THE INTERNATIONAL JOURNAL OF THE GROUP SPHERE 8 SPHERE CONTENTS Number 8 march 2003

2 8 UPDATES COMMUNITY NEWSBITES OUT OF THE BOX Latest developments from the A unique project forges links Hutchison press box. amongst creative talents on two continents.

12 COVER STORY 3 THE DIFFERENCE Next-generation mobile services have arrived in the UK and Italy under the 3 brand. 26 MANUFACTURING TOP OF THE GAME Since becoming HWL’s manufacturing arm, has been playing in a bigger league. 32 RETAIL FREQUENT BUYERS Nuance-Watson has raised the airport shopping experience to new heights.

Cover: Illustration by David Chan Tik Wai

P UBLISHED BY Hutchison Whampoa Limited, 22/F Hutchison House, 10 Harcourt Road, Central, . Website: hutchison-whampoa.com. In-house Editorial Team:Laura Cheung, Nora Yong,Pamela Wan.Editor:Mark Caldwell – Great Pacific Marketing Services Ltd. Design and production:Fiona Wat, Dharmistha Bradley, Blackie Hui, Kelly Cheunglittle red– hen, a division of the Asia City Publishing Group. Tel:2850 5500. Fax 2543 1220. Colour separation by Gilead Graphic International. Printing by Miracle Printing Group. No part of this magazine may be reproduced without the written permission of Hutchison Whampoa Limited. All rights reserved. Copyright © 2003 by Hutchison Whampoa Limited. Opinions expressed herein are those of the writers and do not necessarily reflect the opinion of Hutchison Whampoa Limited.All currency conversions are approximations. HUTCHISON UPDATES News

CORPORATE TELECOMS JV to Promote China Tourism HGC Connects with China Hutchison Global Hutchison Whampoa (China) of China’s tourism industry. HONG KONG has become a founding JV Beijing Tourism’s assets include Beijing Communications partner (27.5%) of Beijing Badaling Tourism Development, Jian (HGC) and China Telecom have reached an Tourism Development Co. Guo Hotel Joint Venture Beijing, Beijing agreement to increase their interconnection (Beijing Tourism) together Long Qing Xia Tourism Development, capacity by 10Gbit/s to a total of 12.5Gbit/s. with Beijing Enterprises Great Wall Hotel Joint Venture, and the The expansion provides an additional Holdings (40%) and Beijing Tourism Holiday Inn Civic Center in San Francisco. connection path for the Hong Group (27.5%). Beijing Enterprises is the primary overseas Kong-Shenzhen-Guangzhou Synchronous The three companies are co-operating jointly commercial window for the Beijing Digital Hierarchy (SDH) Ring, increasing in light of the many opportunities brought Municipal Government while Beijing network and route diversity. about by Beijing’s successful bid for the 2008 Tourism Group is one of China’s largest HGC plans to introduce a series of Olympic Games and the rapid development tourist organisations. multimedia voice and video communications services, including Video Telephony,Video Mail, Share-eSee (a multi-party applause HWL Annual Results collaborative conferencing service) and e-Profile  (an online biography application). 2002 2001 Changes Hutchison Whampoa HK$’ million HK$’ million Limited has again received Profit attributable to shareholders 14,288 11,980 19% applause a number of accolades Earnings per share HK$3.35 HK$2.81 19%  from various media for its Hutchison Telecom (HK) and its Hutchison Whampoa Limited recorded an audited profit performance in 2002. prestigious brand Orange in December attributable to shareholders for the year amounted to Euromoney magazine placed were each awarded the “Superbrand” title HWL at the top of the list in HK$14,288 million (approximately US$1,832 million), an by the Superbrands Council.The brands the “Best Asian Companies – increase of 19% compared to the previous year. Earnings per successfully fulfilled the judging criteria, Conglomerate” category and share amounted to HK$3.35, an increase of 19% with a total which include market dominance, fourth in the “Best Companies dividend per share of HK$1.73 (2001 - HK$1.73). longevity, goodwill, customer loyalty and in Hong Kong” category. The results include profit on disposal of investments less overall market acceptance. In its “Review 200” awards, an provisions totalling HK$1,524 million (2001 - HK$3,124 annual survey that asks readers million) which primarily relates to a profit of HK$1,129 to rank companies in the million arising from the sale of equity interests in certain Partner Performs region by their leadership ports. Excluding these exceptional gains in both years, profit Partner Communi- qualities, the Far Eastern ISRAEL attributable to shareholders increased 44%, reflecting cations has announced a Economic Review ranked HWL continuous growth in the Group’s recurring operations. strong financial performance for 2002. third in the category “Asia’s Turnover for 2002 totalled HK$111,129 million, an increase Revenues for the year amounted to Leading Companies (Hong of 25% over that of 2001.Total EBIT for the year increased NIS4,054.6 million (approximately US$855.9 Kong)”. 13% to HK$24,447 million.All of the Group’s divisions, million), up 25% from NIS3,249.3 million in Global Finance meanwhile other than the finance and investment division, reported 2001. EBITDA was NIS1,052.2 million, up named HWL “Best Company EBIT ahead of last year.The Group’s cash and liquid 60% from NIS656.4 million. Operating profit in Asia-Pacific – investments, at market value, totalled HK$130,267 million. was NIS533.4 million, up 418% from Conglomerates/Logistics”. For full results, see www.hutchison-whampoa.com/NewsDIR/news NIS102.9 million in 2001. Net income was NIS84.2 million compared to a net loss of NIS303.4 million in 2001. Market share HUTCHISON WHAMPOA LIMITED increased to an estimated 29%, up from 27% Hutchison Whampoa Limited (HWL), one of the largest companies listed on the Hong at the end of 2001. Reflecting Partner’s solid Kong Stock Exchange, is the holding company of the Hutchison Whampoa Group of performance, Standard & Poor’s (S&P) in companies. As one of the earliest big “hongs” or trading companies in Hong Kong, February revised its outlook on the company Hutchison’s history dates back to the 1800s. Today, HWL is a multinational conglomerate with from stable to positive. S&P also affirmed its businesses spanning 41 countries.With over 150,000 employees worldwide, Hutchison operates and B+ long term corporate credit and B- senior invests in five core businesses: ports and related services; telecommunications; property and hotels; retail and manufacturing; and energy and infrastructure. unsecured debt ratings. Its flagship companies include , Hutchison Telecom, Hutchison Whampoa Partner recently signed a new financial Properties, A.S.Watson, and Cheung Kong Infrastructure. In 2002, HWL’s consolidated revenue agreement with a number of banks and now was HK$111,129 million. has a fully funded business plan.

SPHERE 2 bites

TELECOMS NEC Takes Equity Stake

NEC Corporation in HONG KONG October acquired from HWL a 5% strategic equity interest in both Hutchison Telephone Company Ltd. Hutchison Essar Hits the Headlines (HTCL) and Hutchison 3G HK Holdings Hutchison Essar period for the use of the “cellular (H3G HK) for a total cash consideration of INDIA claimed a world first in broadcast” technology licensed from US$73 million. January when its affiliated companies across privately held Israeli firm Celltick. HTCL and one of its subsidiaries are the India launched HutchAlive – a personalised, From Feb. 8, coinciding with the inaugural licensed providers of cellular mobile interactive broadcast service that game, the company launched the Cricket telephone services in Hong Kong and Macau. automatically updates mobile phones with World Cup video service exclusively on H3G HK, through a subsidiary, is the licensed text news headlines. Hutch GPRS phones, allowing subscribers operator of 3G mobile services in Hong Phones carry menus, such as a list of to see video clip replays. As part of Kong. headlines, and users pay for selecting related HutchWorld, Hutchison Essar is also offering As part of this transaction, HWL's interest in information, such as the story behind the photo messaging, e-mail and games. HTCL and H3G HK has changed from headline, which is sent by the network. Reflecting the company’s progressive 74.63% to approximately 71%, while NTT Apart from News, key content areas are approach to technology as well as DoCoMo’s stake changed from 25.37% to Cricket, Entertainment, Astrology, Lifestyle management leadership, speedy response to approximately 24% for both companies. and Promotional Offers. HutchAlive was change, environmental consciousness and The deal creates a strong strategic partnership, simultaneously introduced across Mumbai, social responsiveness, Hutchison emerged as with NEC providing comprehensive support Delhi, Kolkata, Chennai, Gujarat, Andhra the clear No. 1 in a country-wide poll as for Hutchison’s worldwide 3G businesses. Pradesh and Karnataka under the Orange the “Most Respected Company in the and Hutch brands. Telecom Sector” published in Businessworld Hutchison had an exclusive head-start in January. Orange in the Black Hutchison AUSTRALIA “Hutch” Service Launched Telecommunications Retail Agreements (Australia) Ltd. under the Orange Mobile Hutchison CAT Hutchison 3G UK has brand recorded an EBITDA loss of A$14.1 THAILAND UK Wireless MultiMedia entered into agreements million (about US$8.3 million) for 2002, a Ltd., a joint venture between The with Dixons/The Link (290 stores), dramatic improvement on the 2001 loss of Communications Authority of Thailand Carphone Warehouse (470 stores) and A$112.9 million. For the first time, second half and Hutchison Wireless Multimedia Phones 4U (325 stores) to retail its 3 brand EBITDA was positive at A$2.1 million. Holdings, commercially launched a new products and services. The turnaround was delivered through mobile phone service in February under the customer and revenue growth and ongoing Hutch brand. rationalisation of operating costs. Profitability The Hutch service deploys CDMA2000 1X, was also enhanced by reduced capital which supports high speed wireless expenditure, down from A$254.2 million in technology that enable multimedia 2001 to A$31.1 million. functions, bringing customers The company also reported it was at advanced more information, stages of the technical integration, stabilisation communication and and end-to-end testing of the network, entertainment choices platforms, operating systems and devices for its on the move. 3G operation under the 3 brand. Hutch has also teamed up with Sanyo of Japan and Samsung of Korea to Video Telephony Deal provide customised Ericsson and HWL have GLOBAL terminals equipped with signed a global agreement HTML compatible browser and on an end-to-end solution that supports video multimedia capabilities to handle new telephony between personal computers and 3G content-rich applications and high-speed handsets. The solution will be deployed in data transmission. Hutchison 3G markets worldwide.

SPHERE 3 HUTCHISON UPDATES Newsbites

ENERGY & INFRASTRUCTURE PROPERTY & HOTELS Husky’s Strong Earnings to Fuel Exploration Hot Property ’s net earnings for Q4 development at the Tucker and Kearl Hutchison Whampoa Property has put 2002 increased by 438% to C$242 million properties in Canada. Britain’s most expensive flat on the market (approximately US$160 million) compared A total of C$1.66 billion was earmarked – for an estimated £10 million to C$45 million in the same period the for Husky’s upstream segment. (approximately US$16 million). year before. Net earnings for 2002 Husky estimates production of 305 to 325 For those who can dig deep enough, the increased 23% to C$804 million (C$1.88 thousand barrels of oil equivalent per day prized penthouse, located at the Albion per share – diluted). during 2003. Riverside development in Battersea, South Following a 47% increase in net earnings In November, Husky announced that a London, is the size of three Wimbledon for Q3 2002, the company in December significant natural gas discovery in centre courts. announced a capital expenditure of Shackleton, Saskatchewan, would add Designed by world-renowned architect Sir approximately C$1.8 billion for 2003. approximately 75 billion cubic feet of Norman Foster, right down to the Planned expenditures reflect proven natural gas reserves in 2002 and bathroom fittings, the Albion is both high- increase reserves to 250 billion cubic feet tech and high luxury.The top floor, with over the next two to three years. 13 luxury penthouse suites, is due for Husky has completed two completion this year. gathering and compression systems to develop the 300,000- acre Shackleton field.Together these systems are designed to handle up to 30 million cubic feet per day. In February, Husky announced it had entered into a series of commodity hedging contracts for 2003 that hedge 26 million barrels of crude oil at an average strike price of approximately US$29.50. These hedges cover approximately Husky’s focus on 34% of expected crude oil applause long-term projects such as the White production for 2003.The Company also  Rose offshore oil project in the Jeanne has 37 billion cubic feet of natural gas The Horizon Cove residential project in d’Arc Basin off the east coast of Canada, hedged at approximately US$5.20 per Zhuhai, southern China, has been exploration and development programmes MMBtu, representing about 17% of its awarded the “Xin Xin Ren Jia (avant- in the South China Sea, and oil sands expected natural gas production for 2003. garde) Architectural Design Prize” by the Center for Housing Industrialization Tunneling Begins Ministry of Construction P.R. China and China Real Estate News for its CrossCity Motorway, a joint venture of supreme design and construction. Cheung Kong Infrastructure Holdings (50%), DB Capital Partners (30%) and Bilfinger Berger BOT GmbH (20%), started work in January on a major transport infrastructure project in Sydney,Australia. When completed, the 2.2km Cross City Tunnel will revolutionise travel patterns across Sydney, taking a large number of vehicles per day off the city’s streets, improving environmental quality and freeing up the city for pedestrians and public transport.

