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Towards Service Excellence

HKCSI Position Paper on Promoting Services

December 1995



Summary of Recommendations

The global context

  1. Government should take an active part in the ongoing negotiations on GATS commitments, taking full account of the views of the private sector in the negotiations. To achieve that, government should strengthen its advisory mechanism on global and regional trade policy. In the area of trade in services, the HKCSI sector committees are probably the most elaborate, albeit informal, mechanism yet available for consultation by government.

Enhancing domestic capacity

  1. Government should review existing regulatory framework for service industries with a view to simplifying regulations where there is evidence of over-regulation. Government should also support self-regulation by industry by endorsing such efforts and promoting in the international arena the high ethical standard and good practice of Hong Kong services.

External promotion

  1. The promotion of services exports should not be limited to the "tradeable services" as defined by KPMG, but should also be related to those service transactions delivered through "commercial presence" and "consumption abroad".

Organisational option

  1. A restructuring of current organisational resources in promotion may be required. Before the organisation structure is finalised, the relationship between external promotion and other promotional activities should be thought through. Whatever the form of the final structure, promotion should be private-sector led, with current resources (both public and private sector) deployed in the most efficient manner. To achieve this, some form of review or audit of current resources through a combined private/public sector effort will be required. The HKCSI would be happy to participate in this process of reviewing organisational resources and we look forward to an early opportunity of making further recommendations on organisational options in the course of the Task Force's deliberations.

Sectoral recommendations

  1. Tourism: The development of the travel/tourism industries should be supported by full manpower planning and long-term education. There should also be better coordination with the other service industries in the promotion of tourism, as well as a focus on the relationship between tourism services and other infrastructure and support facilities.
  1. hiring more local consultants;
  2. publicising some of their works;
  3. setting forth a set of transparent criteria for selection of management consultants, one of these criteria should be the consultant's subscribing to a code of ethics such as that of the HKCSI;
  4. in external promotion, government should include this sector in the overall promotional campaign for service industries, both on its own and in relation to other sectors such as financial services and information technology.


Towards Service Excellence

HKCSI Position Paper on Promoting Services

December 1995



Introduction

  1. It has been a long-held position of the HKCSI that more attention should be given to promoting Hong Kong's service industries and improving their regional competitiveness. To that end, the HKCSI conducted a survey of service industries practitioners in March 1994 to identify and establish the need for promotion of services. It took an active part in a steering committee established by the former Financial Secretary Sir Hamish Macleod, and in the subsequent consultancy study by KPMG Peat Marwick on promotion of services exports.

The framework

  1. Hong Kong's economic prosperity has often been attributed to a number of "success factors". These include an open and free market economy with minimal government supervision, a world class, state-of-the-art infrastructure including telecommunications and transport; a simple, business-friendly tax system; and a wide range of financial and professional services of the highest standards. While they have contributed to Hong Kong's economic growth, these "success factors" are not unique to Hong Kong. Our competitors can and some indeed are moving along the same path. More and more countries are speeding up their liberalisation and deregulation programmes, upgrading their infrastructure, offering tax incentives, and giving priority to the financial and professional services industries. There is no room for complacency and Hong Kong should strive to maintain its leading edge in the region.
  1. The international, global context. Although Hong Kong itself has entered a "post-manufacturing" era, much of Hong Kong services still have their basis in manufacturing, most Hong Kong-related manufacturing activities being now in South China or other neighbouring economies rather than Hong Kong. In other words, Hong Kong is a successful service economy because it has been able to service not only itself but the economic growth of China, Taiwan and the Asia-Pacific. It follows that the future of Hong Kong's service sector depends on external demand of Hong Kong services as much as, if not more than, demand from within the domestic economy. The more growth there is in the global economy and international trade, the more favourable the environment will be for Hong Kong's service sector. While there may be little Hong Kong can do to influence the global economy, Hong Kong does not have to, and should not, be passive. It should be actively involved in global economic policy making, such as in the multilateral forums on trade liberalisation. Hong Kong's active participation in creating an environment for global free trade and investment will be conducive, albeit indirectly, to the development of its service industries.

The role of government

  1. "Promotion of services" conjures the image of government selecting industries for favourable treatment. Government should not be surprised if it finds some individual sectors or industries are tempted into demanding preferential treatment. This should be resisted. Hong Kong's success has always been based on an open market with a level playing field and minimal government intervention. This should be maintained.


The global context: Multilateral liberalisation

The impact of the Uruguay Round

  1. The most significant development in multilateral liberalisation is that of the Uruguay Round. As an export-oriented economy, Hong Kong is poised to take advantage of increased trade from the Uruguay Round brought about, for example, by lowering of tariffs in importing countries. However, the benefits to domestic manufacturing industries may not be that apparent. Instead, because MFA quotas are to be phased out, local textile manufacturers may be induced to relocate to other areas of lower production cost, hence reducing domestic exports as well as employment. The effect may be quite substantial considering that over 60% of Hong Kong's textile and clothing exports are MFA-related.

