Overview

• The information technology (IT) sector of Hong Kong is among the most advanced in the world. According to the World Economic Forum's Networked Readiness Index 2008/09, Hong Kong ranked third in Asia and among the world's top 15 economies in terms of readiness to participate in and benefit from IT developments.
• A key factor contributing to Hong Kong's advance IT status is the top-notch telecommunications infrastructure of the city. Hong Kong is the world's first city to have a fully digitized fixed telephone network. The city leads the Asian region in terms of international call time and the penetration of telephone lines, mobile phones and fax machines. It operates Asia's largest commercial satellite-earth station.
• According to a survey conducted by the Vocational Training Council (VTC) in May 2008, more than 75% of the Hong Kong IT service providers were SMEs with less than 20 employees. 48.8% of employees were employed by suppliers of IT products and services, and the remaining 51.2% were employed by IT-user organisations.
• Thanks to their technical competency, flexibility, and international exposures, many Hong Kong IT service providers are able to compete internationally while delivering effective solutions at home.
• Stemming from the government's vision to become a world-class digital city as outlined in the Digital 21 Strategy, Hong Kong continues to offer the world's most affordable Internet connection and mobile telephone services. In terms of infrastructure, Cyberport and the Hong Kong Science Park have been developed as strategic hubs bringing together clusters of IT companies and professional talents from all over the world.
• The Office of Government Chief Information Officer (OGCIO) was set up in July 2004. It is responsible for leading the development of information and communications technology (ICT) within and outside the Hong Kong government.

Industry Data

2008	No. of IT Employees	%
IT/Software Development	24,206	32.3
Operation Services	16,235	24.3
Field Support	6,277	9.4
Telecommunications and Networking	6,153	9.2
IT Sales	4,531	6.8
System Programming	3,988	6.0
IT Education & Training	3,302	5.0
IT Management	1,119	1.7
Database	525	0.8
IT Security	361	0.5
Total	66,697

Source: 2008 Manpower Survey Report: Information Technology Sector, Vocational Training Council

2008	No. of IT Employees	%
IT Service Suppliers	17,737	26.6
Financing, Insurance, Real Estate and Business Services	16,566	24.9
Wholesale, Retail, Import/Export, Restaurants and Hotels	14,459	21.7
Community, Social and Personal Services (excluding Hospitals)	7,961	11.9
Communication	2,680	4.0
Manufacturing	2,389	3.6
Government Bureaus/ Departments	2,161	3.2
Transportation and Storage	1,762	2.7
Hospitals (including Hospital Authority)	423	0.6
Electricity, Gas and Water	333	0.5
Construction	226	0.3

Source: 2008 Manpower Survey Report: Information Technology Sector, Vocational Training Council

Range of Services

IT professionals provide services to clients from a wide range of businesses:

Banking and finance

Some of the world's largest and most sophisticated computer applications can be found in Hong Kong's financial sector. The electronic off-platform trading system of the Hong Kong's stock exchange and the inter-bank real time gross settlement (RTGS) system leapfrog many of the similar systems in the world. Following the respective introductions of US dollar and Euro RTGS systems in 2000 and 2003, the Renminbi settlement system was also upgraded to real time in 2007. A cross-border payment versus payment (PvP) linkage was also launched by the Hong Kong Monetary Authority (HKMA) and Bank Negara Malaysia in 2007. These linkage systems can eliminate risks due to time gap in foreign exchange settlements.

Technological innovations have brought about not just new types of electronic money, but also new bank-customer relationship through Internet/mobile phone. Online/wireless investment, securities and banking services are gaining increasing popularity.

Shipping, freight forwarding and logistics

Many shipping and freight forwarding companies have been using electronic data interchange (EDI) and Internet-based networks to transmit information and documents among themselves and with traders. Traders are able to track the flows of their goods online. Advanced applications such as global positioning system (GPS) are used in warehousing, transportation, container management and other supply chain related activities.

A new electronic platform named Digital Trade and Transportation Network (DTTN) was introduced in early 2006. DTTN is targeted to improve productivity by facilitating low-cost, reliable information exchange along the supply chains, and to provide a platform to promote development of new business opportunities, such as logistics software development and value added services. A new business portal called DTTN.Net was launched in October 2008, offering free information about the trends in trading and manufacturing to companies and on-site search for business partners.

Radio frequency identification (RFID) refers to the technology that uses radio frequency transmission to identify people or objects automatically. Because of its wireless data storage/manipulation abilities, RFID is used to facilitate warehouse management and supply chain management. The Hong Kong International Airport is considered one of the biggest champions for this technology in facilitating its air cargo flow.