SPHERE 4 PORTS Felixstowe Expansion Under Way JICT in the Loop The Port of Felixstowe in February began port’s ability to compete against other Jakarta International Container work to extend its Trinity Terminal, European container ports. Terminal (JICT) on Nov. 6 welcomed the providing an additional 270m of deep-water In line with the expansion, the Port has arrival of MV.E.R Canberra, marking the quay and 14ha of additional container ordered three more Ship-to-Shore Gantry start of a new weekly route by the AAA storage space. Cranes (SSGCs) and ten new Rubber-Tyred Consortium, an alliance between MISC, The quay is expected to be fully operational Gantry Cranes (RTGCs) from Zhenhua MOL, OOCL and PIL. by March 2004 and will increase annual Port Machinery Company of Shanghai. In December, JICT completed construction capacity by some 415,000 TEUs to over The Jan. 2004 delivery will bring the total that increases its quay length by 133m, three million, creating around 400 jobs. to 28 SSGCs and 86 RTGCs. allowing it to serve larger vessels. JICT has On completion, two of the latest generation Meanwhile, in a move that will significantly also taken delivery of nine new RTGCs and of large container vessels will be able to increase the volume of containers being three Post-Panamax cranes. berth simultaneously, thereby securing the transported to and from Felixstowe by rail and thus reduce lorry traffic, English, Welsh & Scottish Railway has started a Container Milestone new rail service, carrying 9ft 6"-high cube containers from the Port to Widnes. ECT Delta Dedicated West Terminal in Rotterdam handled its millionth container on Oct. 7, two-and-a-half years IT Model is a Winner after the fully automated terminal opened. New Name for Old Firm Hongkong International Terminals Hongkong United Dockyards in (HIT) has received an award from the IT November changed its name to HUD publication Intelligent Enterprise Asia, for the Group, reflecting the diversification and development of Yard Model 3, a computer expansion of its business interests.A joint simulation model for yard management venture between HWL and the systems. Group, HUD specialises in ship repair and The annual “Intelligent 20 Awards” showcase marine engineering operations and is also outstanding IT implementations with high the largest tug and salvage operator in business value.The award highlights HIT’s Hong Kong. HUD’s main business interests use of computer modelling to test processes have diversified over the years to include and workflows in the container yard.With non-marine activities, including limited terminal operating area, HIT automotive, electrical, mechanical and continues to succeed in developing globally process engineering services, and container recognised systems and processes, handling its ship handling. 70 millionth container on Nov. 11. SICT Direct to Japan In another development that will enhance A new direct service has been launched by efficiency, HIT in January launched Guider,a Powick (HK) Shipping between ship planning system that reduces by 25% the Shantou International Container time required to create a ship profile. Terminals (SICT) and Japan, offering a Developed in-house, Guider is a major cost-effective choice to shippers. advancement over previous systems, improving the flow of information between Balboa Boosts Capacity HIT and the shipping lines, and can process All Aboard planning systems for vessels over 10,000 TEU Panama Ports Company has ordered in size. For the first time ever, three cruise vessels five new quay cranes for the Port simultaneously called at the Panama Ports of Balboa Container Terminal from Company. Hyundai Heavy Industries as part of the The historical milestone took place on Jan. Port’s Phase III development programme. 19 when Sun Bird from Sun Cruises, The procurement forms part of an Radisson Diamond from Radisson Seven expansion programme to double the Seas and Coral Princess from Princess capacity of the port, increasing its fleet of Cruises docked at Pier 6 with a total of high-speed container cranes to eight. 5,590 passengers and crew.

SPHERE 5 HUTCHISON UPDATES Newsbites

RETAIL & MANUFACTURING Sen – The New Face of Chinese Healthcare Priceline Offers More Introducing a revolutionary new concept Internet travel retailer that brings the art and science of Hutchison- Traditional Chinese Medicine (TCM) to Priceline the western world, Sen, a wholly owned (Travel) has subsidiary of HWL, has opened its first embarked on store in London’s bustling South Molton a major Street. expansion The store’s emphasis is on expert drive designed guidance that demystifies TCM in a way to revolutionise the breadth of its travel- that is accessible and relevant to modern product choices in Asia. living without losing the ancient Chinese The addition of these retail products artistry. means visitors to priceline.com.hk and Fully qualified practitioners are on hand priceline.com.sg will be presented with to ensure all customers are given in-depth two options that deliver significant travel product knowledge before any purchase. discounts. There is also a Liquid Health Bar offering Alongside its innovative Name Your customers caffeine-free alternatives to tea Own Price model, the company has and coffee. Beverages include green tea, introduced a new range of discounted, herbal teas and herbal juice mixes “for published-price travel products.These the body, mind and spirit.” include car rentals, via a special More Sen stores will open in London this partnership with Hertz Rent A Car year with a national and global launch and hotel reservations via a tie-up with planned.The retail programme will also octopustravel.com Ltd. include the sale of Sen products through “shops within shops” in established pharmacy and retail outlets.

Powwow Sold to Nestlé Waters

Hutchison Whampoa and Nestlé Waters in January signed an agreement for the acquisition by Nestlé Waters of the Powwow group, from A.S. Watson (ASW), a subsidiary of HWL, for E560 million. Under ASW,the Powwow group started its European “Home and Office Delivery” water business in September 1998. It developed its activities across Western Europe through a series of acquisitions and strong organic growth to become one of the leading players in Europe. With 1,500 employees in seven countries – France, Germany, the Netherlands, the UK, Denmark, Italy and Portugal – Powwow’s turnover in 2002 was E120 million. The transaction is a result of a major review of ASW’s European businesses following its acquisition of the group, one of the largest health and beauty chains in Europe. ASW will continue its Asian water and beverage businesses.

SPHERE 126 RETAIL & MANUFACTURING Basket of Awards Reflects ASW’s Success PARKnSHOP Express Members of the A.S. time in the Supermarket/Convenience Store PARKnSHOP has Watson Group (ASW) category. launched two 24-hour raked in an impressive list •Great Food Hall was voted “The Best PARKnSHOP of awards during 2002, Food Shop” by readers of HK Magazine. Express stores, one reflecting excellent service, •Watson’s Wine Cellar was voted “The Best in Kowloon and the quality and teamwork. Wine Store” by readers of HK Magazine. other on Hong •Already a “Superbrand” in Hong Kong, Kong Island. • Nuance-Watson won Water was a triple winner in the Express stores are the prestigious Hong “4 ‘A’s Creative Awards” for its latest TV similar to mini- Kong Retail advertising campaign.The “It’s Your Body – supermarkets, stocking Management Sport”TV commercial earned an editing and one thousand products Association cinematography award, while its “Life” with a focus on instant food (HKRMA) “Service & counterpart also earned a cinematography and emergency items such as medicine. Courtesy Award” in the travel retail award. category for the fourth consecutive year. •The new Watsons Water bottle, launched in E-COMMERCE •Nuance-Watson employee Natallia Chan June 2002, won the “Best Packaging Material Pui-kei won both the HKRMA “Junior Printing” category in the Hong Kong Print TOM Expands Portfolio Frontline Award” and the overall “On The Awards. Job Performance Award.” •ASW was presented the “Diamond Donors In separate joint ventures in December, the • Fiona Chan Chun-fung of Labels received Award” by the Community Chest in TOM Group teamed up with Charm Art top honours in the “Supervisory Level recognition of the group’s donation drives & Advertising (Charm), the leading Award.” throughout the year, which collectively raised advertising agent of China Central • Liong Kam-wa, sales manager of Fortress many thousands of dollars for good causes. Television (CCTV), and with Henan electrical appliance store at Ginza Plaza, won Ming Sheng Advertising (Ming Sheng), the HKRMA Service & Courtesy Award for China’s foremost print media advertising Supervisors.” agent. • In the “Yahoo! Emotive Brand Awards” TOM holds a 60% interest in Charm, which PARKnSHOP was voted the “Brand has registered capital of approximately ten Yahoo! Users Trust the Most.” million yuan (about US$1.2 million).The JV •PARKnSHOP also won Next Magazine’s will provide design, production and agency “Top Service Award 2002” for a record 12th sales services for TV and other media. The JV with Ming Sheng will focus on advertising, design & production for print media and advertising agency services. Watsons Philippines Sees Rapid Expansion Registered capital is approximately two million yuan with TOM holding a 51% interest. Watsons Philippines opened an Ming Sheng represents over 266 amazing 14 new stores in the last two periodicals and magazines and 23 months of 2002, bringing the total newspapers nationwide. number of outlets to 83 within just a In a separate deal,TOM has acquired the year of operation. businesses of two Hong Kong magazines, Four units were opened in Bicutan, a Cup and AV, from Sing Pao Media. TOM new shopping mall located near the agreed to pay approximately Manila airport and home to Watsons’ HK$800,000 latest expansion idea: full-service beauty (about departments within department stores. US$102,500) Watsons has opened a 5,000-sq. ft. beauty for fixed assets department incorporating the first nailbar and HK$1 for and full facial and treatment room in a the magazines’ department store – customers can even brands and enjoy a mud bath! businesses.

SPHERE 127 COMMUNITY OUT OF THE BOX

The Li Ka Shing Foundation sponsors a unique project forging links amongst creative talents in Hong Kong, Shantou, Beijing and London.

