IT Sector Expects Double-digit Growth in Revenue from Local and Mainland Markets in 2006

Hong Kong's information technology (IT) sector anticipates a steady growth in revenue in the next 12 months, with forecasts of 10.5% and 15% increase in the local and Mainland markets respectively, according to a study conducted by the Hong Kong Productivity Council (HKPC).

Commissioned by the Office of the Government Chief Information Officer, HKSAR Government, the "Hong Kong IT Industry Study 2005" was conducted from February to May 2005 to provide the latest update on the demographics, products and services, as well as the market and industry outlook of the local IT sector. A total of 448 companies were interviewed, including manufacturers of computing machinery and equipment, distributors of computers, computer peripherals and software packages, and IT services providers. 95.5% of the respondents were small and medium enterprises (SMEs) and 18.1% of them had operations in the Mainland.

Presenting findings of the Study today (15 November 2005), Mr Fritz Chiu, Principal Consultant (Information Technology Industry Development) of HKPC said, "The Study reviewed that the local IT sector are generally optimistic about their business performance in the next 12 months, with the revenue from Hong Kong, the Mainland and overseas markets projected to increase by 10.5%, 15% and 8.7% respectively. New market opportunities for Hong Kong's IT services under CEPA, the improved economic conditions and overall business environment, the increased adoption of IT by the business community to enhance competitiveness, as well as the trends of globalization and outsourcing are the main reasons fueling the positive expectations."

"In line with the expected growth in business, the total number of local and Mainland IT staff employed by the Hong Kong IT sector are expected to increase by 7.3% and 7.8% respectively in the next 12 months," continued Mr Chiu.

Despite their positive outlooks, the Study found that the industry showed concerns over further business expansion. Mr Chiu said, "While 'keen competition on similar products' and 'high operation cost' were cited as the major difficulties for doing business in Hong Kong, 'entry barriers' and 'unfamiliar with the legal environment' were ranked the key challenges encountered in the Mainland. In their venture into the overseas markets, 'keen competition on similar products' and the 'lack of resources/experience in marketing' were cited as the primary difficulties."

Speaking on ways to meet these challenges, Mr Chiu said, "Local IT companies should enhance their competitiveness by improving their product development and quality assurance procedures with reference to global practices and standards, such as the Capability Maturity Model (CMM) for the software industry. In addition, the attainment of CMM standard will enhance the branding of local software companies, facilitating them in acquiring IT outsourcing opportunities from overseas markets."

"For those who plan to leverage on the CEPA preferential treatment to tap the vast Mainland market, they are advised to apply for the 'Computer Information System Integration Qualification Certification' (SQC), a standard pre-requisite for taking up Mainland IT projects. Local IT enterprises can now apply for the SQC through the Hong Kong System Integration Qualification Assessment Centre. At present, two companies have passed the assessment, one for Level 2 and the other for Level 4 of SQC. The former will have the opportunity to participate in provincial-level projects, while the latter can participate in other city or township-level IT business activities," he added.

The Study has also provided an overview on the major products and services offered by the local IT industry. It revealed that the major products of local manufacturers are computer peripherals, and electronic parts and components for computers. For those involved in wholesale, retail, as well as import and export business, the most frequently handled products include computer peripherals, computer, and CPU; while office automation/administration and security are the most popular software applications distributed.

In addition, the major services offered by local IT services providers are software design and development, application support and maintenance, IT consultancy, as well as system integration and implementation. In terms of software, Enterprise Resources Planning (ERP) and accounting are the main applications provided by these companies. The major sectors served include manufacturing, business services, import/export trade, wholesale and retail, as well as banking and finance.

For further details on the "Hong Kong IT Industry Study 2005", please contact HKPC's Ms Natalie Wan at tel. (852) 2788 5858 or e-mail: natalie@hkpc.org.

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Ms Betty Lee
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Tel: (852) 2788 5895
Fax: (852) 2788 5056
E-mail: justina@hkpc.org

15 November 2005