Trading

All import and export shipments involve government documentations. Tradelink provides an electronic platform to facilitate those transactions such as certificates of origin and trade declaration applications. In turn, these documentations could be shared between government departments and different stakeholders along the supply chains. Tradelink also offers a number of value-added transaction management facilities including message checking, matching and validation, message authentication and security, electronic billing and payments, message archiving and audit trail services. As of March 2007, Tradelink had 34 customer service centres servicing 14,000 customers in Hong Kong.

GS1 Hong Kong's (formerly known as "The Hong Kong Article Numbering Association") EZ*Trade offers EDI solutions that conform to EANCOM/EDIFACT international standards. EZ*Trade automates the flow of papers between trading partners.

Transportation

Founded by major transport operators in Hong Kong, Octopus Cards Limited developed and launched Octopus card in 1997 by using a kind of radio frequency identification technology. Besides being used in paying transportation fee, such micro transactions and clearing system is also being applied in small retail payments.

Wholesale and retailing

Many retail shops have installed bar-coding and point-of-sale (POS) systems for inventory control and sales analysis. Some retail chains have linked up their POS systems with vendors, exchanging purchase orders and invoices. Data mining technology has been applied to analyse the vast amount of information collected by POS to support managerial and marketing decision.

Manufacturing

Manufacturers are automating their ordering, production management, sales and distribution systems. Computer-aided design/manufacturing (CAD/CAM) is also widely used in the manufacturing sector. The collaboration with manufacturing engineering in the use of IT has improved the workflow of operation. The efficient flow of information also allows the growth of discrete manufacturing (digital manufacturing) by which manufacturing process is so flexible that customers can participate in the design, engineering, assembly and production of specific products.

Graphics and multimedia

Hong Kong possesses the best design and multimedia capabilities in the region. Computer graphics has a wide application in various Hong Kong industries. Computer generated images are becoming trends in electronic games, advertising, film production and web design.

Service Providers

According to the 2008 Manpower Survey Report conducted by the Vocational Training Council (VTC), 66,697 persons (about 2.8% of the 2.4 million employees covered by the survey in Hong Kong) were employed in principal jobs of the IT sector. Software vendors were the largest category of IT users, accounting for 26.6% of total IT employment, followed by the financing, insurance, real estate and business services sector (24.9%), the wholesale, retail, import/export, restaurants and hotels sector (21.7%), and the community, social and personal services sector (11.9%).

The Hong Kong government announced in June 2009 to provide HK$ 1 million to the Hong Kong Council of Social Services (HKCSS) for organising IT training courses from October 2009 to May 2010. This project can create job opportunities for the IT industry in areas including project management, training materials development and class conducting. Moreover, 340 practitioners in social enterprises are expected to find the project beneficial.

IT services can be broadly divided into software and hardware services:

Hardware service providers

Most hardware service providers are distributors of large international computer companies, and the largest ones combine service provision with software development and consultancy.

Software service providers
 
Software service producers in Hong Kong can be grouped into the following categories:

• Value-added resellers
• Custom software developers / software houses
• System and network integrators
• Electronic data processing departments
• Information system consultants
• Hardware manufacturers who also design operating systems

Exports

Exports of Computer and Information Services (HK$ million)

-	2003	2004	2005	2006	2007
Computer services	1,542	1,550	1,608	2,337	1,613
Information services	369	355	451	443	545

Sources: Report on Hong Kong Trade in Services Statistics for 2007, Census and Statistics Department

Major Export Markets of Computer and Information Services 2004-2007 (HK$ million)

-	2004	Share (%)	2005	Share (%)	2006	Share (%)	2007	Share (%)
Asia	1,132	59.4	1,165	56.6	1,635	58.8	1,176	54.5
North America	430	22.6	446	21.6	566	20.4	482	22.3
Western Europe	273	14.3	393	19.1	452	16.3	414	19.2

Sources: Report on Hong Kong Trade in Services Statistics for 2007, Census and Statistics Department

i) Software distributors

Local dealers are growing in terms of size, scope of operations and sophistication. Many services that were once performed by computer vendors are now done by dealers. Proprietary software companies also enter overseas markets through local dealers.

ii) Software developer

Many software houses undertake software development projects for companies on the mainland and in Southeast Asia. Local companies install management information systems to monitor their subsidiaries on the mainland and elsewhere. These companies usually prefer to install in their overseas subsidiaries the same computer systems as in their Hong Kong headquarters, especially in financial reporting and electronic mail, which can be standardised to a high extent internationally.