By Tim Metcalfe



hen English author personal wealth in perpetuating the MARKETPLACE OF IDEAS and satirist Jonathan creative process, primarily by spon- How did it begin? First, 20 outstanding Swift coined the phrase: soring education initiatives in Hong “cultural entrepreneurs” from both “A penny for your Kong, Mainland China and abroad Hong Kong and London were selected. Wthoughts” in the 1700s, he probably had through the Li Ka Shing Foundation. The project kicked off last October no idea how relevant that statement To date, the Foundation has donated in London with presentations by would become. These days, thoughts more than HK$4.8 billion (approx- “ambassadors” from nine fledgling and ideas are worth substantially more imately US$620 million) towards edu- Hong Kong companies: Crazysmile, than mere pennies. Indeed, creative, cation, health and culture. CTCWM Advertising, Deepred innovative and inventive ideas are the Design, GOD, Here, IdN, Kan and Lau hard currency of modern business. CREATIVE CITIES Design, People Mountain People, As a young entrepreneur in One of the Foundation’s latest Sea/Poo Records and Shya-la-la. the 1950s, Li Ka-shing read about sponsored initiatives, entitled “Creative In November, Hong Kong recip- a revolutionary plastics injection- Cities,” brought into focus the rocated, hosting a conference entitled moulding machine. At the time symbiotic link between good ideas and “Mapping the Creative Economy” at the machine was unavailable in good business. Hong Kong and London the University of Hong Kong where Hong Kong, nor could he afford the are uniquely linked by history. While Hong Kong attendees – including many HK$20,000 (approximately US$2,564) some observers expected ties to be senior representatives from business and to buy one for manufacturing new severed after the 1997 handover of government – learned about innovative products. Hong Kong to China, the “Creative approaches to developing a creative So, based on the limited inform- Cities” initiative demonstrates that economy in London. ation available and using an air connections at all levels – from business British Consul-General Sir James compressor, plastic tubes and a dash of and technology to the media and the Hodge set the tone by correcting a creativity, Mr Li developed a “home- arts – remain inter-twined. common misconception about creat- made” moulding machine that worked Organised by the Hong Kong ivity. It is not the exclusive preserve of just as well, if not better, for a tenth of Institute of Contemporary Culture the arts, he explained, but encompasses the price. (HKICC) and London’s Institute of every sector embracing original thought Such ingenuity helped him emerge Contemporary Arts (ICA), “Creative and expertise. as one of the world’s most successful Cities” aims to forge new kinds of He noted that British children’s entrepreneurs – at the head of a business sustained relationships that explore the television show The Teletubbies, which empire (including Hutchison Whampoa potential for long-term creative collab- was created by two housewives, Limited) that spans the globe. oration by providing a platform for now ranks among the top-five most Mr Li has always placed a high value young cultural entrepreneurs to share successful British exports, while the on original ideas to give his businesses a their expertise. long-running stage show Phantom of the winning edge. Not only does he “There are major opportunities Opera has earned more than any movie. actively encourage a culture of creativity to collaborate,” the organisers said. Together, so-called “creative in- within the Li Ka-shing group of “Creative industries have moved from dustries” contribute 8% to Britain’s companies, he also invests much of his the fringes to the mainstream.” GDP, accounting for two million jobs

SPHERE 9 COMMUNITY

and earning approximately US$123 and the bottom line. billion a year. Most importantly,he said, “Business must be creative, and creative industries are growing at a rate Hutchison especially encourages creat- of 9% annually, while other industries ivity because that’s what got us where feel the pinch. we are.” “Creativity is about risk-taking, He went on to explain the Chinese about spotting the next trend,”Sir James phrase for business: Sang yee.“Sang added. means lively; yee means ideas. Our Hong Kong’s Secretary for Home word for business literally means Affairs, Dr Patrick Ho, said Hong ‘lively ideas’. It means flexibility to Kong, with its melting pot of cultures, adapt to a changing world. Doing things was a “perfect testing ground” for differently.Thinking out of the box. In creative industries: “We have the short, being creative.” platform and we have the critical mass,” Mr Fok pointed out the famous he said. shopping centre at Whampoa Gardens, With Hong Kong and the Pearl which is built in the shape of a ship and River delta together ranking among has become a Hong Kong landmark.The the world’s top 20 economies, he saw idea was obviously “out of the box” but enormous potential for collaboration. Li Ka-shing immediately saw the po- “We’re confident that, like China’s tential, gave his approval, and the build- creative invention of gunpowder, this ing’s uniqueness put Hutchison’s first resi- region will go with a bang!” dential “Garden City” on the map. Chris Hamnett, a Professor of decisive political leadership had been “The ship caused a sensation. Human Geography at King’s College key.The LDA was specifically established Everyone heard about it. It was in London, agreed that Hong Kong was in 2002 to spearhead the city’s “culture- magazines and newspapers outside of ideally placed to capitalise on a post- led regeneration,” starting from the Hong Kong,” Mr Fok said. “Whampoa industrial economic base to embrace ground up by providing creative in- Gardens became so popular the invest- creative industry. Manufacturing’s dustries with affordable rents and ment paid back in two years.” contribution to the economy had business support. Mr Li has consistently demonstrated shrunk dramatically from 50% in 1980 Sir Michael Bichard, rector of The a for backing creative enterprises. to less than 10% today, he noted. London Institute, said the key to Creativity certainly counted at “We’re in the era of late-capitalism. creativity lay in education. Art colleges Whampoa Gourmet Place, the Creativity is critical for productive not only produce fine artists but also “hawker” centre that rescued a tradition strategy. People don’t buy a car; they designers, filmmakers, pop groups, of street-stall dining in Hong Kong. buy a brand, an image, a lifestyle. It’s a writers and the entire range of creative “As Hong Kong modernised,” Mr triumph of style.” talent that is energising and re-inventing Fok recalled, “hygiene regulations put In recent years, London has London’s economy. After graduating, hawkers out of business. When we reinvented itself as the “coolest city on these young people continued to need looked at opening a food court we could the planet,” but this didn’t happen by support in the form of advice, capital have chosen familiar brands. But we accident. Graham Hitchen, head of and management skills. The business thought out of the fast-food takeaway Creative Industries at the London community therefore needed to be much box. We got a famous food critic to Development Agency (LDA), said closer to the creative community,he said. invite legendary hawkers to set up in business.The hawkers got back to work, CREATING WEALTH the public loves it, and the food court So how can creativity contribute to the makes money!” hard-nosed business world? Branding is yet another example of Hutchison Whampoa Group Man- how Hutchison works with creative aging Director took the talent to impact markets. podium to make the corporate case. “When we first moved into telecoms Ever realistic, Mr Fok was quick to in the UK, a lot of people laughed at our pre-empt the sceptics. brand-name, ‘Orange’. I must admit, I “Creativity doesn’t always make also nearly fell off my chair when our money.There are a lot of poor artists in creative people suggested the name! But this world,” he said. we went with it and the market soon “So what’s so creative about bus- realised that our brand was no lemon. iness?” Mr Fok continued. “Isn’t it just Orange became the fastest-growing about buying low and selling higher? mobile phone operator in the UK. It also Maximising profit? Bargain-hunting? won an advertising industry award for Turning inefficient companies into ‘capturing consumers’ imaginations’.” efficient ones?” Orange, of course, sold for a Not entirely, Mr Fok said. In fact, handsome profit to fund Hutchison’s creativity contributes in many ways to boldest step yet in telecoms – the third- corporate growth, shareholder value generation system recently launched

SPHERE 10 under the brand-name “3”. “3 might seem as strange as Orange and, unsurprisingly, the press is again cynical,” Mr Fok added. “They say we’ve dialled the wrong number. But one day KNOWLEDGE + CURIOSITY = OPPORTUNITY people won’t know how they lived without 3G multi-media communi- cations.We’re not only thinking out of the The Cheung Kong Scholars Programme, a joint initiative between the Li Ka Shing box but thinking way beyond the box.” Foundation and China’s Ministry of Education, was set up in 1998 to provide incentives for outstanding Chinese academics working in the field of scientific research overseas to SPREADING THE WORD return to China to work.At the fifth award presentation ceremony held recently in Beijing, Following the Hong Kong event, the Mr Li delivered a speech entitled The Power of Mauve to illustrate the symbiotic link Creative Cities road-show, co-organised between creativity and business.The following is an abbreviated translation. by the Shantou University, moved on to The Power of Mauve two Li Ka Shing Foundation-sponsored institutions in Mainland China. Seminars RECENTLY READ A BIOGRAPHY a dogged determination to succeed, at the Cheung Kong Graduate School of entitled Mauve: How One Man and confidence to defy all odds. Business in Beijing and at Shantou I Invented a Color that Changed the The scientist Joseph Henry once said: University facilitated similar cultural World. Its protagonist,Sir William “The seeds of great discoveries are exchanges while introducing Mainland Perkin,was the first chemist to make a constantly floating around us,but they students to creative concepts. fortune by transforming an invention only take root in minds well prepared to The Beijing event attracted a large into an industrial process. receive them.” group of CEOs and professionals from the At school in England,his teacher once Education is what prepares us – and design, media, advertising and education asked him to perform a chemistry it should not be confined to the mere fields. Discussions centred on Britain’s experiment to synthesise quinine. The transfer of skills.The greatest challenge policies on nurturing creative talents, experiment failed and a black chemical for educationalists today is to fire our developing entrepreneurial skills and substance was produced instead,which youth with the enthusiasm to pursue branding. On a practical level, dele- stained the tablecloth purple.This black knowledge and be part of the learning gates came out in favour of establishing substance was to become the basic process. Success in life depends on a dedicated “spaces”for experimentation in ingredient of aniline,a dyeing agent with combination of different factors,but the the design and production of products extensive industrial applications. most critical one is the ability to grasp and services. The young man took out a patent for an opportunity when it arises and apply The Shantou event attracted an his invention 18 months later and the knowledge one has built up. equally large turnout of delegates. commercialised it. His discovery was Competing in business in today’s Discussions covered the prospect of to become the “catalyst” for many increasingly globalised world is a battle Shantou serving as a host city for similar subsequent inventions by other of wits; it is not for the run-of-the-mill. such creative exchanges among delegates scientists whose applications in dyeing, Like Sir William,we must combine from other Chinese cities and countries pharmaceuticals,cosmetics and food motivation with vision and curiosity, in the region. production created industries worth move ahead with perseverance and The “Creative Cities” initiative has billions of dollars. courage,and seek perfection through thus laid important groundwork for Sir William lived more than a century innovation in whatever we do. the cross-pollination of creative ideas, not ago,but we can learn valuable lessons Finally,I would like to quote a line only between Hong Kong and Britain from his life story. The resounding from the book: “Without experiment I but also within the greater China region. success of his scientific work as a am nothing; still try,for who knows The response from delegates and teenager was not fuelled solely by his what is possible.” attendees has been overwhelmingly quest for material profit but also by his positive with participants at each event innate curiosity. agreeing they had been stimulated by the We can imagine how difficult it exchange of new ideas. Younger was for such a young lad to earn the attendees in particular were encouraged trust of other people. Nonetheless to learn of the significance of creativity in he surmounted all the obstacles career development. before him and persisted in turning “The (Hong Kong) seminar has given his invention into a commercial me a far greater insight into the enterprise. He eventually became an commercial prospects of my chosen outstanding entrepreneur.At 23 he was profession,” said design student Sharon already a very wealthy man. At Lam. “Listening to delegates and talking 36 he retired and returned to what he to other attendees has helped me realise liked doing best – scientific research. that businesses need creative talents as His success was not the result of

much as we need business.” sheer luck but was founded upon (1) EAMMON 'O' BOYLE In time, Ms Lam hopes to hear qualities that everyone should strive to someone say: “A million dollars for your possess: keen powers of observation,a thoughts.” voracious appetite for knowledge,

SPHERE 11 COVER STORY 3G 3 THE DIFFERENCE

In a global economy battered by recession many 3G players have ducked out, but next-generation mobile services have arrived in the UK and Italy under the 3 brand.

By Mark Caldwell 

hen Julius Caesar conquered Gaul in 51BC, he massive impact on the way people interact with each other and made formidable use of carrier pigeons to the world. communicate with his home base in Rome. For Until now, the PC and the mobile phone were two very Caesar, a man very much on the move, the birds different creatures. One carried voice and was mobile, the other Wrepresented a cutting-edge advantage – and mankind has been carried data and was desk-bound, but both were great honing his mobile communications capabilities ever since. communications tools.The inevitable convergence manifested in On November 26, 2002, mobile communications took 3G represents a brand new era. another giant leap forward. Calling from Rome, Italy’s Minister Not only does a 3G handset combine the functions of a PC of Communications, Maurizio Gasparri, made the first public and mobile phone, it incorporates many other useful “devices,” person-to-person videocall via ‘3’ handsets over the UMTS such as a digital video camera, music player, web browser, e- commercial network of 3. He spoke to Guido Gentili, Editor-in- mailer, games console, global positioning device and more. Chief of business newspaper Il Sole 24 Ore in Milan, and to “It is part mobile, part TV,” said Italian weekly magazine Hutchison Whampoa Group Deputy Chairman Victor Li in Panorama after a sneak preview of the 3 handsets. London. Not only were they able to talk to each other, they It can also “double” as a newspaper, radio, tape recorder, could see each other as well. electronic wallet, barcode reader, word processor, spreadsheet, or The event was another significant milestone in the rollout of personal organiser, to mention but a few. Hutchison Whampoa’s third-generation (3G) mobile multi- “It’s almost what happened for media,”says Vincenzo Novari, media global network, under the 3 brand. Joint CEO of the Italian operation. “First, silent films, soundless Combining the convenience of mobile telephony with the images, then the burst of the commercial radio – sounds, without power of the PC and the depth and interactivity of the Internet, images. Finally television – sound and images together – and later 3G technology is a quantum leap in mobile interconnectivity.In even colour TV: a natural evolution that in time has become a every respect, speed and mobility are the key.Data transmission is true revolution.” much faster now, allowing us to download video clips in mere The new 3G technology paves the way for what 3 calls “the seconds. It has taken Hutchison less than three years to build its natural next step” whereby usefulness and entertainment are flagship networks, to bring together a rich brew of content brought together in a single package. Never before have so many offerings, and to provide the revolutionary new mobile devices devices offering so many functions been so conveniently merged that are the window to a bright new world of mobile multimedia for modern man on the move. communications. “There’s a shift from voice telecom operators to media The time span between that first videocall and the information-technology companies,” observes Phil Roberts, commercial rollout of the 3 service is itself indicative of the director of consulting group Mason Communications Ltd.“With 21st century pace that applies to the “3G race.” 3G, it’s a complete fundamental change in mindset.” Consumers in the UK and Italy have just begun to Hutchison’s Group Managing Director Canning Fok experience the world of 3 first hand and the brand is poised concurs: “These are not telephones. They are powerful multi- to migrate across the globe. media handsets that focus on the eye as well as the ear. There’s It is today’s equivalent of Caesar’s carrier pigeon overtaking nothing like 3G on the market at the moment.With 3, life will the foot-messenger. never be the same.”

