15 April 2016
Internet Industry in Hong Kong
- Table: Value of E-commerce Sales, by Platform of Placing Orders and Type of Customers (2014)
- Table: Business Receipts by Type of Internet Services
- Table: Usage and Penetration of Information Technology in the Business Sector
- Percentage of Establishments Using the Internet (2015)
- Table: Extent of Different Internet Applications on the mainland
- Hong Kong offers a favourable environment for the development of Internet and electronic commerce. As a regional trading and services hub, Hong Kong is where commercial activities take place day and night, serving both local and foreign companies. These commercial activities are supported by Hong Kong's excellent telecommunications and information technology infrastructure.
- The information and communication technology (ICT) sector contributed HK$139 billion to Hong Kong’s economy in 2013, representing 6.6% of the gross domestic product (GDP), according to Census and Statistics Department.
- The Internet is widely used in the business sector, as 79.9% of all establishments in Hong Kong used the Internet in 2015. The Internet is expected to contribute about HK$146 billion to Hong Kong’s economy, which Boston Consulting Group (BCG) estimated to be about 7% of GDP by 2015.
- In 2015, the total number of establishments in Hong Kong adopting e-commerce sales was estimated at 22,029. E-commerce sales value reached HK$400.6 billion in 2014, accounting for 4.7% of total business receipts of those establishments adopting e-commerce sales.
- The Mainland and Hong Kong governments signed the Agreement on Trade in Services to extend the coverage of the Guangdong Agreement to the rest of the mainland from June 2016.
Range of Services
Many use the Internet mainly for communication and information purposes. However, business transactions via the Internet (or e-commerce) are on the rise. In 2015, 32.6% of Hong Kong companies had their own websites, up from 26.4% in 2013. The proportion varied from 91.2% for large companies (those employing more than 100 persons) to 27.9% for small companies (those employing less than 10 persons). These websites were mainly for disseminating company information and collecting customer feedback.
Business to Consumer (B2C) -- online consumerism
B2C e-commerce occurs when a company sells its goods or services to the consumer over the Internet. There are different kinds of B2C Internet sites in Hong Kong, including online stores, and sites offering financial services (particularly banking and securities), ticketing services and information services.
According to a survey conducted by the MasterCard Worldwide in 2014, 84% of Hong Kong people shopped online, increasing from 57.9% in 2011. In the same survey, 79.8% of the interviewees indicated that they had the intention to shop online compared to 75.5% in 2011. The main reason for online shopping was convenience, as indicated by 56.8% of the respondents.
Business to Business (B2B) e-commerce -- online transactions among companies
B2B e-commerce involves companies using the Internet for making transactions with suppliers and services providers. This kind of transactions used to take place using electronic data interchange (EDI) over proprietary networks before migrating to the Internet. A number of B2B Internet sites have been established in Hong Kong. They usually involve standard commodities trading such as steel, sourcing activities or supply chain management.
On the other hand, the Internet was most widely used in the information and communications sector, as well as financing, insurance, real estate and business services sector in 2015.
Cloud computing allows companies to centralise their computational resources, such as data and software, in a secure computer network hosted on the Internet. Their staff can assess to the resources through connecting with the computer network. Cloud computing helps increase flexibility and mobility in assessing the resources “online”, while the “on-demand” practice helps lower the overall cost.
To encourage cloud computing adoption in Hong Kong, the Office of the Government Chief Information Officer (OGCIO) established the Expert Group on Cloud Computing Services and Standards in 2012. The Government Cloud Platform was launched to further facilitate cost effective delivery of e-government services in December 2013.
According to Census and Statistics Department, it is estimated that 159,268 establishments used cloud computing services in 2015, representing 49.1% of the business sector. Hong Kong was ranked second in Asia in the 2015 SME Cloud Computing Market Attractiveness Index published by the Asia Cloud Computing Association.
In August 2007, “Gov.hk” was first launched as an official entry point by the Hong Kong government for the local community to gain access to a wide range of information, including news, weather forecast, government policies, etc. To facilitate a wider dissemination of public sector information, the Hong Kong government launched an 18-month pilot scheme in March 2011, allowing free downloads of public facilities data and real-time traffic data available via a portal called “Data.One”.
