Hong Kong

Overview

At 4th position overall in the Asian Digital Transformation Index, Hong Kong presents a mixed picture when it comes to digital transformation. The territory compares reasonably well with the Index leaders in the development of ICT infrastructure and the availability of talent necessary to support digital transformation of its businesses. These strengths are offset, however, by weaknesses in industry connectivity–its companies’ digital partnerships and interaction with other organisations, networks and communities.

Overall Score

Average 45.8

1. Singapore 75.6

2. South Korea 72.5

3. Japan 70.7

4. Hong Kong 65.7

5. Taiwan 65.1

6. Malaysia 42.0

7. China 33.9

8. Thailand 23.9

9. India 19.3

10. Philippines 18.8

11. Indonesia 16.0

The environment for digital transformationEchoing the Index findings, Ravel Lai, Group IT director of Jardine Restaurant Group, and also head of digital marketing for its Pizza Hut and KFC chains, believes Hong Kong lags behind the likes of Singapore (1) and Japan (3) in developing a strong environment for digital transformation.

He also believes the territory has fallen behind China (7) in some areas, such as digital marketing and e-commerce. Little more than one-fifth of Hong Kong executives surveyed by the EIU say the development of a digital transformation environment locally has been “very successful,” the majority (62%) deeming it “somewhat successful.”

Hong Kong’s digital infrastructure – networks, services and devices used by businesses as well as consumers–is relatively well developed. (The territory ranks 3rd in this Index category.) No more than 15% of survey respondents deem a lack of digital infrastructure (or its affordability) to be an impediment to their company’s digital transformation.

However, the environment is weakened somewhat by relatively inconsistent government support for policies that encourage business use of digital technologies. Here, Hong Kong ranks below Asian neighbours Singapore, Malaysia, Taiwan and South Korea.

Another major inhibitor of digital transformation, as elsewhere in Asia-

Index performance

Survey highlights

• 55% of surveyed firms have five or more digital partnerships

• 57% use data analytics to a ‘large’ or ‘great extent’

• 42% store 75% or more of their data in the cloud

#4

Overall

#3

Digital infrastructure

#3 Human capital

#5

Industry connectivity

Pacific, is a dearth of people with advanced digital skills. Hong Kong ranks a relatively high 3rd in the human capital category of the Index, and just over half (53%) of survey respondents said it’s relatively easy to find employees with the requisite digital skills. Mr Lai believes this is misleading, however: “The pool of available talent in specialist areas such as data analytics and UX [user experience] is very thin in Hong Kong.”

The frontline: digital transformation of businesses

The environmental weaknesses notwithstanding, Hong Kong executives say they are benefitting from their investments in digital transformation. More than six in 10 (63%) report that such investments have already proven their value. Nearly eight in 10 (78%) say their digital transformation efforts have led their companies to change their business model in some respect.

Digital transformation initiatives have thus far concentrated heavily on the use of social media in marketing and other areas. (See ‘Digital energy for venerable brands’ for an example from the hospitality industry). Attention is shifting, however, to the greater use of big data and analytics. Over half (57%) of respondents say their firms currently use analytics to a large extent, and 43% say this will be the major focus of transformation efforts in the future.

Use of the cloud for storing data and accessing applications is also likely to increase. Mr Lai reports that Jardine Restaurant Group moved its CRM platform,

along with customer data, from a company data centre to the cloud in the past year, in order to increase the platform’s flexibility and reliability. “If traffic increases we can easily add a server and other cloud resources, in order to maintain service to our customers. This also enables us to test new ideas or campaigns relatively easily.”

The chief benefits currently being gained from digital transformation initiatives (top responses)

0

10

20

30

40

50

60

Support for existing custom

ers

More innovative ideas / IP for

a new product / services

Developm

ent of a new custom

er segments

Expand reach into new

markets

Productivity im

provements

Greater cost savings

57%

48%

40% 40%

32%30%

The chief benefits realised thus far (by half or more companies in the survey) appear to be in cost savings and productivity gains. Considerably fewer businesses claim benefits in the form of innovative new product or service ideas, or development of new customer segments. This suggests a somewhat limited view of the potential of digital transformation on the part of business leaders. In fact, a lack of management support is cited by respondents as amongst the chief impediments to digital transformation at their companies. (A lack of financing is the top obstacle cited.)

