Reluctant partners

Hising costs and the imminent ending of trade privileges mean that acau's traditional manufacturing industries of textiles, garments, toys and footwear are in sharp decline. Services are unlikely to be able to fill the gap in the short run as more than 20 per cent of the working population are still employed in manufacturing.

The authorities are seeking to attract medium- and high-technology foreign investment as well as upgrading existing enterprises. But with land and labour costs being lower over the border in Guangdong province, it remains an uphill struggle.

Macau's massive investment in trans-port and other infrastructure projects will aid its integration into the booming Pearl River region. Infrastructure investment helped to boost GDP growth to 13.4 per cent in 1992, although growth is now well under five per cent, with negativegrowth figures recorded for 1996. The big question is whether the new infra-structure showpieces will become white elephants, especially in view of the degree of duplication of facilities with neighbouring Zhuhai.

Concordia park

Exports of goods from Macau, which grew at an average annual rate of more than 10 per cent between 1982 and 1994, declined by 2.2 per cent in 1996, dipping below the US$2bn mark. While exports staged a recovery in 1997, growing 12 per cent in the first eight months, the story in most sectors is still of manufacturers relocating across the border into China. On the mainland overheads are lower, while Macau retains a certain amount of re-export trade. To fight this trend, Macau is attempting to attract foreign investment in higher-technology industries and to shift its attention towards product design and marketing of Chinese-made goods.

Macau's biggest industrial investment zone is the 12 hectares of industrial space in the Concordia park built on reclaimed land off Coloane island.

In addition some 35 per cent of the park has bee allocated to green space. The pace of investment has been slow since the infra-structure was completed in mid-1996, although by the autumn of 1997 some six contracts involving a total investment of US$146m had been finalised.

Among the larger investments is by Boseki of Japan ?one of the world's five largest fibreglass producers. Trial operations at its joint venture plan{ began in August 1997. Another recen contract came from the Chinese main- { land firm Tsin-Ip Household Electrical Appliance Industry. It plans to produce electric fans ?90 per cent of the output will be targeted at European markets. A Macau firm is also planning an upgraded garment factory in the park as well as investigating the possibility of integrating an electronics equipment and appliances manufacturing plant.

The level of investment is not large by the standards of the region ?neighbouring Zhuhai had more than 4,500 foreign invested companies by the end of 1995 compared with just 77 in Macau ?but it is still highly significant in terms of the local economy. There is even talk of building another industrial park.

While the general strategy is to attract hi h value-added manufacturing, some t sects of low-cost manufacturing are incorporated in the investment package being offered to investors. The monthly price of land in the park is, for instance, only US$1.88 per square metre, which is lower than equivalent areas in Zhuhai despite a recent price cut in the special economic zone.

The fact that Macau has positioned itself to compete with Zhuhai on one n'pect of manufacturing overheads is a Election of the difficulties that Macau faces in its industrial strategy. Deficiencies in the local skill base mean that the enclave is sometimes unable to absorb the type of high-technology investment that it seeks to attract.

The importance of quality

Upgrading skills was one of the reasons behind the recent establishment of the i. 'acau Productivity and Technology
ansfer Centre, whose Portuguese name Centro de Produtividade Transferencia de Tecnologia de Macau (CPTTM). Dr Eric Yeung, chairman of CPTTM, believes that the need for its existence springs directly out of its members' interests and that it is far less government-driven than similar productivitv organisations in regions such as Hong Kong and Taiwan.

Cut-rate calling

Call-back providers offer international telephone calls at greatly Making an international call from China is an expensive business. In a recently published survey by the Economist Intelligence Unit, the combined peak-time cost of three three-minute calls from Shanghai to London, New York and Tokyo came to US$20.44 ?higher than for any of the other 26 world-wide cities analysed in the survey. The explanation for the high rates is China's heavily protected telecoms sector.

International telecommunications is full of contradictions. While the World Trade Organisation preaches free-market liberalisation, many governments view state-owned telecoms operators as cash cows, charging what they like for inter-national connections.

Through resale, new carriers in liberalised countries such as the US can sell international calls at discounts because they do not have the same type of over-heads as state telecoms operators. Over recent years, many alternative calling procedures have sprung up, including Internet' Telephony, call turnaround and call-through. Perhaps the most popular is call-back, which has recorded a 10-fold growth in traffic between 1993 and 1996, according to the International Telecommunication Union (ITU).

