Ecosystem Building for Hong Kong's IT Industry


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Ecosystem Building for Hong Kong's IT Industry

  1. 1. “ Hong Kong as an Enabling Platform for China to be a Global R&D & Service Center of ICT Industry” Presentation at HKICC 2007 Panel Session Prepared by: Al Kwok President, CASPA PRD Chapter Governor, Savantas Policy Institute
  2. 2. Outline <ul><li>Information Age & ICT Service Industry </li></ul><ul><ul><li>The Engines of Growth for Information Age </li></ul></ul><ul><ul><li>The 3 Platforms; ICT Business Areas and Opportunities; ICT Service Ecosystem </li></ul></ul><ul><li>Global ICT Service Outsourcing Trend </li></ul><ul><ul><li>Outsourcing Trend & Activities; Offshore In-sourcing </li></ul></ul><ul><ul><li>ICT Service Outsourcing Markets </li></ul></ul><ul><li>New Approaches for China’s ICT Service Industry & Software Outsourcing Business </li></ul><ul><ul><li>Benchmarking w/ India in ICT-Services </li></ul></ul><ul><ul><li>China’s ICT Service Industry Segments & Challenges </li></ul></ul><ul><ul><li>Work Categories; Experience Requirements & Skill Levels </li></ul></ul><ul><ul><li>ICT Service Project Lifecycle </li></ul></ul><ul><ul><li>Ideal Team Structure for ICT Outsourcing Business </li></ul></ul><ul><li>Hong Kong as an enabling platform: To be the Silicon Valley of China </li></ul><ul><ul><li>Hong Kong’s Key Differentiations </li></ul></ul><ul><ul><li>HK/SZ Joint Advantages (vs. India) </li></ul></ul><ul><ul><li>Well-educated Immigrants & Hong Kong as the “Silicon Valley” of China </li></ul></ul><ul><ul><li>Improving China R&D Capabilities </li></ul></ul>
  3. 3. Information Age & ICT Service Industry
  4. 4. The Engines for Information Age <ul><li>The 2 main engines of growth </li></ul><ul><ul><li>Moore’s Law : for hardware platform </li></ul></ul><ul><ul><ul><li>More functions for less cost over time </li></ul></ul></ul><ul><ul><ul><li>CMOS is the enabling technology </li></ul></ul></ul><ul><ul><ul><ul><li>Power & signal integrity management is the key </li></ul></ul></ul></ul><ul><ul><ul><ul><li>More functions for less power (device scaling) </li></ul></ul></ul></ul><ul><ul><li>Metcalfe’s Law : for network platform </li></ul></ul><ul><ul><ul><li>More useful as more users join a network </li></ul></ul></ul><ul><ul><ul><li>Internet (WWW) is the enabling technology </li></ul></ul></ul><ul><ul><ul><ul><li>QoS issues addressed by Knowledge-Based Processors </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Multimedia (Quad-Play) on a single network platform </li></ul></ul></ul></ul>
  5. 5. Source: Intel Presentation Moore’s Law as the growth engine of hardware platform: IC cost reduction by 50% in every 18 months or less
  6. 6. Metcalfe's Law <ul><li>Metcalfe's law states that the value of a telecommunications network is proportional to the square of the number of users of the system ( n 2 ) </li></ul><ul><li>More users also drive down the shared costs </li></ul><ul><li>The trend: every person or device will be connected through internet! </li></ul>
  7. 7. Information Age <ul><li>Information Age (the age of knowledge-based society) is built on 3 successive global platforms: </li></ul><ul><ul><li>1) Hardware platform that is mass-affordable - Moore’s Law </li></ul></ul><ul><ul><li>2) Network platform that is universally accessible - Metcalfe’s Law </li></ul></ul><ul><ul><li>3) Content/service platform that enables experience sharing </li></ul></ul><ul><li>Hardware platform means electronic devices… </li></ul><ul><ul><li>A vast network of electronic devices covering access (personal access devices), edge and core levels </li></ul></ul><ul><ul><li>Made mass-affordable with semiconductor technology (scalability of CMOS) </li></ul></ul><ul><li>Network platform with global internet (Internet Protocol-based) connectivity </li></ul><ul><ul><li>Information highways, storages & traffic management </li></ul></ul><ul><ul><li>Enable information-sharing for anybody anywhere anytime </li></ul></ul><ul><li>Content/service platform for experience sharing </li></ul><ul><ul><li>Application service providers (ASP) for corporate clients </li></ul></ul><ul><ul><li>Content providers for various consumer markets </li></ul></ul>