THEN AND NOW BUCKING THE TREND In the past two decades the mobile phone and the personal Despite the huge potential, 3 has rolled out against a backdrop of computer (PC) have swiftly and simultaneously become essential disconsolate industry sentiment. modern-day tools.The emergence of the Internet, too, has had a It has not always been so.

SPHERE 1213 COVER STORY

In 1999 the global economy The subsequent decline of global was soaring and the telecoms markets saw share prices tumble, with industry was exuberant. Hutchison the telecoms sector among the biggest itself had helped set off a buying casualties. Several operators have sub- and take-over frenzy when in sequently been crippled by the high November 1999 it sold Orange, its prices they paid for licences. Some have European 2G mobile telecommuni- delayed the heavy investment needed cations business, to Mannesmann for a to build the 3G infrastructure, US$14.6 billion profit. (Soon after, preferring to capitalise on their Orange again changed hands, this time existing 2G networks. Others have to whose aggressive bid for had to offload assets to stay afloat, and Mannesmann saw investors push up the yet others have written off their 3G price of the stock deal to a world record licences and withdrawn completely. US$163 billion.) NEXT GENERATION . In this roller-coaster economic In April 2000, a bidding war for next Edwin S. Grosvenor, the great-grandson of the inventor of environment the bulls turned the telephone,Alexander Graham Bell, examines a 3 handset generation 3G-licence spectrum began – 156 years after Bell’s birth on March 3, 1847 bearish, citing high capital investment costs in the UK, sending prices into the along with technical issues, competing technologies and stratosphere. Spurred on by a wave of potentially low take-up rates that could all derail operations. euphoria among analysts, bankers, investors and the media, Hutchison was not immune from the fallout:“All available operators – including Hutchison – collectively spent £22 billion evidence indicates that Hutchison is trying to do too much, (about US$33 billion) on five licences in the UK alone, and too fast,”the Far Eastern Economic Review reported in October around E150 billion across Europe. last year. “Hutchison is presuming it’s already mastered When the German 3G-licence auction attracted bids worth technological and business paradigms that other operators expect US$45 billion in July 2000, Hutchison again set the tone – this will take years to develop,” the magazine quoted Forrester time dropping out in the belief that the prices had gone too high. Research as saying.“If it turns out to be right, it deserves to reap

BANKING ON QUALITY

Apart from the almost US$10.2 billion invested by Hutchison in nine 3G licences, the Group’s 3G operations have also been very successful in attracting additional financing to build the networks and the brand.

UK: Raising the Bar backdrop, H3G UK’s financing was and its highly diversified financial strength, WHEN THE FINANCE TEAM OF completed in March 2001 with proceeds which at the time included a balance sheet Hutchison 3G UK (H3G UK) set about of £3.24 billion (US$4.6 billion) in the form of cash and marketable securities of more raising £3.24 billion of non-recourse of a three-year (plus one-year) non- than US$20 billion above total borrowings. financing (about US$4.6 billion) in mid- recourse facility, including £777 million of “Hutchison Whampoa is fortunate in 2000 to develop the technology and vendor financing from Nokia, NEC having a strong track record of creating infrastructure of its 3G operations, it and Siemens. value coupled with a financially div- looked like a tall order. Demonstrating its confidence in 3, ersified background,” said Mark Nickell, a Stock markets were heading steeply Hutchison itself joined the syndicate, banker at HSBC, one of H3G UK’s lead south and positive sentiment towards lending money to its subsidiary at the same underwriters. telecommunications companies had all but rate as the banks but at a subordinate “If required, it can support from dried up. level, meaning the banks would be paid out internal funds the large capital-intensive As Project Finance International Magazine first in the case of default. investments needed to create that value. reported: “H3G UK had no assets other At the time, it was the largest non- This provides enormous credibility to both than the licence – no customers, no cash recourse syndicated loan ever arranged in its investment and its commitment.” flow and barely any employees. The the UK. Richard Woodward, senior manager, technology was untried and the market In spite of the prevailing negative finance, at Hutchison said raising the non- bears doubted whether anyone would even sentiment, H3G UK had attracted recourse debt had not been about selling a want to buy into the 3G proposition. It investors to support the roll-out of its 3G vision but successfully communicating the didn't look at first sight like the kind of business proposition. sense and soundness of the business plan. company that anyone would lend £3,000 The key messages to investors were “It was obvious from early on that we to, let alone £3,000 million.” Hutchison’s track record in establishing would have to win the minds of bankers Yet against this less-than-buoyant and adding value to telephone networks over the background noise of the press,

SPHERE 14 huge profits. But the company is more likely to end up as 3G’s biggest early casualty.”

3G VISION Far from being an early casualty,Hutchison has every expectation that it will turn out to be right. While others have had second thoughts, choosing to sit on the sidelines, the Group has been the notable exception, powering ahead into uncharted territory and fuelled by a healthy bank balance.Perversely,the financial barriers to entry for new entrants and the demise of incumbent rivals has 1999 the brand had served only to strengthen the company’s position – to the extent seized a 20% market share that by the second half of 2002 Hutchison 3G was the last and Hutchison sold its stake remaining 3G-only player in Europe. for a handsome profit. Surveying the carnage, the sceptics have tended to lump In retrospect, the timing was financial concerns together with doubts over unproven perfect. Hutchison had simultaneously technology. But Hutchison is fully funded and the company is exited at the top of the 2G market and locked in effectively close to mastering most – if not all – of the nuts and a dividend that would help fund its move to the next bolts of making it all work. generation. This is not the first time Hutchison has disregarded the The prevailing sentiment towards the 3G market sceptics.When the Group launched Orange in the UK in 1994 opportunity is therefore something of a déjà vu scenario for into what critics regarded as an already-cornered market, analysts Hutchison, reminiscent of those early days of Orange. and journalists quipped that the company was a lemon, that it Throughout the current downturn, Hutchison has been the one would be squeezed and crushed by its incumbent competitors company consistently bucking the trend and “bravely going and that the venture would turn sour and ultimately fail. But where others fear to tread.” Orange sparked imaginations and became a runaway success. By By any measure, financing and building the 3 network from (continued on p.23)

which was determined to kill the 3G billion. Lenders to 3G businesses were awarded by Project Finance International story,” Woodward recalled. “The way to now demanding greater sponsor support Magazine. In presenting the award, the do this was not by competing in the in return for the provision of funding. magazine remarked:“It is testament to the uncontrollable PR space but by HWL was willing and able to provide perceived strength of sponsor quality that communicating the facts, issues and risks both equity and subordinated debt as Hutchison’s business plan was even properly through the due diligence well as its credit support to make the looked at by the banks in the first place, process. Luckily, credit committees read financing work. Ultimately, 15 banks from given the turn in market sentiment against due diligence reports as well as the front Italy, Europe, the US and China telecoms in general and 3G in particular.” page of the broadsheets. Armed with the underwrote the transaction and were “We could not have raised the finance facts, the lead arrangers were very subsequently supported by banks from without a sponsor such as Hutchison,” resilient under the barrage of negativity.” Italy and Sweden. said Giorgio Moroni, CFO for H3G in In the process, H3G Italy achieved a Milan. “What was remarkable for the number of firsts. It was the world’s first Italian business community to see was fully funded project financing for a 3G that Hutchison was willing to make such a ITALY: Full Funding for the Future telecommunications business and the first strong commitment to support this RIDING ON THE SUCCESS IN THE UK, new 3G project to fund itself with ten- business in Italy, a country it had never H3G Italy replicated the fund-raising year term financing.The financing not only invested in before.” exercise with the successful conclusion included banks and vendors (Ericsson, Deputy Group Treasurer John Mulcahy in June 2002 of a E5.2 billion (US$5.5 Siemens and NEC came up with E1 billion concurred: “The Italian team did a great billion) bank and vendor finance facility for between them), but also the Swedish and job in convincing banks to support the the Italian operations. German export credit agencies – the first transaction on its merits. A number of the This round of financing encountered a time any government agencies had underwriters had no prior banking more hostile and cynical funding market as financed 3G project risk. relationships with the Hutchison Group, many of Hutchison’s 3G competitors had The complexity and structure of the This financing did a lot to expand run into financing or operating difficulties. financing was widely applauded by the appreciation of the Hutchison Group’s H3G’s approach, therefore, had to be financial community and was named the strengths to the European financial flexible if it was to raise the required E5.2 “Telecoms Deal of the Year 2002” community.”

SPHERE 15 Wins 3G licences in Australia, Denmark and Announces plans 2001 Hong Kong. to set up a major customer care centre in Glasgow.

NTT DoCoMo US$4.6 billion Agreement with and KPN Mobile facility finalised in BT Cellnet and In May, forms acquire a 20% and March to fund the TIM to provide strategic alliance 2000 Wins 3G licences a 15% participation UK 3G business. 2G national voice with Telecom Various UMTS in the UK, Italy, respectively in and data roaming Corp of New network Austria and Hutchison 3G in UK and Italy Zealand (19.9%) infrastructure Sweden. UK via 3G respectively. to operate 3G suppliers selected Holdings. business in for Australia, Australia. Sweden, the UK, and Italy.

3’s an In-Crowd! Building the Backbone

T TOOK ALMOST 250 SURVEYS N BOTH ITALY AND THE UK, 3 HAS stations installed. Iand 130,000 interviews in eight Iundertaken the fastest network “We have taken great care to analyse countries to develop a picture of build-out in the history of the global and minimise the environmental what customers want and expect mobile communications industry. impact,” said Georges Perez, CTO of from 3G technology. The Group has also made deals with H3G Italy. “Wherever possible we The result was to create a infrastructure suppliers in the other share base station sites with other marketing and retail strategy to put countries where it has licences. These operators and our acquisition of the 3’s services and products at the heart are at various stages of construction, Blu network also helped speed up of the “in-crowd” of early adopters and vendors include Alcatel, Ericsson, our roll-out.We always look for designs and to create a “road map” for mass Motorola, NEC, Nokia and Siemens. that blend in and we work with roll-out in the near future. Apart from hundreds of base local authorities and the public to The global consumer study ex- stations, complex application archi- provide complete open and accurate amined topics such as consumer and tecture platforms have been built to information.” business segmentation, the potential decipher and process the diverse In the UK, population coverage has appeal of products and services, content carried over the 3 networks. reached approximately 50%, and the growth potential of the market, The scale and scope of technical network – supplied by NEC and Nokia pricing strategies, and what the 3 integration taking place behind the – continues to grow with an on-going brand would mean to local scenes is unprecedented in the phased roll-out. Again, great care has consumers in different countries. industry. Hundreds of people working been taken to minimise the impact on The study helped 3 define specific 24 hours a day in shifts have applied local surroundings and to work with target segments, how much these their collective expertise to make it communities and local authorities. consumers would be prepared to pay, work, innovating and adapting on a All the handsets are dual mode, so and the sort of devices they would daily basis. they can operate over 2G networks prefer. As the innovators, there has been no where 3G coverage is not available. It also identified particular products roadmap to follow. The process has In both the UK and Italy, 3 has and services that resonate among been one of continued refinement and roaming agreements in place with consumers. Among these, video- expansion. 2G networks, including international calling, messaging, the convenience of By early March 2003, the network in roaming in approximately 100 an all-in-one-device, and the ability to Italy – built by Ericsson and Siemens- countries – so users may occasionally “cherry-pick” content all emerged as NEC – covered over 40% of the be out of the picture, but they need highly desirable features. population in 100 cities with 2,400 base never be out of touch.

