THE INTERNATIONAL JOURNAL OF THE HUTCHISON WHAMPOA GROUP

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Cover: Illustration by David Chan Tik Wai

P U B L I S H E D B Y Hutchison Whampoa Limited, 22/F Hutchison House, 10 Harcourt Road, Central, Hong Kong.Website: hutchison-whampoa.com. In-house Editorial Team: Laura Cheung, Nora Yong, Pamela Wan. Editor: Mark Caldwell – Great PacificMarketing Services Ltd. Design and production: Fiona Wat, Dharmistha Bradley, Blackie Hui, Kelly Cheung – little 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 HutchisonWhampoa Limited. All rights reserved. Copyright © 2003 by Hutchison Whampoa Limited. Opinions expressed herein are those ofthe writers and do not necessarily reflect the opinion of Hutchison Whampoa Limited.All currency conversions are approximations.

N u m b e r 8 m a r c h 2 0 0 3

CONTENTSS P H E R E

12C O V E R S T O R Y

3 THE DIFFERENCENext-generation mobile

services have arrived in the UK and Italy under the 3 brand.

26M A N U F A C T U R I N G

TOP OF THE GAMESince becoming HWL’s manufacturing arm, Hutchison Harbour Ring has been playing in a bigger league.

8C O M M U N I T Y

OUT OF THE BOXA unique project forges linksamongst creative talents on twocontinents.

2U P D A T E S

NEWSBITESLatest developments from the Hutchison press box.

32R E T A I L

FREQUENT BUYERSNuance-Watson has raised the airport shopping experience to new heights.

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H U T C H I S O N U P D A T E S

JV to Promote China TourismHutchison Whampoa (China)has become a founding JVpartner (27.5%) of BeijingTourism Development Co.(Beijing Tourism) togetherwith Beijing Enterprises

Holdings (40%) and Beijing TourismGroup (27.5%).The three companies are co-operating jointlyin light of the many opportunities broughtabout by Beijing’s successful bid for the 2008Olympic Games and the rapid development

Hutchison Whampoa Limited (HWL), one of the largest companies listed on the HongKong Stock Exchange, is the holding company of the Hutchison Whampoa Group ofcompanies. As one of the earliest big “hongs” or trading companies in Hong Kong,

Hutchison’s history dates back to the 1800s. Today, HWL is a multinational conglomerate withbusinesses spanning 41 countries.With over 150,000 employees worldwide,Hutchison operates andinvests in five core businesses: ports and related services; telecommunications; property and hotels;retail and manufacturing; and energy and infrastructure.Its flagship companies include Hutchison Port Holdings,Hutchison Telecom,Hutchison WhampoaProperties, A.S.Watson, and Cheung Kong Infrastructure. In 2002, HWL’s consolidated revenuewas HK$111,129 million.

HUTCHISON WHAMPOA LIMITED

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Hutchison Telecom (HK) and itsprestigious brand Orange in Decemberwere each awarded the “Superbrand” titleby the Superbrands Council.The brandssuccessfully fulfilled the judging criteria,which include market dominance,longevity, goodwill, customer loyalty andoverall market acceptance.

Hutchison GlobalCommunications

(HGC) and China Telecom have reached anagreement to increase their interconnectioncapacity by 10Gbit/s to a total of 12.5Gbit/s.The expansion provides an additionalconnection path for the HongKong-Shenzhen-Guangzhou SynchronousDigital Hierarchy (SDH) Ring, increasingnetwork and route diversity.HGC plans to introduce a series ofmultimedia voice and video communicationsservices, including Video Telephony,VideoMail, Share-eSee (a multi-partycollaborative conferencing service) and e-Profile(an online biography application).

HONG KONG

HGC Connects with China

Partner Communi-cations has announced a

strong financial performance for 2002.Revenues for the year amounted toNIS4,054.6 million (approximately US$855.9million), up 25% from NIS3,249.3 million in2001. EBITDA was NIS1,052.2 million, up60% from NIS656.4 million. Operating profitwas NIS533.4 million, up 418% fromNIS102.9 million in 2001. Net income wasNIS84.2 million compared to a net loss ofNIS303.4 million in 2001. Market shareincreased to an estimated 29%, up from 27%at the end of 2001. Reflecting Partner’s solidperformance, Standard & Poor’s (S&P) inFebruary revised its outlook on the companyfrom stable to positive. S&P also affirmed itsB+ long term corporate credit and B- seniorunsecured debt ratings.Partner recently signed a new financialagreement with a number of banks and nowhas a fully funded business plan.

ISRAEL

Partner Performs

T E L E C O M S

of China’s tourism industry.Beijing Tourism’s assets include BeijingBadaling Tourism Development, JianGuo Hotel Joint Venture Beijing, BeijingLong Qing Xia Tourism Development,Great Wall Hotel Joint Venture, and theHoliday Inn Civic Center in San Francisco.Beijing Enterprises is the primary overseascommercial window for the BeijingMunicipal Government while BeijingTourism Group is one of China’s largesttourist organisations.

C O R P O R A T E

News

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Hutchison WhampoaLimited has again received a number of accolades from various media for itsperformance in 2002.Euromoney magazine placedHWL at the top of the list inthe “Best Asian Companies –Conglomerate” category andfourth in the “Best Companiesin Hong Kong” category.In its “Review 200” awards, anannual survey that asks readersto rank companies in theregion by their leadershipqualities, the Far EasternEconomic Review ranked HWLthird in the category “Asia’sLeading Companies (HongKong)”.Global Finance meanwhilenamed HWL “Best Companyin Asia-Pacific –Conglomerates/Logistics”.

Hutchison Whampoa Limited recorded an audited profitattributable to shareholders for the year amounted toHK$14,288 million (approximately US$1,832 million), anincrease of 19% compared to the previous year. Earnings pershare amounted to HK$3.35, an increase of 19% with a totaldividend per share of HK$1.73 (2001 - HK$1.73).The results include profit on disposal of investments lessprovisions totalling HK$1,524 million (2001 - HK$3,124million) which primarily relates to a profit of HK$1,129million arising from the sale of equity interests in certainports. Excluding these exceptional gains in both years, profitattributable to shareholders increased 44%, reflectingcontinuous growth in the Group’s recurring operations.Turnover for 2002 totalled HK$111,129 million, an increaseof 25% over that of 2001.Total EBIT for the year increased13% to HK$24,447 million.All of the Group’s divisions,other than the finance and investment division, reportedEBIT ahead of last year.The Group’s cash and liquidinvestments, at market value, totalled HK$130,267 million.For full results, see www.hutchison-whampoa.com/NewsDIR/news

HWL Annual Results2002HK$’ million

Profit attributable to shareholders

Earnings per share14,288HK$3.35

2001HK$’ million

11,980HK$2.81

Changes

19%19%

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Hutchison Essarclaimed a world first in

January when its affiliated companies acrossIndia launched HutchAlive – a personalised,interactive broadcast service thatautomatically updates mobile phones withtext news headlines.Phones carry menus, such as a list ofheadlines, and users pay for selecting relatedinformation, such as the story behind theheadline, which is sent by the network.Apart from News, key content areas areCricket, Entertainment, Astrology, Lifestyleand Promotional Offers. HutchAlive wassimultaneously introduced across Mumbai,Delhi, Kolkata, Chennai, Gujarat, AndhraPradesh and Karnataka under the Orangeand Hutch brands.Hutchison had an exclusive head-start

period for the use of the “cellularbroadcast” technology licensed fromprivately held Israeli firm Celltick.From Feb. 8, coinciding with the inauguralgame, the company launched the CricketWorld Cup video service exclusively onHutch GPRS phones, allowing subscribersto see video clip replays. As part ofHutchWorld, Hutchison Essar is also offeringphoto messaging, e-mail and games.Reflecting the company’s progressiveapproach to technology as well asmanagement leadership, speedy response tochange, environmental consciousness andsocial responsiveness, Hutchison emerged asthe clear No. 1 in a country-wide poll asthe “Most Respected Company in theTelecom Sector” published in Businessworldin January.

INDIA

NEC Takes Equity StakeNEC Corporation inOctober acquired from

HWL a 5% strategic equity interest in bothHutchison Telephone Company Ltd.(HTCL) and Hutchison 3G HK Holdings(H3G HK) for a total cash consideration ofUS$73 million.HTCL and one of its subsidiaries are thelicensed providers of cellular mobiletelephone services in Hong Kong and Macau.H3G HK, through a subsidiary, is the licensedoperator of 3G mobile services in HongKong.As part of this transaction, HWL's interest inHTCL and H3G HK has changed from74.63% to approximately 71%, while NTTDoCoMo’s stake changed from 25.37% toapproximately 24% for both companies.The deal creates a strong strategic partnership,with NEC providing comprehensive supportfor Hutchison’s worldwide 3G businesses.

Hutchison CATWireless MultiMedia

Ltd., a joint venture between TheCommunications Authority of Thailandand Hutchison Wireless MultimediaHoldings, commercially launched a newmobile phone service in February under theHutch brand.The Hutch service deploys CDMA2000 1X,which supports high speed wireless

technology that enable multimediafunctions, bringing customers

more information,communication andentertainment choiceson the move.Hutch has also teamedup with Sanyo of Japan

and Samsung of Korea toprovide customised

terminals equipped withHTML compatible browser and

multimedia capabilities to handle newcontent-rich applications and high-speeddata transmission.

THAILAND

“Hutch” Service Launched

HONG KONG

Video Telephony DealEricsson and HWL havesigned a global agreement

on an end-to-end solution that supports videotelephony between personal computers and 3Ghandsets. The solution will be deployed inHutchison 3G markets worldwide.

GLOBAL

Retail AgreementsHutchison 3G UK hasentered into agreements

with Dixons/The Link (290 stores),Carphone Warehouse (470 stores) andPhones 4U (325 stores) to retail its 3 brandproducts and services.

UK

T E L E C O M S

Hutchison Essar Hits the Headlines

HutchisonTelecommunications

(Australia) Ltd. under the Orange Mobilebrand recorded an EBITDA loss of A$14.1million (about US$8.3 million) for 2002, adramatic improvement on the 2001 loss ofA$112.9 million. For the first time, second halfEBITDA was positive at A$2.1 million.The turnaround was delivered throughcustomer and revenue growth and ongoingrationalisation of operating costs. Profitabilitywas also enhanced by reduced capitalexpenditure, down from A$254.2 million in2001 to A$31.1 million.The company also reported it was at advancedstages of the technical integration, stabilisationand end-to-end testing of the network,platforms, operating systems and devices for its3G operation under the 3 brand.

AUSTRALIA

Orange in the Black

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H U T C H I S O N U P D A T E S

NewsbitesE N E R G Y & I N F R A S T R U C T U R E

Husky’s Strong Earnings to Fuel Exploration Husky Energy’s net earnings for Q42002 increased by 438% to C$242 million(approximately US$160 million) comparedto C$45 million in the same period theyear before. Net earnings for 2002increased 23% to C$804 million (C$1.88per share – diluted).Following a 47% increase in net earningsfor Q3 2002, the company in Decemberannounced a capital expenditure ofapproximately C$1.8 billion for 2003.

Planned expenditures reflect

Husky’s focus onlong-term projects such as the WhiteRose offshore oil project in the Jeanned’Arc Basin off the east coast of Canada,exploration and development programmesin the South China Sea, and oil sands

development at the Tucker and Kearlproperties in Canada.A total of C$1.66 billion was earmarkedfor Husky’s upstream segment.Husky estimates production of 305 to 325thousand barrels of oil equivalent per dayduring 2003.In November, Husky announced that asignificant natural gas discovery inShackleton, Saskatchewan, would addapproximately 75 billion cubic feet ofproven natural gas reserves in 2002 andincrease reserves to 250 billion cubic feet

over the next two to three years.Husky has completed twogathering and compressionsystems to develop the 300,000-acre Shackleton field.Togetherthese systems are designed tohandle up to 30 million cubic feetper day.In February, Husky announced ithad entered into a series ofcommodity hedging contracts for2003 that hedge 26 million barrelsof crude oil at an average strikeprice of approximately US$29.50.These hedges cover approximately34% of expected crude oil

production for 2003.The Company alsohas 37 billion cubic feet of natural gashedged at approximately US$5.20 perMMBtu, representing about 17% of itsexpected natural gas production for 2003.

