Hong Kong, China and Japan flex their electronic muscles.
To conduct business in Asia, managers need to understand Asian electronic infrastructures and how to leverage them.
After a nine-hour flight and a two-hour train ride, you arrive in Tokyo at 7 pm. You are weary but ready to meet with your new business alliance partners tomorrow morning. The trouble is, you not only need to check your email and log in to your company portal, but you are also nervous about ensuring that the business transactions between you and your Japanese partner are as electronically seamless in Asia as they are in North America. Furthermore, you will be headed from Tokyo to Hong Kong and then onto Beijing as you set up similar business deals. What sort of electronic infrastructure awaits you?
The escalating number of business-to-business (B2B) and business-to-consumer (B2C) transactions has become increasingly global, and businesses are forced to understand how to leverage the unique characteristics of Asian electronic infrastructures. The rapid growth and use of the Internet for B2B and B2C transactions have also forced companies to develop their information technology (IT) to match unique market characteristics. This is particularly true of the growing marketplaces in Asia, such as Hong Kong, The People’s Republic of China and the world’s second largest economy, Japan.
Understanding Asian Electronic Infrastructures
To better prepare companies to conduct business in these Asian economies, managers need to have a fundamental understanding for how the Asian electronic infrastructures were developed and to understand how that knowledge can be used to support sustainable strategic advantage. The following sections present a brief history of how the electronic infrastructures were developed in Hong Kong, Mainland China, and Japan. The authors then provide a few basic insights that business practitioners need to understand as they attempt to leverage their electronic business transactions in these key growth economies. Understanding these electronic infrastructures can not only enable the business traveler to leverage local infrastructure to communicate more effectively, but can also help practitioners be more savvy in making the most of this infrastructure to enhance their business processes.
The Hong Kong government’s intervention for initially developing the electronic infrastructure was relatively passive, but its interest and support for the IT infrastructure and applications deployment rapidly became a high priority as IT became one means to address critical challenges affecting Hong Kong’s future marketing viability. The government of Hong Kong saw the Internet as an opportunity to conduct global business and wanted to establish itself as the electronic hub for doing business in Asia. As a result, the government of Hong Kong increased the number of universities from two to six between 1989 and 1994, thereby endeavoring to build the local talent needed to develop the country’s information technology infrastructure. The increase in local education represented the beginning of a relatively passive and indirect approach to building up a knowledge-based economy.
The Hong Kong University of Science and Technology was heavily funded by private industry through the Hong Kong Jockey Club, which started the first Internet Service Provider (ISP) in 1993. During this phase of Hong Kong’s electronic infrastructure development, the government reviewed telecommunications agreements granted to Cable & Wireless (C&W) and its subsidiary in order to determine ways to best promote the development of Hong Kong (HK) as a regional Internet Hub.
Increase of Subsidies, Academic Funding
The government and private institutions jointly began to provide large subsidies to companies, in hopes of boosting research and development. Academic funding was also increased, in which joint government/university projects were funded to determine ways to leverage IT and to improve business efficiency and effectiveness. Joint industry, academic and government projects examined ways that IT could be used to improve efficiency and effectiveness in HK. The Internet market also expanded rapidly, with six ISPs operating by early 1995. However, disputes regarding licensing and interconnection fees resulted in all but one of the ISPs being shutdown briefly in 1996. Part of the government’s justification for this shutdown was “unlicensed” ISPs were involved in “hacking.”
Competition Forces Price Drop
During this time, three new fixed line and six new mobile telecommunications licenses were introduced in Hong Kong. The government began to implement new policies for pricing and interconnectivity between telephone companies. Prices began to drop as competition entered the marketplace largely through call-back services that enter the market and the licensing of a new wireless spectrum. Mobile and fixed phone penetration consequently increased significantly. Reduced prices also encouraged Internet development so that by the end of 1996, there were more than 70 ISPs. Also during this time, Hong Kong Telecom invested in developing a broadband network to offer video-on-demand and high-speed Internet access.