  8. 8. Information Age - cont. <ul><li>ICT (Information & Communication Technology) is the technological and associated business process engineering (BPE) know-how to optimize the interactions among the 3 platforms for valued goods and services to consumers/end customers </li></ul><ul><ul><li>Technology being disruptive in nature drives business process re-engineering for competitive advantages - that’s change! </li></ul></ul><ul><ul><li>The shorter the technology/product lifecycles as fuelled by scalability of CMOS (the first cause on the supply side), the quicker the business process re-engineering cycles will be for better goods & services (the first cause on the demand side) </li></ul></ul><ul><li>Competitiveness based on BP re-engineering drive new business paradigms & models </li></ul><ul><ul><li>Outsourcing & business platform/ecosystem building </li></ul></ul><ul><ul><li>Globally distributed work-teams/business networks </li></ul></ul>
  9. 9. ICT Business Areas & Opportunities Moore’s Law and Metcalfe’s Law (acting on H/W and Network Platforms respectively) are fuelling on-going ICT systems re-engineering for global improvements (changes) like magma shaping earth’s crust’s movements High-valued services with good business potentials Network environment given (by providers) or to be set up Data mining from public domain to add values Factors given or to be used “as is” – not to reinvent H/W components S/W & F/W Network Platform System (H/W) Platform Network Services/environments: Internet, cellular, WiMAX System Integration Protocols & Interfaces (Open stds. for reuse?) Content Layer Service Platform CRM, ERP, POS, etc. Applications (ASP) Consumer Services Public Domain Company Proprietary Bus. Domain Knowledge Instructions & Interfaces New ICs and Devices every 18 months or less
  10. 10. ICT Service Ecosystem (Pro-choice) <ul><li>Knowledge-based society is achievable only if a well-managed ICT service ecosystem is sustaining it </li></ul><ul><li>The service ecosystem (multi-sources & no weak-links) : </li></ul><ul><ul><li>Hardware platform: </li></ul></ul><ul><ul><ul><li>Components : IBM , Intel , AMD, TI , Samsung , Freescale, Infineon, nVidia, Broadcom, Qualcomm , NetLogic , MediaTek, TSMC , UMC… </li></ul></ul></ul><ul><ul><ul><li>Systems : Apple , Dell , HP, Lenovo, IBM , Sun , NEC, Samsung… </li></ul></ul></ul><ul><ul><ul><li>Software : Microsoft , Apple , IBM , Oracle , SAP, Sun, HP… </li></ul></ul></ul><ul><ul><ul><li>System integrators: IBM , HP , Sun, Flextronix , Foxcomm , Quanta… </li></ul></ul></ul><ul><ul><li>Network platform: </li></ul></ul><ul><ul><ul><li>Service providers : AT&T , Verizon, China Telecom, China Mobile … </li></ul></ul></ul><ul><ul><ul><li>Equipment suppliers : Cisco , Motorola, Siemens, Acatel, NEC… </li></ul></ul></ul><ul><ul><li>Service/Content platform: </li></ul></ul><ul><ul><ul><li>Google , Yahoo, AOL, Apple , DoCoMo, Baidu, China Mobile… </li></ul></ul></ul><ul><ul><li>BPE (business process engineering) service providers: </li></ul></ul><ul><ul><ul><li>IBM , HP, SAP , TCS (Tata) , Infosys , E&Y, PW&C… </li></ul></ul></ul>
  11. 11. ICT Services Mean Everything! <ul><li>All services in any industry are relied on ICT infrastructure and know-how for their effective deliveries </li></ul><ul><ul><li>ICT is the critical enabler for global competitiveness </li></ul></ul><ul><ul><ul><li>Companies lack of ICT proficiency will be history! </li></ul></ul></ul><ul><li>ICT services encompass everything: banking, finance, logistics, tourism, manufacturing and so on </li></ul><ul><ul><li>Integrating ICT capabilities into the business process is a matter of survival of the fittest ! </li></ul></ul><ul><ul><li>All business processes are continually reengineered for better ICT capabilities in “ a globally networked world ” valuing “ differentiating customer services to everybody, everywhere and anytime ”. </li></ul></ul><ul><li>Inevitable future trends : </li></ul><ul><ul><li>ICT service management is the hottest topic for this century! </li></ul></ul><ul><ul><li>ICT services will generate >50% of all high-paid jobs worldwide! </li></ul></ul><ul><ul><ul><li>“ ICT proficiency + business domain knowledge” is a must! </li></ul></ul></ul><ul><ul><ul><li>Productivity improvements greatly outweigh the cost! </li></ul></ul></ul><ul><ul><li>ICT service capabilities determine global economic power! </li></ul></ul>
  12. 12. Global ICT Service (Offshore) Outsourcing Trend