P R O P E R T Y & H O T E L S

Hot Property

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The Horizon Cove residential project inZhuhai, southern China, has beenawarded the “Xin Xin Ren Jia (avant-garde) Architectural Design Prize” by theCenter for Housing IndustrializationMinistry of Construction P.R. Chinaand China Real Estate News for itssupreme design and construction.CrossCity Motorway, a joint venture of

Cheung Kong InfrastructureHoldings (50%), DB Capital Partners(30%) and Bilfinger Berger BOTGmbH (20%), started work in Januaryon a major transport infrastructureproject in Sydney, Australia.When completed, the 2.2km Cross CityTunnel will revolutionise travel patternsacross Sydney, taking a large number ofvehicles per day off the city’s streets,improving environmental quality andfreeing up the city for pedestrians andpublic transport.

Tunneling Begins

Hutchison Whampoa Property has putBritain’s most expensive flat on the market– for an estimated £10 million(approximately US$16 million).For those who can dig deep enough, theprized penthouse, located at the AlbionRiverside development in Battersea, SouthLondon, is the size of three Wimbledoncentre courts.Designed by world-renowned architect SirNorman Foster, right down to thebathroom fittings, the Albion is both high-tech and high luxury.The top floor, with13 luxury penthouse suites, is due forcompletion this year.

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New Name for Old Firm

The Port of Felixstowe in February beganwork to extend its Trinity Terminal,providing an additional 270m of deep-waterquay and 14ha of additional containerstorage space.The quay is expected to be fully operationalby March 2004 and will increase annualcapacity by some 415,000 TEUs to overthree million, creating around 400 jobs.On completion, two of the latest generationof large container vessels will be able toberth simultaneously, thereby securing the

port’s ability to compete against otherEuropean container ports.In line with the expansion, the Port hasordered three more Ship-to-Shore GantryCranes (SSGCs) and ten new Rubber-TyredGantry Cranes (RTGCs) from ZhenhuaPort Machinery Company of Shanghai.The Jan. 2004 delivery will bring the totalto 28 SSGCs and 86 RTGCs.Meanwhile, in a move that will significantlyincrease the volume of containers beingtransported to and from Felixstowe by railand thus reduce lorry traffic, English,Welsh & Scottish Railway has started anew rail service, carrying 9ft 6"-high cubecontainers from the Port to Widnes.

Hongkong United Dockyards inNovember changed its name to HUDGroup, reflecting the diversification andexpansion of its business interests.A jointventure between HWL and the SwireGroup, HUD specialises in ship repair andmarine engineering operations and is alsothe largest tug and salvage operator inHong Kong. HUD’s main business interestshave diversified over the years to includenon-marine activities, includingautomotive, electrical, mechanical andprocess engineering services, and containership handling.

Felixstowe Expansion Under Way JICT in the Loop

Balboa Boosts CapacityPanama Ports Company has ordered five new quay cranes for the Port of Balboa Container Terminal fromHyundai Heavy Industries as part of thePort’s Phase III development programme.The procurement forms part of anexpansion programme to double thecapacity of the port, increasing its fleet ofhigh-speed container cranes to eight.

P O R T S

IT Model is a Winner

Jakarta International ContainerTerminal (JICT) on Nov. 6 welcomed thearrival of MV. E.R Canberra, marking thestart of a new weekly route by the AAAConsortium, an alliance between MISC,MOL, OOCL and PIL.In December, JICT completed constructionthat increases its quay length by 133m,allowing it to serve larger vessels. JICT hasalso taken delivery of nine new RTGCs andthree Post-Panamax cranes.

Container MilestoneECT Delta Dedicated West Terminalin Rotterdam handled its millionthcontainer on Oct. 7, two-and-a-half yearsafter the fully automated terminal opened.

SICT Direct to JapanA new direct service has been launched byPowick (HK) Shipping betweenShantou International ContainerTerminals (SICT) and Japan, offering acost-effective choice to shippers.

All AboardFor the first time ever, three cruise vesselssimultaneously called at the Panama PortsCompany.The historical milestone took place on Jan.19 when Sun Bird from Sun Cruises,Radisson Diamond from Radisson SevenSeas and Coral Princess from PrincessCruises docked at Pier 6 with a total of5,590 passengers and crew.

Hongkong International Terminals(HIT) has received an award from the ITpublication Intelligent Enterprise Asia, for thedevelopment of Yard Model 3, a computersimulation model for yard managementsystems.The annual “Intelligent 20 Awards” showcaseoutstanding IT implementations with highbusiness value.The award highlights HIT’suse of computer modelling to test processesand workflows in the container yard.Withlimited terminal operating area, HITcontinues to succeed in developing globallyrecognised systems and processes, handling its70 millionth container on Nov. 11.In another development that will enhanceefficiency, HIT in January launched Guider, aship planning system that reduces by 25% thetime required to create a ship profile.Developed in-house, Guider is a majoradvancement over previous systems,improving the flow of information betweenHIT and the shipping lines, and can processplanning systems for vessels over 10,000 TEUin size.

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H U T C H I S O N U P D A T E S

NewsbitesR E T A I L & M A N U F A C T U R I N G

Hutchison Whampoa and Nestlé Waters in January signedan agreement for the acquisition by Nestlé Waters of thePowwow group, from A.S.Watson (ASW), a subsidiary ofHWL, for E560 million.Under ASW, the Powwow group started its European “Homeand Office Delivery” water business in September 1998. Itdeveloped its activities across Western Europe through a seriesof acquisitions and strong organic growth to become one ofthe leading players in Europe.With 1,500 employees in seven countries – France,Germany, the Netherlands, the UK, Denmark, Italy andPortugal – Powwow’s turnover in 2002 was E120 million.The transaction is a result of amajor review of ASW’s Europeanbusinesses following itsacquisition of the Kruidvatgroup, one of the largest healthand beauty chains in Europe.ASW will continue its Asian water and beverage businesses.

Priceline Offers MoreSen – The New Face of Chinese HealthcareInternet travel retailerHutchison-Priceline(Travel) hasembarked ona majorexpansiondrive designedto revolutionise the breadth of its travel-product choices in Asia.The addition of these retail productsmeans visitors to priceline.com.hk andpriceline.com.sg will be presented withtwo options that deliver significant traveldiscounts.Alongside its innovative Name YourOwn Price model, the company hasintroduced a new range of discounted,published-price travel products.Theseinclude car rentals, via a specialpartnership with Hertz Rent A Carand hotel reservations via a tie-up withoctopustravel.com Ltd.

Powwow Sold to Nestlé Waters

Introducing a revolutionary new conceptthat brings the art and science ofTraditional Chinese Medicine (TCM) tothe western world, Sen, a wholly ownedsubsidiary of HWL, has opened its firststore in London’s bustling South MoltonStreet.The store’s emphasis is on expertguidance that demystifies TCM in a waythat is accessible and relevant to modernliving without losing the ancient Chineseartistry.Fully qualified practitioners are on handto ensure all customers are given in-depthproduct knowledge before any purchase.There is also a Liquid Health Bar offeringcustomers caffeine-free alternatives to teaand coffee. Beverages include green tea,herbal teas and herbal juice mixes “forthe body, mind and spirit.”More Sen stores will open in London thisyear with a national and global launchplanned.The retail programme will alsoinclude the sale of Sen products through“shops within shops” in establishedpharmacy and retail outlets.

E - C O M M E R C E

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R E T A I L & M A N U F A C T U R I N G

PARKnSHOP haslaunched two 24-hourPARKnSHOPExpress stores, onein Kowloon and theother on HongKong Island.Express stores aresimilar to mini-supermarkets, stockingone thousand productswith a focus on instant foodand emergency items such as medicine.

Members of the A.S.Watson Group (ASW)raked in an impressive listof awards during 2002,reflecting excellent service,quality and teamwork.

• Nuance-Watson wonthe prestigious HongKong RetailManagementAssociation(HKRMA) “Service &

Courtesy Award” in the travel retailcategory for the fourth consecutive year.•Nuance-Watson employee Natallia ChanPui-kei won both the HKRMA “JuniorFrontline Award” and the overall “On TheJob Performance Award.”• Fiona Chan Chun-fung of Labels receivedtop honours in the “Supervisory LevelAward.”• Liong Kam-wa, sales manager of Fortresselectrical appliance store at Ginza Plaza, wonthe HKRMA Service & Courtesy Award forSupervisors.”• In the “Yahoo! Emotive Brand Awards”PARKnSHOP was voted the “BrandYahoo! Users Trust the Most.”•PARKnSHOP also won Next Magazine’s“Top Service Award 2002” for a record 12th

time in the Supermarket/Convenience Storecategory.•Great Food Hall was voted “The BestFood Shop” by readers of HK Magazine.•Watson’s Wine Cellar was voted “The BestWine Store” by readers of HK Magazine.•Already a “Superbrand” in Hong Kong,Watsons Water was a triple winner in the“4 ‘A’s Creative Awards” for its latest TVadvertising campaign.The “It’s Your Body –Sport”TV commercial earned an editing andcinematography award, while its “Life”counterpart also earned a cinematographyaward.•The new Watsons Water bottle, launched inJune 2002, won the “Best Packaging MaterialPrinting” category in the Hong Kong PrintAwards.•ASW was presented the “Diamond DonorsAward” by the Community Chest inrecognition of the group’s donation drivesthroughout the year, which collectively raisedmany thousands of dollars for good causes.

Basket of Awards Reflects ASW’s Success

TOM Expands PortfolioIn separate joint ventures in December, theTOM Group teamed up with Charm Art& Advertising (Charm), the leadingadvertising agent of China CentralTelevision (CCTV), and with HenanMing Sheng Advertising (Ming Sheng),China’s foremost print media advertisingagent.TOM holds a 60% interest in Charm, whichhas registered capital of approximately tenmillion yuan (about US$1.2 million).The JVwill provide design, production and agencysales services for TV and other media.The JV with Ming Sheng will focus onadvertising, design & production for printmedia and advertising agency services.Registered capital is approximately twomillion yuan with TOM holding a 51%interest.Ming Sheng represents over 266periodicals and magazines and 23newspapers nationwide.In a separate deal,TOM has acquired thebusinesses of two Hong Kong magazines,Cup and AV, from Sing Pao Media. TOMagreed to pay approximatelyHK$800,000(aboutUS$102,500)for fixed assetsand HK$1 forthe magazines’brands andbusinesses.

Watsons Philippines Sees Rapid Expansion

Watsons Philippines opened anamazing 14 new stores in the last twomonths of 2002, bringing the totalnumber of outlets to 83 within just ayear of operation.Four units were opened in Bicutan, anew shopping mall located near theManila airport and home to Watsons’latest expansion idea: full-service beautydepartments within department stores.Watsons has opened a 5,000-sq. ft. beautydepartment incorporating the first nailbarand full facial and treatment room in adepartment store – customers can evenenjoy a mud bath!

PARKnSHOP Express

C O M M U N I T Y

When English author and satirist JonathanSwift coined the phrase:“A penny for your

thoughts” in the 1700s, he probably hadno idea how relevant that statementwould become. These days, thoughtsand ideas are worth substantially morethan mere pennies. Indeed, creative,innovative and inventive ideas are thehard currency of modern business.

As a young entrepreneur in the 1950s, Li Ka-shing read about a revolutionary plastics injection-moulding machine. At the time the machine was unavailable in Hong Kong, nor could he afford theHK$20,000 (approximately US$2,564)to buy one for manufacturing newproducts.

So, based on the limited inform-ation available and using an aircompressor, plastic tubes and a dash ofcreativity, Mr Li developed a “home-made” moulding machine that workedjust as well, if not better, for a tenth ofthe price.

Such ingenuity helped him emergeas one of the world’s most successfulentrepreneurs – at the head of a businessempire (including Hutchison WhampoaLimited) that spans the globe.

Mr Li has always placed a high valueon original ideas to give his businesses awinning edge. Not only does heactively encourage a culture of creativitywithin the Li Ka-shing group ofcompanies, he also invests much of his

MARKETPLACE OF IDEASHow did it begin? First, 20 outstanding“cultural entrepreneurs” from bothHong Kong and London were selected.The project kicked off last October in London with presentations by“ambassadors” from nine fledglingHong Kong companies: Crazysmile,CTCWM Advertising, DeepredDesign, GOD, Here, IdN, Kan and LauDesign, People Mountain People,Sea/Poo Records and Shya-la-la.

In November, Hong Kong recip-rocated, hosting a conference entitled“Mapping the Creative Economy” atthe University of Hong Kong whereHong Kong attendees – including manysenior representatives from business andgovernment – learned about innovativeapproaches to developing a creativeeconomy in London.

British Consul-General Sir JamesHodge set the tone by correcting acommon misconception about creat-ivity. It is not the exclusive preserve ofthe arts, he explained, but encompassesevery sector embracing original thoughtand expertise.