Hong Kong Is “Wired”
After the new governor of Hong Kong declared that IT was critical for business success, the number of students enrolled in IT-related masters degrees doubled. The government became actively involved in promoting the adoption of IT and Hong Kong as a high-tech business hub. A major cyberport project was announced which brought some of the Silicon Valley attributes to the city-state. Finally, the government agreed to pay C&W nearly $1 billion USD in exchange for terminating HKT/C&W’s remaining monopoly licenses for telecom services in 1999.
As one of the first places in Asia to embrace e-commerce, Hong Kong is considered to be one of the world’s most wired countries. To date, private institutions continue to expand their use of e-commerce solutions. The government of Hong Kong shifted its role from subsidies to promotion and Internet adoption. Currently, private business interests in IT remain high, as does its interest in IT education.
The development of the Internet in China has involved an interesting mix of both private and government institutions. Actions that would typically be attributed to private institutions are often taken by State Owned Enterprises (SOEs), which act somewhat like private companies, but are owned entirely by the central government. Since telecommunications is viewed as a strategic resource, foreign ownership of telecommunications service providers is not allowed under Chinese law, but competition does exist between different SOEs in this market.
History has shown that the Chinese government has closely controlled and regulated the introduction and implementation of technology. The Tiannanmen Square incident is an example illustrating the government’s attempt to regulate the use and dissemination of technology. During this time, capitalism and market openings were still in the early stages of development. In 1992, Deng Xiaoping visited areas in south China with relaxed regulations. He noted that growth and personal prosperity were good for Chinese citizens and launched an open door policy to rapidly grow 50 new “Hong Kongs” across the nation.
The government of the People’s Republic of China began serious spending on its information infrastructure in 1992. However, this spending primarily focused on expanding basic telephone service due to dramatic growth and needs in this area. Only later did China focus on business data communications. The Ministry of Electronic Industries attempted to get approval from the State Council (the central governing body of China) to provide voice and data services in competition with the Ministry of Posts and Telecommunications. However, one of the key concerns by state officials to the proposed competition between ministries was the possibility of “unplanned growth.”
“Golden Projects” Improve Information Infrastructure
The result was the “Golden Projects,” which dramatically improved information infrastructure and strengthened the government’s ability to maintain control over the economy and to direct very specific infrastructure projects. One of the government’s concerns about the expanding free commerce was the loss of control over economic development from unplanned growth. The information infrastructure proposed in the Golden Projects provided a means for the government to regain control over the economy through centralization and analysis of information to replace direct controls that had been used earlier.
With a large grant provided to establish these major Golden Projects, the government was intentionally subsidizing the development of China’s information infrastructure and was providing directions to guide the evolution of both infrastructure and applications. Shortly after the official launch of the Golden Projects in late 1993, funding and access to the Internet for academic institutions and technical degree program funding were increased in an effort to reduce China’s dependence on foreign experts. The publicity surrounding the launch of the Golden Projects was also used to increase awareness of IT’s importance for China.
The Golden Projects were the focus of IT development in mainland China. The government heavily subsidized IT infrastructure in larger cities. In 1993, funding and access to the Internet for academic institutions rapidly increased. The adoption and use of the Internet was limited due to the lack of a countrywide verification system and the inability to use banks outside of major cities. Further, cultural constraints prohibited consumers from obtaining, accessing, or using credit cards.
Efforts to increase awareness and interest were successful, so by the end of 1996, more than a dozen Golden Projects existed across a wide range of industries and government ministries. The government brought in new expertise and used these experts to train and develop local staff. In addition, the various ministries involved in the Golden Projects were hungry for knowledge transfer from their international suppliers, and long-term contracts often required a substantial component of training and knowledge transfer for local staff. However, the government also shut down unlicensed ISPs in an effort to maintain control over this rapidly growing information infrastructure.
Government Supports Internet, Electronic Commerce
The development of IT and the Internet began to mature in China. Local expertise was developing to augment overseas experts, and investment and applications development decisions were becoming more locally determined rather than vendor driven. The government also became more concerned about the need to set standards and deploy knowledge than had been the case in earlier phases in which infrastructure growth at all costs had been the focus.
