At a media conference eleven months ago, senior officials from China's Ministry of Information Industry (MII), the office of government CIO (OGCIO) and Hong Kong Productivity Council (HKPC) jointly introduced the CISIQ, with a few relaxations in requirements, to local SIs.
"Since many SIs are keen to bid for deals in China, but lack recognition within the market, the certification is expected to bring them an 'entry ticket' to the market," said Betty Fung, deputy GCIO at the conference.
After the champagne-toasting, hand-shaking and photo opportunities, what's the response from the local industry? How has CISIQ been helping local SIs to enter China? The answers do not sound very encouraging.
Currently, only six SIs are processing the application for CISIA through HKPC, according to Fritz Chiu, principal consultant, information technology industry development at HKPC. Among these six companies, only two have filed applications to MII. Applying for the Level-2 and Level-4 certification, the applicants expect to hear the results from MII by November, almost a year after CISIQ was first announced.
Business culture shock
"[Processing the CISIQ application] is not as easy as everyone expected," Chiu explained. "But, we have gone through a good education journey to allow things to run smoothly from now on."
Although HKPC was assigned by MII to handle applications from local SIs, it was not able to start the process before going through training which lasted for four months. Chiu agreed the training took longer than expected, but more challenging was bridging the business differences.
According to MII, each applicant must achieve a certain size of accumulated project transactions-for example, to apply for Level-3 certification, companies need to accumulate at least RMB40 million (US$5 million) of business.
However, SI business in China includes selling hardware and equipment, which helps boost project sizes significantly. In China, if a SI project deal is RMB100,000, it is likely RMB70,000 of it was spent in hardware, Chiu said. For a similar sized project in Hong Kong, the total amount would be only RMB30,000.
"Local SI businesses only focus on system integration, configuration and services," he said. "Most SIs aren't involved in the business of selling hardware or cabling the network."
The requirements appear even tougher, when some SI signed a non-disclosure agreement with their clients, meaning they are not allowed to disclose documents of these transactions and include those deals for the application, Chiu said.
In addition, as the applications are written in Chinese and the business terms used are often different between mainland China and Hong Kong, there are multiple adjustments before the actual applications can be sent.
Dilemma await to be solved
"[Applying for CISIQ] is not as easy as everyone expected," said Thomas Wan, managing director of Jardine OneSolution (JOS) China. The company has more than five years of history in China, and is planning to file their CISIQ application in the next two months.
One of the major hesitations for JOS is the dilemma that CISIQ created, said Wan. According to MII, only Hong Kong-registered companies can apply for the qualification. Yet, to participate in any form of commercial activities in China, a company needs to have a separate entity registered within China. As a result, even if a Hong Kong-registered company is certified, it is not allowed to bid for any projects in China, private or public.
"This is a problem that HKPC has never been able to help answer," he said. "Unless the dilemma is solved, it is difficult to convince the local SIs to be certified."
But Wan said JOS believe the certification will bring recognition to its China branch, thus they plan to apply for CISIQ in two months. The company is currently aiming to apply for Level-2 or Level-3 certification.
Automated Systems Holding (ASL), also a major SI in Hong Kong, sees the certification very differently.
"The certification is quite meaningless," said Yam Ting Lai, managing director of ASL. The company studied the CISIQ, but did not apply for it. "The question is: why do we need that certification in the first place?"
ASL started its business in China in the 1980s. Its clients are mainly multinational corporations in China and local companies with projects being extended into the mainland. With an established history in China, the company does not need the certification to be recognized for its capability, he added.
"Of course we are interested in the government projects," said Lai. "But if we want to participate in the government projects, we can always partner with the local SIs."
When commenting on the dilemma created from CISIQ, Chiu said it is also a concern for the Chinese government to open the IT industry too quickly and easily for Hong Kong companies.
"It's a chicken-and-egg issue. Since MII also has no idea [of] the quality of companies in Hong Kong, it will also take time for MII to build trust over the local SIs," he said. "When there are a number of local certified SIs, they will be more comfortable to treat the Hong Kong-registered CISIQ-certified SIs the same as those from the mainland."
Does CISIQ matter?
Despite the difference in business culture and expectations, he said the CISIQ is still a valuable investment to gain Chinese government-recognized certification.
"For only HK$38,000, the company is able to achieve a certification recognized by the Chinese government," he said. "Some applicants even told me it will help to gain credibility from foreign clients or investors who are interested in expanding into China."
Nevertheless, Lai said the certification is meaningless, because it doesn't bring the company more business opportunities, and the requirement is also irrelevant.
"The (HKSAR) government should aim to abolish the CISIQ, it is unfair to exclude companies without the certification to participate in the bidding process," he said. "They should evaluate the companies using international standards, instead of criteria like the number of staff."
Furthermore, with lots of unexpected complications in the application process, Lai said, it shows both side of the governments had been rushing to launch the initiative last year.
"It sounds more like a political initiative for CEPA than [something that] brings actual benefit for the industry," he said.
But Chiu disagreed. He said it took a lot of groundwork to discern the business culture differences between Hong Kong and the mainland. Since HKPC now knows the differences, it is expected to handle the second batch of applicants at a much shorter time.
"A group of 'guinea pig' companies have gone through the process," he said. "We are providing initial screenings to all the applicants now, like to check if the company has a Chinese name and whether any non-disclosure agreements are involved."
He expected the adoption of CISIQ among local SIs to pick up next year and at least 10 companies to be certified in 2006.
Expectation from CEPA III
Looking forward to CEPA III, most in the industry admitted they are not holding high expectations. Wan from JOS said as China is now a WTO member, it is already lowering the entry barriers for foreign businesses in general.
"To apply for a business license is already much easier now for foreign companies," he said. "There is not much CEPA can do to open the market, maybe except in the software development business."
Joe Lou, vice chairman of the Hong Kong Mainland Software Industry Cooperation Association (HMSiCA) agreed. As software development is a R&D-based business, CEPA III should help to clarify taxation and legislation issues in China.
"CEPA III should focus on positioning Hong Kong as the outsourcing and software center," said Lou.