  13. 13. Outsourcing Trend & Activities <ul><li>Pre-internet & pre-globalization era (‘70 -> ‘90): </li></ul><ul><ul><li>Overseas customer management - sale rep. </li></ul></ul><ul><ul><li>Manufacturing outsourcing - cost & logistics savings </li></ul></ul><ul><ul><li>FAE outsourcing - overseas cust. tech. supports </li></ul></ul><ul><ul><li>Product R&D outsourcing - acquiring know-how & IP </li></ul></ul><ul><ul><ul><li>Speed up time-to-market and time-to-mass production </li></ul></ul></ul><ul><li>Broadband internet & globalization era (1990 ->): </li></ul><ul><ul><li>ICT service outsourcing </li></ul></ul><ul><ul><li>Customer service outsourcing </li></ul></ul><ul><ul><li>Product development outsourcing </li></ul></ul><ul><ul><li>Business process outsourcing (BPO) </li></ul></ul><ul><ul><li>Clinical trial outsourcing (the next big one) </li></ul></ul>
  14. 14. Why Outsource? <ul><li>Conserve executive bandwidth </li></ul><ul><ul><li>Focus mainly on one’s core competence and core business </li></ul></ul><ul><ul><li>Avoid “inshore” regulatory & labor contractual entanglements & burdens </li></ul></ul><ul><li>Utilize outside capabilities - develop “extended assets” </li></ul><ul><ul><li>Improve service levels - e.g., sale rep. & emerging market like China* </li></ul></ul><ul><ul><li>Benefit from industry best practices - e.g., foundry </li></ul></ul><ul><ul><li>Shorten prototype period & time-to-market - e.g., PRD* </li></ul></ul><ul><li>Save costs </li></ul><ul><ul><li>Unit cost based accounting - no fixed costs </li></ul></ul><ul><ul><li>Reduce transaction and logistics costs - PRD* </li></ul></ul><ul><ul><li>Reduce product & market development costs - e.g., SI, drug dev. </li></ul></ul><ul><li>Establish new market presence </li></ul><ul><ul><li>Support serving emerging hot markets - like China* & India </li></ul></ul><ul><ul><li>Meet multi-government regulatory requirements - in HK* </li></ul></ul>* = trends that favors outsourcing to HK/PRD (China)
  15. 15. Activities That Cannot Be Outsourced <ul><li>Activities related to the following categories </li></ul><ul><ul><li>1st: Core competence </li></ul></ul><ul><ul><ul><li>No one outsources its core values & differentiation know-how </li></ul></ul></ul><ul><ul><li>2nd: Trade-secret and IP related matters </li></ul></ul><ul><ul><ul><li>Differentiating proprietary know-how & learning processes (for IP creations) cannot be outsourced </li></ul></ul></ul><ul><ul><ul><li>Trade-secret business processes cannot be outsourced </li></ul></ul></ul><ul><ul><li>3rd: Mission critical - differentiating critical services </li></ul></ul><ul><ul><ul><li>Mission critical activities need 7/24 real-time monitoring and control are hard to outsource </li></ul></ul></ul><ul><ul><li>4th (least degree): Emergency responses </li></ul></ul><ul><ul><ul><li>Customer-driven emergency responses are hard to outsource without customer buy-in </li></ul></ul></ul>
  16. 16. Why Offshore In-sourcing is a Trend? <ul><li>Offshore in-sourcing for BP is when companies set up their own offshore processing centers </li></ul><ul><ul><li>“ In-sourcing” their back office functions and business processes by setting up their own captive shared service centers </li></ul></ul><ul><ul><li>Enterprises wary of trade secret, control and data security issues can benefit from the offshore advantages by “in-sourcing” offshore. </li></ul></ul><ul><li>Gartner (2003): “No enterprise will fully in-source or outsource offshore. Most will use a combination of delivery models as they climb the learning curve to BPO (Business Process Outsourcing).” </li></ul>
  17. 17. ICT Service Outsourcing Markets <ul><li>Technology services </li></ul><ul><ul><li>Software development and applications* </li></ul></ul><ul><ul><li>Infrastructure </li></ul></ul><ul><ul><li>Telecommunications </li></ul></ul><ul><ul><li>E-commerce </li></ul></ul><ul><ul><li>Web security and solutions </li></ul></ul><ul><ul><li>Web hosting, website designing, development and maintenance* </li></ul></ul><ul><li>Business Processes </li></ul><ul><ul><li>Back office operations (a part of BPO)* </li></ul></ul><ul><ul><li>Customer Service Outsourcing* </li></ul></ul><ul><ul><li>Sales and marketing - including telemarketing* </li></ul></ul><ul><ul><li>Administrative support </li></ul></ul><ul><ul><li>Payroll maintenance and other transaction processing* </li></ul></ul><ul><ul><li>Logistics, procurement and supply chain management* </li></ul></ul><ul><ul><li>Medical transcription </li></ul></ul><ul><ul><li>Security </li></ul></ul>* = Key service items being outsourced to China. Yet, all items can be in-sourced in China.