Multilateral liberalisation

  1. Hong Kong government should continue to facilitate liberalisation of global trade through ongoing participation in the WTO, especially in the negotiations over commitments in market access and national treatment for services. Much of the value of the General Agreement on Trade in Services (GATS) lies in the schedules of commitments, most of which have already been agreed in the Uruguay Round while some are still being negotiated. Much of the meaning of these commitments are, however, lost in the arcane wording of the WTO languages, and their commercial relevance is little understood. On the other hand, officials who are familiar with the wordings of GATS may not be close enough to the everyday business situation to be able to appreciate completely the commercial implications of the commitments. There is a need, therefore, for the private and the private sectors to work together to decipher and publicise the commercial value of the GATS schedules. Here industry guidelines on the impact of the GATS produced by the US Commerce Department will provide a useful reference. At the same time, other officials involved in trade promotion such as the government overseas officers need also to familiarise themselves with the results of GATS and their implications. In Canada, for example, a series of training programmes on assisting service exporters abroad are being conducted for their overseas diplomatic missions. These training programmes are targetted not towards trade negotiators, who are familiar with the GATS, but for officials who are involved in the implementation of GATS and its application to trade promotion. Similar training programmes for Hong Kong's officials involved in export promotion should also be considered.

Private sector

  1. It is the responsibility of the government to take part in multilateral policy negotiations on behalf of Hong Kong. Yet government officials do not trade or invest; private businesses do. The private sector should have an essential role in providing government with input in these multilateral negotiations. Its participation should not be limited to merely giving of advice. Often active involvement by the private sector will not only make it easier for front line officials, but will positively benefit the private sector itself, as the case of the US private sector has shown.

Recommendations

  1. The HKCSI's recommendations in respect of government's role in the global context include the following:
  1. Government should take an active part in the ongoing negotiations on GATS commitments, taking full account of the views of the private sector in the negotiations. To achieve that, government should strengthen its advisory mechanism on global and regional trade policy. In the area of trade in services, the HKCSI sector committees are probably the most elaborate, albeit informal, mechanism yet available for consultation by government.


The domestic context: capacity building

Economic re-structuring and the value challenge

  1. Hong Kong's economic restructuring in relation to China's dramatic economic development is well-known. This restructuring has often been described as one of transformation of manufacturing to services. We prefer, however, to see the restructuring as one from low-value to high-value processes. At present, Hong Kong can justifiably claim that its products and services are not only high-value but good-value - otherwise Hong Kong would not be the successful economy that it is. The challenge is that in an increasingly competitive world, Hong Kong's products and services have to be even better-value. This has to be achieved against the backdrop of increasing cost of business for the service sector, as reflected in high rents and wages. Because of higher costs and prices, clients and consumers are becoming more selective and demanding on value. Often, the value of services are evaluated not on prices, but on the basis of their standard and quality. The value challenge for Hong Kong services is therefore a challenge of standard and quality.

Quality and Self-regulation

  1. While Hong Kong's reputation as a world-class service centre is well deserved, among individual service industries the growing number of practitioners has led to a large variation in the level and quality of services being offered. Such variation has in turn led to a disparaging of the industries and of their practitioners. There is thus a need to identify means of encouraging companies and individual practitioners to aspire to and achieve excellence, thus raising standard and the image of the service industries. The challenge will be even greater as Hong Kong is increasingly becoming the service centre to Mainland China, where standards are still being developed and quality is sometimes not the prime concern. In that context it is even more important to ensure that only truly professional and high-quality services are provided in China and that firms entering the market bring with them standards of the highest quality.

Productivity and quality

  1. Quality should be a concern not only at an industry level but, perhaps more importantly, at a corporate and practitioner's level. Firms of different sizes and nature may have different requirements, but they should all be alert to the quality challenge. Despite very good performances, however, many Hong Kong companies still lack a "quality sense". The TQM (total quality management) and TQS (total quality service) movements are still unfamiliar to many corporations. ISO 9000 certification is just beginning to gain recognition in Hong Kong, and of those so far awarded, only a handful are service companies.

Employment implications

  1. Throughout the economic restructuring of the last decade, Hong Kong has by and large been able to create enough jobs in the service sector to absorb jobs lost from manufacturing. In recent years, however, there is increasingly pressure of a mismatch of skills between new jobs and unemployed workers from manufacturing. This pressure will be even bigger for the next ten years as the phasing out of the Multifibre Arrangement is expected to lead to another significant loss in jobs for the manufacturing workforce. The challenge thus remains to provide suitable retraining for the displaced workers to enable them to continue to contribute productively to our economy.