He noted that British children’stelevision show The Teletubbies, whichwas created by two housewives,now ranks among the top-five mostsuccessful British exports, while thelong-running stage show Phantom of theOpera has earned more than any movie.

Together, so-called “creative in-dustries” contribute 8% to Britain’sGDP, accounting for two million jobs

OUT OFTHE 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

�

personal wealth in perpetuating thecreative process, primarily by spon-soring education initiatives in HongKong, Mainland China and abroadthrough the Li Ka Shing Foundation.To date, the Foundation has donatedmore than HK$4.8 billion (approx-imately US$620 million) towards edu-cation, health and culture.

CREATIVE CITIESOne of the Foundation’s latestsponsored initiatives, entitled “CreativeCities,” brought into focus thesymbiotic link between good ideas andgood business. Hong Kong and Londonare uniquely linked by history. Whilesome observers expected ties to besevered after the 1997 handover ofHong Kong to China, the “CreativeCities” initiative demonstrates thatconnections at all levels – from businessand technology to the media and thearts – remain inter-twined.

Organised by the Hong KongInstitute of Contemporary Culture(HKICC) and London’s Institute ofContemporary Arts (ICA), “CreativeCities” aims to forge new kinds ofsustained relationships that explore thepotential for long-term creative collab-oration by providing a platform foryoung cultural entrepreneurs to sharetheir expertise.

“There are major opportunities to collaborate,” the organisers said.“Creative industries have moved fromthe fringes to the mainstream.”

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and earning approximately US$123billion a year. Most importantly, he said,creative industries are growing at a rateof 9% annually, while other industriesfeel the pinch.

“Creativity is about risk-taking,about spotting the next trend,” Sir Jamesadded.

Hong Kong’s Secretary for HomeAffairs, Dr Patrick Ho, said HongKong, with its melting pot of cultures,was a “perfect testing ground” forcreative industries: “We have theplatform and we have the critical mass,”he said.

With Hong Kong and the PearlRiver delta together ranking among the world’s top 20 economies, he sawenormous potential for collaboration.

“We’re confident that, like China’screative invention of gunpowder, thisregion will go with a bang!”

Chris Hamnett, a Professor ofHuman Geography at King’s CollegeLondon, agreed that Hong Kong wasideally placed to capitalise on a post-industrial economic base to embracecreative industry. Manufacturing’scontribution to the economy hadshrunk dramatically from 50% in 1980to less than 10% today, he noted.

“We’re in the era of late-capitalism.Creativity is critical for productivestrategy. People don’t buy a car; theybuy a brand, an image, a lifestyle. It’s atriumph of style.”

In recent years, London hasreinvented itself as the “coolest city onthe planet,” but this didn’t happen byaccident. Graham Hitchen, head ofCreative Industries at the LondonDevelopment Agency (LDA), said

decisive political leadership had beenkey.The LDA was specifically establishedin 2002 to spearhead the city’s “culture-led regeneration,” starting from theground up by providing creative in-dustries with affordable rents andbusiness support.

Sir Michael Bichard, rector of TheLondon Institute, said the key tocreativity lay in education. Art collegesnot only produce fine artists but alsodesigners, filmmakers, pop groups,writers and the entire range of creativetalent that is energising and re-inventingLondon’s economy. After graduating,these young people continued to needsupport in the form of advice, capital and management skills. The businesscommunity therefore needed to be muchcloser to the creative community, he said.

CREATING WEALTHSo how can creativity contribute to thehard-nosed business world?

Hutchison Whampoa Group Man-aging Director Canning Fok took thepodium to make the corporate case.

Ever realistic, Mr Fok was quick topre-empt the sceptics.

“Creativity doesn’t always makemoney.There are a lot of poor artists inthis world,” he said.

“So what’s so creative about bus-iness?” Mr Fok continued. “Isn’t it justabout buying low and selling higher?Maximising profit? Bargain-hunting?Turning inefficient companies intoefficient ones?”

Not entirely, Mr Fok said. In fact,creativity contributes in many ways tocorporate growth, shareholder value

C O M M U N I T Y

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and the bottom line.“Business must be creative, and

Hutchison especially encourages creat-ivity because that’s what got us wherewe are.”

He went on to explain the Chinesephrase for business: Sang yee. “Sangmeans lively; yee means ideas. Our word for business literally means ‘lively ideas’. It means flexibility toadapt to a changing world. Doing thingsdifferently. Thinking out of the box. Inshort, being creative.”

Mr Fok pointed out the famousshopping centre at Whampoa Gardens,which is built in the shape of a ship andhas become a Hong Kong landmark.Theidea was obviously “out of the box” butLi Ka-shing immediately saw the po-tential, gave his approval, and the build-ing’s uniqueness put Hutchison’s first resi-dential “Garden City” on the map.

“The ship caused a sensation.Everyone heard about it. It was inmagazines and newspapers outside ofHong Kong,” Mr Fok said. “WhampoaGardens became so popular the invest-ment paid back in two years.”

Mr Li has consistently demonstrateda taste for backing creative enterprises.

Creativity certainly counted atWhampoa Gourmet Place, the“hawker” centre that rescued a traditionof street-stall dining in Hong Kong.

“As Hong Kong modernised,” MrFok recalled, “hygiene regulations puthawkers out of business. When welooked at opening a food court we couldhave chosen familiar brands. But wethought out of the fast-food takeawaybox. We got a famous food critic toinvite legendary hawkers to set up inbusiness.The hawkers got back to work,the public loves it, and the food courtmakes money!”

Branding is yet another example ofhow Hutchison works with creativetalent to impact markets.

“When we first moved into telecomsin the UK, a lot of people laughed at ourbrand-name, ‘Orange’. I must admit, Ialso nearly fell off my chair when ourcreative people suggested the name! Butwe went with it and the market soonrealised that our brand was no lemon.Orange became the fastest-growingmobile phone operator in the UK. It alsowon an advertising industry award for‘capturing consumers’ imaginations’.”

Orange, of course, sold for ahandsome profit to fund Hutchison’sboldest step yet in telecoms – the third-generation system recently launched

under the brand-name “3”.“3 might seem as strange as Orange

and, unsurprisingly, the press is againcynical,” Mr Fok added.“They say we’vedialled the wrong number. But one daypeople won’t know how they livedwithout 3G multi-media communi-cations.We’re not only thinking out of thebox but thinking way beyond the box.”

SPREADING THE WORDFollowing the Hong Kong event, theCreative Cities road-show, co-organisedby the Shantou University, moved on totwo Li Ka Shing Foundation-sponsoredinstitutions in Mainland China. Seminarsat the Cheung Kong Graduate School ofBusiness in Beijing and at ShantouUniversity facilitated similar culturalexchanges while introducing Mainlandstudents to creative concepts.

The Beijing event attracted a largegroup of CEOs and professionals from thedesign, media, advertising and educationfields. Discussions centred on Britain’spolicies on nurturing creative talents,developing entrepreneurial skills andbranding. On a practical level, dele-gates came out in favour of establishingdedicated “spaces” for experimentation inthe design and production of productsand services.

The Shantou event attracted anequally large turnout of delegates.Discussions covered the prospect ofShantou serving as a host city for similarsuch creative exchanges among delegatesfrom other Chinese cities and countriesin the region.

The “Creative Cities” initiative hasthus laid important groundwork for the cross-pollination of creative ideas, notonly between Hong Kong and Britainbut also within the greater China region.

The response from delegates andattendees has been overwhelminglypositive with participants at each eventagreeing they had been stimulated by theexchange of new ideas. Youngerattendees in particular were encouragedto learn of the significance of creativity incareer development.

“The (Hong Kong) seminar has givenme a far greater insight into thecommercial prospects of my chosenprofession,” said design student SharonLam. “Listening to delegates and talkingto other attendees has helped me realisethat businesses need creative talents asmuch as we need business.”

In time, Ms Lam hopes to hearsomeone say: “A million dollars for yourthoughts.”

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IRECENTLY READ A BIOGRAPHYentitled Mauve: How One ManInvented a Color that Changed the

World. Its protagonist, Sir WilliamPerkin, was the first chemist to make afortune by transforming an inventioninto an industrial process.

At school in England,his teacher onceasked him to perform a chemistryexperiment to synthesise quinine. Theexperiment failed and a black chemicalsubstance was produced instead, whichstained the tablecloth purple.This blacksubstance was to become the basicingredient of aniline, a dyeing agent withextensive industrial applications.

The young man took out a patent forhis invention 18 months later andcommercialised it. His discovery was to become the “catalyst” for manysubsequent inventions by otherscientists whose applications in dyeing,pharmaceuticals, cosmetics and foodproduction created industries worthbillions of dollars.

Sir William lived more than a centuryago, but we can learn valuable lessonsfrom his life story. The resoundingsuccess of his scientific work as ateenager was not fuelled solely by hisquest for material profit but also by hisinnate curiosity.

We can imagine how difficult it was for such a young lad to earn thetrust of other people. Nonetheless he surmounted all the obstacles before him and persisted in turning his invention into a commercialenterprise. He eventually became anoutstanding entrepreneur.At 23 he wasalready a very wealthy man. At 36 he retired and returned to what heliked doing best – scientific research.His success was not the result of sheer luck but was founded uponqualities that everyone should strive topossess: keen powers of observation, avoracious appetite for knowledge,

a dogged determination to succeed,and confidence to defy all odds.

The scientist Joseph Henry once said:“The seeds of great discoveries areconstantly floating around us, but theyonly take root in minds well prepared toreceive them.”

Education is what prepares us – andit should not be confined to the meretransfer of skills.The greatest challengefor educationalists today is to fire ouryouth with the enthusiasm to pursueknowledge and be part of the learningprocess. Success in life depends on acombination of different factors, but themost critical one is the ability to graspan opportunity when it arises and applythe knowledge one has built up.

Competing in business in today’sincreasingly globalised world is a battleof wits; it is not for the run-of-the-mill.Like Sir William, we must combinemotivation with vision and curiosity,move ahead with perseverance andcourage, and seek perfection throughinnovation in whatever we do.

Finally, I would like to quote a linefrom the book: “Without experiment Iam nothing; still try, for who knowswhat is possible.”

KNOWLEDGE + CURIOSITY = OPPORTUNITY

The Cheung Kong Scholars Programme, a joint initiative between the Li Ka ShingFoundation 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 toreturn to China to work.At the fifth award presentation ceremony held recently in Beijing,

Mr Li delivered a speech entitled The Power of Mauve to illustrate the symbiotic linkbetween creativity and business.The following is an abbreviated translation.

EAM

MO

N 'O

' BO

YLE

(1)

The Power of Mauve

C O V E R S T O R Y

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3 THE DIFFERENCE

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

By Mark Caldwell

�massive impact on the way people interact with each other andthe world.

Until now, the PC and the mobile phone were two verydifferent creatures. One carried voice and was mobile, the othercarried data and was desk-bound, but both were greatcommunications tools.The inevitable convergence manifested in3G represents a brand new era.

Not only does a 3G handset combine the functions of a PCand mobile phone, it incorporates many other useful “devices,”such as a digital video camera, music player, web browser, e-mailer, games console, global positioning device and more.

“It is part mobile, part TV,” said Italian weekly magazinePanorama after a sneak preview of the 3 handsets.

It can also “double” as a newspaper, radio, tape recorder,electronic wallet, barcode reader, word processor, spreadsheet, orpersonal organiser, to mention but a few.

“It’s almost what happened for media,” says Vincenzo Novari,Joint CEO of the Italian operation.“First, silent films, soundlessimages, then the burst of the commercial radio – sounds,withoutimages.Finally television – sound and images together – and latereven colour TV: a natural evolution that in time has become atrue revolution.”

The new 3G technology paves the way for what 3 calls “thenatural next step” whereby usefulness and entertainment arebrought together in a single package. Never before have so manydevices offering so many functions been so conveniently mergedfor modern man on the move.

“There’s a shift from voice telecom operators to mediainformation-technology companies,” observes Phil Roberts,director of consulting group Mason Communications Ltd.“With3G, it’s a complete fundamental change in mindset.”

Hutchison’s Group Managing Director Canning Fokconcurs: “These are not telephones. They are powerful multi-media handsets that focus on the eye as well as the ear.There’snothing like 3G on the market at the moment.With 3, life willnever be the same.”

BUCKING THE TRENDDespite the huge potential, 3 has rolled out against a backdrop ofdisconsolate industry sentiment.

It has not always been so.

