Whenever we here at Computerworld Hong Kong speak with our readers, they tell us of Hong Kong's unique business structure. No other place has such a mix of public and private sector initiatives--government working with private interests to supply services to the public.

No governance-system is perfect, but Hong Kong is consistently rated the "world's freest economy" by US think-tanks. We have low tax rates and a "laissez-faire" free enterprise structure. It works.

Over the last decade, the HKSAR has emphasized its "hub" capacity: logistics, shipping, financial services...all are accorded "hub" status. This forces another would-be "hub" (Singapore--see sidebar: "Green data centres: Raising the green standard" page 18) to present a united front. Tax breaks, other government initiatives, the rule of law, and support from the private sector all contribute to the Lion City's strong profile as a data center attractor.

So how does Hong Kong compete?

High-value panelists

A spirited forum coordinated by Samson Tam Legislator (IT), HKSAR, and the Hong Kong Computer Society was held late last month to address that issue.

Tam began the proceedings by saying he was pleased to see the HKSAR government finish the report and move forward. "Hong Kong as a data center hub for region will add value," he said, "but how can we transform ourselves into a data center hub--how to execute? Government and stakeholders everywhere must contribute."

HKCS President Stephen Lau said that in recent years: "Past [HKCS] President Sunny Lee was instrumental in driving this initiative, along with the previous GCIO." Lau said he wanted to seek the interest and views of the attendees. "We know one problem is the cost of land, and the government is working hard on this," said Lau. "But even if we solve that issue, how do we differentiate ourselves?"

Michael Mudd, regional representative for The Open Computing Alliance, said that the data center hub initiative that followed the publication of the paper was important. "The opportunity in China is vast," he said (see sidebar, "China building a city for cloud computing" page 19). He pointed out some metrics in Hong Kong's favor: "Connectivity here is half the price of Singapore, and one-fourth that of Singapore." But he pointed out that Malaysia's early start with their "Multimedia Super Corridor" initiative is now a "US$2billion business, estimated to rise to $5b by 2019." As for Singapore, "their stock exchange operates huge underground data centers near Jurong Bird Park"--a scheme that bypasses land costs.

Mudd mentioned that other areas are increasing efficiency in data centers: "solar arrays at one data center in the US state of Oregon supply 80% of its electricity." He also brought up a critical yet seldom-mentioned motivator for solar: "Data centers typically require redundant power-supplies as well as backup generators. But regulations for fuel-storage in populated areas may mean time-limitations for those generators."

Raymond Cheng, chief technology and services officer, Hong Kong at HSBC, said his bank has a big data center here. "The cost of power is one major factor," said Cheng. "But we moved from Hong Kong Island to the New Territories and saved 50% on power costs." Cheng added that regulations and compliance issues dictated much of his data center strategy. "Our data center cost HK$2billion--on the high side," he said, "but our knowledge and expertise costs--both in-house and from suppliers--are much higher than operations."

"China and Singapore are strong competition for skilled resources," said Cheng. "Hong Kong has huge potential--there are positives and challenges to having your data center here."

Michael Thatcher, regional technology officer for Microsoft Singapore said that firms must go through an extensive process in deciding data center location. "You need a criteria list: proximity to customers, legal issues...what are the privacy issues at the locale?", he said. "TRUST is the issue--if I locate here, I must trust Hong Kong. I need to know that there are laws in place that guarantee integrity of a client's data, and there's an opportunity there for Hong Kong to use transparency to gain advantage." Thatcher also said that sustainability and a reduced footprint for both land and power has driven his firm to focus on "IT packs": stackable ISO-standard data centers in containers (Microsoft is not the only vendor offering such a product). "It's a game-changer for space--these containerized data centers," said Thatcher.

"My boss asks me why Hong Kong business is a small percentage of our overall business," said Gabriel Leung, general manager, EMC HK and Macau. "I think we have good power & infrastructure here, but the last-mile is controlled by property developers."

Leung said that Hong Kong is the "best financial center in this region," but that's not all good news. "There's a problem with local talent--all the clever boys and girls are getting into finance," he said. "People lack innovation--just buy and sell and implement off-the-shelf software. There's not enough R&D and research from universities willing to share research with commercial interests."