SPHERE 16 Agreement with Contracts with Agreement with Vitaminic to Motorola in June Vodafone and provide music and NEC in Mobilkom to content in Italy. November for the provide 2G delivery of 3G Acquires Italian national voice and wireless devices. Agreement with cellular sites from data roaming in In January, Australian 2002 Blu for E58 Sweden and Wins 3G concludes a E5.2 Acquires exclusive Cricket Board million. Austria. rights to transmit to provide licences in Israel billion facility from football content of cricket content and Republic of banks, vendors Selects Nokia leading teams in in Australia. Ireland. and government to supply a Italy and the F. A . agencies to fully network in Premier League fund H3G Italy. Austria. in the UK.

Cool Tools

HE HANDSETS – A CHOICE OF there’s also a plethora of information Tthree initially – are manufactured for 3 available in real time. by NEC and Motorola.They are light, stylish, You can choose to view up to 30,000 simple to use and, above all, they deliver the news articles and 55,000 financial updates goods, combining the functions of a variety a week, receive TV, radio and cinema of electronic devices. listings, plus access a “fastdial” cinema Your “phone” is also a PDA, MP3 ticketing service. Comprehensive business player, a camera and much more, listings will help you find what you need and providing communication, information show you how to get there with maps and and entertainment in a single package. directions based on your exact position. The sound quality is superb and Sports fans can access news and video colour and clarity of video clips is considerable highlights of football action or play a beyond comparison with any other in both the selection of arcade-style and interactive mobile device. If the necessarily small UK and Italy. games to suit every taste. Of course, you screens prove insufficient, moving You can choose will also be able to make calls at highly images can easily be transferred to a from the categories: competitive rates and enjoy roaming laptop computer or larger screen. Voice, Video Calling, services in around 100 countries. Apart from groundbreaking applications Locate, Sport, Games, To ensure smooth delivery of the diverse such as mobile videocalls, multimedia Messaging, Lifestyle, News selection of content, 3 itself has had a close messaging and e-mailing, there’s a massive & Finance and Extras. involvement with the development and databank of information available at your Not only does your handset design of the inaugural handsets but this is fingertips. double as a personal digital assistant (PDA) expected to decline as the market matures. The range of content is already with a calendar and contacts function but “Many of the things we have done are

SPHERE 17 Announces the global brand name “3” in July.

3 brand identity Agreement Agreements with unveiled in with SEB five companies to October. to provide deliver digital e-banking in Agreements for the mapping Sweden. Agreement with distribution in Italy technology and Svenska Mediadigit of more than location-based Hockeyligan AB Agreement with (Mediaset Group) 20,000 pieces of services in and ISPR to BBC Technology and Ansa music from the Europe. provide ice hockey to manage the selected for the major national and content and home production of production of international labels. games of the audio-visual micro newscasts . Swedish content in the UK. and financial National information in Football Team Forms Italy. and UEFA cup partnerships with matches in Sweden. nine companies to develop games for 3G global markets.

Top 3

world firsts,” says Oisin O’Conner, Product N ITALY,THE LAUNCH OFFER INCLUDES Development Manager for 3. “The content we have put Itwo tariff formulas: Top3 Executive and together and the way we have edited it specifically for Top3 Privilege. Both packages are all- our devices is leading edge stuff.” inclusive and revolutionary in their simplicity Other applications will surely come – the scale of 3’s and transparency. content offerings will be bounded only by the scope of the They differ in price depending on whether human imagination. the customer chooses to lease or buy the As a consequence of the anticipated explosion of handset. the new technology and content,the variety of handsets on Top3 Executive includes a monthly service offer is expected to increase quickly, with fee of E85 once a handset has been purchased. new models evolving to meet individual For E140 per month, in addition to the “all- requirements. To help keep pace with inclusive” formula, Top3 Privilege clients can developments, 3 has put options in place rent the terminal with the option of to enable subscribers to upgrade their substituting it once a year. handsets as new models come to market. The bundles include a weekly allocation of: The prices for handsets and services have been 600 minutes of voice calls; 600 minutes of video individually tailored to suit the UK and Italian calls; 150 SMS and 50 MMS messages; 100 markets. Both have launched introductory “all e-mails; and 100 content downloads. inclusive” offers which include a “bundle” of services The offer was available from November 2002 (see sidebars, p.18; 22). until March 2003. Details of handsets and specifications currently Additional charges apply to international available can be found at 3’s websites at calls, usage while abroad, directory enquiries, www.three.com. and premium rate calls.

SPHERE 18 E30 million 3 throws advertising “Trendsetters campaign begins Parties” in Rome in Italy. and Milan. Italian Communications Minister makes In November, first videophone announces tariff call over the 3 Handsets UMTS commercial arrive. Agreement with plans for THQ Inc to “Founder’s Club” network. Agreement with develop and in Italy and begins NEC becomes NEC to increase publish gaming and receiving strategic partner the Nov. 2001 entertainment reservations via its in Hutchison order of 3G content in the UK. website. Telephone and videophones from H3G HK. one million to two million.

Aesthetically Teasing

HEN THE 3 ADVERTISING CAM- advertising point of W paign kicked off in Italy in view.” We then moved November, it disrupted the usual rules of onto the second phase, advertising and made an immediate impact. which is inversely Italians, who are used to being surrounded proportional to the by beauty, were immediately drawn to the initial one: at first, we distinctive imagery. No products or decided to eliminate services were actually featured – just products and services strong images of people: a matador, a nun, a and concentrate on the beautiful woman – and a particular brand; now, the stories attention to the 3 values, or emotions, are told through the associated with each colour. application of some of Both the poster and video campaigns put our services. the user at the centre, with the 3 services The company also selected 333 VIPs to chosen by our UK colleagues,” says Novari. offering the opportunity for individuals to be the first customers.They were invited to “This is partly true, but we are dealing with magnify their creative and communicative two parties in Rome and Milan and were two very different markets. We are potential. the first to receive, test, and give their brothers, but not twins.” The underlying message was simple: 3 is impressions of the videophones. Italy is the leading player among not about the technology but about life Additionally, dealers throughout Italy the densely populated countries on a itself – fantasy, emotion, drive, passion, have been visiting the places frequented by continent where mobile communications simplicity and surprise. high-spenders, who include technofans, are part of daily life for millions. (90% “The first part of our strategy has been trendsetters and professionals on the move of the population uses mobile phones, to present our brand and its values before (3’s early target market), to engage them on compared to 51% in the US and 80% in anything else,” says Vincenzo Novari, Joint the benefits of 3. the UK.) CEO of 3 in Italy. “We are out of the “It might seem that our approach is “To us, this means that the ‘pinnacle’ is a ordinary both from a marketing and more ‘top-class focused’ than the one very fertile place to launch the most

SPHERE 19 Launches first phase of marketing Carphone campaign to build Warehouse and consumer Phones 4U awareness of the become retail 3 brand in UK via partners to sell 3 viral, online, and The 3 logo is Pre-registration products and ambient beamed onto for first 20,000 services across marketing. Big Ben on Visitors to the “Founders” the UK. New Year’s Eve. In Sweden, 3 teams The first flagship Auto and customers begins up with children’s store Negozio 3 Motorbike in the UK via its hospital to help opens in Milan on International website. fund and lay the Dec. 13. Exhibition of groundwork for Bologna try the 3 providing health videophones. care services through 3G Home Truths technology.

N SWEDEN, 3 IS PROVING Ithat, besides all the fun stuff like sports content and multimedia messaging, the 3 service will have an important role to play in areas such as health care. important technological advancement since the birth of In co-operation with the mobile telephony,” Novari adds.“Also, Italians have a particular Astrid Lindgrens Children’s passion for anything that is related to video.They spend more Hospital in Stockholm, 3 has time in front of the TV than any other Europeans. They also set up an initiative that will help the care of very sick children in love fashion and enjoy being noticed. their homes. Maybe that’s why we already have so many people Starting in Spring 2003, mobile teams that treat the sick children impatiently waiting for their new 3 videophones. By the will be equipped with mobile handsets from 3.They will mostly use middle of February, we already had over 140,000 videocalls which will make it possible for worried parents to reservations!” communicate with the hospital and, via their 3 handsets, directly show the sick child so that a doctor can judge the child’s condition. Help from specialists at other hospitals will also be possible. To further assist health care of children, the company donated 200 handsets and pre-paid subscriptions for 3 services. These were auctioned to the public – 100 via the Internet and another 100 at a live auction on March 3 involving business leaders and celebrities. The proceeds – approximately 1.5 million krona (US$175,000) – will go to SABH (Sjukhusbaserad Avancerad Barnsjukvård i Hemmet) the department under the Astrid Lindgrens Children’s Hospital responsible for advanced home- care for children. The extra cash will allow SABH to support a second mobile unit and significantly increase its home-care services to patients. “We believe that this is the health care of the future,” said Henrik Almkvist, head of Astrid Lindgrens Children’s Hospital. “Treating sick children in their homes raises the quality and efficiency of the care. This is good for the sick children, their families and for the hospital.”

SPHERE 20 Global agreement with Ericsson to provide Video Gateway System, Reuters supporting video announced telephony between as content partner Retail agreement personal computers supplying news and with Dixon and 3G mobile financial data to Stores Group videophones. customers of 3. TV advertising under which The Italy starts Li Ka-shing presents By February, pre- delivering 3 2003 campaign begins Link and selected First UK 3Store Italian Prime Minister registration for 3 handsets to VIPs. in the UK in Dixons stores will opens in Oxford Silvio Berlusconi with services totals 140,000 January. sell 3 brand Street, London. products and the first Italian H3G in Italy while the UK reveals tariff services. SIM card on Jan. 15, number of stores, plans on Feb. 6. the first ever 3G including third-party service number in retailers and Italy. distributors, reaches 1,200.

A Fox Among the Pigeons

“DOG AND BONE” MEANS “PHONE” IN COCKNEY A rhyming slang. But the sight of three attractive models taking TV sets for “walkies” along London’s Oxford Street left many observers speechless. It was all part of 3’s eccentric, tongue-in-cheek promotional campaign. “We’re taking a non-traditional approach to the market,” says 3 UK Strategy and Marketing Director Lisa Gernon. “So in the first phase we used online advertising, viral marketing techniques – such as short comedy video clips distributed by e-mail – and what’s called ‘ambient’ marketing activity. The latter included projecting the 3 branding onto buildings; hiring actors with tattoos of the 3 logo on their heads to show up at London nightclubs; putting small TVs running video loops in unlikely places – including the ‘dog-walkers’ towing small TVs on a lead up and down Oxford Street. “At the start of this year we became much more visible, introducing full mass-market ‘above the line’ advertising with a high-profile – and well-received – TV and cinema campaign. But the overarching point of our approach is that 3 is different to the rest – hence the fresh and irreverent approach.” “From our research we have a very clear idea of who we’re targeting and what they will respond to. Different segments of the market are attracted to different components of the 3G experience, so we have a number of teams developing differing propositions which we will be rolling out over the year. There

SPHERE 21 Charity auction of 3 handsets and services raises New ad more than 1.5 campaign million Krona begins in Italy. (US$175,000) Advertising for a children’s Marketing campaign hospital in campaign begins introduces the 3 Sweden. in Australia. Britain’s Secretary brand in Austria. of State for Trade Starts accepting 3 demos videocall The first handsets and Industry pre-registrations to Swedish are delivered to Patricia Hewitt on www.drei.at spectators at a 3 paying customers delivers the first and 5,000 sign up sponsored ice- in Italy and the UK “ministerial on first day. hockey game. in mid-March. broadcast” via a 3G device. 400 Banks extend loan celebrities attend 3 to 3 UK to March party on 03/03/03 2005. in the UK.