When Julius Caesar conquered Gaul in 51BC, hemade formidable use of carrier pigeons tocommunicate with his home base in Rome. ForCaesar, a man very much on the move, the birds

represented a cutting-edge advantage – and mankind has beenhoning his mobile communications capabilities ever since.

On November 26, 2002, mobile communications tookanother giant leap forward. Calling from Rome, Italy’s Ministerof Communications, Maurizio Gasparri, made the first publicperson-to-person videocall via ‘3’ handsets over the UMTScommercial network of 3.He spoke to Guido Gentili, Editor-in-Chief of business newspaper Il Sole 24 Ore in Milan, and toHutchison Whampoa Group Deputy Chairman Victor Li inLondon. Not only were they able to talk to each other, theycould see each other as well.

The event was another significant milestone in the rollout ofHutchison Whampoa’s third-generation (3G) mobile multi-media global network, under the 3 brand.

Combining the convenience of mobile telephony with thepower of the PC and the depth and interactivity of the Internet,3G technology is a quantum leap in mobile interconnectivity. Inevery respect, speed and mobility are the key. Data transmission ismuch faster now, allowing us to download video clips in mereseconds. It has taken Hutchison less than three years to build itsflagship networks, to bring together a rich brew of contentofferings, and to provide the revolutionary new mobile devicesthat are the window to a bright new world of mobile multimediacommunications.

The time span between that first videocall and thecommercial rollout of the 3 service is itself indicative of the21st century pace that applies to the “3G race.”

Consumers in the UK and Italy have just begun toexperience the world of 3 first hand and the brand is poised to migrate across the globe.

It is today’s equivalent of Caesar’s carrier pigeon overtakingthe foot-messenger.

THEN AND NOWIn the past two decades the mobile phone and the personalcomputer (PC) have swiftly and simultaneously become essentialmodern-day tools.The emergence of the Internet, too, has had a

3G

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In 1999 the global economywas soaring and the telecomsindustry was exuberant. Hutchisonitself had helped set off a buying and take-over frenzy when inNovember 1999 it sold Orange, itsEuropean 2G mobile telecommuni-cations business, to Mannesmann for aUS$14.6 billion profit. (Soon after,Orange again changed hands, this timeto Vodafone whose aggressive bid forMannesmann saw investors push up theprice of the stock deal to a world recordUS$163 billion.)

In April 2000, a bidding war for nextgeneration 3G-licence spectrum began in the UK, sending prices into thestratosphere. Spurred on by a wave ofeuphoria among analysts, bankers, investors and the media,operators – including Hutchison – collectively spent £22 billion(about US$33 billion) on five licences in the UK alone, andaround E150 billion across Europe.

When the German 3G-licence auction attracted bids worthUS$45 billion in July 2000, Hutchison again set the tone – thistime dropping out in the belief that the prices had gone too high.

The subsequent decline of globalmarkets saw share prices tumble, with the telecoms sector among the biggestcasualties. Several operators have sub-sequently been crippled by the highprices they paid for licences. Some havedelayed the heavy investment neededto build the 3G infrastructure,preferring to capitalise on theirexisting 2G networks. Others havehad to offload assets to stay afloat, andyet others have written off their 3Glicences and withdrawn completely.

In this roller-coaster economicenvironment the bulls turned

bearish, citing high capital investment costsalong with technical issues, competing technologies and

potentially low take-up rates that could all derail operations.Hutchison was not immune from the fallout:“All available

evidence indicates that Hutchison is trying to do too much,too fast,” the Far Eastern Economic Review reported in Octoberlast year. “Hutchison is presuming it’s already masteredtechnological and business paradigms that other operators expectwill take years to develop,” the magazine quoted ForresterResearch as saying.“If it turns out to be right, it deserves to reap

C O V E R S T O R Y

UK: Raising the BarWHEN THE FINANCE TEAM OFHutchison 3G UK (H3G UK) set aboutraising £3.24 billion of non-recoursefinancing (about US$4.6 billion) in mid-2000 to develop the technology andinfrastructure of its 3G operations, itlooked like a tall order.

Stock markets were heading steeplysouth and positive sentiment towardstelecommunications companies had all butdried up.

As Project Finance International Magazinereported: “H3G UK had no assets otherthan the licence – no customers, no cashflow and barely any employees. Thetechnology was untried and the marketbears doubted whether anyone would evenwant to buy into the 3G proposition. Itdidn't look at first sight like the kind ofcompany that anyone would lend £3,000to, let alone £3,000 million.”

Yet against this less-than-buoyant

backdrop, H3G UK’s financing wascompleted in March 2001 with proceedsof £3.24 billion (US$4.6 billion) in the formof a three-year (plus one-year) non-recourse facility, including £777 million ofvendor financing from Nokia, NEC and Siemens.

Demonstrating its confidence in 3,Hutchison itself joined the syndicate,lending money to its subsidiary at the samerate as the banks but at a subordinatelevel, meaning the banks would be paid outfirst in the case of default.

At the time, it was the largest non-recourse syndicated loan ever arranged inthe UK.

In spite of the prevailing negativesentiment, H3G UK had attractedinvestors to support the roll-out of its 3Gbusiness proposition.

The key messages to investors wereHutchison’s track record in establishingand adding value to telephone networks

and its highly diversified financial strength,which at the time included a balance sheetof cash and marketable securities of morethan US$20 billion above total borrowings.

“Hutchison Whampoa is fortunate inhaving a strong track record of creatingvalue coupled with a financially div-ersified background,” said Mark Nickell, abanker at HSBC, one of H3G UK’s leadunderwriters.

“If required, it can support frominternal funds the large capital-intensiveinvestments needed to create that value.This provides enormous credibility to bothits investment and its commitment.”

Richard Woodward, senior manager,finance, at Hutchison said raising the non-recourse debt had not been about selling avision but successfully communicating thesense and soundness of the business plan.

“It was obvious from early on that wewould have to win the minds of bankersover the background noise of the press,

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.

NEXT GENERATION

Edwin S. Grosvenor, the great-grandson of the inventor of

the telephone,Alexander Graham Bell, examines a 3 handset

– 156 years after Bell’s birth on March 3, 1847.

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which was determined to kill the 3Gstory,” Woodward recalled. “The way todo this was not by competing in theuncontrollable PR space but bycommunicating the facts, issues and risksproperly through the due diligenceprocess. Luckily, credit committees readdue diligence reports as well as the frontpage of the broadsheets.Armed with thefacts, the lead arrangers were veryresilient under the barrage of negativity.”

ITALY: Full Funding for the FutureRIDING ON THE SUCCESS IN THE UK,H3G Italy replicated the fund-raisingexercise with the successful conclusion in June 2002 of a E5.2 billion (US$5.5billion) bank and vendor finance facility forthe Italian operations.

This round of financing encountered amore hostile and cynical funding market asmany of Hutchison’s 3G competitors hadrun into financing or operating difficulties.

H3G’s approach, therefore, had to beflexible if it was to raise the required E5.2

huge profits. But the company is more likely to end up as 3G’sbiggest early casualty.”

3G VISIONFar from being an early casualty,Hutchison has every expectationthat it will turn out to be right.While others have had secondthoughts, choosing to sit on the sidelines, the Group has been thenotable exception, powering ahead into uncharted territory andfuelled by a healthy bank balance.Perversely, the financial barriersto entry for new entrants and the demise of incumbent rivals hasserved only to strengthen the company’s position – to the extentthat by the second half of 2002 Hutchison 3G was the lastremaining 3G-only player in Europe.

Surveying the carnage, the sceptics have tended to lumpfinancial concerns together with doubts over unproventechnology. But Hutchison is fully funded and the company iseffectively close to mastering most – if not all – of the nuts andbolts of making it all work.

This is not the first time Hutchison has disregarded thesceptics.When the Group launched Orange in the UK in 1994into what critics regarded as an already-cornered market, analystsand journalists quipped that the company was a lemon, that itwould be squeezed and crushed by its incumbent competitorsand that the venture would turn sour and ultimately fail. ButOrange sparked imaginations and became a runaway success. By

1999 the brand hadseized a 20% market shareand Hutchison sold its stakefor a handsome profit.

In retrospect, the timing wasperfect. Hutchison had simultaneouslyexited at the top of the 2G market and locked ina dividend that would help fund its move to the nextgeneration.

The prevailing sentiment towards the 3G marketopportunity is therefore something of a déjà vu scenario forHutchison, reminiscent of those early days of Orange.Throughout the current downturn, Hutchison has been the onecompany consistently bucking the trend and “bravely goingwhere others fear to tread.”

By any measure, financing and building the 3 network from(continued on p.23)

billion. Lenders to 3G businesses werenow demanding greater sponsor supportin return for the provision of funding.HWL was willing and able to provideboth equity and subordinated debt as well as its credit support to make thefinancing work. Ultimately, 15 banks fromItaly, Europe, the US and Chinaunderwrote the transaction and weresubsequently supported by banks fromItaly and Sweden.

In the process, H3G Italy achieved anumber of firsts. It was the world’s firstfully funded project financing for a 3Gtelecommunications business and the firstnew 3G project to fund itself with ten-year term financing.The financing not onlyincluded banks and vendors (Ericsson,Siemens and NEC came up with E1 billionbetween them), but also the Swedish andGerman export credit agencies – the firsttime any government agencies hadfinanced 3G project risk.

The complexity and structure of thefinancing was widely applauded by thefinancial community and was named the“Telecoms Deal of the Year 2002”

awarded by Project Finance InternationalMagazine. In presenting the award, themagazine remarked:“It is testament to theperceived strength of sponsor quality thatHutchison’s business plan was evenlooked at by the banks in the first place,given the turn in market sentiment againsttelecoms in general and 3G in particular.”

“We could not have raised the financewithout a sponsor such as Hutchison,”said Giorgio Moroni, CFO for H3G inMilan. “What was remarkable for theItalian business community to see wasthat Hutchison was willing to make such astrong commitment to support thisbusiness in Italy, a country it had neverinvested in before.”

Deputy Group Treasurer John Mulcahyconcurred: “The Italian team did a greatjob in convincing banks to support thetransaction on its merits. A number of theunderwriters had no prior bankingrelationships with the Hutchison Group,This financing did a lot to expandappreciation of the Hutchison Group’sstrengths to the European financialcommunity.”

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NTT DoCoMoand KPN Mobileacquire a 20% anda 15% participationrespectively inHutchison 3GUK via 3GHoldings.

Wins 3G licencesin Australia,Denmark andHong Kong.

US$4.6 billionfacility finalised inMarch to fund theUK 3G business.

Announces plansto set up a majorcustomer carecentre in Glasgow.

Agreement withBT Cellnet andTIM to provide2G national voiceand data roamingin UK and Italyrespectively.

In May, formsstrategic alliancewith TelecomCorp of NewZealand (19.9%)to operate 3Gbusiness inAustralia.

Various UMTSnetworkinfrastructuresuppliers selectedfor Australia,Sweden, the UK,and Italy.

3’s an In-Crowd!

IT TOOK ALMOST 250 SURVEYSand 130,000 interviews in eight

countries to develop a picture ofwhat customers want and expectfrom 3G technology.

The result was to create amarketing and retail strategy to put3’s services and products at the heartof the “in-crowd” of early adoptersand to create a “road map” for massroll-out in the near future.

The global consumer study ex-amined topics such as consumer andbusiness segmentation, the potentialappeal of products and services,growth potential of the market,pricing strategies, and what the 3brand would mean to localconsumers in different countries.

The study helped 3 define specifictarget segments, how much theseconsumers would be prepared to pay,and the sort of devices they wouldprefer.

It also identified particular productsand services that resonate amongconsumers. Among these, video-calling, messaging, the convenience ofan all-in-one-device, and the ability to“cherry-pick” content all emerged ashighly desirable features.

IN BOTH ITALY AND THE UK,3 HASundertaken the fastest network

build-out in the history of the globalmobile communications industry.

The Group has also made deals withinfrastructure suppliers in the othercountries where it has licences. Theseare at various stages of construction,and vendors include Alcatel, Ericsson,Motorola, NEC, Nokia and Siemens.

Apart from hundreds of basestations, complex application archi-tecture platforms have been built todecipher and process the diversecontent carried over the 3 networks.

The scale and scope of technicalintegration taking place behind thescenes is unprecedented in theindustry. Hundreds of people working24 hours a day in shifts have appliedtheir collective expertise to make itwork, innovating and adapting on adaily basis.

As the innovators, there has been noroadmap to follow. The process hasbeen one of continued refinement andexpansion.