Encouraging best performance: Hong Kong Industry Award

  1. One of the market-oriented measures of promoting quality is through rewarding good performance. In this connection we wish to highlight a recent recommendation of the HKCSI to create an award in the Hong Kong Award for Industry for the service sector. We have offered to become the leading organiser for a Trade in Services Award, based on performance in export of services.

Tripartite partnership

  1. A tripartite effort among business, government and academics can be very useful in galvanising efforts to promote the service industries. The thinking of officials tend to be compartmentalised, of businessmen over-pragmatic, and of academics too detached. On the other hand, the down-to-earth approach of business, the political and diplomatic wisdom of officials, and the intellectual input of academics could very well reinforce each other. The US tripartite partnership has shown that despite different angles and sometimes different languages, academics, businesses and government officials can engage in a productive dialogue, such as displaying a uniformity of views and a complementarity of positions on matters of US interests (for example, in seeking market access to other countries). cooperation.

Statistics

  1. It is the consensus of the international CSIs that statistics on trade in services, and of services in general, are badly in need of upgrading. It is undesirable and sometimes even dangerous for business and political decisions to be made on the basis of poor or inadequate statistics. In the US, 75% of statistical resources are being devoted to 25% of the economy - namely, manufacturing - which is losing jobs. Hong Kong may not be far different. Again, a tripartite effort is required if statistical improvement is genuinely to be achieved. On the part of government, it should be prepared to devote more resources to developing statistical data in services, such as a more elaborate statistical system on trade in services, consumer and producer price indices on services, value-added and productivity measures in services, and industrial or sectoral studies of service industries. Separately, the CSIs are collectively calling for the creation of a statistics commission under the WTO Council of Services. Hong Kong government should support this initiative.

Recommendations

  1. The HKCSI's recommendations in respect of government's role in enhancing the domestic capacity include the following:
  1. Government should review existing regulatory framework for service industries with a view to simplifying regulations where there is evidence of over-regulation. Government should also support self-regulation by industry by endorsing such efforts and promoting in the international arena the high ethical standard and good practice of Hong Kong services.


External promotion

  1. The promotion of services exports has already been extensively covered in the consultancy report by KPMG to which the HKCSI has responded in detail, so our remarks need only be brief. In our response we have pointed out that promotion of services should not be limited to the "tradeable services" as defined by the consultant. Instead those service transactions delivered through "commercial presence" and "consumption abroad" should merit equal attention. In designing promotional programmes, the identifying of sectoral linkages and appropriate promotional themes is as important as, if not more important than, identifying sectors for promotion. We emphasised that services promotional campaigns should not be simple carbon copies of the corresponding events in goods. Within the promotion process, there must be a sensitivity to business opportunities over and above the display of promotional materials. There is, in other words, a bigger demand on the promoting agency for a business orientation to be built into the task of promoting, than in the case of goods. A major consideration in designing an external promotion strategy is therefore establishing the right institutional network to ensure effective use of public sector resources with leadership from the private sector.

Recommendations

  1. The HKCSI's recommendations in respect of government's role promoting services overseas have been detailed in its response to the consultancy report on promotion of services exports. In summary, they include the following:
  1. The promotion of services exports should not be limited to the "tradeable services" as defined by KPMG, but should also be related to those service transactions delivered through "commercial presence" and "consumption abroad".


Organisational option

  1. Because of the highly interrelated nature of service sectors, the increasing overlap between trade and investment, and the interdependence between goods and services, it is difficult to decide on the most appropriate organisational structure for promotion of services without first evaluating carefully the present structure in promotion and the interrelationship between external promotion and domestic promotion. For example, if the TDC were to take up implementation of services export promotion, would that be an additional task for the TDC or should there be a restructuring of TDC resources, bearing in mind the changing nature of Hong Kong's economic structure? How should the TDC and CSI relate to other organisations which may also have a role in promotion? How are various government branches and departments to coordinate with each other and with the promotional agencies? What would be the role of the Hong Kong government overseas offices?
  1. The TDC could be further expanded to assume this role. We have already indicated our reservations about a similar role of the TDC in external promotion of services, and we would have even stronger reservations if the TDC's role were to be further expanded to include internal promotion as well.

Recommendation

  1. A restructuring of current organisational resources in promotion may be required. Before the organisation structure is finalised, the relationship between external promotion and other promotional activities should be thought through. Whatever the form of the final structure, promotion should be private-sector led, with current resources (both public and private sector) deployed in the most efficient manner. To achieve this, some form of review or audit of current resources through a combined private/public sector effort will be required. The HKCSI would be happy to participate in this process of reviewing organisational resources and we look forward to an early opportunity of making further recommendations on organisational options in the course of the Task Force's deliberations.


