If you need further information about this visit, my colleagues in the bureau and the Trade Development Council which organises the trip will be able to give you assistance. Similarly, myself and other senior members of my bureau will continue to work closely with the trade and will continue to help organise and to lead HK delegations in other important international trade fairs.

When we talk about market elsewhere, we cannot afford not to talk about Mainland which is a huge market with huge business potential, especially after the accession to WTO. Market analysts recently forecast that the IT service market in the Mainland will register a 25% growth in the year 2002 to reach 50 billion RMB. There will be a growth of nearly 30% annually in the years to follow, and the figure will reach 130 billion RMB in 2006.

With our close economic relationship with the Mainland and without a language barrier as well as our unparalleled knowledge in the market operation, we are extremely well placed to benefit from the enormous business opportunities that arises. I urge you to seize this once in a life time opportunity. The Trade Development Council and the Hong Kong Productivity Council have been organising delegations for the local IT industry to visit various cities in the Mainland, especially those in the Pearl River Delta which are at close proximity to Hong Kong and which have high IT potential. My Bureau will actively complement these efforts to help local industry to establish a strong foothold in the Mainland market.

Finally, closer to home, in the wider use of IT in the community. We have set ourselves various objectives under the Digital 21 Strategy, including the narrowing of the digital divide, the building of an IT-savvy workforce, the development of a knowledge-based economy, etc. Wider use of IT in the community will of course mean more business opportunities for the industry as a whole.

On the community side, we have achieved a very high PC household penetration of 60%, we have an Internet household penetration of 50%, and also mobile penetration of 86%, that's unbelievably high. We will not rest on our laurels. We are determined to do more to further enhance the use of IT at a community level. That is why we are running free IT awareness courses for the community, providing free IT access at community cyberpoints and cybercentres, and running professional courses in secondary schools in collaboration with multi-national IT companies. These efforts will continue and they will be further strengthened.

On the business side, I fully appreciate the immediate problems that our enterprises are facing, which means IT investment may not be their top priority. On our part, the government will continue to spare no efforts in promoting the adoption of IT and e-commerce in the business community, especially amongst our SMEs.

I am glad to see the SME Development Fund has recently allocated over $20 million to support industry bodies to undertake various activities which would help drive IT adoption amongst our SMEs. I understand that the Hong Kong IT Federation has taken the lead in some of these very meaningful activities.

I have just outlined the key areas which I would like to focus on to support the local industry. I will be eager to hear your views as well. That is why I have come here today, and I hope in the next one to two months, I will be meeting with various IT industry bodies to actively solicit your views on how we should promote IT development in Hong Kong. Surely your LegCo representative Mr Sin Chung-kai has already organized a meeting with me next week before he goes on holiday to give me your first-hand views on development of the industry and the concern of our industry.

While we have to tackle the immediate problems facing us, we must not lose sight of the future prospect. The International Data Corporation has forecast that world IT spending may recover in the fourth quarter this year, and total spending next year may exceed US$1 trillion for the first time in the history of the industry. While the uncertainties in South America as well as the Middle East may put a damper on the recovery in the fourth quarter of this year, I do believe that the long term prospect of the industry is very good. This should be something that is within our grasp. But to stay ahead in this very competitive global environment, we must transform our economy into a higher value-added and more knowledge-based economy. IT is the utility that will help get us there.

Hong Kong relies on the support of the IT industry to help our economy go through this challenging transformation. As the Secretary for Commerce, Industry and Technology, I look forward to working closely with you, the Hong Kong IT Federation, and other members of the IT industry to make this transformation a success.

Thank you very much.

End/Wednesday, August 7, 2002

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