Gimme 3

N THE UK, THE “FOUNDERS” LAUNCH OFFER I includes two cost-effective bundles named Kit on 3 and Kaboodle on 3 for customers looking to pay a fixed monthly cost. A third price plan, named 3ToGo, is for customers whose typical usage is lower and who are looking for more flexible options on a pay-as-you-use basis. With the 3ToGo plan, there are no line rental or monthly charges. Customers only pay for what they use at rates ranging from 5p a minute for calls to other are a lot of preconceptions about what type of customer will be 3 subscribers to 25p to £1 for video downloads. interested in 3G – and most of those preconceptions are not The Kit on 3 option carries a fixed monthly cost of based on any kind of research. Well, we’ve done the research. £59.99 which includes a monthly allocation of 1,000 We’ve spoken to pretty much every kind of potential customer minutes of voice calls; 100 video call minutes; unlimited imaginable, and we have some detailed and robust strategies to e-mail, 250 text messages; 50 video downloads; 60 reach the key groups in question.” picture messages and 30 video messages. The first TV ad appeared in mid January and depicted the age- Kaboodle on 3 costs £99.99 per month for 12 old problem of fans trying to describe a great months and includes a monthly allocation of 2,000 soccer sequence with the aid of ordinary minutes of voice calls; 200 video call minutes; objects that come to hand, such as salt unlimited e-mail; 500 text messages; 100 video and pepper pots or pieces on a chess downloads, 120 picture messages; and 60 video board. The segment ends with a video messages. clip of the actual goal shown on a 3 Additional charges apply to international calls, handset. The ad struck the right note usage while abroad, directory enquiries and premium and was judged “Pick of the Week” rate calls. by the advertising industry ‘bible’ In all cases, customers must first buy the handset Campaign Magazine. and there are a number of attractive introductory discounts for early adopters.

SPHERE 1222 3G

scratch is an enormous undertaking – in some ways comparable London-based consultancy Thinking Box believes that in five to the complexity of space exploration. But the Group has years 3G penetration will hit 50% in Europe and could be as high already built and tested the “vehicle” and believes it has the as 75% in some countries.That’s a lot of potential revenue. vision, stamina and the financial heft to now make the journey. The UMTS Forum also sees plenty of upside: “Yes,there have been difficulties,”says Colin Tucker, CEO of “Acknowledging the substantial investments in network Hutchison 3G UK. “This is cutting-edge technology and we’re infrastructure and the high cost of licensing in some countries innovating every single day.The key point is that we overcome in Western Europe, the market opportunity for 3G is those difficulties, we focus on them like a laser beam, one by one, nevertheless massive.” until they’re fixed. Like any good consumer-facing business we Mobile users would double to two billion in ten years with will use ongoing research to fine-tune our proposition on a a substantial proportion using 3G technologies, the UMTS rolling basis.” Forum predicted. “Thanks to the extended appeal of 3G’s Inevitably, the Group’s progress has been under intense increased speed, capacity and value-added capabilities, service scrutiny by partners, investors, competitors and the media. revenues will grow even more spectacularly.” The big question has been: “Why is Hutchison so bullish about 3G when others are not?” STEP BY STEP Apart from the company’s financial security, it’s in large part Hutchison has remained steadfastly upbeat about the business a matter of experience and perspective. “You have two of the proposition of 3G, and has moved quickly to establish itself as a most successful consumer technology revolutions in the history serious global contender. of mankind brought together in one device,” commented It has acquired licences in nine countries, shopping more Hutchison Chairman Li Ka-shing.“We are not sitting on our 3G wisely than competitors and paying far less on average for licences.We are now going at full speed.” spectrum. (The company’s attributable licence cost in the UK, Revered in Hong Kong for his business prescience, Mr Li has for example, is more than 40% lower than that of the other four travelled several times to Italy and the UK for detailed reviews on incumbents.) 3’s progress. Group Managing Director Canning Fok is an even- While investment costs have been substantial (approximately more-frequent flyer. US$17 billion in total), the Group is within its budget, deploying “They know every detail of the operation,”commented one part of the proceeds from sales of 2G assets, forming strategic insider. partnerships with global players like NEC and DoCoMo, With a strategy that stretches at least 20 years into the future, and securing adequate bank financing (see sidebar, p.14) in an the Group is well prepared to meet the considerable challenges – extremely difficult market. and seize the opportunities – inherent in such a huge The Group is far more focused than competitors, who plan undertaking. to gradually migrate but are currently torn between collecting The company has conducted extensive consumer studies the 2G dollar and preparing for a 3G future. Unencumbered by globally (see sidebar, p.16) and has a clear picture of the potential the old technology, 3 has forged ahead to master the new. marketplace. And while it is impossible to exactly predict the “In Europe, we have the opportunity to be a ‘pure 3G player’ future, it’s nevertheless instructive to cast an eye on the recent with no legacy network and therefore can employ cutting edge past. technology from day one,” says Novari. It was as recently as 1980 that IBM approached Microsoft to Hutchison understands that it is very important to maintain develop its personal computer project, unleashing its first PC in first-mover advantage by doing all it can to deliver on customer August the following year. expectation. In the long term, the Group is confident that 3 will The World Wide Web was born in prevail. 1990 and in just its third year in existence “There have been so many milestones along the way for us was growing at a rate of more than to celebrate,”said Bob Fuller, Joint CEO of H3G 3000%. Italy.“And all the while the world has had its Whereas in the late ’80s, a mobile nose pressed to the glass, eager to find out what handset was a bulky symbol of wealth we are doing and see a slice of the action.” and status, today’s much smaller version is an essential, everyday part of life, almost as common as fixed-line phones. More than a billion people globally now use mobile phones, with around 400 million handsets sold in 2002 alone. SMS was once derided as a peripheral feature with limited potential, yet 366 billion messages were sent in 2002. SMS currently generates an estimated £100 million a month in the UK alone. These changes have all occurred in spite of the ups and downs of economic cycles. With a longer-term perspective, a bright future for 3G is highly feasible.

SPHERE 1223 COVER STORY

By New Year 2003, the tide of media scepticism was flexible and more varied mobile multimedia experience. beginning to turn:“3G is alive and well,” Mobile News reported. “It is clear that 3 doesn’t offer just another telephone,” “During a recent visit to the out-of-town offices of 3 we saw live observed the Italian daily La Stampa.“It wants to present itself person-to-person video,TV news broadcasts over a mobile link as an innovator that can be attractive also from a cultural point and Premiership goal replays. It was impressive.The handsets are of view.” more than watchable and at the same time are ‘approachable’ The proposition is reflected in the uncomplicated 3 branding. pieces of technology. Having seen the devices working ... we are As an entirely new product, 3 aims to make life more colourful, less sceptical.” more convenient and more fun in a world where usefulness and In February, Bruno Giussani a Zurich-based journalist and entertainment are not alternatives. The complex technology is the author of Roam: Making Sense of the Wireless Internet, reported: simply what makes it all work. ”I travelled to Milan, bringing along a lot of scepticism fed by By March, leading UK consumer magazine Stuff featured 3 years of wireless hype. I spent an afternoon at Hutchison, spoke in its cover story. “We’ve seen 3G and it is amazing,” Stuff with many people, asked questions, made video-calls using their enthused.“This is the hottest new technology in ten years.” handsets.And got back to my hotel that evening thinking that if someone has a chance to make 3G work in the near future in LET THE GAMES BEGIN Europe, it’s 3.” There are compelling reasons to believe Hutchison’s business plan Dow Jones also saw significant upside.After testing the system will confound the sceptics and succeed. in Milan and London, the newswire service posed the question: In terms of both infrastructure and content, 3 is already way “Will 3G sell?”The conclusion:“A resounding maybe.” ahead of the curve. To ensure 3G does sell, Hutchison is committed to delivering It has moved very quickly to secure prime licences, build an experience that is simple, useful and enjoyable. networks, establish the IT enterprise architecture, collaborate It’s not the underlying scientific wizardry of 3G that impresses with manufacturers to develop handsets, form partnerships with but the seemingly magical delivery of a vastly superior, more content providers, create the global brand 3 and prepare for

HARDWARE HAVENS

By Justin Quillinan

HEN 3 OPENED ITS FIRST chic, attention quickly shifts from admiring European flagship store in the decor to seeing what the technology W Milan on December 13, can do. customers entered a world of cacti, It’s crucial, of course, for prospective trickling water and plasma screens. customers to understand what 3 can do Hostesses eased style-conscious Italians for them. To this end, the company has into luxurious chairs and put them lit- acted swiftly to create a small army of erally “in the picture” with one-to-one experts. By the end of January more than introductions to the videophones that let 1,000 retail staff in the UK – both in them see and be seen. 3Stores and third-party outlets – had Cities throughout Europe are littered received training to explain and dem- with mobile shops, but when it comes to onstrate these powerful new handsets. demonstrating the opportunities ahead In Italy, more than 1,600 people had nothing compares with the 3Store received training. experience. “There is a real sense of discovery for The environment is like no other – a customers,” said a staff member at the tantalising juxtaposition of rock and timber Milanese store, which is located just a against metal and microchips. block from the landmark Duomo The new stores in Italy and the UK Cathedral.“They are amazed and engaged resemble ultra-chic, minimalist art galleries and entertained … I don’t have to ‘sell’ and are designed on the principles of Feng anything, just show and teach.When they Shui, the ancient Chinese philosophy of see what 3 can do, they want to be part harmonising and communicating with your of it.” environment. The 3Stores are structured to create a On entering a 3Store there’s excite- route – an absorbing experience in ment in the air because this isn’t about which the three families of services – buying a commodity, it’s about buying into information, communication and enter- a lifestyle. tainment – are emphasised as the While the 3Stores radiate boutique- customer proceeds.