An area where Hong Kong software firms have been serving clients in other Asian countries is in designing web sites and developing "secure software" for electronic trading. Hong Kong software firms either have offices in Asian countries to service their customers there; or install and maintain the software, and train overseas customers through telecommunications networks and remote control software.

In order to enhance their competitiveness, many Hong Kong software companies are active in achieving Capability Maturity Model (CMM) standard and ISO 9000.

Hong Kong Productivity Council (HKPC) is the implementation agent of CMM Assessment Grants, which is aimed at helping local software ISVs to improve their products development and to increase competitiveness in the global market through obtaining CMM certificates after assessments.

Industry Development and Market Outlook

The development of the IT industry is key to underpinning Hong Kong's position as a world centre of business and has brought innovations to many sectors. Examples include Octopus in public transport, the Airport Management System, the Modern Port Management System used in the container ports, the Online and Wireless Banking System in the financial sector, and the Smart ID of the public sector. In return, demand for premier financial and business services has provided a suitable environment to nurture the growth of Hong Kong IT businesses.

In terms of infrastructure, Hong Kong has provided the industry with the Cyberport, a hi-tech multimedia hub costing HK$ 13 billion, under the joint efforts of the public and private sectors. The Cyberport has the capacity to house about 30 large to medium-sized companies and 100 smaller companies specialising in the development of services and multimedia content to support various industries.

In 2005, Cyberport established an incubation and training centre called "IncuTrain Centre". With the aim to enhance development of digital entertainment industry in Hong Kong, it provides SMEs with free rental offices and financial assistance to start up their creative business. During 2005-2008, 343 jobs were created. In 2009, the government sponsored the centre with HK$25 million for fostering the establishment of local digital entertainment and creation of lifestyle content.

The Radio Frequency Identification (RFID) Centre opened in 2008 with an aim to promote the use of electronic product code (EPC) and RFID in different industries, such as manufacturing, logistic, and retailing. This can boost operational efficiency and enhance the economic competitiveness of Hong Kong in the global marketplace.

In order to facilitate public access to the Internet, the Hong Kong government will spend another HK$ 220 million from 2009-11 on maintaining WiFi networks in more than 200 government venues for public use.  WiFi networks have been installed in many locations, such as public libraries, cultural and recreational centres, community halls, large parks, and government offices that are frequently visited by the public.

Efforts from both the private and public sectors in Hong Kong have provided a secure IT environment.  According to the International Intellectual Property Alliance, software piracy is much lower in Hong Kong than elsewhere in Asia due to the government's strict enforcement of intellectual property rights.

Financially, the establishment of the Growth Enterprise Market (GEM) in November 1999 has provided a fund-raising venue for Hong Kong IT-related companies.  As of end June 2009, GEM's total market capitalization had reached over HK$ 73.0 billion, with 170 companies listed.  As the GEM also functions as an exit platform for venture capitalists, it continues to facilitate venture capital firms to consider financing local software startups.
 
The Hong Kong government's Innovation and Technology Fund (ITF) has provided an alternative source of funding for the IT industry. As of end-May 2009, the ITF had approved 1,436 funding applications from the IT industry with a total of HK$ 4.0 billion.
 
The OGCIO set up in July 2004 is responsible for providing support to government ICT services, for example, delivering ICT policies, strategies, programmes and measures under the Digital 21 Strategy. It is also responsible for the government's investment in ICT.

By the end of 2006, OGCIO had outsourced various types of IT projects to the private sector, including one-off application development, ongoing systems maintenance, and some non-core IT-related business functions. This should help foster the IT industry in Hong Kong by providing private companies with business opportunities. In 2006, around 90% of OGCIO's IT projects were outsourced.

In line with its "2008 Digital 21 Information Technology Strategy" to position Hong Kong as a leading e-business community and digital city, the Hong Kong government increased its IT expenditure to HK$ 5.5 billion for 2008/09, including the expenditure in promoting and improving the provision of online government services. According to official figures, the online government services utilisation rate has increased from 42.3% in 2007 to 43.5% in 2008. A new portal, Gov.hk, was officially launched in 2007. It serves as a single entry point for both Hong Kong citizens and non-residents to access to government information and services. With growing online communication between the government and the local community, more IT-related positions are expected to be created in the future.

Hong Kong companies are increasingly using the online channel in generating profits. In 2007, business companies registered a rapid growth of 51.4% in business receipts through selling goods, services or information by electronic means. However, due to the financial tsunami, many IT companies incurred losses in the Q4 of 2008 and Q1 of 2009. However, the financial tsunami would likely be a short-lived disturbance to the overall growth of Hong Kong's IT industry, according to BMI, which expects the local IT market to grow from US$ 4.3 billion in 2008 to US$ 5.7 billion in 2013.