Exporting dialtone

"The call-back industry has grown from a cottage industry into a US$3bn-3.5bn business," says Mr Matt Jarvis, International Marketing Director of California-based Justice Technology, which has been in business for four years. Call-back started as a niche market, offering what was perceived to be a short-term opportunity for small, flexible telecoms providers. However, it has grown into a big business which even the large US operators such as AT&T can no longer afford to ignore.

Call-back involves calls being re-routed via countries where international tariffs are low. Many go via the US, which has the most liberal of telecoms regimes and offers the world's lowest international rates. This is done by exporting dial-tone from the cheaper country ?customers dial a number in the US and hang up after a certain number of rings. They then receive a call from the US dialled by a computer and all they have to do is dial the overseas number of their choice.

For the individual user, there is a significant cost advantage to call-back. An overseas executive travelling in China can call home at a fraction of the rate charged by China Telecom, which is run by the Ministry of Posts and Telecommunications(MPT). Callers can, of course, get round the problem by reversing the charges or asking family or colleagues to call-back ?if the recipient is happy to pick up the tab.

The greatest discounts are offered to developing countries with highly protected telecoms regimes. For a one-minute call from China, Justice Technology charges a rate of US$1.10 to the US, US$1.15 to the UK and US$1.27 to Singapore. Jarvis says his company can offer savings upwards of 50-70 per cent.

With such potential savings to be made, it is not surprising that some countries and their telecoms operators are concerned. Research organisation Ovum predicts that the Asian region will produce the world's highest revenues over the next decade. The ITU estimated the size of the Asian call-back market at 265m minutes in 1995 ?or about one-third of the worldwide total ?but the figure has grown significantly since then, especially in India and Hong Kong. It is further estimated that in 1995 .call-back accounted for about one per cent of all telephone traffic and four per cent of US international outgoing traffic.

Ovum forecasts that the market for international resale, including call-back, will reach US$31 bn by 2005, nearly 10 times its US$3.3bn in 1996. According to its figures, Hong Kong's traffic flows with the US have gone in under a year from parity to a position where the SAR receives four times as many incoming calls from the US as it has outgoing. Hong Kong Telecom has reacted vigorously with lower prices, especially on routes where call-back is popular.

The MPT has also responded to the challenge. "China Telecom has already started to reduce its international call rates and to improve its services," says Ms Brenda Yang of the China-based telecoms consultancy BD Associates. On December 1, 1996 international and long-distance calls were reduced by 30 per cent. Before this adjustment, a one-minute call to the US cost Yn26.25; after the adjustment it cost Yn18.4, and Yn14.7 during national holidays. Long-distanceand DDD calls to Hong Kong and Macau were reduced by a further 30 per cent on July 1, 1997.

China's MPT has banned call-back. Nine different types of call-back have been identified by the ITU, two of which it classifies as fraudulent. However, the majority are deemed legitimate and the ITU actually supports the concept since it helps to promote its objective of offering services at lowest costs. The Federal Communications Commission, the US governing body for telecoms, is also generally supportive of call-back, as is the WTO.

As of November 1997, China was one of 79 countries and territories which had announced the prohibition of incoming and outgoing call-back from their territories. The list comprises mostly developing countries but also includes EU members such as Spain and Portugal.

Legal action

So far, however, China has made only general pronouncements of illegality and has not gone as far as long-distance telecoms operators in the Philippines and South Africa, which have taken legal action against specific call-back service providers. "It is legally possible for countries to ban call-back, but difficult for them to enforce it," says Dr Tim Kelly of the ITU's strategic planning unit. "It is also technologically possible for opera-tors to block call-back numbers, but these blocks are easily circumvented."

China's announcements do, however, prevent service providers from advertising in China and also make them circumspect about signing agents to tout for business. Circumspection means too that few will admit to China being an important market. Justice claims to be carrying only a small amount of traffic, while a representative of GlobeNet says it has no agent in China and therefore conducts no business there. For Primecall, Mr Christian Olander says: "We haven't done a whole lot of business in China ?we have a few retail. customers signed up with us." However, the company is currently evaluating Chinese partners with a view to setting up a joint venture. Another call-back specialist CTI (Hong Kong) says it does provide a Hong Kong to China service, although it refuses to divulge statistics.

Ovum predicts that, as more countries deregulate, the call-back operators will be replaced by new resellers using more conventional methods. It estimates that the global call-back market will peak in 1999 and contract rapidly thereafter. But in countries where liberalisation is being resisted, including China, call-back is likely to remain in demand.