The government’s attitude toward the Internet had also matured from one of initial concern and skepticism regarding the relatively uncontrolled nature of Internet communications to a very supportive role in encouraging the development and adoption of the Internet and electronic commerce. By 1998, the government had deployed low cost international internet services ($1 USD per hour or less) in almost all major cities in China with subsidies and promotions used to increase IT adoption. In 1999, the government allowed both China Telecom and China Internet to offer stock to Western Investors through IPOs as part of their business strategy.
In December, 1983, the “Interim Report Concerning What Informatization and the Information Industry Should Be and What Measures Should be Taken” was published by the then Ministry of International Trade and Industry(MITI), now the Ministry of Economics Trade and Industry or METI. This report was followed up by a paper in 1985 entitled, “Suggestions Towards an Advanced Informatization Society” made by the Committee for Basic Policy in the Information and Industry Meeting. It is interesting that neither of these reports focused much on the Internet. Furthermore, the committee only focused on the legal system concerning semiconductor chips and database services.
During this phase, the “Law on the facilitation of information processing” was passed with an amendment in 1986. This legislation did not deal with Internet infrastructure, but primarily with the standardization of software and hardware. However, little happened until awareness grew regarding impending economic crises and Japanese institutions’ lack of capacity for dynamic change. In 1988, MITI published “Suggestions Concerning the Re-examination of Telecommunications Law,” and in 1989, the “Law on Extraordinary Measures to Facilitate Enhancing the Provision of Software and Enterprise by Region” was enacted.
Recession, Lack of Technology Stall Internet Progress
However, there was little response until after the country was already in recession. At that time, the government began to restructure its own bureaucracy and instigated what is referred to as the “Big Bang” or quick deregulation of the marketplace, including the telecommunications industry. The result was that the behemoth Nippon Telephone and Telegraph suddenly found itself surrounded by local and global competitors.
At this time, the old technology infrastructure was clearly insufficient. In 1993, two government policy reports were published aimed at mobilizing government and industry. They were entitled, “Suggestions for Cultivating Human Resources in Support of an Advanced Information Society” and “Report Focused on Software Transactions in Preparation for an Information Society and the Improvement of the Necessary Social Capital.” In 1994, the “Advanced Information Program” was funded by the government.
The interesting reality of Japan and its world-class electronics industry is that even though Japanese companies produce some of the most sophisticated hardware in the world, the Internet and even PC penetration was low at this time. n 1992, NTT DoCoMo spun off from its parent company and was viewed almost as punishment for the engineers who were sent there. The technology was primitive and subscription prices were extremely high. In addition, the phones were large and the coverage was average.
Japanese Mobile Communications Rapid Growth
Following the liberalization of the cell-phone market in 1994, there was a cell-phone explosion in Japan. In 1995, mobile communications began to grow rapidly. The population quickly took to cellular phone usage, as competition brought the quality of service up and the subscription prices down. The primary competitors are J-Phone, NTT DoCoMo and DDI. Figure 1 shows the growth in subscribers from April 1995 to October 1999. By 1997, a decline in the fixed telephony market coincided with yearly growth of approximately 20% for wireless services.
In March 2000, the number of wireless subscribers surpassed the number of fixed phone subscribers. Cell phone service providers, supported by Japanese liberalization policy, continued to grow in terms of penetration and Internet use. NTT’s i-mode mobile Internet service brought Japan from the back of the class to the front in a matter of years. Japan once had one of the lowest computer and Internet penetrations in the developed world, due in part to the challenges associated with Japanese language and the keyboard. Such challenges made the PC cumbersome to use as a communication tool. The low computer/Internet penetration was also due to high telecommunications subscription prices, particularly for fixed telephony, and to the fact that Japanese young people and business people spend little time at home and the bulk of their time at work or on a train in part of Japan’s legendary public transportation system. I-mode service allowed mobile users to access email, play games, book airline reservations, check train schedules or even map out where they were going all from their now familiar mobile phone handset.