  18. 18. Global Trends in ICT Sourcing <ul><li>Offshore will continue for cost management, global resource optimization and new market development </li></ul><ul><li>In-sourcing will replace outsourcing offshore when economy of scale can justify in-sourcing - for better controls and trade secret protection </li></ul><ul><ul><li>Apple, Intel and Dell reduced their outsourcing work to India </li></ul></ul><ul><ul><li>India is undoubtedly the leading offshore outsourcing site now. Whereas, China will be the preferred offshore in-sourcing site. </li></ul></ul><ul><li>Offshore in-sourcing (mainly to China) will be a trend for Fortune 500 to achieve offshore benefits with strategic market development </li></ul><ul><ul><li>Wal-Mart global purchasing centers in Shenzhen </li></ul></ul><ul><ul><li>IBM Global Procurement Headquarters in Shenzhen </li></ul></ul>
  19. 19. New Approaches to Improve China’s ICT Service Industry & Software Outsourcing Business
  20. 20. Benchmarking w/ India in ICT-Services <ul><li>(Based on a 2005 McKinsey report) China India </li></ul><ul><li>Total revenue (in 2003): $6.8B $12.7B </li></ul><ul><ul><li>% from overseas outsourcing 10% 70% </li></ul></ul><ul><ul><ul><li>Low-value app. dev. for Japan ~65% ~ 0% </li></ul></ul></ul><ul><ul><li>% from home mkt. (custmzd. wk.) 90% 30% </li></ul></ul><ul><ul><li>Growth rate (since 1997) 42% </li></ul></ul><ul><ul><li>Operation margin 7% 11% (ww) </li></ul></ul><ul><li>Economy of scale ( consolidation urgently needed in China ): </li></ul><ul><ul><li># of S/W service providers ~8,000 ~3,000 </li></ul></ul><ul><ul><ul><li>>2,000 employees 5 >15 </li></ul></ul></ul><ul><ul><ul><li><50 employees (workshop!) ~75% </li></ul></ul></ul><ul><ul><ul><li>Annual turnover rate ~20% (vs. 14% in US) </li></ul></ul></ul><ul><ul><ul><li>Mkt. share of the Top 10 20% 45% </li></ul></ul></ul><ul><li>Capability maturity ( reflecting gross immaturity in China ): </li></ul><ul><ul><li>CMM Level 4or 5 for Top 30 20% 100% </li></ul></ul><ul><ul><li>% surveyed thought important ~25% </li></ul></ul><ul><ul><li>% surveyed thought no need >50% </li></ul></ul>
  21. 21. China’s ICT Service Industry Segments <ul><li>Can be partitioned into 3 business segments </li></ul><ul><ul><li>Offshore Outsourcing - growing but still small </li></ul></ul><ul><ul><ul><li>Serving overseas customers </li></ul></ul></ul><ul><ul><ul><li>Some major hurdles to overcome </li></ul></ul></ul><ul><ul><li>Offshore In-sourcing - growing & promising </li></ul></ul><ul><ul><ul><li>Not yet monitored well enough as a significant segment! </li></ul></ul></ul><ul><ul><ul><li>Serving internal customers </li></ul></ul></ul><ul><ul><ul><li>Multi-national corporations’ back-office operations </li></ul></ul></ul><ul><ul><li>Domestic market - stagnating in low economy of scale ( a dead-end path !) </li></ul></ul><ul><ul><ul><li>Though accounting for a lion’s share of the total market, mostly in workshop operations for customized services </li></ul></ul></ul><ul><ul><ul><ul><li>Serving domestic customers - least appreciative </li></ul></ul></ul></ul><ul><ul><ul><li>Requiring new business paradigms & approaches to serve China’s SMEs (consolidation is urgently needed) </li></ul></ul></ul><ul><ul><ul><ul><li>For more standardized services in larger economy of scale </li></ul></ul></ul></ul>