"We need a holistic view of building Hong Kong as a regional hub, and cheap land will not create that," said Leung. "The last-mile is the killer."

"In Malaysia and Singapore, everyone is talking about data center location," said Steve McWhirter, SVP, salesforce.com Asia Pacific. "Data centers are getting smaller and smaller by the minute. Demand for data centers continues to escalate--partly driven by the demand for mobile apps."

"There's increasing demand from your customers to 'touch your business'," he said. But the salesforce.com SVP said there were many types of regulation, and conflict between them. "Most customers are outside of Hong Kong, so you need the regulators to buy in," he said. "I deal with the HKMA, the SMA, Bank Negara [Malaysia] and they're all different."

Government responses

Stephen Mak from the OGCIO was the prime audience member, and gave a quick overview of government efforts. "We are working on all the actions we promised in the [March] Digital 21 paper. High-value data centers are in the pipeline in line with the Twelfth Five-Year Plan plan. The demand for consumption is local, regional, and international."

"Behind data centers is a whole IT ecosystem, and behind that, e-commerce," said Mak. "Privacy laws are under discussion currently, along with an electronic transactions ordinance that supports PKI. We recently decided to move our infrastructure to the cloud, and much will be moved to the public cloud, contributing to demand. E-procurement has already been launched for some government departments."

Mak acknowledged that Hong Kong's unique character precludes the unilateral action that characterizes the Lion City (privacy considerations are a prime differentiator): "Singapore is known for its coherent, cogent image in this space, primarily due to its IDA," he said. "The Hong Kong government cannot replicate that, but we can help."

Audience queries

Herman Lam from Cyberport noted that firms are now moving to a cloud model. "Do you see a relationship with physical location?," asked Lam, "It seems salesforce has a stronger presence in Singapore."

McWhirter said that while his firm has a head office in Singapore, but "as long as security and availability is OK, who cares where the data center's located?"

The salesforce.com SVP said that "in a sense, we're building an ecosystem. As companies go forward, they define themselves by the tech they use, it's a differentiator for the industry. Kids today know nothing but the Internet, consumers are going to demand everything over the Net--as for data location, who cares?"

Samson Tam noted that the locale of a firm's headquarters makes it more likely to locate its data centers there. "Should we then target headquarter-locations?", he asked. "The firm would then be taxed in the same locale," another potential edge for Hong Kong given our low tax rates.

Leung from EMC said that locating IT staff close to business staff creates synergy. He noted that Hong Kong is building a "huge" data center in Tseung Kwan O, which could help Hong Kong-based firms create more value to customer by helping "transform data centers to the human factor."

Cheng from HSBC addressed a concern this journalist has heard from data center-providers: MNCs not understanding the SAR/one country-two systems policy regarding Hong Kong and China. "We are independent of China," said Cheng, referring to data security.

Cheng added that HSBC decided to build a second data center in Hong Kong. "It took us 18 months and HK$800 million. As far as location, if you're happy with the service, you won't ask where the data center is--if not, then it becomes an issue. Investment in data centers attracts ecosystems."

The Singapore pitch

Sunny Chan, who works for a firm based in Paris and is seeking an A-Pac data center, said the Singapore government is doing a better job at attracting data centers than the HKSAR. "International customers don't care about location," he said, "business incentives--tax, whatever--is what they seek."

Chan spoke of his recent experience in Singapore: "The SingTel guys showed up and spent much effort pitching Singapore. We were told how to reduce tax, etc...there was a "one-stop shop" feel. The Hong Kong government can play an important role here with policies and incentives."

But despite the Singaporean efforts, Chan said his firm "set up in Hong Kong as China is the biggest market in French eyes."

Mak responded that the government plans a 'one-stop shop' through investHK--the position paper can be read as a PDF.

Hong Kong's edge

Lau summed up the discussion by noting that deciding where to locate an A-Pac datacenter involves strategic decisions as well as financial ones. "The rule of law is important," he said, "but 'sweeteners' are important from a business point of view."

"Why is Hong Kong not as competitive as SG?," concluded Lau. "It would take a concerted effort, but we should be in that decision-process."