IBM Nov 26 final1

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Published on October 16, 2007

Author: Connor

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Change. Vitality. Growth. Hong Kong Enterprises – Grow with and into China:  Change. Vitality. Growth. Hong Kong Enterprises – Grow with and into China Timothy Cheung General Manager IBM China/Hong Kong Limited Agenda:  Agenda China’s Ascendancy: A Global Economic Force Hong Kong’s Economy: Strong Growth Tied to China Opportunities & Challenges: “Hong Kong Enterprises – Grow with and into China” Study Recommendations for Hong Kong Companies to Seize the Growth Opportunities Slide4:  "China is like a sleeping giant. And when she awakes, she shall astonish the world.” Napoleon Bonaparte, 1803 Slide5:  Significantly Improved Infrastructure Telecommunications: 334M mobile phone users, 94M Internet users* Real Estate Roads / Transport Power An Attractive Market GDP of US$1649.3B* Population of 1.3B* GDP per Capita of US$1,276* FDI of US$60.6B* Import & Export of US$1155B* Consumption of US$652B* Household Savings Deposits of US$1445B)* Private-owned Automobile 4.9M units** WTO Commitment Tariff periodically cut as scheduled More monopoly industries opening: Financial Services, Telecom, Infrastructure Emerging service industries: Legal, Consulting, Accounting. * 2004; ** 2003 China’s ascendancy: A global economic force China: Decade of Transition:  China: Decade of Transition Economic structure Influx of FDI Profitable SOEs Substantial growth in the private sector Central planning  WTO (Emerging competition) Government monopoly  Open competition Restructured and smaller government “12 Golden IT projects” Greater sensitivity to foreign affairs Quality of workforce Industrial structure Consumer profile Government profile Professional leadership profile Strong management team Substantial increase in annual income Credit cards, home loans, automobiles Agenda:  Agenda China’s Ascendancy: A Global Economic Force Hong Kong’s Economy: Strong Growth Tied to China Opportunities & Challenges: “Hong Kong Enterprises – Grow with and into China” Study Recommendations for Hong Kong Companies to Seize the Growth Opportunities Anchoring Success on Services:  Anchoring Success on Services Over 80% of HK’s GDP originated from services, 70% of which were consumed in HK and 30% exported Attract Chinese & foreign enterprises as well as individuals to come to consume Hong Kong’s services: Position 1: A Metropolitan City Offering Quality Living and World-class Cultural and Entertainment Activities Position 2: A Regional Hub for HK, Chinese and Foreign Enterprises Expedite services exports through amalgamating our unique China experience with Hong Kong’s specialist services, re-packaging, promoting & exporting them to the international and China markets Hong Kong’s Economy – Strong Growth Tied to China:  Hong Kong’s Economy – Strong Growth Tied to China Solid, broad-based upturn in Hong Kong economy Real GDP rose by 6.5% in 1H 2005 Consumer prices posted a gain of 0.8% (Aug 2005) Unemployment rate stood at 5.7% in the three months ended Aug 2005, down from 6.8% in 2004 Total exports and imports of goods grew by 11% and 8.7% (Aug 2005) Tourist arrivals increased by 40.4% to 21.8 million in 2004 and another 9.6% in 1H 2005 Continuous growth due to China-driven initiatives CEPA I & II CEPA III (early 2006) Individual Travel Scheme Pan Pearl River Delta co-operation RMB currency reform in China Slide10:  from Strong to Stronger Hong Kong’s ties to China economy started 3 decades ago China’s Metamorphosis: Sleeping Giant Awakes:  Hong Kong’s ties to China economy started 3 decades ago China’s Metamorphosis: Sleeping Giant Awakes 1980s 1990s 2000 – Present Hong Kong’s Tie with China Introduction to reform Rapid growth and investment Full Integration Agenda:  Agenda China’s Ascendancy: A Global Economic Force Hong Kong’s Economy: Strong Growth Tied to China Opportunities & Challenges: “Hong Kong Enterprises – Grow with and into China” Study Recommendations for Hong Kong Companies to Seize the Growth Opportunities “Hong Kong Enterprises – Grow with and into China” Study:  Conducted by the Assessment and Training Centre (ATC), Chinese University of Hong Kong (CUHK) Objective: Identify quantifiable data to showcase business issues that may facilitate and/or hinder HK enterprises’ growth with and into China Methodology: Focus groups (Apr 2005) and mail surveys (Jun & Jul 2005) Industry sectors: Manufacturing, retail & wholesale and transportation Research sample: 6,300 HK enterprises with 50+ staff Completed responses (up to July 15): 525 (completion rate: 8.3%) 78% of respondents were key decision makers in their companies “Hong Kong Enterprises – Grow with and into China” Study Profile of Respondents:  Profile of Respondents The survey interviewed business leaders of typical HK enterprises. Respondents were from key industries most impacted by CEPA. 78% of respondents were key decision makers in their companies. N = 525 Majority of Hong Kong Companies Plan to Increase Investments or Enter China in the Next 2 Years:  Majority of Hong Kong Companies Plan to Increase Investments or Enter China in the Next 2 Years Over 80% plans to increase investment in China within 2 years Source: CUHK, 2005 CUHK Survey Results in 2005 N = 525 N = 323 Hong Kong Companies in China (% of Total Surveyed) Hong Kong companies which plan to increase investment in China in 2 years (% of already in China) Business Expansion and Market Size are the Top 2 Reasons:  Business Expansion and Market Size are the Top 2 Reasons Top 3 Attractions for entering into China N = 323 N = 80 Hong Kong Companies Though Already in China Find it Difficult to Apply their Proven Business Models:  Hong Kong Companies Though Already in China Find it Difficult to Apply their Proven Business Models Environmental Considerations Keen competition from local-based companies Risk in payment collection from customers Difficult to deal with the government Management Considerations Different management culture Difficult to manage operation from a distance Inability to apply the successful HK business model Operational Considerations Difficult to acquire reliable business information and intelligence Difficult to develop standardized