  22. 22. Mainland ICT Market Characteristics <ul><li>Customers’ preference (esp. for SMEs) </li></ul><ul><ul><li>One-stop turn-key service with full accountability </li></ul></ul><ul><ul><li>Pay-for-usage and no up-front large license fee </li></ul></ul><ul><ul><li>Productivity gain > the cost (pay for itself) </li></ul></ul><ul><ul><li>Free trial run (without charge) </li></ul></ul><ul><ul><li>No need for in-house IT supporting staff </li></ul></ul><ul><ul><li>Zero maintenance and upgrade costs </li></ul></ul><ul><li>Providers’ preference </li></ul><ul><ul><li>IP protection – no disclosure & piracy prevention </li></ul></ul><ul><ul><li>Recurring revenue streams as monthly service fees </li></ul></ul><ul><ul><ul><li>Secure customer loyalty and expand business </li></ul></ul></ul><ul><ul><li>Control marketing and supporting costs </li></ul></ul><ul><li>Need new business paradigms and approaches </li></ul><ul><ul><li>Providing standardized web-based ICT service platforms instead of customized workshop-type services (for enormous economy of scale) </li></ul></ul><ul><ul><li>Meeting domestic SMEs’ needs for productivity improvement with minimum up-front investments and on-going maintenance costs </li></ul></ul>
  23. 23. Challenges for China’s ICT Service Ind. <ul><li>Major hurdles to overcome for China to be a favorable ICT Service offshore outsourcing site like India </li></ul><ul><ul><li>Lack of (1) economy of scale - urgently need consolidation </li></ul></ul><ul><ul><li>Lack of (2) advanced business domain knowledge for high-value creation </li></ul></ul><ul><ul><li>Lack of (3) solid overseas market/sale channels - little marketing/CRM presence in US and EU, </li></ul></ul><ul><ul><li>Lack of (4) program management and professional resources - urgently need systematic professional trainings and certifications, </li></ul></ul><ul><ul><li>Lack of (5) capability maturity - mostly CMM Level 2 and 3 instead of CMM Level 4 and 5 (like India); and </li></ul></ul><ul><ul><li>Lack of (6) IP and trade-secret protection capabilities - too much bad press overseas on IP infringements </li></ul></ul><ul><li>Offshore in-sourcing is the clear path of the least resistance to develop China’s ICT service capabilities - as the market force is pulling it </li></ul><ul><ul><li>Creating the needed ecosystem for human resource developments </li></ul></ul><ul><ul><ul><li>to acquire business domain knowledge, marketing & CRM skills, project management know-how, governance & Q.C. capabilities, etc. </li></ul></ul></ul><ul><ul><li>Building up the “critical-mass effects” to overcome the major hurdles </li></ul></ul><ul><li>China governments (on various levels) should provide policy supports and incentives for offshore in-sourcing at no less than those for offshore outsourcing </li></ul>
  24. 24. ICT Service Work Categories <ul><li>From low (L1) to high (L7) skill-set requirements: </li></ul><ul><li>L1: Data entry / archiving </li></ul><ul><li>L2: QC/QA testing (with QC/QA tools) </li></ul><ul><ul><li>3rd party program inspection and stress test </li></ul></ul><ul><li>L3: Programming / coding (s/w programmer) </li></ul><ul><ul><li>Develop software program according to customer’s spec. </li></ul></ul><ul><li>L4: Routine back-office supports (s/w prog. + business analyst) </li></ul><ul><ul><li>Need to understand customers’ business process </li></ul></ul><ul><li>L5: Critical back-office supports (s/w prog. + business analyst) </li></ul><ul><ul><li>24X7X52 emergency responses & trouble-shooting capabilities </li></ul></ul><ul><li>L6: Business process ICT service module development </li></ul><ul><ul><li>Generate specification and implement ICT service solution </li></ul></ul><ul><li>L7: Business process design / architecture / system integration </li></ul><ul><ul><li>Close interface with the customer </li></ul></ul>
  25. 25. Experience Requirements & Pay Scale 1 (low) 2 3 3.5 4 4.5 5 (high) Worldwide Labor Availability (1  5) 10+ 7+ 5+ 4+ 2+ 1  5 0  2 Years Exp. Charging Prices (US$/hr) Proficiency (min. yrs. of exp.) ~200 Currently supplemented by HK staff 5+ 5  7 L7 ~150 Currently supplemented by HK staff 4  5 3  5 L6 ~75 Currently supplemented by HK staff 2  4 3  5 L5 ~50 ~25 1  3 3  5 L4 ~30 ~15 0  2 2  5 L3 ~25 ~10 0 1  3 L2 ~10 ~5 0 0 L1 US China Business Technical