“’MyGovHK”, a personalised interface developed on the GovHK portal in December 2010, launched its mobile version in January 2014 in order to offer mobile device users greater convenience. With the rise of mobile technology and smartphone users, the government has developed 121 government mobile applications and 82 government mobile websites as at November 2015.
Internet Service Providers (ISPs)
According to the Office of the Telecommunications Authority (OFTA), as of March 2016, Hong Kong had 217 licensed Internet service providers (ISPs). However, not all licensees operate an active business and the ISP market is dominated by a few major players. Hong Kong Internet Service Providers Association (HKISPA) is responsible for promoting the development of Internet infrastructure, and enhancing fair market competition.
In November 2010, the first 4G LTE network in Hong Kong was launched by CSL, which introduced the first Voice over LTE (VoLTE) network in Hong Kong in December 2013. The new network is able to provide users a clearer voice, instant connection, and better multimedia experience especially video call. As at March 2016, there are four mobile network operators providing 4G LTE network services, enabling service subscribers to enjoy data downlink speeds of up to 300 Mbps.
Internet Content Providers (ICPs) and Portal Sites
In a broad sense, all Internet sites are ICPs. The success of a commercial ICP lies very much in whether its content is interesting enough to attract high hit rates (eyeballs), which may then be translated into revenue by attracting online advertisement. Moreover, some commercial ICPs also facilitate online transactions (usually of B2C type) to generate revenue.
Some ICPs specialise in one single topic and provide one-stop information search services. This kind of portal sites (including vertical portals) is a natural development in managing infinite information on the Internet. For example, hktdc.com is a leading trade portal to facilitate Hong Kong companies to expand business in international trade with marketing opportunities, business matching services and market intelligence.
Application Services Providers (ASPs)
ASPs deliver and manage applications and computer services from remote data centres to multiple users via the Internet or a private network. In other words, ASPs assist the companies to outsource their IT functions so as to concentrate their resources on their core business. It is expected that small and medium-sized enterprises (SMEs) would benefit most from ASP services. Besides technical support, ASPs in Hong Kong also provide integrated e-commerce solutions such as supply chain management to clients.
Industry Development and Market Outlook
Latest development in Hong Kong
- According to Boston consulting group (BCG), the Internet is expected to contribute about HK$146 billion to Hong Kong’s economy and about 7% of GDP by 2015.
- In the Networked Readiness Index 2015, the World Economic Forum (WEF) ranked Hong Kong 14th in the world.
- With broadband and mobile penetration rates at 84% and 228%( as at November 2015), Hong Kong Internet connection speeds are among the highest in the world according to the Office of the Communications Authority.
- In 2012 and 2013, Hong Kong ranked the first in the world in terms of its fast Internet access according to Akamai Technologies, a US-based global Internet content delivery network. Indicated in its “State of the Internet” Q3 2015 report, Hong Kong's average peak speed was 101.1 megabits per second (Mbps), 20% speedier than a year ago, and about three times the global average of 32.2 Mbps.
- The Internet has been widely used by Hong Kong shoppers, particularly the younger generation. According to a survey conducted by MasterCard Worldwide in 2014, 91.8% of respondents aged 25-34 purchased products or services on the Internet, with the average number of items purchase reaching 6.0.
- In the same survey, clothing/accessories were found to be the most common online shopping category, followed by travel, airlines and home appliances/electronic products. On the other hand, the most popular products bought via mobile shopping include cinema tickets, clothing and other fashion accessories and coupons/deals.
- The penetration of public Wi-Fi in Hong Kong is among the highest in the globe as reported by the OGCIO. As of December 2015, 39,858 wireless hotspots were installed by the Government and the private sector. As at January 2016, the public could enjoy free Wi-Fi services through 17,000 hotspots under Wi-Fi.HK brand in all the 18 districts across the territory. Users can enjoy at least 30 minutes ‘free Wi-Fi services without prior registration.
