The unprecedented changes over a compressed period of time that the telecommunications industry have gone through are nothing less than spectacular. Players that are still around following the industry-wide collapse in value have had to contend with an intensively competitive and deregulated environment, Michael Butcher, COO of PCCW, said.

Surveying the corporate landscape, he said that the economic carnage in the industry is not yet over and more job losses and bankruptcies are still to come. The industry is still smarting from infrastructure over capacity on a global basis.

"If you take fibre under the sea around the world, the Atlantic has about a 2 per cent utilization of the lit fibre installed," he said.

On the issue of government industry policies, Mr Butcher said relaxation of rules governing the local market has resulted in a highly competitive environment in Hong Kong compared to other parts of the world. However, increasingly, deregulation is coming under question as a major cause of value destruction.

Recent corporate scandals have rocked investor confidence and reinforced the need for improved corporate governance, Peter Wong, chief executive and director of Standard Chartered Bank in Hong Kong, said.

In defining corporate governance, Mr Wong likens it to establishing a moral culture at home for children not to engage in the buying and selling of pirated mer-chandise. In this sense, corporate governance is no different from family governance except the former is more complicated and creates jobs and money. "It draws on the support of a sound legal system and discipline from leaders in an established culture so staff can benefit, learn and operate in good faith," he said.

Although Hong Kong has always been held in high regard for its outstanding regulatory standards, China is fast catching up. As laws in Western countries evolve rapidly in response to terrorism, corporate fraud and malpractice, Hong Kong is compelled to keep up with these changes to maintain its edge.

"At the end of the day the premium value and the prosperity of Hong Kong lies in our ability to set high standards and adhere to them," says Mr Wong. Although it is easy to cut corners, it is precisely because today's markets are so competitive that there is an even greater need for strong business ethics.

Customer satisfaction and reputation is a close correlation of good corporate governance, which in turn translates into profitability. "It never pays to compromise compliance for revenue," he says.

Referring again to his earlier example of stamping out copied goods, Mr Wong says no amount of regulation can achieve the desired effects unless more people buy into compliance and stop shopping for fakes.

Hong Kong offers many tangible and intangible benefits over other centers in Asia for businesses to base their regional headquarters here, says Michael Berchtold, president of Morgan Stanley Asia.

For foreign investors, Hong Kong's traditional strengths have been in its advanced communications and infrastructure network, strategic geographic location, simple tax regime, solid legal system, and stable political environment. However, Hong Kong's strong "balance sheet" is tempered with such issues as the availability of qualified workers, and conditions for attracting overseas talent such as sufficient school places, high living and operating costs, and a deteriorating environment.

"These factors shape and influence our decision where to hire and place people," Mr Berchtold said, adding that his company now employs technology to reduce staff relocation, boost efficiency and productivity while maintaining competitive compensation terms.

"Cost is not the only driving factor in looking around the region for the best location for back office and commodity type functions," he said. However, he acknowledges that Hong Kong is losing out in this aspect where in Morgan Stanley's case compensation and space cost account for 85 per cent of total overheads.