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Hong Kong Information Technology Report Q3 2007Product Type: Market Research ReportPublished by: Business Monitor International Published: October 2007 Product Code: R302-1327 Description Market OverviewThe Hong Kong IT market is forecast by BMI to grow from US$3.4bn in 2006 to around US$4.8bn in 2010. With Hong Kong having enjoyed 15 consecutive quarters of economic growth, BMI sees the Hong Kong IT market continuing to enjoy the positive effects of increasing cross-border activities. Hong Kong is a trend setter and test market for vendors whose consumption patterns influence and anticipate trends in Beijing and Shanghai. Recent product launches by Microsoft and Dell have further testified to this. With greater consumer and business confidence resulting from the global economic recovery and a push coming from the popularity of new applications such as wi-fi and bluetooth, as well as converged services such as PCCW’s IPTV service, hardware spending is expected to be strong. One factor underpinning the sophisticated market is the sophisticated IT infrastructure and in particular the growing popularity of broadband and converged services. However, ten years after the handover from Britain to China, Hong Kong still faces a challenge to modernise and main its regional hub status in sectors from finance to shipping. The banking sector will provide a particular opportunity as the sector struggles to fight off competition to its financial hub status and bring its IT infrastructure closer to the levels of other financial centres. Change therefore continues to challenge Hong Kong’s domestic IT sector. Progress has not always been smooth, as evidenced by occasional bouts of soul searching about the perceived greater success of Taiwan or Singapore. The Cyberport high-tech zone project is widely considered not to have fulfilled its potential, while concerns that the development of Hong Kong’s high-tech industry has been hampered by inappropriate government policies were expressed during the recent election campaign for the post of Chief Executive. Meanwhile a new wave of IT vendor investments in the Hong Kong Special Administrative Region (SAR) demonstrate the growing significance of Hong Kong as a hub to serve the growing Pearl River Delta market. In the past ten years since the handover to PRC control, around 77,000 Hong Kong owned or controlled manufacturing operations have been established in the Delta region. As these operations face increasing competition from other low-cost manufacturing locations, there is an increasing opportunity for Hong Kong based IT companies to provide IT products and services. Small and mediumsized Hong Kong companies are also increasingly investing in new applications to help them manage trade with the mainland, which has been boosted by initiatives encouraging the integration of Hong Kong’s economy with its large neighbour, and the abolition of taxes on cross-border trade. Competitive Landscape With a growing vendor focus on the SME market in Hong Kong, July saw Dell choose the SAR as the location for its regional launch of its two new low cost Vostro PCs. The Vostro PCs are targeted at SMEs, with Dell describing the SME segment as ‘the industry’s fastest growing PC segment’. The prices for the Vostro will start at HKD2999 and the notebooks are being promoted to local companies as well as Education and Public Sector organisations. Dell anticipates that competitors will also improve their offering to the SME market segment. Meanwhile, Microsoft has announced that it plans to make Hong Kong the centre of a new push to benefit from growth in the Pearl River Delta area which also includes Guangdong and Shenzhen in the mainland. The new strategy involves Microsoft’s most aggressive investments in Hong Kong since 2002, and includes expanding the firm’s headquarters at Cyberport by 70% to almost 80, 000 square feet. The company will also increase headcount by 15% to six hundred. The move complements Microsoft’s recent announcement of up to US$300mn new investment in mainland software companies. Industry Developments The recent signing of a co-operation agreement with the mainland on Information Technology highlights the close ties between Hong Kong and mainland China and the opportunities for IT vendors. An important focus of the agreement is to allow Hong Kong companies to participate in the development of new national standards and products. The areas of the co-operation will include consumer electronic projects, digital TV, electronics and integrated circuitry design, as well as mobile communications, and wireless broadband access. Enterprises, institutes and exporters will all participate. Computer Sales According to BMI forecasts, the computer market will be worth US$1.7bn in 2007, up from US$1.5bn the previous year. Hardware CAGR for the 2006-2011 period should be in the region of 4%, with the growing popularity of broadband helping to support growth in the consumer segment. The Closer Economic Partnership Agreement with the mainland is continuing to expand horizons for smaller enterprises and encourage investments in IT. Meanwhile, a new telecoms service-provider focus on broadband revenues will provide a drive to the consumer segment, with PCCW’s IPTV services and a number of other broadband applications helping to fuel demand for desktop and notebook computers. One example of a recent popular service is PCCW’s `Newsnapp!' service, which allows users to share and view photos and video clips via a number of channels including a PC. Software Software sales were