Technology-driven changes are taking place at an increasingly rapid pace, and businesses must adapt or risk being left behind.
“Technology is transforming people’s demand, consumption and expectations,” HKGCC Chamber Chairman Stephen Ng told a full-house at the 21st Hong Kong Business Summit on 3 November. “For example, one-third of millennials believe they will not need a bank account in five years’ time, and nearly half are counting on start-ups to overhaul the way banks work.”
Ng also pointed out that ride-sharing companies are doing away with the scramble for a taxi and even to own a car. They are even conducting pilot tests for driverless ride-sharing and haulage services. Similarly, online shopping has changed the face of the retailing scene, and even the concept of going shopping as we know it today.
According to a survey by the Harvard Business Review, media, telecom, financial services and retail were the top four industries affected most by digital disruption. In an electronic poll of the 550 attendees, Ng asked: “Do you see digital disruption as a threat or opportunity for your business?” Nearly three-quarters of respondents said they saw it as an opportunity, but further questions revealed that most businesses had not made any plans to capitalize on this.
More than ride sharing
When it comes to traditional industries being shaken up by new start-ups that completely overturned old business models, few have done it better than Uber. Having started as a ride-hailing app, Uber has become a multi-billion dollar business that has shaken up taxi operators out of complacency around the world.
David Plouffe, Uber Chief Advisor and Member of the Board of Directors, said the technology is not just a solution for people’s transportation needs, it is also addressing major urban problems like traffic congestion and pollution. He dismissed the notion that Uber’s growth was based on just taking market share from taxis.
“Most people using Uber are not making a choice of not taking a taxi; they’re making the choice of not using their car. Where we are growing the most is not in cities, but in rural areas.”
Taking the ride-sharing concept further is carpooling, where several people share rides in the same car. “The only way cities are going to work, because of epic migration, is to have fewer cars on the roads, and more people in the cars,” said Plouffe. “We started this two and a half years ago in San Francisco. Now, 20% of Uber’s trips are carpooled. Instead of 30 people taking car trips, one car serves those 30 people. Eventually we’ll be able to bring that here to Hong Kong. It helps with congestion reduction and also makes Uber available to every income spectrum. UberPool is so cheap, if you use it for everything in your life in the cities where we offer it, it’s cheaper than owning a car.”
Giving consumers more choice and cheaper prices
As one of Hong Kong’s most widely known entrepreneurs, Ricky Wong has set up several telecom and multimedia ventures like HKBN and HKTV. Yet his attempt to “disrupt” local shopping by forming an e-commerce venture – HKTV Mall – is losing HK$2 million every year.
“Our prices are cheaper but how we drive our business is experience,” said Wong. He highlighted the convenience for online shoppers through features on HKTV Mall’s app. The fact his company has huge warehouses and small retail stores enables it to pass on savings to consumers.
Fintech is an emerging industry that many feel Hong Kong has a lot of potential. The field combines finance with technology to create financial software and applications that make financial services more accessible and convenient. Start-ups and tech companies make up the fintech industry, which also makes them both a rival and counterpart to mainstream financial institutions.
Local venture WeLab was started three years ago because Simon Loong, WeLab’s founder and CEO, wanted to make financial services available to everyone on their mobile phone.
WeLab runs leading mobile lending platforms Wolaidai and WeLend, which operate in Mainland China and Hong Kong respectively.
“I was a consumer banker before and I felt the customer experience wasn’t great – people had to submit a lot of info, jump through hoops, then still got rejected,” said Loong.
Providing financial services through apps allows companies to analyze data about customers to understand them and their behaviour. “Through customer authorization, we analyse data from their phones. In China, there is no established credit bureau so we use this data to get an understanding of customers and do credit assessment. We combine this data with behavioural and transactional data, which allows us to profile individuals. What kind of apps you install on your phone tells us what kind of person you are and allows us to understand how you make decisions,” Loong explained.
He then gave an example of how data could be put to use. “People asked how does behaviour correlate with financial performance such as whether somebody can pay you back. Therefore, we collected the time of day that customers apply for loans. From the app, we captured what time of day customers borrowed and mapped that with whether people were good borrowers or bad borrowers. Not surprisingly, customers who borrowed from 1-6 a.m. were the worst performers. Think about that, in the middle of night if you still need to borrow money, or maybe you are gambling or paying your bills, that is one simple example of correlation.”
Loong said that one reason why Mainland China was doing so well in fintech was because banks in the Mainland are more receptive to start-ups.
“When we pitch to banks in the Mainland, they are open-minded as they perceive working with start-ups as providing speed and innovation and allowing them to try new things. Nine out of 10 times, there will be a second meeting, something will happen. However, in Hong Kong, many financial institutions’ attitude to start-ups is ‘you are going to close down soon; you’re not tested; have you checked with regulators.’ I urge those companies to embrace and start working with small companies.”
Does Hong Kong still have what it takes?
