|"In today’s economy, the most
important resource is no longer labour,
capital or land; it is knowledge".
Management of firms in the new economy was different.
Planning, control, hierarchy and optimisation were out.
Observation, positioning, flat organisations, missions,
teams and psychology were in. Dr Westland quoted Peter
Drucker: "In today’s economy, the most important
resource is no longer labour, capital or land; it is
knowledge". What was important about New Economy
firms was content. Consumers viewed the world through
browsers that focused on content: the organisation of the
firms providing the content were not visible. The consumer
knew nothing about Amazon: it had no physical presence;
the firm itself could not be observed anywhere, only its
services could be seen.
IT automated work, said Dr Westland. IT made simple
analyses and decisions quickly, accurately and reliably;
it organised, stored, maintained and retrieved large
quantities of data; it communicated both quickly and
widely. However, IT also "informated" work. It
forced production, marketing, logistics into rigidly
scheduled, textually-based formal roles. This made the
work process vastly more efficient. However, it also made
it less robust and more prone to costly errors and
A new development paradigm
Dr Westland quoted a recent paper by Jeffery Sachs on the
digital divide. Although the old ideological divisions of
the cold war were over, a more intractable division was
taking hold based on technology. According to this view,
all technological innovation was driven by 15% of the
world’s population, located mainly in North America and
Western Europe. It was almost a new form of colonialism. A
further part, perhaps half of the world’s population –
including the East Asian rim, South Asia, the southern
part of South America - was able to adopt these
technologies in production and consumption. The remainder,
about one-third of the population, was technologically
disconnected, neither innovating at home nor adopting
foreign technologies. Such technologically-excluded
regions did not always conform to national borders.
Examples were most of tropical Brazil, most of the former
Soviet Union aside from the areas nearest to the European
and Asian markets, the deep interior areas of China.
Technology changed the development model, said Dr
Westland. Development had traditionally been seen as a
matter of accumulating physical and human capital. Poor
countries, if they were well-governed, were assumed to
have an advantage in this: where capital was scarce, the
returns on new investments ought to be high, which ought
to promote savings and attract flows of capital from
abroad. The gap between rich and poor therefore narrowed
– a process known as convergence.
But technology was less likely to converge than
capital. Innovation showed increasing returns to scale.
Innovators created their own monopoly: there was almost no
competitor to Microsoft. Regions already possessing
advanced technology were best placed to innovate further.
New ideas were typically produced from a recombination of
existing ideas. Hence, environments rich in ideas would
produce chain reactions of innovation. But a critical mass
oof ideas and technology was needed ffirst. Hence, the
traditional "trickle down" development model
would no longer function. The haves would get richer and
the have nots would not be able to afford their
Ideas had a public good aspect: the fact that they
could be used again and again without depletion. Given
this public good aspect, free markets were not enough to
generate ideas. Successful innovation required supporting
institutions. Commercial innovation was the product of
both basic scientific insight (based mainly on ideas in
the public domain) and applied engineering (backed by
patents). The first of these factors relied upon
universities; the second on private profit-driven firms.
Countries that did not innovate themselves could import
technology, as embodied in capital and consumer goods such
as cell phones, PCs, immunisations. They could license
technology from patent holders. They could attract foreign
direct investment so that a multinational enterprise with
proprietary technology set up production inside their
borders. However, in all cases countries had to be
successful exporters to pay for their imports of
technology, or to pay dividends on foreign investment.
Countries would either keep up with global technology
or collapse. Vulnerable countries usually depended on a
narrow range of exports that lost their profitability in
the world economy. For example, copper was replaced by
fibre optics; natural rubber and jute were displaced by
new synthetic materials. The long term decline in the
terms of trade of many primary commodities was a side
effect of innovation.
Consequently, IT was one of the greatest threats to the
global balance of power. It offered huge opportunities to
overcome many of the disadvantages of distance. A
landlocked region such as Mongolia could have a
comparative advantage in IT-based service exports, such as
software, data transcription, telemarketing, as against
Hong Kong’s position
So where did Hong Kong stand? Dr Westland quoted Chief
Executive Tung’s aim, "to make Hong Kong a leader,
not a follower, in the information world of tomorrow"1. But what had been done?
One problem was the low understanding of the dynamics
of the new economy. For example, there was talk of making
Hong Kong an Internet hub for Asia in the 21st
century. This sounded reasonable - after all, Hong Kong
was a hub for air traffic, ocean cargo shipments,
electronics assembly, so why not Internet traffic? But
unlike cargo and air traffic, the Internet had no hub,
said Dr Westland. Hubs, gateways and other metaphorical
locations did not exist in cyberspace. The US military
deliberately designed the Internet without a centre in
order to make it virtually indestructable under attack.
"Fault tolerant" and "distributed"
were the watch words of computer science. Cyberspace was
everyplace and no place at the same time.
|The traditional "trickle
down" development model would no longer
function. The haves would get richer and the
have nots would not be able to afford their
Because there was no realistic vision, nothing had been
done. Five years after web take off in the US, two years
after the Digital 21 paper, Hong Kong had made little
progress towards competing in cyberspace. Until this year,
Hong Kong’s information technology community dithered,
preparing for the Y2K bug – a menace that predictably
failed to appear, and was probably inflated by former
Cobol software engineers who hoped to earn some
consultancy fees. The Y2K effort was at the expense of an
agenda that would promote electronic commerce.