  26. 26. Functional Skill Levels <ul><li>Top-tier services (business process oriented): </li></ul><ul><ul><li>Requiring advanced business domain knowledge : both intra-functional and inter-functional (multi-disciplined) </li></ul></ul><ul><ul><ul><li>Platinum-grade SAP business consultant services charged at US$300+/hr. (for Levels 6 & 7) </li></ul></ul></ul><ul><ul><ul><li>IBM business consultant services charged at >US$200/hr. </li></ul></ul></ul><ul><li>Entry-level services (Levels 1 & 2): </li></ul><ul><ul><li>Data entry -- requiring good eye/hand coordination and little computer skills </li></ul></ul><ul><ul><li>S/W QA/QC testing -- requiring some programming knowledge </li></ul></ul><ul><li>“ Sweet-spot” services (Level 4 ->5): </li></ul><ul><ul><li>Plentiful job availabilities with recurring services required </li></ul></ul><ul><ul><li>Back-office support services are the sweet-spots </li></ul></ul><ul><ul><ul><li>Need customers’ business domain knowledge + 24-hour quick turn-around (real-time) support capabilities </li></ul></ul></ul>
  27. 27. ICT Service Project Lifecycle <ul><li>Customer relation development (++++) </li></ul><ul><ul><li>Sales and marketing team </li></ul></ul><ul><ul><li>Close the deal with the customer </li></ul></ul><ul><li>Customer requirements and specification generation (++++) </li></ul><ul><ul><li>Customer-site face-to-face interface to define the specifications </li></ul></ul><ul><ul><li>Specification negotiation and P&L control </li></ul></ul><ul><li>Top-level architecture design and task (module) partition (+++++) </li></ul><ul><ul><li>Business process engineering ( high R&D content w/ IP development ) </li></ul></ul><ul><ul><li>Requiring advanced business domain knowledge </li></ul></ul><ul><ul><li>Design-for-modular reuse (plug-and-play), scalability, maintainability… </li></ul></ul><ul><li>Programming and coding (+++) </li></ul><ul><ul><li>Program generation according to specification </li></ul></ul><ul><ul><li>Need to keep thing simple and traceable (easy to debug) </li></ul></ul><ul><li>QC management / testing (+++) </li></ul><ul><ul><li>Both by modules and as a whole </li></ul></ul><ul><li>Implementation (++++) </li></ul><ul><ul><li>Customer-site support is essential </li></ul></ul><ul><li>On-going maintenance and upgrading supports (++) </li></ul>“ China’s problem areas in red ”
  28. 28. Ideal Team Structure/Leverage <ul><li>Mix-and-match HK/Mainland/Overseas strength </li></ul><ul><ul><li>Mainland Team (L1  L5) </li></ul></ul><ul><ul><ul><li>As the work horse for lower-skill assignments </li></ul></ul></ul><ul><ul><ul><li>Consistently produce quality work cost-effectively within schedule </li></ul></ul></ul><ul><ul><li>Hong Kong Team (L5  L7) - for “ Impedance Matching ” </li></ul></ul><ul><ul><ul><li>As the project management & coordination center </li></ul></ul></ul><ul><ul><ul><li>Project P&L responsibility with schedule, quality & cost controls </li></ul></ul></ul><ul><ul><ul><li>Make sure Mainland team meeting customers’ expectations </li></ul></ul></ul><ul><ul><ul><li>Responsible for data security, storage and back-up </li></ul></ul></ul><ul><ul><li>Overseas Team (L6  L7) at overseas customer sites </li></ul></ul><ul><ul><ul><li>As the on-site customer service representative / CRM lead </li></ul></ul></ul><ul><ul><ul><li>Serves Marketing & Sales function and conduct contract negotiation </li></ul></ul></ul><ul><ul><ul><li>Translate customer requirements into specifications </li></ul></ul></ul><ul><ul><ul><li>Oversee architectural design and system integration to cust. spec. </li></ul></ul></ul><ul><ul><ul><li>Oversee installation at customer sites </li></ul></ul></ul>
  29. 29. Hong Kong as an Enabling Platform: To be the Silicon Valley of China
