Operational Review. Overview. Support to the Export Sector

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1 With strong and reliable foundation, ECIC provides exporters with powerful supports and is committed to assuming credit risks for the industry so that enterprises can grow and flourish. Protecting Interest

2 Operational Review Overview Following its recovery in the second half of 2003, the global economy grew strongly in Of the major world economies, the US economy performed well, stimulated by economic measures implemented for the presidential election year, while the EU and Japanese economies recovered more gradually. China maintained its strong growth momentum despite the Government s implementation of macroeconomic control measures to cool down overheated industries. With strong economic performances and positive consumer sentiment across most major markets, the expansion of international trade exceeded the expectations of many analysts, and demand for Hong Kong products increased accordingly. Despite opportunities for business expansion arising from this strong global economic growth, for many exporters the trading environment remained challenging. The surge in oil prices increased their operating costs and materials costs and adversely affected their profitability, as did increased competition from other suppliers in the region During the year, the Corporation continued in its efforts to enhance exporters awareness of credit risks, and to provide professional credit management services which would help exporters trade prudently in the process of business expansion. Support to the Export Sector The global economic recovery fuelled strong growth in Hong Kong s total exports in 2004, a momentum which was maintained in the first quarter of 2005 due to increased trading opportunities. However, exporters faced new challenges in the form of intensified competition from

3 other suppliers in the region, and significant increases in oil prices and raw material costs. To retain customers and capture new business, many exporters had to both keep their prices low and offer flexible payment terms to buyers. These measures simultaneously reduced exporters profit margins and increased their credit risks, and as a result increasing numbers of exporters sought out cost-effective tools to protect their trade receivables. In response, the Corporation stepped up promotion of its cover facilities and extended its support to exporters by providing credit management services. Besides organising over 40 exporter seminars in , the Corporation held 22 policyholder seminars during the year to strengthen its policyholders understanding of the cover provided by the Corporation, and to help them further improve their risk and policy management. Small and Medium Enterprises (SMEs) Most Hong Kong exporters are SMEs, and the Corporation has long demonstrated a special dedication to supporting them and providing them with credit management services. During the year, the Corporation participated in the World SME Expo, where it offered information and consultancy services. It also held a number of seminars on credit management at major trade shows, specifically targeting SMEs. In , the Corporation successfully acquired 519 new policyholders, about 95% of which were SMEs. The statistics confirm that SME exporters are becoming increasingly aware of the importance of credit management and risk protection %

4 Operational Review EC-link EC-link is an electronic platform that allows exporters to communicate with the Corporation anytime, anywhere. Almost all applications for cover are now being submitted through EC-link. The platform also serves as a costeffective tool with which policyholders can manage their policies and submit applications for credit checking on buyers. As at the end of March 2005, 90% of policyholders were actively utilising the EC-link platform. During the year, the Corporation intensively promoted the EC-link brand name through seminars and advertising campaigns, in the process strengthening the image of EC-link as a total solutions platform for exporters seeking credit risk management services. The Corporation also carried out enhancements to EC-link over the year to improve its efficiency % Export Financing Many exporters use the trade finance features of the Corporation s cover to facilitate their business growth. The Corporation enhanced its cooperation with banks to support exporters during the year, for example by organising seminars and meetings with bank management to promote the value of the Corporation s cover and to boost cooperation. Apart from the common Letter of Authority arrangement by which exporters assign benefits under their cover to banks, the Corporation also provided banks with its Export Finance Insurance Policy (EFIP). Banks taking out the EFIP obtain protection from the Corporation on the exports they financed

5 Cover for Service Sectors As a result of intensive promotion of the Corporation s cover facilities to the service sectors, and increasing business opportunities under CEPA I & II, more service providers sought cover from the Corporation during the year and larger numbers of service policies were taken out. In response to demand from specific service sectors, the Corporation launched new tailor-made polices for testing and inspection services and for construction professional services in The increased demand for cover and the launch of new service policies brought the Corporation additional insured business. Total insured business from the service sectors increased by 40.4% over the year, with freight forwarding services growing by 27.4% and hotel services by 69.5%. CEPA III %27.4% 69.5% CEPA and 9+2 Agreement In , the Corporation continued with its sustained efforts to promote services in relation to CEPA using advertising campaigns and by getting involved in cooperation with various trade associations and professional bodies in Hong Kong and the Mainland. With CEPA widely expected to bring more opportunities to the service sectors than the manufacturing industries, the Corporation channelled extra resources into exploring ways of assisting the service sectors. It identified service sectors where demand for cover was strongest and established contact with relevant trade associations, organising seminars on credit management and export credit insurance for association members. CEPA CEPA CEPA