In the hope of stimulating the economy, Hong Kong government planned to increase its IT spending by 20% YoY from 2008 to 2009, with its main focus on five areas, namely facilitating a digital economy; promoting advanced technology and innovation; enhancing Hong Kong as a hub for technological co-operation and trade; enabling the next generation of public services; and building an ‘inclusive' knowledge-based society.

In the future, Hong Kong businesses should continue to leverage this receptiveness by using Hong Kong as a platform for commercialising and exporting technologies to the world. Recent successful cases include:

• A subsidiary of Octopus Holdings Limited, the Octopus Knowledge Limited, is cooperating with a Middle East counterpart called the Electronic Documents Centre LLC (EDC) to implement a contactless smartcard payment system for Dubai's Roads and Transportation System. The project is expected to complete by end-2009.
• In August 2008, PCCW inked an interconnection agreement with Vietnam's second largest telecommunications services provider, FPT Telecom Joint Stock Company, thus enabling PCCW to extend its services to Vietnam.

China Market

During the first three quarters of 2008, the software industry market on the Chinese mainland recorded a growth rate of 32.8% compared to the same period in 2007. Cumulative sales had reached RMB 576.47 billion.

According to the statistics released by the China's Ministry of Industry and Information Technology, China's software exports amounted to US$ 4.93 billion in the first four months of 2009, growing 48.2% year-on-year (YoY), though moderating from 54.9% of the year-earlier period. Of the US$4.93 billion of software exports, US$ 380 million was from software outsourcing. The growth rate in software outsourcing fell to 25.8% during Jan-April 2009, down from 30.2% of the year-earlier period.

Of the Chinese mainland's RMB 4 trillion economic stimulus package announced in December 2008 to counteract the effect of financial tsunami, RMB 370 billion was planned to be allocated for technology advancement and industry restructuring, which comprised 9% of the total. Regarding technology advancement, China's Ministry of Industry and Information Technology proposed a plan for the revitalisation of electronic information industry on the mainland in 2009. The plan placed emphasis on 6 sectors, namely integrated circuit (IC) production, flat-panel television manufacturing, TD-SCDMA development, digital TV technology and product development, PC manufacturing and next-generation Internet.

In February 2009, the Chinese government launched a plan about a computer subsidy programme to increase usage of computers by residents in the rural areas. As part of the "home electronics to the countryside" programme, selected vendors qualified as designated programme suppliers include Competitive Landscape, Acer, Dell and Lenovo. It is predicted that the programme would help moderate the impact of financial tsunami to the mainland's information technology firms in light of the vast demand in rural areas.

According to the forecast of BMI, China's IT market will reach a size of more than US$100 billion by 2012, as IT will be widely used by enterprises to upgrade traditional technologies and enhance efficiency. There will also be a continued increase in demand from medium and larger-sized firms for better managing customer database through systems of customer-relationship management (CRM).

The Closer Economic Partnership Arrangement between Hong Kong and the Mainland (CEPA)

Under Supplement I to CEPA, Hong Kong service suppliers (HKSS) in the sector of information technology can apply for computer information system integration qualification certification in accordance with the provisions of relevant Chinese laws, regulations and rules. The Chinese mainland introduced in 2004 its revised National Computer and Software Technology Qualifications Examination to enhance professionalism of its IT sector. As also provided under the Supplement I to CEPA, Hong Kong residents are allowed to take the qualification examination on computing technology and software. Hong Kong IT professionals can render services related to systems integration after they have passed the examination.

With the approval of the Ministry of Personnel and Ministry of Industry and Information Technology, an examination centre for the National Computer and Software Technology Qualifications Examination has been set up in Hong Kong. The non-profit Beijing-Hong Kong Academic Exchange Centre is a centre for enrolment of mainland professional qualification examinations, and at the same time, it provides examination consultation services to examinees.

Hong Kong IT professionals who have obtained the required qualification can participate in large-scale IT projects, which usually require system integration services at the senior level of project management. Besides, HKSS with the Computer Information System Integration Qualification Certification are allowed to plan, design and develop computer application system for Chinese mainland companies. In short, Hong Kong IT companies and professionals are expected to benefit from the CEPA arrangements with enhanced access to the mainland market.

As of 31 March 2007, 12 Hong Kong IT services providers were granted the HKSS certificates under CEPA.