  30. 30. Hong Kong’s Key Differentiations (I) <ul><li>One-country-two-systems flexibility (yet to be explored) </li></ul><ul><li>Legal system </li></ul><ul><ul><li>Well-respected common-law based legal system </li></ul></ul><ul><ul><ul><li>Presumed innocent and entitled to due process </li></ul></ul></ul><ul><ul><li>Well-respected Hong Kong International Arbitration Center </li></ul></ul><ul><li>Financial system </li></ul><ul><ul><li>Well-established international financial infrastructure </li></ul></ul><ul><ul><li>Internationally recognized security exchange market (IPO) </li></ul></ul><ul><ul><li>Anti-corruption is the norm </li></ul></ul><ul><li>Freedom of movements </li></ul><ul><ul><li>Free entry (no visa needed) & world-class transportation hub </li></ul></ul><ul><ul><li>Free port (no duty) & world-class logistics center </li></ul></ul><ul><li>Free access of information </li></ul><ul><ul><li>Free flow of information (no artificial firewalls) </li></ul></ul><ul><ul><li>Content creation without little censorship </li></ul></ul>
  31. 31. Hong Kong’s Key Differentiations (II) <ul><li>Data Security and Customers’ Trade Secret Protection is the MAJOR risk factor operating in Mainland China </li></ul><ul><ul><li>China legal system gives unchecked authority and power to the enforcer and accuser (from Western view-point) </li></ul></ul><ul><ul><ul><li>No “presumed innocent” protection for the accused </li></ul></ul></ul><ul><ul><ul><ul><li>Confidential data can be seized first; damages can be done </li></ul></ul></ul></ul><ul><ul><ul><ul><li>The accused can be jailed first and handicapped in defending one’s innocence </li></ul></ul></ul></ul><ul><ul><ul><li>No due process entitlement with an independent judge or grand jury to countercheck the power of the enforcer and accuser </li></ul></ul></ul><ul><ul><ul><li>No CUSTOMER will allow their confidential data stored in Mainland China vs. India, if all things are equal!! </li></ul></ul></ul><ul><ul><li>Hong Kong’s common law legal system is a haven for such risk management </li></ul></ul><ul><ul><ul><li>Customers can entrust their confidential data in some well-protected data storage in Hong Kong </li></ul></ul></ul><ul><ul><ul><li>Hong Kong is the ideal data and project management center for software outsourcing business to China! </li></ul></ul></ul>
  32. 32. Hong Kong as the Pivotal Site <ul><li>Hong Kong has the most developed (western-like) Middle-Class society in China </li></ul><ul><ul><li>The most established international business platform in China - for over a century! </li></ul></ul><ul><ul><ul><li>With seasoned and educated professionals, business executives, small business owners, engineers, civil servants, etc. comprising a middle-class </li></ul></ul></ul><ul><ul><ul><li>No restrictions for immigrant entrepreneurs </li></ul></ul></ul><ul><ul><li>A well-respected common law based legal system </li></ul></ul><ul><ul><ul><li>The only international capital market in China </li></ul></ul></ul><ul><ul><ul><li>Free flows of information, capital, goods & services, human resources… </li></ul></ul></ul><ul><ul><ul><li>A natural IP licensing and technology transfer hub for China </li></ul></ul></ul><ul><ul><li>The most developed service industry base & infrastructure in China </li></ul></ul>
  33. 33. HK/SZ Joint Advantages (vs. India) <ul><li>Leverage 1-country-2-systems advantages by combining the best of both Hong Kong and Shenzhen (Mainland) </li></ul><ul><li>Advantages that Hong Kong can offer </li></ul><ul><ul><li>Common-law legal system (same as or better than India) </li></ul></ul><ul><ul><ul><li>Presume innocence, due process, transparency & anti-corruption </li></ul></ul></ul><ul><ul><li>Trade secret and IP protection (better than India) </li></ul></ul><ul><ul><li>ICT infrastructure and international logistics center (much better) </li></ul></ul><ul><ul><li>World-class financial service infrastructure (much better) </li></ul></ul><ul><ul><li>Project and Customer Service management (same or better) </li></ul></ul><ul><ul><li>Freedom of movement -- no visa req. / international access (better) </li></ul></ul><ul><ul><li>Free flow of information -- little censorship & no artificial firewall </li></ul></ul><ul><li>Advantages that Shenzhen can offer </li></ul><ul><ul><li>Large low-cost and stable ICT engineer pool (better than India) </li></ul></ul><ul><ul><li>Best market-entry and design-in site in China (no match in India) </li></ul></ul><ul><li>A SEZ (Special Economic Zone) should be set up on HK side of the HK/SZ border to realize these joint advantages </li></ul>
