Strategic alternatives for electric utility industry in Hong Kong facing the threat of deregulation

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Strategic alternatives for electric utility industry in Hong Kong facing the threat of deregulation


Author: Ho, Wai-ching
Title: Strategic alternatives for electric utility industry in Hong Kong facing the threat of deregulation
Degree: M.B.A.
Year: 1997
Subject: Electric utilities -- China -- Hong Kong -- Planning
Electric utilities -- China -- Hong Kong -- Deregulation
Hong Kong Polytechnic University -- Dissertations
Department: Dept. of Management
Pages: iii, 103, 10 leaves : ill. ; 30 cm
Language: English
InnoPac Record:
Abstract: In Hong Kong, most of the public utilities are run by private investors. This industry usually requires a large capital investment for the economies of scale in production and distribution. The environment is characterized by "natural monopoly" without much competition. This makes it necessary, in the interest of the public, for the Government to establish certain guidelines under which the companies will operate as they are providing the essential services. For example, telecommunication, electricity, public transportation, etc. Government have managed the utilities through franchises and Scheme of Control Agreement. This can be considered as a reasonable compromise between a monopoly and benefits of competition and commercial approach. By such an arrangement, they can enjoy the permitted return, under the Scheme of Control, as a reward for their long term investment of large capital. Deregulation of public utility industry has been a world wide trend. Various economic, technological, and political factors have motivated liberalization or deregulation. Hong Kong Government has opened its local telecommunications for free competition in July 1995 and taken over some of the bus routes from China Motors Bus to Citybus in order to provide an economical and good quality of services to the public. However, competition will also drive down the profitability of the existing utility players. It is expected that public utilities in Hong Kong will face more competition in 21 century. In this MBA project, I have focused my study on the electric utility industry in Hong Kong if Government also opens the market for competition. It is the intent of this project to recommend the feasible strategic directions for the electric utility to go ahead to meet the challenge of deregulation and competition. Throughout the study, the Scheme of Control was reviewed. Data were obtained through content analysis and unstructured interview and close industrial connection of the writer. The largest power utility company in Hong Kong was selected for the purpose of study. Study results show that the Scheme of Control Agreement provides a fair and highly effective mechanism for balancing the interests of the customers and shareholder of the electric utility industry in the growing stage of the local economy or relatively stable business environment. The changing nature of the Hong Kong economy and political environment has made the electric utility industry more complex to manage and develop in order to maintain the long term interests of all the stakeholders. To tackle the threat of deregulation and competition by the new entrants, the electric utility should change to be more competitive in business environment. It is concluded that the electric utility strategy is to concentrate on its core electric utility business, but at the same time, explore the business opportunities on the electricity-related business outside the scope of Scheme of Control in Hong Kong and Asian countries where it is familiar with to minimize the potential impact. Detailed analysis is depicted in this report on how to capitalize the company's strengths and minimize its weaknesses in deriving the feasible strategic options and developing the business opportunities.

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