By early March 2003, the network inItaly – built by Ericsson and Siemens-NEC – covered over 40% of thepopulation in 100 cities with 2,400 base

stations installed.“We have taken great care to analyse

and minimise the environmentalimpact,” said Georges Perez, CTO ofH3G Italy. “Wherever possible weshare base station sites with otheroperators and our acquisition of theBlu network also helped speed up our roll-out.We always look for designsthat blend in and we work with local authorities and the public toprovide complete open and accurateinformation.”

In the UK, population coverage hasreached approximately 50%, and thenetwork – supplied by NEC and Nokia– continues to grow with an on-goingphased roll-out. Again, great care hasbeen taken to minimise the impact onlocal surroundings and to work withcommunities and local authorities.

All the handsets are dual mode, sothey can operate over 2G networkswhere 3G coverage is not available.

In both the UK and Italy, 3 hasroaming agreements in place with 2G networks, including internationalroaming in approximately 100countries – so users may occasionallybe out of the picture, but they neednever be out of touch.

Building the Backbone

Wins 3G licencesin the UK, Italy,Austria andSweden.

2000

2001

Agreement withAustralianCricket Boardto providecricket content in Australia.

Wins 3Glicences in Israeland Republic ofIreland.

In January,concludes a E5.2billion facility frombanks, vendorsand governmentagencies to fullyfund H3G Italy.

Acquires Italiancellular sites fromBlu for E58million.

Selects Nokiato supply anetwork inAustria.

Agreement withVodafone andMobilkom toprovide 2Gnational voice anddata roaming inSweden andAustria.

Agreement withVitaminic toprovide musiccontent in Italy.

Contracts withMotorola in Juneand NEC inNovember for thedelivery of 3Gwireless devices.

Acquires exclusiverights to transmitfootball content ofleading teams inItaly and the F.A.Premier Leaguein the UK.

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2002

THE HANDSETS – A CHOICE OF three initially – are manufactured for 3

by NEC and Motorola.They are light, stylish,simple to use and, above all, they deliver thegoods, combining the functions of a varietyof electronic devices.

Your “phone” is also a PDA, MP3player, a camera and much more,providing communication, informationand entertainment in a single package.The sound quality is superb andcolour and clarity of video clips isbeyond comparison with any othermobile device. If the necessarily smallscreens prove insufficient, movingimages can easily be transferred to alaptop computer or larger screen.

Apart from groundbreaking applicationssuch as mobile videocalls, multimediamessaging and e-mailing, there’s a massivedatabank of information available at yourfingertips.

The range of content is already

considerablein both the

UK and Italy.You can choose

from the categories:Voice, Video Calling,

Locate, Sport, Games,Messaging, Lifestyle, News

& Finance and Extras.Not only does your handset

double as a personal digital assistant (PDA)with a calendar and contacts function but

there’s also a plethora of informationavailable in real time.You can choose to view up to 30,000

news articles and 55,000 financial updatesa week, receive TV, radio and cinemalistings, plus access a “fastdial” cinematicketing service. Comprehensive businesslistings will help you find what you need andshow you how to get there with maps anddirections based on your exact position.Sports fans can access news and videohighlights of football action or play aselection of arcade-style and interactivegames to suit every taste. Of course, youwill also be able to make calls at highlycompetitive rates and enjoy roamingservices in around 100 countries.

To ensure smooth delivery of the diverseselection of content, 3 itself has had a closeinvolvement with the development anddesign of the inaugural handsets but this isexpected to decline as the market matures.

“Many of the things we have done are

Cool Tools

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Agreement with SEBto provide e-banking inSweden.

Announces theglobal brand name“3” in July.

3 brand identityunveiled inOctober.

Agreements withfive companies todeliver digitalmappingtechnology andlocation-basedservices inEurope.

Agreements for thedistribution in Italyof more than20,000 pieces ofmusic from themajor national andinternational labels..

Mediadigit(Mediaset Group)and Ansaselected for theproduction ofmicro newscastsand financialinformation inItaly.Forms

partnerships withnine companies todevelop games for3G global markets.

Agreement withBBC Technologyto manage theproduction ofaudio-visualcontent in the UK.

Agreement withSvenskaHockeyligan ABand ISPR toprovide ice hockeycontent and homegames of theSwedishNationalFootball Teamand UEFA cupmatches in Sweden.

Top 3

IN ITALY, THE LAUNCH OFFER INCLUDEStwo tariff formulas: Top3 Executive and

Top3 Privilege. Both packages are all-inclusive and revolutionary in their simplicityand transparency.

They differ in price depending on whetherthe customer chooses to lease or buy thehandset.

Top3 Executive includes a monthly servicefee of E85 once a handset has been purchased.For E140 per month, in addition to the “all-inclusive” formula, Top3 Privilege clients canrent the terminal with the option ofsubstituting it once a year.

The bundles include a weekly allocation of:600 minutes of voice calls; 600 minutes of videocalls; 150 SMS and 50 MMS messages; 100 e-mails; and 100 content downloads.

The offer was available from November 2002until March 2003.

Additional charges apply to internationalcalls, usage while abroad, directory enquiries,and premium rate calls.

world firsts,” says Oisin O’Conner, ProductDevelopment Manager for 3. “The content we have puttogether and the way we have edited it specifically forour devices is leading edge stuff.”

Other applications will surely come – the scale of 3’scontent offerings will be bounded only by the scope of thehuman imagination.

As a consequence of the anticipated explosion of the new technology and content, the variety of handsets onoffer is expected to increase quickly, withnew models evolving to meet individualrequirements. To help keep pace withdevelopments, 3 has put options in place

to enable subscribers to upgrade theirhandsets as new models come to market.

The prices for handsets and services have beenindividually tailored to suit the UK and Italianmarkets. Both have launched introductory “allinclusive” offers which include a “bundle” of services(see sidebars, p.18; 22).

Details of handsets and specifications currentlyavailable can be found at 3’s websites atwww.three.com.

NEC becomesstrategic partnerin HutchisonTelephone andH3G HK.

Agreement withNEC to increasethe Nov. 2001order of 3Gvideophones fromone million to twomillion.

Agreement withTHQ Inc todevelop andpublish gaming andentertainmentcontent in the UK.

In November,announces tariffplans for“Founder’s Club”in Italy and beginsreceivingreservations via itswebsite.

ItalianCommunicationsMinister makesfirst videophonecall over the 3UMTS commercialnetwork.

E30 millionadvertisingcampaign begins in Italy.

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3 throws“TrendsettersParties” in Romeand Milan.

Handsets arrive.

Aesthetically Teasing

WHEN THE 3 ADVERTISING CAM-paign kicked off in Italy in

November, it disrupted the usual rules ofadvertising and made an immediate impact.Italians, who are used to being surroundedby beauty, were immediately drawn to thedistinctive imagery. No products orservices were actually featured – juststrong images of people: a matador, a nun, abeautiful woman – and a particularattention to the 3 values, or emotions,associated with each colour.

Both the poster and video campaigns putthe user at the centre, with the 3 servicesoffering the opportunity for individuals tomagnify their creative and communicativepotential.

The underlying message was simple: 3 isnot about the technology but about lifeitself – fantasy, emotion, drive, passion,simplicity and surprise.

“The first part of our strategy has beento present our brand and its values beforeanything else,” says Vincenzo Novari, JointCEO of 3 in Italy. “We are out of theordinary both from a marketing and

advertising point ofview.” We then movedonto the second phase,which is inverselyproportional to theinitial one: at first, wedecided to eliminateproducts and servicesand concentrate on thebrand; now, the stories are told through theapplication of some ofour services.

The company also selected 333 VIPs tobe the first customers.They were invited totwo parties in Rome and Milan and werethe first to receive, test, and give theirimpressions of the videophones.

Additionally, dealers throughout Italyhave been visiting the places frequented byhigh-spenders, who include technofans,trendsetters and professionals on the move(3’s early target market), to engage them onthe benefits of 3.

“It might seem that our approach ismore ‘top-class focused’ than the one

chosen by our UK colleagues,” says Novari.“This is partly true, but we are dealing withtwo very different markets. We arebrothers, but not twins.”

Italy is the leading player among the densely populated countries on acontinent where mobile communicationsare part of daily life for millions. (90% of the population uses mobile phones,compared to 51% in the US and 80% inthe UK.)

“To us, this means that the ‘pinnacle’ is avery fertile place to launch the most

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In Sweden, 3 teamsup with children’shospital to helpfund and lay thegroundwork forproviding healthcare servicesthrough 3Gtechnology.

The first flagshipstore Negozio 3opens in Milan onDec. 13.

Visitors to theAuto andMotorbikeInternationalExhibition ofBologna try the 3videophones.

Pre-registrationfor first 20,000“Founders”customers beginsin the UK via itswebsite.

CarphoneWarehouse andPhones 4Ubecome retailpartners to sell 3products andservices acrossthe UK.

Launches firstphase ofmarketingcampaign to buildconsumerawareness of the3 brand in UK viaviral, online, andambientmarketing.

The 3 logo isbeamed onto Big Ben on New Year’s Eve.

Home Truths

IN SWEDEN, 3 IS PROVINGthat, besides all the fun

stuff like sports content and multimedia messaging,the 3 service will have animportant role to play inareas such as health care.

In co-operation with theAstrid Lindgrens Children’sHospital in Stockholm, 3 hasset up an initiative that will help the care of very sick children intheir homes.

Starting in Spring 2003, mobile teams that treat the sick childrenwill be equipped with mobile handsets from 3.They will mostly usevideocalls which will make it possible for worried parents tocommunicate with the hospital and, via their 3 handsets, directlyshow 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. Thesewere auctioned to the public – 100 via the Internet and another100 at a live auction on March 3 involving business leaders andcelebrities. The proceeds – approximately 1.5 million krona(US$175,000) – will go to SABH (Sjukhusbaserad AvanceradBarnsjukvård i Hemmet) the department under the AstridLindgrens Children’s Hospital responsible for advanced home-care for children. The extra cash will allow SABH to support asecond mobile unit and significantly increase its home-careservices to patients.

“We believe that this is the health care of the future,” saidHenrik Almkvist, head of Astrid Lindgrens Children’s Hospital.“Treating sick children in their homes raises the quality andefficiency of the care. This is good for the sick children, theirfamilies and for the hospital.”

important technological advancement since the birth ofmobile telephony,” Novari adds.“Also, Italians have a particularpassion for anything that is related to video.They spend moretime in front of the TV than any other Europeans. They alsolove fashion and enjoy being noticed.

Maybe that’s why we already have so many peopleimpatiently waiting for their new 3 videophones. By themiddle of February, we already had over 140,000reservations!”

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TV advertisingcampaign beginsin the UK inJanuary.

Retail agreementwith DixonStores Groupunder which TheLink and selectedDixons stores willsell 3 brandproducts andservices.

Global agreementwith Ericsson toprovide VideoGateway System,supporting videotelephony betweenpersonal computersand 3G mobilevideophones.

Li Ka-shing presentsItalian Prime MinisterSilvio Berlusconi withthe first Italian H3GSIM card on Jan. 15,the first ever 3Gservice number inItaly.

Reutersannounced as content partnersupplying news andfinancial data tocustomers of 3.

By February, pre-registration for 3services totals 140,000in Italy while thenumber of stores,including third-partyretailers anddistributors, reaches1,200.

Italy startsdelivering 3handsets to VIPs.

UK reveals tariffplans on Feb. 6.

A“DOG AND BONE” MEANS “PHONE” IN COCKNEYrhyming slang. But the sight of three attractive models

taking TV sets for “walkies” along London’s Oxford Street leftmany observers speechless.

It was all part of 3’s eccentric, tongue-in-cheek promotionalcampaign.

“We’re taking a non-traditional approach to the market,” says3 UK Strategy and Marketing Director Lisa Gernon. “So in thefirst phase we used online advertising, viral marketing techniques– such as short comedy video clips distributed by e-mail – andwhat’s called ‘ambient’ marketing activity. The latter includedprojecting the 3 branding onto buildings; hiring actors withtattoos of the 3 logo on their heads to show up at Londonnightclubs; putting small TVs running video loops in unlikelyplaces – including the ‘dog-walkers’ towing small TVs on a lead upand down Oxford Street.

“At the start of this year we became much more visible,introducing full mass-market ‘above the line’ advertising with ahigh-profile – and well-received – TV and cinema campaign. Butthe overarching point of our approach is that 3 is different to therest – hence the fresh and irreverent approach.”

“From our research we have a very clear idea of who we’retargeting and what they will respond to. Different segments of themarket are attracted to different components of the 3Gexperience, so we have a number of teams developing differingpropositions which we will be rolling out over the year. There

First UK 3Storeopens in OxfordStreet, London.