I-mode’s nothing short of explosive penetration of the marketplace followed and was driven by its competitors. Within six months of launch in early 1999, i-mode had over one million subscribers and grew so rapidly that by the summer of 2000, there were over 10 million subscribers. The rapid growth of i-mode from 1999 to 2001 occurred on a scale that took AOL over eight years to reach.
I-mode has revolutionized Japanese telecommunications and brought millions of users to the Internet. However, it is unclear how it will impact business practice. Most business systems remain unchanged in the last decade. Consumers are paying bills, checking their bank balances, and making travel arrangements using i-mode, so as personal use continues to grow, the way Japanese business operates will change. The most noticeable strategy appears to be in uses such as supply-chain management in the distribution and inventory tracking environments. The corporate strategy is in marketing cell-phones that have a device called P-doco, which identifies the location of the user and transmits it back to a receiver. While promotion of this device is initially aimed at parents who want to keep track of their children, P-doco also has obvious use in tracking business supplies.
Conclusions and Application
Given the brief history of how the electronic infrastructure was developed in each of the foregoing Asian marketplaces, how can we apply this knowledge to doing business in Tokyo, Hong Kong and China?
Business transactions in Japan are becoming increasingly interconnected and Internet enabled. The question remains as to how easy it is for visitors and foreigners to tap into this network. The majority of the e-commerce and e-business sites in Japan are built for mobile internet, which has a totally different look and feel from the web used on a large screen operated by a PC. However, most Japanese sites do have a dual format for the traditional web, but these are not as extensive or as transaction enabled as their i-mode counterparts. Some sites have English versions that are even less dynamic, but the majority of them are Japanese. Important to note is that many service oriented businesses such as banks are enabling electronic transactions, which can be extremely helpful. The key insight for business travelers is to come prepared to buy local hardware in order to leverage the local infrastructure. Japan still has some connectivity issues and significant differences compared to standards used in North America as opposed to the fewer issues compared to standards used in Europe.
Hong Kong / Mainland China:
While the same degree of technological advances may not be accomplished fact in Hong Kong and Beijing, these marketplaces are not far behind Japan. In both instances, Internet adoption is growing steadily, and business is predominantly conducted in Chinese. In fact, given that the movement to mobile Internet has been slower in these locations than in Japan, the PC is the predominant platform for conducting B2B and B2C transactions. Use of PDC platforms provides some familiarity for business travelers and also a rich PC-based environment. Nonetheless, there are growing indications that this predominance is changing in a way similar to that seen in Japan.
Because Hong Kong’s telecommunications network is one of the world’s most advanced, companies will increasingly continue to use the island as a base for doing business in Asia. Organizations interested in conducting business in Asia should consider taking advantage of the electronic infrastructure and business opportunities in Hong Kong. It is estimated that the total value of products and services transacted over the Internet in Hong Kong will increase from U.S. $60M in 1998 to U.S.$1.3B in 2002, and to U.S.$2.4B in 2003. Private institutions in Hong Kong will continue to play a significant role in shaping the Internet and boosting business transactions in Asia.
Private institutions have played a comparative lesser role in mainland China. Although the adoption of the Internet and the growth of the telecommunications industry in mainland China have undergone considerable change in the past ten years, the Internet remains subject to a high degree of government regulation and control. It is increasingly evident that the Chinese government ministries will continue to control and regulate the development of the country’s electronic infrastructure. While overseas investors are becoming increasingly prevalent in the development of the Chinese electronic infrastructure, corporations conducting business in mainland China will continue to be regulated by the government.
Policies toward private ownership of telecommunications businesses continue to change, and commercial enterprises conducting business in mainland China need to be aware of the new policies being implemented by the central government. Although B2B and B2C transactions in mainland China have increased, approximately 70% of the population in mainland China still lives in rural areas. Hence, distribution and delivery of products among the 31 provinces and 517 cities remain a problem.
China’s hosting of the 2008 Olympic Games is quickly approaching. Therefore, a significant opportunity exists for corporations to use the country’s e-commerce and telecommunications infrastructure to boost business transactions. Companies attempting to conduct business in Hong Kong and Mainland China need to be aware of the governmental polices that both promote and regulate B2B and B2C transactions.