process Difficult to control different points of operation Human Resources Considerations Difficult to recruit staff with right skills Difficult to recruit experienced staff Low ethical standard of staff Top 3 Considerations of HK Companies Already in China Source: CUHK Study, 2005 Those Planning to Enter into China Share Similar Concerns Yet with Different Priorities:  Those Planning to Enter into China Share Similar Concerns Yet with Different Priorities Environmental Considerations Difficult to deal with the government Risk in payment collection from customers Keen competition from local-based companies Management Considerations Different management culture Insufficient knowledge of local market Difficult to manage operation from a distance Operational Considerations Difficult to control different points of operation Difficult to develop standardized process Difficult to acquire reliable business information and intelligence Human Resources Considerations Low ethical standard of staff Difficult to recruit staff with right skill Difficult to recruit experienced staff Top 3 Considerations of HK Companies Planning to Enter into China Source: CUHK Study, 2005 Three Common Growth Challenges Must be Addressed in Operating or Planning to Operate in China :  Three Common Growth Challenges Must be Addressed in Operating or Planning to Operate in China How to capitalize on growth without losing control on local operations while having ability to manage business partners and responses from competitors. How to capitalize on growth fast enough, through building up capabilities or business from scratch, striking the balance between organic and other growth paths such as acquisitions, alliances How to capitalize on growth without overstretching resources and pushing up costs. Agenda:  Agenda China’s Ascendancy: A Global Economic Force Hong Kong’s Economy: Strong Growth Tied to China Opportunities & Challenges: “Hong Kong Enterprises – Grow with and into China” Study Recommendations for Hong Kong Companies to Seize the Growth Opportunities HK Companies Need to Redefine Clear Value Propositions and Business Models to Manage the Growth Challenges:  HK Companies Need to Redefine Clear Value Propositions and Business Models to Manage the Growth Challenges Innovative Approaches in Dealing with Obstacles for Operating in China Managing Human Capital Standardizing Processes, Establish Metrics and Infrastructure Managing Costs Redefining Clear Value Proposition and Business Model Key Questions for Companies Entering or Expanding in China:  Key Questions for Companies Entering or Expanding in China Do you understand the market, the competition and what differentiates success? What is the best strategy and positioning for your organization? What capabilities do you need, what is the right business model to secure these? What barriers do you foresee and how are these best tackled? How do you plan to scale up your business and business model? Do you understand how innovation and technology may transform the market? Is innovation a key input to your strategy? Are you exploiting innovation to drive sustained growth? Is your Information technology and business infrastructure capable of expanding to support your China operation? Is it flexible and cost effective? What capabilities do you require - processes, people, organization, technology - to deliver this strategy and win against the competition? How to acquire them? Does partnering offer an accelerated route to growth, who to partner with? How to maintain adequate control and standards in your China operation? What role can business intelligence in establishing the required business infrastructure? Growth Challenges Questions to-be-considered Change - Identify Market Opportunity to Develop Right Strategy Vitality - Drive Innovation and Technology to Achieve Growth - Develop Core Competencies to Sustain Growth Adopting the Right Business Models and Partnerships – in line with Global Best Practice – the Specialized Enterprise:  Adopting the Right Business Models and Partnerships – in line with Global Best Practice – the Specialized Enterprise Source: IBM Institute for Business Value’s “The Specialized Enterprise” Enterprise Optimized Business Unit Optimized External Specialization Internally Integrated Industry Networked Internal Specialization The location of most firms today Manage to meet the needs of strategic components Gain economies of scale Begin using partners with low entry cost Ensure partners meet business requirements “Specialized Enterprises” assess each component of the business to determine where and how it should be managed. Specialized enterprise Traditional enterprise Slide24:  Eat or Be Eaten Hong Kong Companies – Integrate with China to Manage the Global Growth Challenges:  Hong Kong Companies – Integrate with China to Manage the Global Growth Challenges Hong Kong Companies – Accelerate the Growth into China to Tap the Vast Market:  Hong Kong Companies – Accelerate the Growth into China to Tap the Vast Market China Companies –Embrace Modern Management Practice and Latest Technology to Grow Aggressively Beyond China :  China Companies –Embrace Modern Management Practice and Latest Technology to Grow Aggressively Beyond China Key Takeaways:  Key Takeaways About China – Exciting growth opportunity – Different from Hong Kong – Fast changing and constantly evolving – Big vision and ambition About Us – Think big and long-term – Act now before too late – Rethink value and business model – Focus on competency and partner for growth Thank You:  Thank You "It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change" Charles Darwin 1809-82 Back-up Charts:  Back-up Charts Slide31:  IBM in China 1980s: Strategic Experiment Invest to learn Establish presence in China (offshore operation, single city, sales only) 1990s: Strategic Investment Invest to prepare for growth Broader presence (multi-cities, multiple relationships, multiple line of business) 2000 to Present: Transformation Partner Invest to grow with the market Leverage on China’s strength (growth, revenue, cost, quality) 17 Branch Offices Over 5,000 employees 8 JVs & Wholly-Owned Subsidiaries 160+ Services Centers Industry Perspectives:  Industry Perspectives

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