2003

A Fox Among the Pigeons

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are a lot of preconceptions about what type of customer will beinterested in 3G – and most of those preconceptions are notbased on any kind of research. Well, we’ve done the research.We’ve spoken to pretty much every kind of potential customerimaginable, and we have some detailed and robust strategies toreach the key groups in question.”

The first TV ad appeared in mid January and depicted the age-old problem of fans trying to describe a greatsoccer sequence with the aid of ordinaryobjects that come to hand, such as saltand pepper pots or pieces on a chessboard. The segment ends with a videoclip of the actual goal shown on a 3handset. The ad struck the right noteand was judged “Pick of the Week” by the advertising industry ‘bible’Campaign Magazine.

Gimme 3

IN THE UK, THE “FOUNDERS” LAUNCH OFFERincludes two cost-effective bundles named Kit on 3

and Kaboodle on 3 for customers looking to pay afixed monthly cost.

A third price plan, named 3ToGo, is for customerswhose typical usage is lower and who are looking formore flexible options on a pay-as-you-use basis.

With the 3ToGo plan, there are no line rental ormonthly charges. Customers only pay for what theyuse at rates ranging from 5p a minute for calls to other3 subscribers to 25p to £1 for video downloads.

The Kit on 3 option carries a fixed monthly cost of£59.99 which includes a monthly allocation of 1,000minutes of voice calls; 100 video call minutes; unlimitede-mail, 250 text messages; 50 video downloads; 60picture messages and 30 video messages.

Kaboodle on 3 costs £99.99 per month for 12months and includes a monthly allocation of 2,000minutes of voice calls; 200 video call minutes;unlimited e-mail; 500 text messages; 100 videodownloads, 120 picture messages; and 60 videomessages.

Additional charges apply to international calls,usage while abroad, directory enquiries and premiumrate calls.

In all cases, customers must first buy the handsetand there are a number of attractive introductorydiscounts for early adopters.

Britain’s Secretaryof State for Tradeand IndustryPatricia Hewittdelivers the first“ministerialbroadcast” via a 3Gdevice. 400celebrities attend 3party on 03/03/03in the UK.

Advertisingcampaignintroduces the 3brand in Austria.Starts acceptingpre-registrationson www.drei.atand 5,000 sign upon first day.

Charity auction of 3 handsets andservices raisesmore than 1.5million Krona (US$175,000) for a children’shospital inSweden.

3 demos videocallto Swedishspectators at a 3sponsored ice-hockey game.

New adcampaignbegins in Italy.

The first handsetsare delivered topaying customersin Italy and the UKin mid-March.

Banks extend loanto 3 UK to March2005.

Marketingcampaign begins in Australia.

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scratch is an enormous undertaking – in some ways comparableto the complexity of space exploration. But the Group hasalready built and tested the “vehicle” and believes it has thevision, stamina and the financial heft to now make the journey.

“Yes, there have been difficulties,” says Colin Tucker, CEO ofHutchison 3G UK.“This is cutting-edge technology and we’reinnovating every single day.The key point is that we overcomethose difficulties,we focus on them like a laser beam,one by one,until they’re fixed. Like any good consumer-facing business wewill use ongoing research to fine-tune our proposition on arolling basis.”

Inevitably, the Group’s progress has been under intensescrutiny by partners, investors, competitors and the media.

The big question has been: “Why is Hutchison so bullishabout 3G when others are not?”

Apart from the company’s financial security, it’s in large parta matter of experience and perspective. “You have two of themost successful consumer technology revolutions in the historyof mankind brought together in one device,” commentedHutchison Chairman Li Ka-shing.“We are not sitting on our 3Glicences.We are now going at full speed.”

Revered in Hong Kong for his business prescience,Mr Li hastravelled several times to Italy and the UK for detailed reviews on3’s progress. Group Managing Director Canning Fok is an even-more-frequent flyer.

“They know every detail of the operation,” commented oneinsider.

With a strategy that stretches at least 20 years into the future,the Group is well prepared to meet the considerable challenges –and seize the opportunities – inherent in such a hugeundertaking.

The company has conducted extensive consumer studiesglobally (see sidebar, p.16) and has a clear picture of the potentialmarketplace. And while it is impossible to exactly predict thefuture, it’s nevertheless instructive to cast an eye on the recentpast.

It was as recently as 1980 that IBM approached Microsoft todevelop its personal computer project, unleashing its first PC inAugust the following year.

The World Wide Web was born in1990 and in just its third year in existencewas growing at a rate of more than3000%.

Whereas in the late ’80s, a mobilehandset was a bulky symbol of wealthand status, today’s much smallerversion is an essential, everyday part oflife, almost as common as fixed-linephones.

More than a billion peopleglobally now use mobile phones,with around 400 million handsetssold in 2002 alone.

SMS was once derided as aperipheral feature with limitedpotential, yet 366 billion messageswere sent in 2002. SMS currentlygenerates an estimated £100million a month in the UKalone.

These changes have all occurred in spite of the ups anddowns of economic cycles. With a longer-term perspective, abright future for 3G is highly feasible.

London-based consultancy Thinking Box believes that in fiveyears 3G penetration will hit 50% in Europe and could be as highas 75% in some countries.That’s a lot of potential revenue.

The UMTS Forum also sees plenty of upside:“Acknowledging the substantial investments in networkinfrastructure and the high cost of licensing in some countriesin Western Europe, the market opportunity for 3G isnevertheless massive.”

Mobile users would double to two billion in ten years witha substantial proportion using 3G technologies, the UMTSForum predicted. “Thanks to the extended appeal of 3G’sincreased speed, capacity and value-added capabilities, servicerevenues will grow even more spectacularly.”

STEP BY STEPHutchison has remained steadfastly upbeat about the businessproposition of 3G, and has moved quickly to establish itself as aserious global contender.

It has acquired licences in nine countries, shopping morewisely than competitors and paying far less on average forspectrum. (The company’s attributable licence cost in the UK,for example, is more than 40% lower than that of the other fourincumbents.)

While investment costs have been substantial (approximatelyUS$17 billion in total), the Group is within its budget, deployingpart of the proceeds from sales of 2G assets, forming strategicpartnerships with global players like NEC and DoCoMo,and securing adequate bank financing (see sidebar, p.14) in anextremely difficult market.

The Group is far more focused than competitors, who planto gradually migrate but are currently torn between collectingthe 2G dollar and preparing for a 3G future. Unencumbered bythe old technology, 3 has forged ahead to master the new.

“In Europe,we have the opportunity to be a ‘pure 3G player’with no legacy network and therefore can employ cutting edgetechnology from day one,” says Novari.

Hutchison understands that it is very important to maintainfirst-mover advantage by doing all it can to deliver on customerexpectation. In the long term, the Group is confident that 3 willprevail.

“There have been so many milestones along the way for usto celebrate,” said Bob Fuller, Joint CEO of H3G

Italy. “And all the while the world has had itsnose pressed to the glass, eager to find out whatwe are doing and see a slice of the action.”

3G

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C O V E R S T O R Y

HARDWARE HAVENS

WHEN 3 OPENED ITS FIRST European flagship store inMilan on December 13,

customers entered a world of cacti,trickling water and plasma screens.

Hostesses eased style-conscious Italiansinto luxurious chairs and put them lit-erally “in the picture” with one-to-oneintroductions to the videophones that letthem see and be seen.

Cities throughout Europe are litteredwith mobile shops, but when it comes todemonstrating the opportunities aheadnothing compares with the 3Storeexperience.

The environment is like no other – atantalising juxtaposition of rock and timberagainst metal and microchips.

The new stores in Italy and the UKresemble ultra-chic, minimalist art galleriesand are designed on the principles of FengShui, the ancient Chinese philosophy ofharmonising and communicating with yourenvironment.

On entering a 3Store there’s excite-ment in the air because this isn’t aboutbuying a commodity, it’s about buying intoa lifestyle.

While the 3Stores radiate boutique-

By Justin Quillinan

chic, attention quickly shifts from admiringthe decor to seeing what the technologycan do.

It’s crucial, of course, for prospectivecustomers to understand what 3 can dofor them. To this end, the company hasacted swiftly to create a small army ofexperts. By the end of January more than1,000 retail staff in the UK – both in3Stores and third-party outlets – hadreceived training to explain and dem-onstrate these powerful new handsets.

In Italy, more than 1,600 people hadreceived training.

“There is a real sense of discovery forcustomers,” said a staff member at theMilanese store, which is located just ablock from the landmark DuomoCathedral.“They are amazed and engagedand entertained … I don’t have to ‘sell’anything, just show and teach.When theysee what 3 can do, they want to be partof it.”

The 3Stores are structured to create aroute – an absorbing experience inwhich the three families of services –information, communication and enter-tainment – are emphasised as thecustomer proceeds.

By New Year 2003, the tide of media scepticism wasbeginning to turn:“3G is alive and well,” Mobile News reported.“During a recent visit to the out-of-town offices of 3 we saw liveperson-to-person video,TV news broadcasts over a mobile linkand Premiership goal replays. It was impressive.The handsets aremore than watchable and at the same time are ‘approachable’pieces of technology. Having seen the devices working ... we areless sceptical.”

In February, Bruno Giussani a Zurich-based journalist andthe author of Roam: Making Sense of the Wireless Internet, reported:”I travelled to Milan, bringing along a lot of scepticism fed byyears of wireless hype. I spent an afternoon at Hutchison, spokewith many people, asked questions, made video-calls using theirhandsets.And got back to my hotel that evening thinking that ifsomeone has a chance to make 3G work in the near future inEurope, it’s 3.”

Dow Jones also saw significant upside.After testing the systemin Milan and London, the newswire service posed the question:“Will 3G sell?”The conclusion:“A resounding maybe.”

To ensure 3G does sell, Hutchison is committed to deliveringan experience that is simple, useful and enjoyable.

It’s not the underlying scientific wizardry of 3G that impressesbut the seemingly magical delivery of a vastly superior, more

flexible and more varied mobile multimedia experience.“It is clear that 3 doesn’t offer just another telephone,”

observed the Italian daily La Stampa. “It wants to present itselfas an innovator that can be attractive also from a cultural pointof view.”

The proposition is reflected in the uncomplicated 3 branding.As an entirely new product, 3 aims to make life more colourful,more convenient and more fun in a world where usefulness andentertainment are not alternatives. The complex technology issimply what makes it all work.

By March, leading UK consumer magazine Stuff featured 3in its cover story. “We’ve seen 3G and it is amazing,” Stuffenthused.“This is the hottest new technology in ten years.”

LET THE GAMES BEGINThere are compelling reasons to believe Hutchison’s business planwill confound the sceptics and succeed.

In terms of both infrastructure and content, 3 is already wayahead of the curve.

It has moved very quickly to secure prime licences, buildnetworks, establish the IT enterprise architecture, collaboratewith manufacturers to develop handsets, form partnerships withcontent providers, create the global brand 3 and prepare for

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This “inclusive” approach sets 3 apartfrom the rest of the mobile retail industry.

Typically, a mobile phone shop is acluttered affair with racks of dummyphones that no one can actually use.

But the 3Stores are roomy and sereneand feature a small number of “portals”which customers are encouraged to tryout for themselves with the help of expertassistants.

It’s not a high-pressure sales approach,or an experience for “nerds” – it’s agentle introduction to a new video world.Even the briefest visit sparks theimagination and leaves you with plenty tothink about – and act upon. Marc Allera,UK Director of Retail Sales, stresses thedifferences between “box shifting” and

launch in the UK and Italy.Few players have similar such

global strategies, and those that dohave not been in a hurry to act. Ineffect, 3 will meet consumers’needs locally yet operate on aninternational scale. This globalreach has already served the company well in terms ofleveraging technological know-how and aggregatingcontent.

Given that the prevailing sentiment towards 3G hasbeen profoundly bearish over the past two years, investors couldbe in for a pleasant upside surprise.

La Stampa noted “an important and unexpected signalfrom the market” in November when shop owners and dealerschose to add 3 to their offer. “They have not only closed a deal with H3G, risking ‘diplomatic incidents’ with otheroperators, but they have also paid to sell 3’s products,” thenewspaper said.

In the UK meanwhile, research from the VIPer consortium,which tracks Britain’s “AB professionals” aged 25-54, found thatownership of WAP-enabled handsets had quadrupled in 18months,“suggesting a future positive response to 3G.” Carphone

Warehouse founder Charles Dunstoneconcurs:“We are on the cusp of a new

handset buying frenzy, fuelled by 3Gtechnology and camera phones,” he said.