SPHERE 1224 3G

launch in the UK and Italy. Warehouse founder Charles Dunstone Few players have similar such concurs:“We are on the cusp of a new global strategies, and those that do handset buying frenzy, fuelled by 3G have not been in a hurry to act. In technology and camera phones,” he said. effect, 3 will meet consumers’ In future, Hutchison believes, needs locally yet operate on an previous technologies will seem quaintly international scale. This global rudimentary. reach has already served the company well in terms of In the same way as consumers do not leveraging technological know-how and aggregating upgrade their five-year-old car by buying the content. same model, it is unlikely that mobile users will Given that the prevailing sentiment towards 3G has want to stay with their 2G phone when they can been profoundly bearish over the past two years, investors could migrate to a more efficient,more useful and more be in for a pleasant upside surprise. entertaining 3G device instead. La Stampa noted “an important and unexpected signal 3G is faster, cleverer, more diverse and more fun than 2G – from the market” in November when shop owners and dealers and as competitively priced. In a couple of years’ time, people chose to add 3 to their offer. “They have not only closed a will perhaps wonder what all the negative sentiment was about. deal with H3G, risking ‘diplomatic incidents’ with other “We will continue to refine and expand our offering for many operators, but they have also paid to sell 3’s products,” the months to come,” says Tucker. “Our first goal is to prove our newspaper said. fundamental thesis – that 3G is a powerful new medium destined In the UK meanwhile, research from the VIPer consortium, to change the way we all live our lives.” which tracks Britain’s “AB professionals” aged 25-54, found that If consumers do warm to the new technology as Hutchison ownership of WAP-enabled handsets had quadrupled in 18 expects, then 3 will do nothing less than shape the future of an months,“suggesting a future positive response to 3G.”Carphone entire new industry.

way they look – modern and clean, cool on the outside but warm and welcoming on the inside. It’s all about encouraging people to interact with us. We have so many ‘wow’ products. This is just the starting point for us and we’re going to blow people’s socks off when they understand what we can do.” With services ranging from stock market prices and news to football clips and interactive games, “there’s something This “inclusive” approach sets 3 apart initiating the general public into a whole for everyone,” he says. from the rest of the mobile retail industry. new experience. Including the “Negozio 3” flagship Typically, a mobile phone shop is a “You won’t see handsets locked away in stores, franchise outlets and multi brand cluttered affair with racks of dummy cabinets here.As soon as you walk in you outlets, some 1,200 stores in Italy now phones that no one can actually use. can try the services for yourself.” offer 3 products and services, But the 3Stores are roomy and serene He lists the most popular, so far, In the UK, three dedicated 3Stores – and feature a small number of “portals” as videos of Premiership football goals, two in London and another in Birmingham which customers are encouraged to try person-to-person videocalls, multimedia – offer customers the 3 experience, and out for themselves with the help of expert messaging (MMS) and text-to-speech these are backed up by high-street retailers assistants. e-mail. such as Phones 4U, Carphone Warehouse, It’s not a high-pressure sales approach, “The environment in our stores is The Link and selected Dixons stores or an experience for “nerds” – it’s a constantly changing, so it’s organic, flexible where customers can purchase the gentle introduction to a new video world. and fluid. We can change the customer hardware. There are also plans to open Even the briefest visit sparks the experience overnight so that we always stores-within-stores at branches of imagination and leaves you with plenty to remain fresh.” outlets, which are Hutchison- think about – and act upon. Marc Allera, Mike Ord, Manager of the Oxford owned. UK Director of Retail Sales, stresses the Street store, says: “I expect the public to Customers can also browse or register differences between “box shifting” and be attracted to the stores because of the at www.three.co.uk or www.tre.it

SPHERE 1225 MANUFACTURING TOP OF THE GAME

Hutchison’s tie-up with a leading toy maker is an excellent fit for both companies: Hutchison gains a manufacturing arm and Hutchison Harbour Ring is playing in a bigger league.

By Arun Sudhaman 

stroll through the shopping The role of Hutchison Whampoa partners and investors alike. HHR is one areas of any major metropolis Limited (HWL) in this story began of the world’s leading original equipment can often reveal more about a in 1994, when it took a 21% stake in a toy manufacturers, occupying a pro- company than a sheet of facts Hong Kong publicly listed toy manu- minent role in the world’s largest toy Aand figures. In the case of Hutchison facturing and property company known export region. The company has main- Harbour Ring (HHR), this is particularly as Harbour Ring, which was founded by tained a presence in China for over 20 applicable. Saturday in Hong Kong or the Luk family. years and now owns four modern and New York or Tokyo sees thousands of By 2001, this share had increased to shoppers thronging retail stores, searching 50.5%. A new board was installed, with for the latest hot new video game seven of the ten executive directors consoles, futuristic action figures, digital coming from HWL. Along with the cameras, computer and mobile phone facelift came a name change, and accessories and other examples of high- Hutchison Harbour Ring was born. tech wizardry.The young and the young- at-heart lead this charge, and each new GAME PLAN product is greeted with fascination and With over 20 years of manufacturing enthusiasm. experience in Mainland China, Most of these shoppers, however, are HHR has quickly been positioned unaware that HHR’s influence is as a manufacturing division of everywhere they look, for the products HWL. In turn, the acquisition by they crave carry well-known brand names HWL represents a new growth not readily associated with the company. direction for HHR. Yet the popularity of these products HHR Deputy Chairman provides compelling evidence of HHR’s Dominic Lai, who is also an important role in the global supply chain, executive director of HWL, as the company effectively provides the confirms that HHR’s role as brains and the brawn behind many of the a manufacturing vehicle world’s favourite toy and electronic could make it a key player products. in Hutchison’s game plan. HHR is at the top of the game when “There is great value in it comes to the design, development and HHR’s manufacturing business, and manufacture of a substantial range of toys, Hutchison Whampoa is harnessing this electronics, and premium products for potential by opening doors for them.We big-name brands such as Mattel, Takara, can add value and transform a good Hasbro, NEC and Motorola. company into something even better.” It is a position the company has The synergies between the two attained through years of sustained companies make HHR an attractive progress. proposition for customers, business

SPHERE 27 MANUFACTURING

efficient manufacturing facilities in the UP THE VALUE LADDER Mainland, putting it in a perfect position This commitment to innovation is to reap the benefits of China’s accession manifested throughout the company, and into the World Trade Organisation. has led to one particularly important The four factories – located in development – the establishment by Dongguan, Guangzhou and Zhongshan HHR’s subsidiary i.Tech Dynamic in southern China – develop and produce Limited of the company’s Technology hard, soft and electronic toys for some of Division, which focuses on electronic, the toy world’s biggest names. Strong premium and ODM products. relationships with leading companies is “Such a progression was natural in a recurring theme in the company’s light of HHR’s existing strengths, says success. HHR Executive Director Michelle “Our approach is to focus on Chan, who is also General Manager, our customers and build long-term Group Business Development of HWL. partnerships with them,”explains Deputy “It is one example of the fundamental Chairman Lewis Luk. “To give these growth that is occurring under HWL’s customers world-class service, you have stewardship.” to be innovative.” Mr Lai elaborates: “To boost HHR’s

efficiency and productivity, we are focusing our efforts to increase the use of high tech in the production process to make high-value retail products. HHR’s toy product portfolio already included many electronic components, and we believe that the move into high-value- added products is a reflection of the company’s natural adaptation and engineering capabilities.” HHR’s Toys Division has long- established expertise in manufacturing a range of products like digital cameras, video game controllers and educational electronic toys. The establishment of the Technology Division enables the company to bring this expertise to the lucrative arena of electronics and telecommunication accessories. The evolution from an original equipment manufacturer (OEM) into an original design manufacturer (ODM) represents an awareness of the company’s strengths. Rather than acting solely as the manufacturing power behind the brand name, as an OEM does, an ODM also designs the complete product, based on customer requirements. This allows for the greatest level of customisation and product differentiation, and enables HHR to fully capitalise on the Hutchison Group’s blue-chip customer portfolio. Accordingly, the Technology Divi- sion applies itself to the research, manufacturing and marketing of a selection of high-tech premium products such as accessories for mobile phones and PDAs (see sidebar, p.30). In this respect, HHR is leveraging not only on its vast operational experience, but also on ALFRED KO ALFRED (11) KO Hutchison’s ability to introduce world- relative outsider, but now they work class business partners and customers. with us very closely to see what we can “The client base is critical,” explains make for them. Our name and financial Ms Chan.“Hutchison can open doors for resources can help HHR obtain the best HHR through its global network of terms.” business partners.” This has proved particularly WINNING TEAM important in Japan and the US, where HHR’s improved global capabilities HHR is able to utilise Hutchison’s would count for very little, of course, established resources to build business in were it not for its proven manufacturing key markets. The Hutchison Group expertise. Accordingly, the company already has offices in these countries, owes much to a culture that values, above allowing HHR to establish an on-the- all else, learning and advancement. ground presence relatively swiftly. “We are committed to cont- In addition, Hutchison’s financial inuously improving ourselves by strength provides HHR with enhanced learning the kind of new technologies flexibility. Together, Japan and the US and systems that are applicable to account for over 60% of HHR’s toy today’s competitive manufacturing sales, and the Technology Division environment,” Mr Luk confirms. “In expects a similar spread for its customers and order to work with companies such as business partners. Motorola and NEC, we have to make use “We have strong relationships with of very advanced systems.” many brand names for both the Toy and The company deploys a variety of Technology Divisions,” explains Mr Lai. world-class procedures to realise this “Before HWL’s acquisition, Harbour vision, and in the process has become one Ring could approach these names as a of the leading manufacturing operators in

SPHERE 1229 MANUFACTURING

Asia. All testing equipment, for example, meets very strict internal quality assurance standards designed to harmonise with the standards of external customers. The company also utilises sophisticated manufacturing equipment - such as coating systems and service mount

technologies - along with a range of certification. Mr Luk, however, sees advanced factory software. this certification as a mere prerequisite The 6-Sigma system is one such to the more advanced Total Quality technique, ensuring that the product and Management model used by the component defect rates always approach company and sponsored by the Hong zero. Another is the Enterprise Resource Kong Government.The company is also Planning system, which integrates HHR working towards full international and customer inventory control, reducing accreditation for its laboratories. risk for all parties. Traditional quality HHR’s management standards and control practices are also strictly followed, capabilities are the envy of many with all HHR factories holding ISO9000 manufacturers and it is one of the few

SHAPING THE FUTURE

UTCHISON HARBOUR RING (HHR) HAS BEEN such as Motorola and NEC to HHR’s production capabilities, and producing digital cameras and video game controllers the future for the Technology Division already looks assured. H under its toy manufacturing division for some years, The Technology Division boasts a closely integrated supply and Hutchison has been quick to identify a potentially huge chain that enables the company to manufacture innovative new market for its products. Accordingly, the subsidiary i.Tech products from conception to completion. Dynamic Limited was established to research, manufacture and The story often begins in one of the handful of world-class market electronics, ODM toys and other items. R&D houses and university institutes dotted around countries A glance at some of the products being produced by the such as the US, Japan and Israel. HHR has established company’s Technology Division is to step into a futuristic world partnerships with a number of these organisations, enabling the of next-generation consumer electronics. Hands-free MP3 company to provide valuable support for the initial development players, Bluetooth headsets and mobile phone chargers are some of the product prototype. examples of accessories already being produced for some of the “It’s not unusual for a designer to approach a tele- world’s biggest telecommunications brand names. Along with communications business with a great idea, only for him to then these are gadgets like the 360° camera module for mobile be sent to us,” says Deputy Chairman Lewis Luk. “These phones and various other futuristic products that are at companies need something they can sell, not just ideas. We advanced stages of development. develop ideas on behalf of designers and turn them into actual Unsurprisingly, Hutchison has been able to introduce names consumer products.”

SPHERE 1230 companies that holds a coveted marketplace.” southern China-based specialists in Management Award in the “People A restlessness to succeed is readily manufacturing, R&D and engineering – Development and Management” apparent at the company’s Hong Kong to other facilities to conduct com- category from the Asian Institute of offices as well at its southern China prehensive benchmarking exercises. Management. manufacturing facilities, which employ As a result,“we have a track record of Hutchison’s management expertise some 20,000 workers. attracting the best and brightest staff,”says has created a win-win playing field for The energised attitude seems more Mr Luk. both companies, Mr Lai believes. “You in keeping with a new market entrant need investment in people to expand the than a 20-year industry veteran. OPPORTUNITY KNOCKS company. We have put our Hutchison Even during the slow season, the It all adds up to a company that is poised system and culture in place, enabling company is anything but idle, sending to benefit from the numerous HHR to grow its business in the global senior management – most of whom are opportunities available in China’s post- WTO marketplace. HHR has already begun to see the rewards of the Group’s blue-chip global profile, inking deals with several major players. If all goes according to the game-plan, the toy and technology operations should make an equal contribution to turnover within five years, and HHR should become a major global manufacturing player within ten years, not just in the toy business but in consumer electronics as well. “The opportunities for HHR are huge, as it evolves from an OEM manufacturer into an ODM one,” notes Ms Chan. “Our management is very involved in the company’s progress.” As HHR continues to develop into a global behind-the-scenes powerhouse manufacturing brand name toys and electronics, it is in the shopping malls where its ultimate success will be realised. “In terms of product development,” says Ms Chan, “it’s the consumers who really give us the cues and show us the way.”