6 Operational Review To help exporters capture new business opportunities under the 9+2 Agreement, the Corporation identified key cities in the region and made contact with trade support departments and associations there. Market information was collected and shared with exporters. At the same time, the Corporation organised joint activities with local trade associations to promote its services. Risk Assessment and Monitoring The global economy continued its growth momentum into 2004, and exporters were keen to grasp opportunities for business expansion. However, a surge of oil prices to record high levels increased exporters operating costs and materials costs. Facing keen competition, many exporters were unable to negotiate price increases with buyers that would cover their increased costs, and their profit margins were squeezed. Some exporters, in particular SMEs, even suffered losses because of their commitment to executing confirmed orders, and became reluctant to accept new orders for fear of further losses. The Corporation continued to provide free credit investigation and professional credit management services to exporters to help them assess the credit standing of overseas buyers and expand business prudently. During the year, the Corporation received over 18,300 credit limit applications from exporters ,

7 The Corporation continued to expand its credit information network, adding effective new information sources in China and the Scandinavian countries. The Corporation rolled out its internet-based platform EC-link Credit Agency System to all its credit agencies, having achieved satisfactory results from the system s earlier pilot run. The Corporation can use the system to make credit report inquiries to credit agencies and to receive credit reports back from them. The system has not only shortened the whole credit information acquisition process time, it has also improved lines of communication and enabled the Corporation and its credit agencies to manage the credit report acquisition process more effectively. The Corporation also developed a new underwriting system called the Credit Limit Application Processing System. The system enables underwriting information to be provided immediately in electronic format on a single platform, which underwriters can then use to process credit limit applications. The system uses a step-by-step standardised structure designed to help underwriters make more consistent and objective credit decisions. Claims and Recoveries Overseas market conditions were generally in good shape in 2004, though occasionally troubled by surges in oil prices and rising interest rates. Corporate failures in major overseas markets declined. Helped by improved trading conditions and the Corporation s credit management support, the number of payment difficulty cases reported in remained low. Despite the inexperience of some policyholders in handling payment problems from overseas buyers, the Corporation s expertise and worldwide debt collection network successfully helped many of them minimise losses. As a result, 31.1% of payment difficulty cases were resolved without turning into claims %

8 Operational Review An effective debt collection network was vital to the successful recovery work undertaken in The Corporation continued to strengthen its worldwide debt collection network, reviewing the services of its debt collectors in major markets and identifying new costeffective debt collectors. The Corporation has accumulated a wealth of experience in resolving and recovering debts from defaulting buyers over the last few years. Many exporters approached the Corporation and asked it to share this experience with them. Working closely with trade support bodies and associations, the Corporation conducted intensive seminars on loss minimisation and debt recovery. Claims statistics are important to an insurance company. To help the Corporation s management monitor claims performance more effectively, a new claims statistics system was launched in November The new system provides a user-friendly platform for the fast compilation of reports, and one that requires minimal manpower levels. E-Commerce To make sure customers fully benefit from IT resources, the Corporation has continued to be actively involved in e-commerce development. During the year, a new online backup system for the Corporation s web platform, EC-link, was implemented. This improved the EC-link service so that exporters can now operate round the clock to administer policy matters via the internet. The security of the system was also strengthened. Firewalls were upgraded and new security devices were added to safeguard the Corporation s network against malicious internet activity

9 To work towards its goal of becoming a paperless office, the Corporation continued to devote resources for transforming paper documents into electronic forms and storing all information and documentation electronically. During the year, the Corporation implemented a new electronic document capturing system and upgraded its fax system. The Corporation launched a new credit limit application processing system in September The new system allows underwriting information to be provided immediately in electronic format on a single platform, helping to speed up the processing of credit limit applications. Human Resources The Corporation believes that its pool of human resources is its single most valuable asset, and that training is essential to improve staff productivity. Over the year the Corporation provided staff with training opportunities from time to time, which included workshops and courses arranged to help them expand their professional knowledge and prepare them for wider duties in the future. Some staff were also sent overseas to attend workshops or training courses organised by other export credit agencies and by the Berne Union. The goal was to help them keep pace with international trading practices and exchange views with other practitioners in the industry. The Corporation followed the Government s salary reductions on 1 January Annual salary increments were largely frozen and only staff turning in outstanding performances were awarded increases