Hong Kong in fact had the connectivity. In terms of
bandwidth it was one of the leaders in Asia. And in terms
of the sites they visited, the popular ones were of a
similar profile to the leaders in the US. But people
lacked interest in getting on the web. A recent survey
found that only around 25% of the adult population used
the Internet, as compared with over 45% in Singapore2. 60% of its 207,000
businesses did not have email at all, and 93% of those
businesses said that they had no intention of investing in
email systems. People in Hong Kong were probably more
comfortable doing business face to face; that was the way
they had always done it3.
Hong Kong Internet sites were entirely
"advertising" sites. 50% accepted credit card
payment; 50% cash only. Few products were offered; an
average of four product lines and 50 products per site.
Most customers were university students and white collar
professionals with free Internet access4.
The Government’s IT thinking was in terms of large
physical property-related investments such as parks, ports
and harbours. Hong Kong’s core industries – property,
shipping, civil service and mortgage banking – were
long-cycle businesses with investments extending over
decades. In contrast, e-commerce was inherently
short-cycle. E-businesses operated in Web years, i.e.
3-month business cycles. Unlike the traditional Hong Kong
core business model, e-business was dynamic, interactive,
immediate and responsive. To move from physical space to
cyberspace required a leap of the imagination, eschewing
traditional measures of investment, work and labour. In
cyberspace, ideas and ideas alone were important,
generating revenues, customers and investors. Property,
plant and equipment were just costs of doing business.
The Internet had become the world’s premier vehicle
for transport, communication and implementation of ideas.
However, Hong Kong’s core industries were not used to
thinking in terms of web years, empowerment, creative
destruction, and innovative, participative management. Yet
such an environment was essential to keep creative people.
It was the hallmark of innovative firms in Silicon Valley
and other high technology venues.
Dr Westland referred to Bill Gates’ concept of the
three stages of e-commerce: an initial
"advertising" phase, marked by catalogues and
search portals; a "transaction processing phase,
where business is transacted online; and the third stage
of seamless "integration and sharing of
knowledge" across firms and governing bodies. In Dr
Westland’s view, Hong Kong was having difficulty finding
a presence even in the initial "advertising"
phase. Because Hong Kong had no institutions that could
effectively handle online payments, it might be many years
before Hong Kong entered the "transaction
Government had done an excellent job of
adjusting its laws, immigration policies,
industry focus and education towards the New
It was noteworthy that IMD had downgraded Hong Kong to
14th place in its annual
competitiveness rankings – although this was due mainly
to factors other than e-commerce. Singapore ranked second
after the US. In Dr Westland’s view, Singapore’s
interventionist Government had done an excellent job of
adjusting its laws, immigration policies, industry focus
and education towards the New Economy. Hong Kong would
continue to languish until it recognised that the
competitive foundations of the New Economy were knowledge,
information and innovation. Only these mattered in
cyberspace – not feudal notions of parks, ports,
property, land and gentry.
Seven steps for success
Dr Westland concluded by outlining seven steps for success
in the new economy.
- Think multinational/multicultural. The US led Asia
by 3-5 years. So one should find out what the leaders
do and plan for when it happens here. English is the
world language of commerce.
- Think California. California high-tech means garage
production and administration; carry out food;
operations and production focus; passion, passion,
passion. Hong Kong hi-tech means lavish offices, gala
kick-off dinner (with speeches and toasts);
deal-making and alliance focus; fads and short
- Think different. Not everyone can be Bill Gates; not
everyone can be Microsoft. What is your niche? What do
you do well? What do you want – world domination? A
better seat at your favourite restaurant? Neat
- Think locally; act globally. Hong Kong is a small
country. Everyone needs to participate for a healthy
economy. This demands universal access to the tools of
e-commerce; not just access for a few select tycoons.
The increasing reach and speed of communications
converging on the Internet enabled the restructuring
of space, time and money.
- Think demographics. An industrial-age business is
typically commodity-based, heavy on resources, light
on know-how. In the post-industrial age, the leader
can lock in his position. There will be fat profits
for global players. Services and other hybrids cannot
scale and require different levels of management.
However, services are increasingly software-based.
- Think out-of-the-box. Learning the classics is to
ensure business failure. Killing the messenger if you
don’t like the message is a sure way to extinction.
This is a real concern in Asia.
- Show a passion for thinking. What do you want? How
will you get it? How much are you prepared to give up?
Will you like it when you get it? Be careful what you
wish for and follow your wishes with passion. Without
passion you cannot overcome the difficulties you will
1 Digital 21, Information
Technology Strategy, Information Technology and
Broadcasting Bureau, November1998
2 Netvalue, reported in South
China Morning Post, 5 September 2000.
3 Comment by Roy Ko, Hong Kong
Productivity Council consultant.
4 Lu and Chan, The current
status of Internet commerce in Hong Kong, JCIS Summer
The above does not necessarily represent the
views of the Foundation