In future, Hutchison believes,previous technologies will seem quaintly

rudimentary.In the same way as consumers do not

upgrade their five-year-old car by buying thesame model, it is unlikely that mobile users will

want to stay with their 2G phone when they canmigrate to a more efficient,more useful and more

entertaining 3G device instead.3G is faster, cleverer, more diverse and more fun than 2G –

and as competitively priced. In a couple of years’ time, peoplewill perhaps wonder what all the negative sentiment was about.“We will continue to refine and expand our offering for manymonths to come,” says Tucker. “Our first goal is to prove ourfundamental thesis – that 3G is a powerful new medium destinedto change the way we all live our lives.”

If consumers do warm to the new technology as Hutchisonexpects, then 3 will do nothing less than shape the future of anentire new industry.

3G

initiating the general public into a wholenew experience.

“You won’t see handsets locked away incabinets here.As soon as you walk in youcan try the services for yourself.”

He lists the most popular, so far,as videos of Premiership football goals,person-to-person videocalls, multimediamessaging (MMS) and text-to-speech e-mail.

“The environment in our stores isconstantly changing, so it’s organic, flexibleand fluid. We can change the customerexperience overnight so that we alwaysremain fresh.”

Mike Ord, Manager of the OxfordStreet store, says: “I expect the public tobe attracted to the stores because of the

way they look – modern and clean, coolon the outside but warm and welcomingon the inside. It’s all about encouragingpeople to interact with us. We have somany ‘wow’ products. This is just thestarting point for us and we’re going toblow people’s socks off when theyunderstand what we can do.”

With services ranging from stockmarket prices and news to football clipsand interactive games, “there’s somethingfor everyone,” he says.

Including the “Negozio 3” flagshipstores, franchise outlets and multi brandoutlets, some 1,200 stores in Italy nowoffer 3 products and services,

In the UK, three dedicated 3Stores –two in London and another in Birmingham– offer customers the 3 experience, andthese are backed up by high-street retailerssuch as Phones 4U, Carphone Warehouse,The Link and selected Dixons storeswhere customers can purchase thehardware. There are also plans to openstores-within-stores at branches ofSuperdrug outlets, which are Hutchison-owned.

Customers can also browse or registerat www.three.co.uk or www.tre.it

M A N U F A C T U R I N G

TOP OF THE GAME

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

By Arun Sudhaman

Astroll through the shoppingareas of any major metropoliscan often reveal more about acompany than a sheet of facts

and figures. In the case of HutchisonHarbour Ring (HHR), this is particularlyapplicable. Saturday in Hong Kong orNew York or Tokyo sees thousands ofshoppers thronging retail stores, searchingfor the latest hot new video gameconsoles, futuristic action figures, digitalcameras, computer and mobile phoneaccessories and other examples of high-tech wizardry.The young and the young-at-heart lead this charge, and each newproduct is greeted with fascination andenthusiasm.

Most of these shoppers, however, areunaware that HHR’s influence iseverywhere they look, for the productsthey crave carry well-known brand namesnot readily associated with the company.

Yet the popularity of these productsprovides compelling evidence of HHR’simportant role in the global supply chain,as the company effectively provides thebrains and the brawn behind many of theworld’s favourite toy and electronicproducts.

HHR is at the top of the game whenit comes to the design, development andmanufacture of a substantial range of toys,electronics, and premium products forbig-name brands such as Mattel, Takara,Hasbro, NEC and Motorola.

It is a position the company hasattained through years of sustainedprogress.

The role of Hutchison WhampoaLimited (HWL) in this story began in 1994, when it took a 21% stake in aHong Kong publicly listed toy manu-facturing and property company knownas Harbour Ring, which was founded bythe Luk family.

By 2001, this share had increased to50.5%. A new board was installed, withseven of the ten executive directorscoming from HWL. Along with thefacelift came a name change, andHutchison Harbour Ring was born.

GAME PLANWith over 20 years of manufacturingexperience in Mainland China,HHR has quickly been positioned as a manufacturing division of HWL. In turn, the acquisition by HWL represents a new growthdirection for HHR.

HHR Deputy ChairmanDominic Lai, who is also anexecutive director of HWL,confirms that HHR’s role asa manufacturing vehiclecould make it a key player in Hutchison’s game plan.

“There is great value in HHR’s manufacturing business, andHutchison Whampoa is harnessing thispotential by opening doors for them.Wecan add value and transform a goodcompany into something even better.”

The synergies between the twocompanies make HHR an attractiveproposition for customers, business

partners and investors alike. HHR is oneof the world’s leading original equipmenttoy manufacturers, occupying a pro-minent role in the world’s largest toyexport region. The company has main-tained a presence in China for over 20years and now owns four modern and

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M A N U F A C T U R I N G

efficient manufacturing facilities in theMainland, putting it in a perfect positionto reap the benefits of China’s accessioninto the World Trade Organisation.

The four factories – located inDongguan, Guangzhou and Zhongshanin southern China – develop and producehard, soft and electronic toys for some ofthe toy world’s biggest names. Strongrelationships with leading companies is a recurring theme in the company’ssuccess.

“Our approach is to focus on our customers and build long-termpartnerships with them,” explains DeputyChairman Lewis Luk. “To give thesecustomers world-class service, you haveto be innovative.”

UP THE VALUE LADDERThis commitment to innovation ismanifested throughout the company, andhas led to one particularly importantdevelopment – the establishment byHHR’s subsidiary i.Tech DynamicLimited of the company’s TechnologyDivision, which focuses on electronic,premium and ODM products.

“Such a progression was natural inlight of HHR’s existing strengths, saysHHR Executive Director MichelleChan, who is also General Manager,Group Business Development of HWL.“It is one example of the fundamentalgrowth that is occurring under HWL’sstewardship.”

Mr Lai elaborates: “To boost HHR’s

efficiency and productivity, we arefocusing our efforts to increase the use ofhigh tech in the production process tomake high-value retail products. HHR’stoy product portfolio already includedmany electronic components, and webelieve that the move into high-value-added products is a reflection of thecompany’s natural adaptation andengineering capabilities.”

HHR’s Toys Division has long-established expertise in manufacturing arange of products like digital cameras,video game controllers and educationalelectronic toys. The establishment of the Technology Division enables the company to bring this expertise to the lucrative arena of electronics andtelecommunication accessories.

The evolution from an originalequipment manufacturer (OEM) into anoriginal design manufacturer (ODM)represents an awareness of the company’sstrengths. Rather than acting solely as themanufacturing power behind the brandname, as an OEM does, an ODM alsodesigns the complete product, based oncustomer requirements. This allows forthe greatest level of customisation andproduct differentiation, and enablesHHR to fully capitalise on the HutchisonGroup’s blue-chip customer portfolio.

Accordingly, the Technology Divi-sion applies itself to the research,manufacturing and marketing of aselection of high-tech premium productssuch as accessories for mobile phones andPDAs (see sidebar, p.30). In this respect,HHR is leveraging not only on its vastoperational experience, but also on

ALF

RED

KO

(11

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Hutchison’s ability to introduce world-class business partners and customers.

“The client base is critical,” explainsMs Chan.“Hutchison can open doors forHHR through its global network ofbusiness partners.”

This has proved particularlyimportant in Japan and the US, whereHHR is able to utilise Hutchison’sestablished resources to build business inkey markets. The Hutchison Groupalready has offices in these countries,allowing HHR to establish an on-the-ground presence relatively swiftly.In addition, Hutchison’s financial strength provides HHR with enhancedflexibility. Together, Japan and the USaccount for over 60% of HHR’s toysales, and the Technology Divisionexpects a similar spread for its customers andbusiness partners.

“We have strong relationships withmany brand names for both the Toy andTechnology Divisions,” explains Mr Lai.“Before HWL’s acquisition, HarbourRing could approach these names as a

relative outsider, but now they workwith us very closely to see what we canmake for them. Our name and financialresources can help HHR obtain the bestterms.”

WINNING TEAMHHR’s improved global capabilitieswould count for very little, of course,were it not for its proven manufacturingexpertise. Accordingly, the companyowes much to a culture that values, aboveall else, learning and advancement.

“We are committed to cont-inuously improving ourselves bylearning the kind of new technologiesand systems that are applicable to today’s competitive manufacturingenvironment,” Mr Luk confirms. “Inorder to work with companies such asMotorola and NEC,we have to make useof very advanced systems.”

The company deploys a variety ofworld-class procedures to realise thisvision, and in the process has become oneof the leading manufacturing operators in

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M A N U F A C T U R I N G

HUTCHISON HARBOUR RING (HHR) HAS BEENproducing digital cameras and video game controllersunder its toy manufacturing division for some years,

and Hutchison has been quick to identify a potentially huge new market for its products. Accordingly, the subsidiary i.TechDynamic Limited was established to research, manufacture andmarket electronics, ODM toys and other items.

A glance at some of the products being produced by thecompany’s Technology Division is to step into a futuristic worldof next-generation consumer electronics. Hands-free MP3players, Bluetooth headsets and mobile phone chargers are someexamples of accessories already being produced for some of theworld’s biggest telecommunications brand names. Along withthese are gadgets like the 360° camera module for mobilephones and various other futuristic products that are atadvanced stages of development.

Unsurprisingly, Hutchison has been able to introduce names

such as Motorola and NEC to HHR’s production capabilities, andthe future for the Technology Division already looks assured.

The Technology Division boasts a closely integrated supplychain that enables the company to manufacture innovativeproducts from conception to completion.

The story often begins in one of the handful of world-classR&D houses and university institutes dotted around countriessuch as the US, Japan and Israel. HHR has establishedpartnerships with a number of these organisations, enabling thecompany to provide valuable support for the initial developmentof the product prototype.

“It’s not unusual for a designer to approach a tele-communications business with a great idea, only for him to thenbe sent to us,” says Deputy Chairman Lewis Luk. “Thesecompanies need something they can sell, not just ideas. Wedevelop ideas on behalf of designers and turn them into actualconsumer products.”

SHAPING THE FUTURE

certification. Mr Luk, however, sees this certification as a mere prerequisite to the more advanced Total QualityManagement model used by thecompany and sponsored by the HongKong Government.The company is alsoworking towards full internationalaccreditation for its laboratories.

HHR’s management standards andcapabilities are the envy of manymanufacturers and it is one of the few

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

technologies - along with a range ofadvanced factory software.

The 6-Sigma system is one suchtechnique, ensuring that the product andcomponent defect rates always approachzero.Another is the Enterprise ResourcePlanning system, which integrates HHRand customer inventory control, reducingrisk for all parties. Traditional qualitycontrol practices are also strictly followed,with all HHR factories holding ISO9000

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Once the prototype has been developed, HHR can call onHutchison’s global capabilities to source the ideal customer andmarket the product effectively. The product is thenmanufactured at the Technology Division’s state-of-the-artGuangzhou manufacturing facility, enabling the customer to takeadvantage of HHR’s efficiency, productivity and economies ofscale, which translates into cost savings for both the customerand the end consumer.

As a new entrant to the market, the Technology Divisionengaged in a major business development drive during 2002.The company has formed alliances with technology partners tofurther upgrade design capabilities. It has also embarked on apolicy of making select acquisitions to speed up growth,beginning with a 65% shareholding of games controlmanufacturer Try Electronics Japan Ltd., which was acquired inthe fourth quarter of 2002.

With it’s proven “one-stop services” capabilities, theTechnology Division has already entered into MOUs withseveral leading companies.These include deals to co-operate onR&D, manufacturing and marketing of Bluetooth-enabledmobile phone accessories, game controllers, computer

accessories and other related products. In several cases,purchase of goods agreements and equipment supplyagreements are already in place with blue chip customers,including Motorola and NEC.

It is not external customers alone who benefit from HHR’stechnological expertise but also Hutchison Group companies.With HWL’s widespread retailing interests under the A.S.Watson Group (ASW), HHR is extremely well positioned todevelop and manufacture products for ASW’s extensive globalnetwork of health & beauty chains, supermarkets and consumerelectronics stores.

Furthermore, Hutchison 3G is expected to be a majorcustomer as it launches its new services and products under the3 brand. Many of the products in development are beingdesigned specifically for 3G handsets and devices, and promisesignificant synergies for the Group’s global mobile multimediacommunications arm.

As a company that precisely marries the benefits of advancedtechnology, manufacturing expertise and global connectivity,HHR’s Technology Division looks set to prosper in theinformation age.

companies that holds a covetedManagement Award in the “PeopleDevelopment and Management”category from the Asian Institute ofManagement.