Once the prototype has been developed, HHR can call on accessories and other related products. In several cases, Hutchison’s global capabilities to source the ideal customer and purchase of goods agreements and equipment supply market the product effectively. The product is then agreements are already in place with blue chip customers, manufactured at the Technology Division’s state-of-the-art including Motorola and NEC. Guangzhou manufacturing facility, enabling the customer to take It is not external customers alone who benefit from HHR’s advantage of HHR’s efficiency, productivity and economies of technological expertise but also Hutchison Group companies. scale, which translates into cost savings for both the customer With HWL’s widespread retailing interests under the A.S. and the end consumer. Watson Group (ASW), HHR is extremely well positioned to As a new entrant to the market, the Technology Division develop and manufacture products for ASW’s extensive global engaged in a major business development drive during 2002. network of health & beauty chains, supermarkets and consumer The company has formed alliances with technology partners to electronics stores. further upgrade design capabilities. It has also embarked on a Furthermore, Hutchison 3G is expected to be a major policy of making select acquisitions to speed up growth, customer as it launches its new services and products under the beginning with a 65% shareholding of games control 3 brand. Many of the products in development are being manufacturer Try Electronics Japan Ltd., which was acquired in designed specifically for 3G handsets and devices, and promise the fourth quarter of 2002. significant synergies for the Group’s global mobile multimedia With it’s proven “one-stop services” capabilities, the communications arm. Technology Division has already entered into MOUs with As a company that precisely marries the benefits of advanced several leading companies.These include deals to co-operate on technology, manufacturing expertise and global connectivity, R&D, manufacturing and marketing of Bluetooth-enabled HHR’s Technology Division looks set to prosper in the mobile phone accessories, game controllers, computer information age.

SPHERE 1231 RETAIL FREQUENT BUYERS

Nuance-Watson has raised the airport shopping experience to new heights. By Vivien Jones



n her capacity as sales manager for 150 outlets, of which 80% are retail and a large manufacturer in Mainland 20% catering, housed in over 32,000 China, Flora Chan Pui-wai travels square metres.” extensively around the region. At the vanguard of this development IWhenever she visits Hong Kong’s Chek is Nuance-Watson, a joint venture Lap Kok airport she makes sure she has between the A.S. Watson Group (ASW) plenty of time to spare for shopping at and the Nuance Group, the world’s her favourite stores. “I am a cosmetics largest airport retail company with over junkie,” she admits, “and there’s always 400 stores in 55 airports around the something new at the airport.They have globe. Nuance-Watson, which is the a great selection, including special travel largest retailer within the Hong Kong packs and one-offs that just aren’t International Airport (HKIA), began available anywhere else.” Flora is such a operations in 1998 and expanded into good customer that many of the sales staff Singapore’s Changi Airport in 2001, know her by name. when it was awarded the Perfume and Flora is not alone in her spending Cosmetics concession for Terminal 2. habits. Travel retailing has become “The Nuance Group is at the very increasingly big business. According to heart of the business,”explains Alessandra the Hong Kong Airport Authority’s Piovesana, Managing Director of annual report, the organisation received Nuance-Watson’s New Horizons Duty almost HK$1.82 billion (about US$233 Free. “With their deep knowledge and million) in revenue from its shopping understanding of the industry around complex and other commercial premises the world, they keep us abreast of in 2001, second only to the HK$2.27 developments and help us with contacts billion generated by aircraft landing fees, for our selection of brands. ASW,on the parking and other charges. The bulk of other hand, is invaluable for its strength this income was generated from airport of organisation, its vision of development retailers who have concessions from the and business strategy. ASW is a well- authority to operate shops, restaurants, known and very established retailer in bars and other facilities in the airport’s Asia, and its proximity is a great SkyMart retail zones. advantage.” “After four years of operation, Hong Currently, Nuance-Watson (HK) Kong SkyMart is clearly identified as a operates 27 retail stores in Hong Kong, comfortable alternative to downtown occupying 40,000 square feet of retail retail,” says Christina Cheng, Group space and employing over 500 people.At Manager for marketing and business Chek Lap Kok, Nuance-Watson’s New development at the Hong Kong Airport Horizons Duty Free has a market share Authority.“In fact, the scale of SkyMart of about 45% and currently holds two of

HONG KONG TOURIST BOARD (2) BOARD TOURIST HONG KONG makes it a destination in itself: we have the three main “anchor” concessions –

SPHERE 33 RETAIL

General Merchandise and Perfumes & Cosmetics (the other being Liquor & Tobacco). It also operates brand stores such as Hermes, John Lobb, Bvlgari, Bally and Fortress, along with outposts for Biotherm, Shu Uemura, Samsonite and Hedgren. Other brand names in the New Horizons Duty Free stable include Rolex, Omega, Cartier, Montblanc, Hugo Boss, Ermenegildo Zegna, Shanghai Tang, Sony, Godiva, Timberland and Dunhill, to name just a few.

In Singapore, Nuance-Watson Free segments its products according to currently operates 14 stores, which category, giving each store a unique and occupy approximately 22,000 square feet singular identity. International luxury and employ over 290 people.These stores brands are found in The Atrium, are all under the Perfumes & Cosmetics contemporary fashion is located in the concession and include Giorgio Armani Labels store, electronics in Sound & and Mac concepts. Vision, and so on (see sidebar, below). “In general, most big brands sell well DISTINCTIVE MERCHANDISING in an airport retail environment,” says The growing success of Nuance-Watson Operations Manager, Clarice Au, “and in the Asian travel retail market lies in there are items such as luggage and part with its distinctive merchandising accessories that obviously have a high strategy. Eschewing the traditional sensitivity and appeal. Destination food “department store” approach, which and souvenirs are also a specialised offers a variety of miscellaneous goods segment. In travel retailing you have to under one roof, New Horizons Duty anticipate the specific requirements of the

RETAIL THERAPY

OU COULD, IN THEORY,ARRIVE AT Montblanc pen to add some style to your Hong Kong International Airport postcards. Then pick up some to-die-for Y (HKIA) with little more than a luggage from Dunhill or Coach. And while passport, ticket, credit card and some time to you’re indulging in The Atrium’s elegant spare – for once you’re past immigration you’ll ambience, why not succumb to the chocolate find yourself in a world of retail opportunities temptations of Godiva? – Something to nibble that rivals the city’s most enticing shopping en route. malls. It’s going to be hot in paradise, so head for The SkyMart shopping complex offers a Temptation to stock up on sun cream and huge variety of stores which all are committed moisturiser. With these indispensables in the to serving you, the traveller. bag, it’s time to select the perfect fragrance for So, without further ado, grab a shopping those warm tropical nights. Choose from a trolley and hit the retail trail. vast range of branded perfumes – and To start, pick up all the gear you need for don’t forget to stock up on those other your about-to-begin tropical adventure from Labels, where you essential cosmetics. can kit yourself out in latest fashions from brands like Calvin Klein Now make a beeline to Sound & Vision whose friendly staff and Esprit. will advise on which of the latest digital cameras is best for you. With the basics taken care of, aim for The Finally, don’t forget the gifts. Kowloon Trading does a fantastic Atrium where you can treat yourself to line in souvenirs that will delight your hosts and give the folks that Cartier (or Rolex or Omega) watch back home the impression you were thinking of them all along. you’ve always wanted, or invest in a Bon voyage!

SPHERE 34 travelling customer: products that are “Service & Courtesy Award” for four “Best Travel Retailer in Asia/Pacific light and easy to carry are obviously years running. It has won a similar 2002.” more appropriate.All-in-one travel packs number of prestigious Raven Fox This success has been reflected on a sell well, as do multi-packs, gift sets and Awards, including “Best Fragrances & larger scale by that of HKIA, which has items with destination features.” Cosmetics Travel Retailer”, “Best been voted “Airport of the Year”for two The key to successful travel retailing, Fashion, Leathergoods & Accessories years running (2001, 2002) in polls she says, is sourcing a wide selection of Travel Retailer”, “Best Food & conducted by Skytrax Research. In 2001, products and offering customers Confectionery Travel Retailer in more than 32 million passengers passed exclusive international brands at a range Asia/Pacific”, and the much-coveted through HKIA, armed with credit cards, of price points. Duty free does not leftover cash and plenty of time to kill necessarily mean cheaper, particularly if (on average, more than four hours for there is no duty in the first place, as is the transiting passengers, just under two case in the free port of Hong Kong. hours for departing passengers). “Many times we cannot compete with downtown stores on price” says Au, THE SKY’S THE LIMIT “but we can offer the customer Further modifications to existing facilities exceptional service, in-depth product mean that the airport will be able to knowledge and limited edition products handle 61 million passengers a year by found only in the travel retail sector.” 2010, while its final design capacity (due Sales staff who speak several to be reached in 2020) is a staggering 87 languages, most importantly English, million passengers. With the continued Mandarin and Japanese, are also essential development of HKIA as a regional hub, to the international operation. the transit/transfer passenger market Since 1998, Nuance-Watson’s (currently about a third of total passenger commitment to service has garnered traffic) provides particularly attractive nine awards from the Hong Kong Retail opportunities for retail and catering. Management Association, including the The appeal of Hong Kong as a hub

SPHERE 35 RETAIL

for China and the region lies mainly in world’s most dedicated duty-free shoppers time goes by, people are rebuilding their the convenient access it provides to – now account for 17% of sales, buying confidence in travelling again. Security flights and destinations around the world. Godiva and Peninsula chocolates along levels have been upgraded at HKIA, At present, 90 international destinations with Hermes and Bvlgari luxury goods. which means people have less time to are served from Hong Kong, giving Making up the difference are American shop, although some highly motivated global access to passengers arriving from and European customers (23%), Southeast shoppers, particularly the Taiwanese and a further 42 airports in Mainland China. Asians, Koreans and other nationalities. Japanese, will make allowances and arrive Half the world’s population are within “What [customers] buy depends on at the airport earlier.” five hours’ flying time of Hong Kong – a the strengths and awareness of these Weathering these crises through huge potential market for the HKIA and, its initiative and responsiveness to by extension, for Nuance-Watson,which changing market demands, Nuance- is currently in the process of tendering for “We can offer the Watson enjoyed good sales growth in further concessions. 2002, and plans for further growth are Those passengers span the social customer exceptional underway. The expansion of SkyMart’s spectrum, from businessmen to students East Hall, the principal airside retail area to young families and retirees. Departing service, in-depth serving all passengers, will almost double passengers, not surprisingly, spend more the retail space available. On Level 7, it than those coming into Hong Kong, and product knowledge will increase from a current 4,800 square men account for a whopping 70% of metres to 6,800 square metres while Level transactions. and limited edition 6 will more than double from 3,500 to Clarice Au says the majority of sales 8,300 square metres.This new space will are made to business people, many of products found only offer around 25 additional retail stores. whom are regular shoppers, like Flora The configuration of the area is also Chan, using Hong Kong as a hub.“Price in the travel being redesigned to improve the flow of is not a big consideration for them,” she passengers and shoppers through the area explains,“but time is.” retail sector.” – escalators are being realigned and According to Alessandra Piovesana, corridors widened. nearly a quarter of departing visitors brands in their respective local markets Nuance-Watson is poised for its piece bought something in a New Horizons and the brand’s perception,” Piovesana of the pie:“Most importantly,we want to Duty Free store in 2002. Taiwanese explains. win market share for our business in shoppers, who account for 21% of New While the Asian crisis of 1998 put an HKIA,” says Piovesana. “It is a huge Horizons Duty Free sales, like to buy unmistakable dent in retail revenues, the airport, the hub of Asia, and our first Rolex watches, Montblanc pens, risk-diversified nature of the business, objective is to be outstanding here.” Lancôme and Estee Lauder cosmetics, with its wide base of international Beyond Hong Kong, the Group is handbags from Ferragamo and Cartier, customers, meant that Nuance-Watson looking to other airport opportunities and Sony electronics, while mainland could react quickly to soften the blow.The in Asia. “China is a matter of when and Chinese (10% of sales) choose Rolex and events of September 11, however, had an how,” says Piovesana,“not if.” Piaget watches, Christian Dior fashions immediate impact. “9-11 seriously hurt For Asia’s leading travel retailer, things and Bally shoes.The Japanese – once the our business,” concedes Piovesana,“but as are just beginning to take off.

SPHERE 36