Digital connections

An important contributor to digital transformation is the desire of organisations to partner with others–companies as well as research or innovation-focused networks and communities. This is an area of relative weakness for Hong Kong businesses, with the territory ranking 7th in the Index on the strength of its digital partnerships.

This does not mean local companies are not willing to partner–55% in the survey are involved in five or more digital partnerships, and 22% in more than 10. A majority of survey respondents believe their firms’ existing digital partnerships have yielded benefits, such as improved productivity and new product and service ideas, many of which have been commercialised.

Involvement in open innovation communities–in which data and ideas are shared by companies, research organisations and individuals, amongst others – has also generated benefits for Hong Kong companies, according to half of the survey respondents.

1. Digital Infrastructure

Average 47.9

1. Singapore 80.1

2. South Korea 74.4

3. Hong Kong 70.7

4. Taiwan 66.5

5. Japan 63.5

6. Malaysia 53.7

7. China 36.4

8. Thailand 22.5

9. Indonesia 19.3

10. Philippines 18.8

11. India 17.9

2. Human Capital

Average 46.0

1. South Korea 82.2

2. Japan 80.2

3. Hong Kong 76.1

4. Singapore 74.5

5. Taiwan 68.0

6. Malaysia 42.5

7. China 28.9

8. Thailand 20.6

9. Philippines 16.3

10. India 10.8

11. Indonesia 5.7

3. Industry Connectivity

Average 39.7

1. Japan 78.9

2. Singapore 64.7

3. Taiwan 57.8

4. South Korea 55.2

5. Hong Kong 40.4

6. India 33.6

7. China 33.3

8. Thailand 31.9

9. Philippines 20.5

10. Indonesia 11.0

11. Malaysia 9.2

Find out more connectedfuture.economist.com

But anecdotal evidence suggests that at least some partnerships are essentially vendor relationships rather than collaborative associations. A clear majority of executives (63%) agree that their firms need to become better at leveraging digital partnerships.

They will need to be, as many of the same business leaders believe their digital partnerships will be nearly as important as their own investments in technology in determining the success of digital transformation.

Agree or disagree: “Companies going it alone (without digital partnerships) will soon be a thing of the past”

Agree Disagree

73%

27%

Find out more connectedfuture.economist.com

Digital energy for venerable brands

Hong Kong is not awash with managers having a clear understanding of both corporate IT and marketing, much less the challenges of digital marketing. An exception is Ravel Lai of Jardine Restaurant Group. Mr Lai holds an unusual combination of responsibilities, serving as both Group IT director and also digital marketing head for two of the group’s key brands in Hong Kong: Pizza Hut and KFC. While proud of his shepherding of Jardine’s technology capabilities, Mr Lai is clearly relishing his newer digital marketing role, despite having only a small team to support him.

His team’s most ambitious project to date has been the launch of a mobile loyalty app in June 2015 and its linking with

restaurant point-of-sale data, business data and its Facebook page–part of a wider “social CRM” campaign run across Pizza Hut chains worldwide. As a result of the campaign, according to Mr Lai, loyalty member sales in Hong Kong grew from 27% of total sales in 2014 to 42% in June 2016. He also reports that monthly sales from loyalty customers increased by over 50% in the past 12 months.

This success has helped Mr Lai to evangelise more effectively within the restaurant business about the potential of digital marketing. Nevertheless, the virtues still require considerable explanation, he says, even after demonstrating that the campaign costs at least 10% less to run than the

traditional print or TV variety. “Traditional marketers in Hong Kong cannot give up their focus on TV advertising,” he says. “We keep demonstrating results, but they still need time to change their mindset.” Mr Lai is optimistic, however, noting that advertising firms themselves are beginning to devote more ad spend to digital channels.

Such digital marketing initiatives, and digital transformation more broadly, are critical, Mr Lai believes, to enable the company’s long-established and venerable brands to connect with Hong Kong’s young and tech-savvy customers. “Digital transformation will help us to change our image,” he says.