Sectoral issues

(Recommendations highlighted)


Tourism

  1. As one of the most stable sectors of the economy, the travel/tourism industries are a steady provider of employment for the economy and as such play a positive role in helping the economy adjust to restructuring. But the potential of the travel/tourism industries can only be fully realised if their development is supported by full manpower planning and long-term education. The tourism sector has been highly successful in promoting itself, with a first-rate promotion machinery already well established. It is perhaps less accomplished in planning, development and coordination with the other service industries where, as far as promotion of services is concerned, the burden of the future work lies. In considering the further development of tourism services, therefore, there should be a focus on the relationship between tourism services and other infrastructure and support facilities.

Cruise liner industry

  1. The cruise liner industry is a specialised sector of the tourism industries. The growth potential is strong, especially from Asian consumers who have benefitted from economic development in recent decades. Also, crew members are typically high-spending consumers.

Financial services

The promotion of the financial services sector calls for a different approach from that of manufactured goods. The overall performance of the financial services industry depends not so much on assistance from non-financial promotional agencies such as business matching or trade exhibitions, but on a range of related matters such as regulatory environment, the development of other industries (financial services rarely existing on its own), competition from other regional financial centres, access to support technologies, consumer awareness, etc. An integral approach is required to develop a strategy for promoting financial ervices. A good example is that of the Corporation of London, which took three years to draw up a business promotional plan for the City of London. The financial services industries of Hong Kong should, together with the regulator, take a similarly long-term view. They should take advantage of the 1997 IMF/World Bank Convention in Hong Kong and take the opportunity not only to generate international publicity about Hong Kong's financial services, but also formulate a strategy to maintain and reinforce Hong Kong's lead in the region.

Computer services

  1. A viable partnership could be formed between firms in Hong Kong and China, using the latter as a "back-office", except that unlike other typical back-office operations which tend to be labour-intensive or low-skilled, the China operation could be highly technical. Hong Kong computer services operators could provide management and system design while taking advantage of China's expertise in software development at much lower staff cost.

Information technology

  1. The most elaborate application of EDI will be represented by Tradelink when it is finally up and running. However, the benefits of EDI extend much farther than trade, thus other applications of EDI should also be promoted.

Transport

  1. The strength of Hong Kong's transport lies in its highly successful port services. To maintain this strength, however, Hong Kong needs to move into a "total transport service" of which maritime transport is but a part. The global market is becoming more competitive and a transport company's edge will increasingly lie in the ability to provide a package of related services, rather than just one mode of transport. While Hong Kong's shipping and port services are highly sophisticated, there has not been a similar technological upgrading of their land-based counterpart. Multimodal services are becoming the leading edge and Hong Kong's land-based transport services should be ready to catch up.

Culture

  1. One of the major marketing themes for Hong Kong is its East-meets-West character, yet there is no comprehensive policy of integrating the development of the arts, culture and entertainment together with tourism. Such a policy is needed to provide direction to developing Hong Kong as a regional centre for arts, culture and entertainment.

Professional services

  1. The continual economic development of China has created opportunities for the professional services sectors. China should be encouraged to see the need for bringing in experienced professionals from outside. To facilitate its development, China requires more surveyors, town planners, architects, etc. An opportunity is created for Hong Kong professionals to convince China of Hong Kong's ability to provide the professional services that China needs. One of the means of tapping this China market is to champion multi-disciplinary practices whereby various professions combine to offer their expertise in areas demanded by China's developmental needs, e.g. construction, infrastructure, environment.

Management consultancy

  1. There is a good case for promoting Hong Kong as a major centre of excellence in management consultancy serving the China market, where Hong Kong's strength is self-evident. However, consistent with Hong Kong's regional centre role and to ensure a broader scope of competencies are developed and maintained, the management consultancy sector of Hong Kong needs also to promote itself to the wider Asia-Pacific regional market, where competition from neighbouring economies such as Singapore is much stronger.
  1. On the part of management consultants, there is a need for self-regulatory mechanisms to be established which will ensure that high standards are maintained in the industry and ongoing efforts are made to improve the quality of service provided. Another priority is to improve general efficiency of the sector through better client education, such as by developing guidelines for clients on the nature of consultancy services, fees, and how to select a consultant. Eventually an industry association should be formed for that purpose, but in the meantime a subcommittee has been established within the HKCSI to act as spokesman for the consultancy sector. The HKCSI has also developed a voluntary code of ethics to which management consultants are encouraged to subscribe.



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