- The GovWiFi programme provides free Wi-Fi service through 3,000 hotspots at around 600 government premises. In 2014, the highest average monthly usage rate of GovWiFi was found in Central and Western District, with annual growth rate at 32.9% according to the government’s Commerce and Economic Development Bureau.
- Hong Kong has done well in the use of wireless technology with the emergence of Multi- platform Apps. The number of 3G/4G customers has more than tripled in the past five years, exceeding 13.3 million in September 2015.
China’s market outlook
- According to China Internet Network Information Centre (CNNIC), the number of Internet users in China reached 668 million as of the end of June 2015, an increase of 18.94 million in six months. The Internet penetration rate was 48.8%, increasing 0.9 percent from end-2014. In June 2015, China had 594 million of mobile Internet users, a half-year increase of 36.79 million and accounted for 88.9% of total Internet users.
- The Internet continues to penetrate the daily lives of mainland people. The following table shows the extent of different Internet applications on the mainland.
- Readiness of mobile network and popularization of smart phones in China enlarged the convenience of online shopping. According to CNNIC, China had 374 million of mobile online shoppers, a surge of 12.49 million or 3.5% over the end of 2014.
- Instant messaging has been on fire lately on the Chinese mainland, with 90.8% of Internet users having experienced instant messaging as of June 2015. The leading instant messaging host, Tencent QQ, reported 853 million active accounts in 2015.
- China’s microblog development revealed a sharp decline in first half of 2015 as Internet companies including Tencent, NetEase and Sohu reduced their investment. Microblog users dropped 44.52 million to 204 million, representing 17.9% decrease from end-2014.
- According to 2015 China Online Shopping Market Data from iResearch, China’s gross online merchandise shopping reached RMB 3.8 trillion with a 37.2% yearly growth.
- Industry convergence will continue to shape the Internet landscape on the Chinese mainland. Companies or websites focusing on specific or individual Internet applications will leverage their influence to provide other Internet applications.
- Hong Kong companies have very good knowledge of and connections in the Chinese mainland market. This is an advantage over other foreign companies in seizing further opportunities in the mainland's online market. Also, Hong Kong companies can offer such value-added services as consulting, implementation, integration and training.
The Closer Economic Partnership Arrangement between Hong Kong and the Mainland (CEPA)
After ten annual Supplements to keep widening and broadening the liberalisation measures in favour of HKSS, Hong Kong and the mainland entered into a subsidiary agreement under CEPA in 2014 to achieve basic liberalisation of trade in service trade in Guangdong (“Guangdong Agreement”). This was then followed in December 2015 by the Agreement on Trade in Services (“ATIS”) to extend the coverage of the 2014 agreement from Guangdong to the rest of the mainland.
The ATIS, which covers and consolidates commitments relating to liberalisation of trade in services provided in CEPA and its Supplements and also the Guangdong Agreement, will be implemented from June 2016. Unlike the Supplements which adopted a positive-list approach to introducing liberalisation measures, the Guangdong Agreement and ATIS adopt a hybrid approach to granting preferential access to Hong Kong using both positive and negative lists. CEPA benefits related to the Internet are put under different categories of information technology services, computer and related services, as well as value-added telecommunication services. Take the cross-boundary database services for HKSS for example. It was initially introduced as a positive-list measure under Supplement IX, which was maintained under the Guangdong Agreement, and remains so under the ATIS.
Under the Guangdong Agreement’s negative list, HKSS are granted national treatment to provide various computers and related IT services, including data processing, software implementation, computer hardware installation consultancy and database services (excluding network operation services and value-added network services). All these measures are adopted under ATIS for nationwide application from June 2016.
With technology convergence on the one hand, and CEPA’s broad coverage of Internet-related liberalisation measures on the other, the following links provide further information on the preferential access to respective sectors of information technology services, computer and related services, and value-added telecom services.
As at the end of February 2016, there were 21 approved HKSS in computer and IT related services, and 52 approved HKSS in the sector of value-added telecom services.