By understanding the state of the IT infrastructure in Japan, Hong Kong and China, business practitioners can be better prepared to tap into the local electronic infrastructures. In addition, by understanding the status of government involvement in each country, businesses will be better able to make more informed and savvy decisions about how to leverage the existing infrastructure and make the most of current incentives. Finally, business practitioners must also be aware of some of the contractual pressures for knowledge exchange that can be helpful in negotiating mutually acceptable partnerships.
 M. Chun, T. Clark, P. Lovelock, and R. Montealegre, “Information Technology Adoption and Interventions in China,” Working Paper (2004).
 “Interim Report Concerning What Informatization and the Information Industry Should be and What Measures Should be Taken”, MITI, Tokyo, Japan, (1983).
 “Suggestions Towards and Advanced Informatization Society”, MITI, Tokyo, Japan (1985).
 “Suggestions Towards and Advanced Informatization Society”, MITI, Tokyo, Japan (1985).
 Charla Griffy-Brown, Chihiro Watanabe and Kenzo Fujisue, “Technology Spillovers and Informatization in Japan: An Analysis of IT Diffusion in Large versus Small and Medium-sized Enterprises,” International Journal of Technology Management,17, Issue 4 (1999): 362-386.
 Charla Griffy-Brown, Akira Nagamatsu, Chihiro Watanabe and Bing Zhu, “Technology Spillovers and Economic Vitality: An Analysis of Institutional Flexibility in Japan with Comparisons to the US,” International Journal of Technology Management, 23, Issue 8, (2000).
 Charla Griffy-Brown, Chihiro Watanabe and Kenzo Fujisue, “Technology Spillovers and Informatization in Japan: An Analysis of IT Diffusion in Large versus Small and Medium-sized Enterprises.” International Journal of Technology Management, 17, Issue 4 (1999): 362-386.
 Charla Griffy-Brown, Akira Nagamatsu, Chihiro Watanabe and Bing Zhu, “Technology Spillovers and Economic Vitality: An Analysis of Institutional Flexibility in Japan with Comparisons to the US,” International Journal of Technology Management, 23, Issue 8 (2000).
 Ebusinessforum.com, “Doing Business in Hong Kong, Ecommerce,” June 23, 2000.
About the Author(s)
Mark Chun, PhD, earned his doctorate in Information Systems from the University of Colorado at Boulder; an MBA from the University of California, Irvine, with a emphasis on business and strategy; and a Bachelor of Business Administration with an emphasis in management information systems from the University of Hawaii. His research focuses on the use of IT to create value and to transform organizations, the integration of information systems, and knowledge management. He has been published in the Communications of the Association of Information Systems journal, the Journal of Information Technology Management, the Journal of Global Information Technology Management, and the Journal of Information Technology Case and Application Research. Dr. Chun has worked for Intel Corporation, Pepsi Co./Taco Bell, Coopers & Lybrand, and the Bank of Hawaii, and has conducted research at Qwest, Honda, Hilton Hotels, Kaiser Permanente, Mattel, and Pratt-Whitney Rocketdyne. He has also researched the diffusion of information technology in less-developed Asian countries.
Charla Griffy-Brown, PhD, is an associate professor of information systems at the Graziadio School of Business and Management. In 2004, Dr. Griffy-Brown received a research award from the International Association for the Management of Technology and was recognized as one of the most active and prolific researchers in the fields of technology management and innovation. A former researcher at the Foundation for Advanced Studies on International Development in Tokyo, she has also served as an associate professor at the Tokyo Institute of Technology. Dr. Griffy-Brown graduated from Harvard University, is a former Fulbright Scholar, and holds a PhD in technology management from Griffith University in Queensland, Australia. She has worked for NASA at the Kennedy Space Center and has taught innovation/technology management courses in Australia, Singapore, Indonesia, Malaysia, and Japan. She has also served as a consultant for the United Nation's Global Environmental Facility and the European Commission.