worth about US$859mn in 2006, according to BMI estimates, and were expected to rise to about US$919mn in 2007. Hong Kong is one of the most advanced software markets in the region and has long been an important market for new packaged software product launches. The operator of Hong Kong’s subway, the MTR Corporation, is an early adopter of Windows Vista and Office 2007, the launches of which this year were expected to provide a boost to software and hardware sales. Companies are increasingly looking to software products in order to provide a competitive edge and improve efficiency and responsiveness to customers. The key financial sector is expected to be a major spender in the forecast period as Hong Kong looks to defend and expand its position as a regional financial centre against competition from cities like Shanghai. Services In 2007 the IT services sector is expected to grow around 10% in US dollar value to about US$1.1bn. IT services CAGR is expected to be around 6% in 2005-2010, with a trend towards larger outsourcing projects in both the public and private sectors evident over the past couple of years. IBM and Hewlett Packard HK (HP) are among those which have won large deals. One of the highest spending verticals should be the financial sector, where IT systems and processes generally lag some way behind Hong Kong’s status as a leading global financial centre. E-Readiness Hong Kong is strengthening its WiFi strategy as it attempts to keep up with regional leaders such as Singapore and Taiwan. Wireless networking is emerging as an important feature of computer, and especially notebook, sales and both island nations have been ahead of Hong Kong in setting up wireless networks and applications. Recently the Hong Kong government has committed another HKD220mn over two years to the deployment of a community WiFi network that will serve more than 200 public venues. These will include government offices, libraries and major cultural and recreation centres. Some venues in Hong Kong, such as Cyberport and Hong Kong airport, already have WiFi. Aside from the driver effects for the PC market, the project will also provide direct opportunities for PC vendors as work gets under way with network installation and procurement of hardware software and services. The internet user penetration rate rose to 56% in 2006, and is expected to rise to 69% by 2011, with the number of users forecast to reach around 5.2mn. Hong Kong’s international bandwidth prices should decline further over the next few years, giving a further boost to the sector. In 2006 the number of broadband subscribers was around 1.9mn; this is expected to rise to around 2.4mn by 2011. Digital 21 In September 2004 the Hong Kong government set up a new Digital 21 Strategy Advisory Committee (D21SAC) as its main advisory board on information technology and related matters. Chaired by Commerce Secretary John Tsang, the committee advises the government on strategies and measures to further the goals and objectives set out in the Digital 21 Strategy. The D21SAC replaced its predecessor, the Information Infrastructure Advisory committee (ILAC), as the highest level government advisory body on IT matters. Under the current phase the focus is on service quality, including the consideration of lower pricing for e-services and an increasing emphasis on customer relationship management (CRM). Other ongoing initiatives under the strategy include promoting the Science Park and Cyberport more aggressively through trade promotion offices. Cyberport The Cyberport was designed to provide the city with a major regional hub that would attract leading IT companies and professionals. The first phase of the HKD13bn project, developed by local giant PCCW, was inaugurated in November 2001. After the science park opened in June 2003, it came under criticism for having failed to attract enough tenants to fill the 38,000m2 of office space. This was mitigated slightly when the Dutch electronics giant Philips agreed to rent a floor, and subsequently when Microsoft announced it was moving its 250 Hong Kong-based employees there. However, the high-tech blue chip companies seem to have lost interest, with commentators pointing to the lack of a mature VC community, favourable e-government policy, or even ‘entrepreneurial spirit’. As the Cyberport does enjoy some advantages, including a good location and proximity to the vast mainland market, demands are growing for the government to revive the project. Company News While Singapore and Shanghai now rank ahead of it in the global rankings, Hong Kong ports remains a major sector of opportunity for IT vendors. Hong Kong is determined to retain its dominance. Recently, Hong Kong based Kerry Logistics awarded a contract to GT Nexus to launch a multi-carrier ocean shipment visibility platform over its portal. Meanwhile Oracle and Savi Technology announced a partnership on GPS technology for cargo containers travelling from Hong Kong to Japan. A similar opportunity is presented by the financial sector which is also struggling to bring its IT infrastructure closer to the levels of other centres. Until recently many trading houses were running operations with Excel spreadsheets. Recently Nisys Orp announced that it had won a contract to build a securities trading system for the largest financial services company. While the value of the contract from Sun Hong Kai Co. wasn’t revealed, the project will see a new system deployed to enhance end-to-end brokerage processes and consolidate business operations. Table of Contents
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