  34. 34. Educated Immigrants & Silicon Valley <ul><li>A recent Duke University study, in which 2,054 engineering and tech companies founded in US from 1995 through 2005 were surveyed, revealed: </li></ul><ul><ul><li>52% of Silicon Valley start-ups had at least one immigrant as a key founder vs. </li></ul></ul><ul><ul><ul><li>25.4% of all surveyed start-ups had an immigrant founder </li></ul></ul></ul><ul><ul><li>This pool of immigrant-founded companies was responsible for generating an estimated $52 billion in 2005 sales and creating just under 450,000 jobs as of 2005. </li></ul></ul><ul><ul><li>In 1988 an estimated 7% of non-citizens (immigrants) were listed as inventors on US patents, but that number expanded to 24% in 2005. </li></ul></ul><ul><ul><li>Almost 26% of all immigrant-founded companies in the past 10 years were founded by Indian immigrants . Immigrants from UK , China and Taiwan contributed to 7.1%, 6.9% and 5.8% of all immigrant-founded businesses respectively ( Comment: British and Chinese connections ). </li></ul></ul><ul><li>Hong Kong (with both Chinese and British Commonwealth heritages) needs to redesign its immigration policy to attract and retain well-educated immigrants (and entrepreneurs ) - to be the “Silicon Valley” of China . </li></ul>
  35. 35. Improving China R&D Capabilities <ul><li>Learn from Silicon Valley’s superiority as the Innovation Capital of the World : </li></ul><ul><li>New paradigms and approaches </li></ul><ul><ul><li>One can never catch up at the same speed on the same path . </li></ul></ul><ul><ul><li>Need SYSTEMS THINKING (the Ultimate Competitiveness)!! </li></ul></ul><ul><ul><ul><li>Comprehensive ( architectural and ecosystem ) business domain knowledge - both intra-domain and inter-domain (higher values) </li></ul></ul></ul><ul><li>Learn faster (work smarter) & work harder </li></ul><ul><ul><li>Invest to be effective LEARNING ORGANIZATIONS - on individual, corporate, community and national levels </li></ul></ul><ul><ul><li>“ FAILURE” only means “FAIL TO LEARN” - No failure as long as there is learning </li></ul></ul><ul><li>Encourage and nurture CREATIVITY </li></ul><ul><ul><li>Respect and tolerate individual expressions and eccentricity - with a proper balance of encouraging marketable values (a good sense of objectivity) </li></ul></ul><ul><ul><li>Support and reward “Risk Taking” and eradicate the “Stigma of Failure” - refitting the value systems and social culture! </li></ul></ul><ul><ul><li>Respect and protect intellectual property rights </li></ul></ul><ul><li>Attract the best and brightest worldwide to settle down </li></ul><ul><ul><li>Let the best and brightest compete and learn among themselves - in a league by itself forming the INNOVATON ENGINE for value creation </li></ul></ul>
  36. 36. Reference Materials <ul><li>All McKinsey articles: </li></ul><ul><li>“ Can China compete in IT services?” by Giuseppe De Filippo, Jun Hou and Christopher Ip (2005) </li></ul><ul><li>“ China and India: The race to growth” by Jayant Sinha, Tarun Khanna, Jonathan Woetzel and Diana Farrell (2004) </li></ul><ul><li>“ An upgrade for the Indian IT services industry” by Noshir Kaka and Jayant Sinha (2005) </li></ul><ul><li>“ Who wins in offshoring” by Vivek Agrawal and Diana Farrell (2003) </li></ul><ul><li>“ Offshoring and beyond” by Vivek Agrawal, Diana Farrell and Jaana K. Remes (2003) </li></ul>
  37. 37. <ul><li>Thank You! </li></ul>