There are some who fear Hong Kong is losing ground to regional competitors like Shanghai and Singapore as a world-class business and financial hub. Factors like the need to diversify the economy, expensive building rents, lack of affordable housing and slow government bureaucracy have been cited as reasons for Hong Kong’s supposed declining competitiveness. However, members on the General Committee panel were mostly optimistic, while acknowledging that Hong Kong has many things it needs to improve.
“Real estate is being marginalized by technology. E-malls are taking over from physical malls. With tech, people are travelling less for business. Hotels are under threat. People can work from home so offices are under threat. So the real estate business is not in the best shape,” said Chamber Chairman Stephen Ng.
Nicholas Brooke, Chairman, Professional Property Services, had some strong words to say about Hong Kong’s need to maintain its status as Asia’s leading financial hub. “We’ve got to wake up, stop dreaming, repackage and reposition Hong Kong, there are good things but there’re serious gaps. We need to set aside the selfishness which is very evident in Hong Kong today and self-interest that mars many of our discussions,” he said.
“We should separate innovation and technology. Technology is one of the ways to deliver innovation. I have a family of start-ups I’m nursing through their initial stages and only two have a tech component as five of them are driven by an innovative idea and service. As we look to expand Hong Kong, we should encourage those to innovate, with or without technology. To me, it’s about developing an eco-system and having the right policies to support entrepreneurship. We don’t have those policies yet,” said Brooke.
Allen Fung, Executive Director & CEO of non-property businesses, Sun Hung Kai Properties, noted that Singapore was ahead of Hong Kong in categories like GDP per capita, and Shenzhen was threatening to do the same when it came to technology.
“It’s amazing how widespread the adoption of technology in Shenzhen is. My relative is 70 years old and uses WeChat to communicate with me on a daily basis. How many seniors in Hong Kong use messaging apps? When I was there, I went to a residential place and saw a QR code on a lamp post. I was told if the light breaks down, you just scan the code and it will automatically send a report to office,” he said.
While many have pointed to high rents in Hong Kong as hindering entrepreneurs and start-ups, Fung said there was another reason.
“I don’t think the reason why there aren’t more start-ups is because rent is expensive, as some start-ups only require a small office. I think it has something to do with talent – I don’t know how we can attract more people to the digital fields.”
Ronald Lee, Head of Private Wealth Management, Asia Pacific, Goldman Sachs, reminded people about how cities earned or lost their status as financial hubs, citing Frankfurt in the eighties and Tokyo in the nineties. However, he remained optimistic about Hong Kong’s prospects.
Alibaba’s Magic for Success
Hinging on the power of the internet, China’s e-commerce giant Alibaba has achieved tremendous growth by venturing into diverse industries such as retail, payment service and finance. Joseph Tsai, Executive Vice Chairman, Alibaba Group, said big data is the magic for its success, allowing the company to manage risks and massively distribute its products.
“In this internet age, application of big data has transformed numerous businesses. Big data is valuable not just because of its size and volume, but also its continual flow that provides fresh data to improve business,” Tsai said.
The manufacturing industry, for example, has benefitted from the use of big data as a way to enhance its relationship with customers. By collecting customer data online, manufacturers can now get feedback from customers directly rather than relying on distributors to get information. Also, the Internet of Things (IoT) allows products to include intelligent features to capture data about user behaviour. All this make it possible for manufacturers to make use of the data to improve products as well as transition into a C2B business model.
“Data is also shaping the financial services business. With data from different perspectives including buying patterns, delivery details, payment and social networking, we are able to manage and predict risks much easier. By analyzing the data, we can create credit scoring and risk management models,” Tsai said.
He pointed out Alibaba’s success lies in its ability to make use of data to widely distribute a product. “With our internet-based platform, we want to make financial services inclusive. The idea is to offer a product that can get investment from lots of people in small amounts. In 2013, we launched a money market fund which is like bank deposits but offers customers higher returns than banks. Today the fund is one of the largest in the world, having over US$100 billion in assets.”
Alibaba has the capability to massively distribute a financial product because of its popular online payment service Alipay, which has 500 million active users. “With so many people making payments online, people can easily transfer money to the fund. This makes us capable of massively distributing our product through mobile devices,” he added.
Tsai also shared that the internet economy has created demand for products that insure risks. For example, e-commerce sites offer return shipping insurance to insure risks to the seller while providing customer with shopping comfort. “Again data has enabled internet service providers to know buyers and sellers better so they can price insurance products in a reasonable way,” he said.
In the Mainland with its 700 million internet users, mobile access to the internet is over 90%. He believes that m-commerce has now evolved to become the preferred platform for e-commerce. “In the last quarter, 78% of Alibaba’s retail transactions were generated via mobile devices. The growth was mostly contributed by the tech-savvy young population. On our online shopping platform, 75% of our users are below 35 years old.”
Members can watch the entire Business Summit on the Chamber’s app, which can be downloaded for free from Google and Apple’s app stores.