Hutchison’s management expertisehas created a win-win playing field forboth companies, Mr Lai believes. “Youneed investment in people to expand thecompany. We have put our Hutchisonsystem and culture in place, enablingHHR to grow its business in the global

marketplace.”A restlessness to succeed is readily

apparent at the company’s Hong Kongoffices as well at its southern Chinamanufacturing facilities, which employsome 20,000 workers.

The energised attitude seems morein keeping with a new market entrantthan a 20-year industry veteran.Even during the slow season, thecompany is anything but idle, sendingsenior management – most of whom are

southern China-based specialists inmanufacturing, R&D and engineering –to other facilities to conduct com-prehensive benchmarking exercises.

As a result,“we have a track record ofattracting the best and brightest staff,” saysMr Luk.

OPPORTUNITY KNOCKSIt all adds up to a company that is poisedto benefit from the numerousopportunities available in China’s post-WTO marketplace. HHR has alreadybegun to see the rewards of the Group’sblue-chip global profile, inking deals withseveral major players. If all goes accordingto the game-plan, the toy and technologyoperations should make an equalcontribution to turnover within fiveyears, and HHR should become a majorglobal manufacturing player within tenyears, not just in the toy business but inconsumer electronics as well.

“The opportunities for HHR arehuge, as it evolves from an OEMmanufacturer into an ODM one,” notesMs Chan. “Our management is veryinvolved in the company’s progress.”

As HHR continues to develop into aglobal behind-the-scenes powerhousemanufacturing brand name toys andelectronics, it is in the shopping mallswhere its ultimate success will be realised.

“In terms of product development,”says Ms Chan, “it’s the consumers whoreally give us the cues and show us the way.”

R E T A I L

In her capacity as sales manager fora large manufacturer in MainlandChina, Flora Chan Pui-wai travelsextensively around the region.

Whenever she visits Hong Kong’s ChekLap Kok airport she makes sure she hasplenty of time to spare for shopping ather favourite stores. “I am a cosmeticsjunkie,” she admits, “and there’s alwayssomething new at the airport.They havea great selection, including special travelpacks and one-offs that just aren’tavailable anywhere else.” Flora is such agood customer that many of the sales staffknow her by name.

Flora is not alone in her spendinghabits. Travel retailing has becomeincreasingly big business. According tothe Hong Kong Airport Authority’sannual report, the organisation receivedalmost HK$1.82 billion (about US$233million) in revenue from its shoppingcomplex and other commercial premisesin 2001, second only to the HK$2.27billion generated by aircraft landing fees,parking and other charges. The bulk ofthis income was generated from airportretailers who have concessions from theauthority to operate shops, restaurants,bars and other facilities in the airport’sSkyMart retail zones.

“After four years of operation, HongKong SkyMart is clearly identified as acomfortable alternative to downtownretail,” says Christina Cheng, GroupManager for marketing and businessdevelopment at the Hong Kong AirportAuthority. “In fact, the scale of SkyMartmakes it a destination in itself: we have

150 outlets, of which 80% are retail and20% catering, housed in over 32,000square metres.”

At the vanguard of this developmentis Nuance-Watson, a joint venturebetween the A.S. Watson Group (ASW)and the Nuance Group, the world’slargest airport retail company with over400 stores in 55 airports around theglobe. Nuance-Watson, which is thelargest retailer within the Hong KongInternational Airport (HKIA), beganoperations in 1998 and expanded intoSingapore’s Changi Airport in 2001,when it was awarded the Perfume andCosmetics concession for Terminal 2.

“The Nuance Group is at the veryheart of the business,” explains AlessandraPiovesana, Managing Director ofNuance-Watson’s New Horizons DutyFree. “With their deep knowledge andunderstanding of the industry around the world, they keep us abreast ofdevelopments and help us with contactsfor our selection of brands. ASW, on theother hand, is invaluable for its strengthof organisation, its vision of developmentand business strategy. ASW is a well-known and very established retailer inAsia, and its proximity is a greatadvantage.”

Currently, Nuance-Watson (HK)operates 27 retail stores in Hong Kong,occupying 40,000 square feet of retailspace and employing over 500 people.AtChek Lap Kok, Nuance-Watson’s NewHorizons Duty Free has a market shareof about 45% and currently holds two ofthe three main “anchor” concessions –

FREQUENTBUYERS

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

By Vivien Jones

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General Merchandise and Perfumes &Cosmetics (the other being Liquor &Tobacco). It also operates brand storessuch as Hermes, John Lobb, Bvlgari,Bally and Fortress, along with outpostsfor Biotherm, Shu Uemura, Samsoniteand Hedgren. Other brand names inthe New Horizons Duty Free stableinclude Rolex, Omega, Cartier,Montblanc, Hugo Boss, ErmenegildoZegna, Shanghai Tang, Sony, Godiva,Timberland and Dunhill, to name justa few.

In Singapore, Nuance-Watsoncurrently operates 14 stores, whichoccupy approximately 22,000 square feetand employ over 290 people.These storesare all under the Perfumes & Cosmeticsconcession and include Giorgio Armaniand Mac concepts.

DISTINCTIVE MERCHANDISINGThe growing success of Nuance-Watsonin the Asian travel retail market lies inpart with its distinctive merchandisingstrategy. Eschewing the traditional“department store” approach, whichoffers a variety of miscellaneous goodsunder one roof, New Horizons Duty

Free segments its products according tocategory, giving each store a unique andsingular identity. International luxurybrands are found in The Atrium,contemporary fashion is located in theLabels store, electronics in Sound &Vision, and so on (see sidebar, below).

“In general, most big brands sell wellin an airport retail environment,” saysOperations Manager, Clarice Au, “andthere are items such as luggage andaccessories that obviously have a highsensitivity and appeal. Destination foodand souvenirs are also a specialisedsegment. In travel retailing you have toanticipate the specific requirements of the

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YOU COULD, IN THEORY, ARRIVE ATHong Kong International Airport(HKIA) with little more than a

passport, ticket, credit card and some time tospare – for once you’re past immigration you’llfind yourself in a world of retail opportunitiesthat rivals the city’s most enticing shoppingmalls.

The SkyMart shopping complex offers ahuge variety of stores which all are committedto serving you, the traveller.

So, without further ado, grab a shoppingtrolley and hit the retail trail.

To start, pick up all the gear you need foryour about-to-begin tropical adventure from Labels, where youcan kit yourself out in latest fashions from brands like Calvin Kleinand Esprit.

With the basics taken care of, aim for TheAtrium where you can treat yourself tothat Cartier (or Rolex or Omega) watchyou’ve always wanted, or invest in a

Montblanc pen to add some style to yourpostcards. Then pick up some to-die-forluggage from Dunhill or Coach. And whileyou’re indulging in The Atrium’s elegantambience, why not succumb to the chocolatetemptations of Godiva? – Something to nibbleen route.

It’s going to be hot in paradise, so head forTemptation to stock up on sun cream andmoisturiser. With these indispensables in thebag, it’s time to select the perfect fragrance forthose warm tropical nights. Choose from avast range of branded perfumes – and don’t forget to stock up on those other

essential cosmetics.Now make a beeline to Sound & Vision whose friendly staff

will advise on which of the latest digital cameras is best for you.Finally, don’t forget the gifts. Kowloon Trading does a fantastic

line in souvenirs that will delight your hosts and give the folksback home the impression you were thinking of them all along.

Bon voyage!

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travelling customer: products that arelight and easy to carry are obviouslymore appropriate.All-in-one travel packssell well, as do multi-packs, gift sets anditems with destination features.”

The key to successful travel retailing,she says, is sourcing a wide selection ofproducts and offering customersexclusive international brands at a rangeof price points. Duty free does notnecessarily mean cheaper, particularly ifthere is no duty in the first place, as is thecase in the free port of Hong Kong.

“Many times we cannot competewith downtown stores on price” says Au,“but we can offer the customerexceptional service, in-depth productknowledge and limited edition productsfound only in the travel retail sector.”

Sales staff who speak severallanguages, most importantly English,Mandarin and Japanese, are also essentialto the international operation.

Since 1998, Nuance-Watson’scommitment to service has garnerednine awards from the Hong Kong RetailManagement Association, including the

“Service & Courtesy Award” for fouryears running. It has won a similarnumber of prestigious Raven FoxAwards, including “Best Fragrances &Cosmetics Travel Retailer”, “BestFashion, Leathergoods & AccessoriesTravel Retailer”, “Best Food &Confectionery Travel Retailer inAsia/Pacific”, and the much-coveted

“Best Travel Retailer in Asia/Pacific2002.”

This success has been reflected on alarger scale by that of HKIA, which hasbeen voted “Airport of the Year” for twoyears running (2001, 2002) in pollsconducted by Skytrax Research. In 2001,more than 32 million passengers passedthrough HKIA, armed with credit cards,leftover cash and plenty of time to kill(on average, more than four hours fortransiting passengers, just under twohours for departing passengers).

THE SKY’S THE LIMITFurther modifications to existing facilitiesmean that the airport will be able tohandle 61 million passengers a year by2010, while its final design capacity (dueto be reached in 2020) is a staggering 87million passengers. With the continueddevelopment of HKIA as a regional hub,the transit/transfer passenger market(currently about a third of total passengertraffic) provides particularly attractiveopportunities for retail and catering.

The appeal of Hong Kong as a hub

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for China and the region lies mainly inthe convenient access it provides toflights and destinations around the world.At present, 90 international destinationsare served from Hong Kong, givingglobal access to passengers arriving froma further 42 airports in Mainland China.Half the world’s population are withinfive hours’ flying time of Hong Kong – ahuge potential market for the HKIA and,by extension, for Nuance-Watson, whichis currently in the process of tendering forfurther concessions.

Those passengers span the socialspectrum, from businessmen to studentsto young families and retirees. Departingpassengers, not surprisingly, spend morethan those coming into Hong Kong, andmen account for a whopping 70% oftransactions.

Clarice Au says the majority of salesare made to business people, many ofwhom are regular shoppers, like FloraChan, using Hong Kong as a hub.“Priceis not a big consideration for them,” sheexplains,“but time is.”

According to Alessandra Piovesana,nearly a quarter of departing visitorsbought something in a New HorizonsDuty Free store in 2002. Taiwaneseshoppers, who account for 21% of NewHorizons Duty Free sales, like to buyRolex watches, Montblanc pens,Lancôme and Estee Lauder cosmetics,handbags from Ferragamo and Cartier,and Sony electronics, while mainlandChinese (10% of sales) choose Rolex andPiaget watches, Christian Dior fashionsand Bally shoes.The Japanese – once the

world’s most dedicated duty-free shoppers– now account for 17% of sales, buyingGodiva and Peninsula chocolates alongwith Hermes and Bvlgari luxury goods.Making up the difference are Americanand European customers (23%), SoutheastAsians, Koreans and other nationalities.

“What [customers] buy depends onthe strengths and awareness of these

brands in their respective local marketsand the brand’s perception,” Piovesanaexplains.

While the Asian crisis of 1998 put anunmistakable dent in retail revenues, therisk-diversified nature of the business,with its wide base of internationalcustomers, meant that Nuance-Watsoncould react quickly to soften the blow.Theevents of September 11, however, had animmediate impact. “9-11 seriously hurtour business,” concedes Piovesana,“but as

“We can offer thecustomer exceptional

service, in-depthproduct knowledge and limited editionproducts found only

in the travel retail sector.”

time goes by, people are rebuilding theirconfidence in travelling again. Securitylevels have been upgraded at HKIA,which means people have less time toshop, although some highly motivatedshoppers, particularly the Taiwanese andJapanese, will make allowances and arriveat the airport earlier.”

Weathering these crises through its initiative and responsiveness tochanging market demands, Nuance-Watson enjoyed good sales growth in2002, and plans for further growth areunderway. The expansion of SkyMart’sEast Hall, the principal airside retail areaserving all passengers, will almost doublethe retail space available. On Level 7, itwill increase from a current 4,800 squaremetres to 6,800 square metres while Level6 will more than double from 3,500 to8,300 square metres.This new space willoffer around 25 additional retail stores.The configuration of the area is alsobeing redesigned to improve the flow ofpassengers and shoppers through the area– escalators are being realigned andcorridors widened.

Nuance-Watson is poised for its pieceof the pie:“Most importantly, we want towin market share for our business inHKIA,” says Piovesana. “It is a hugeairport, the hub of Asia, and our firstobjective is to be outstanding here.”Beyond Hong Kong, the Group islooking to other airport opportunities in Asia. “China is a matter of when andhow,” says Piovesana,“not if.”

For Asia’s leading travel retailer, thingsare just beginning to take off.