"The newest innovations, which we label information technologies, have begun to alter the manner in which we do business and create value, often in ways not readily foreseeable even five years ago."

– Alan Greenspan, Chairman, Federal Reserve Board, May 6, 1999

INTRODUCTION

It is a great privilege for me to appear at this forum before such a distinguished group of leaders and agents for change in the Pacific Region. The common goal of every person and organization in this room is to improve the lives of the constituents and communities we serve. Our jobs are unique in that we advise and consult with people on doing business – when in truth many of us have never managed and never operated a for-profit business of our own. As one of my more cynical friends put it, "We are auto mechanics, who don't know how to drive."

The unique niche we fill, and the value we add to the process of doing business is realized when we create better environments for doing business or on those rare occasions when we can teach something new to the experts we serve. I will never be able to tell Hilo Hattie's how to make a better aloha shirt. But, I may be able to teach them about new lower tariffs for apparel in Australia, or introduce them to a new, eager retailer from Fiji.

I know the work we do can make a difference. Adapting my friend's analogy – perhaps a more apt way to define ourselves is to say that we are the pit crew for a high performance Indy racecar. While it may be true that we never pilot the cars we service – we are instrumental components in the overall success or failure in each race.

It is appropriate that we are here in Maui, home of the Pacific Disaster Center and the international tsunami warning system. For indeed, there are very rough and turbulent forces lashing the core of our communities in the Pacific islands. Each of our economies is suffering from severe economic erosion as a result of recent changes in the global economy. What are origins of these economic storms that we are enduring? How long will they last? Can we curtail them? Or, are they simply beyond our control?

I would contend that the storms that cloud our economic skies are not the soon-to-pass cloudburst variety that we can simply duck and ignore. The stamina of these storms and their protracted presence on our shores is evidence that they will not simply blow away with the trade winds.

I believe that these storms are the aftershocks and warning volleys of permanent and fundamental changes in the way the world does business. It may sound trite – but the world is getting smaller every day. And as the world gets smaller, it becomes easier, faster and cheaper to move goods, ideas, money, and people around our shrinking planet.

EMERGING NEW ECONOMY

At first glance, it would appear that we are ideally situated between the hungry giants of the American and Canadian economies – and the thriving factories of the Far East. In fact, despite exponential increases in exchanges between east and west – as a percentage of total shipments and total travelers – we in the Pacific islands are playing a smaller role than ever. As a percentage of total trans-Pacific activity, fewer cargo ships call on our ports, fewer voyagers rest on our beaches, and fewer corporations choose our islands as regional hubs and headquarters. Why? Because it doesn't makes business sense. Gone forever are the days of exotica in global commerce.

In the not-too-distant past of our own lives it was once a remarkable and mysterious thing to do international business. We can all remember the wavering echo of costly international phone calls, telex codes, wire telegrams, and international cables. The wire transfers, unknown agents and distributors, customs brokers, letters of credit, correspondent bank fees, foreign languages, unknown foods, complex and inconsistent trade regulations between countries, and long tedious weeks of voyage and lead-time were all part of the exotic equation of doing international business.

The Pacific islands played a productive role in those times. We were useful and convenient mediators of time and culture. We provided a physical and emotional bridge between East and West. In sum, it made sense to stop in the Pacific, or live in the Pacific to do business in the Far East.

But the world has changed. In a natural process of evolution, we have found new, faster and more efficient ways to do international business. Flying the polar route, it now takes less time to fly from Beijing to Detroit — than from Beijing to Honolulu. Due to efficiencies of volume – it costs less to ship a container from Tokyo to New York than from Tokyo to Hawaii. Ten years ago, who could have dreamed that more people who speak Chinese would live in Vancouver, Canada than in the State of Hawaii?

I suppose that every generation marvels at the changes they foster and embrace. We have witnessed some great changes in our lives: the jumbo jet made international travel faster and cheaper, satellite technology made global communication clear and affordable; fax machines and overnight delivery services set newer, higher standards of management efficiency and data transfer. From my perch as a relatively young consultant for businesses who are bridging the Pacific, I am awestruck by the pace of change I have seen over the past three years. Change that is being driven by digital technology and the Internet.

Last year, the U.S. Department of Commerce calculated that fully one-third of the growth in the U.S. economy was directly tied to information technologies. IT industries, while accounting for only about 8% of U.S. GDP, contributed on average 35% of the nation's real economic growth. Further, due to the ever declining prices of digital technology and the improved efficiencies they offer to business managers, the U.S. Department of Commerce credits information technology for single handedly lowering overall inflation in the U.S. economy by one percentage point in 1998.

By 2006, almost half of the U. S. workforce will be employed by industries that are either major producers or intensive users of information technology products and services. Innovation has increased demand for high paid, "core IT workers" (e.g., computer scientists, engineers), created new IT occupations, changed skill requirements for some non-IT occupations, and raised minimum skill requirements for many other jobs. Wage gaps between workers in IT industries and all other workers continue to widen.

These are trends that we in the Pacific islands must be aware of – and if we are to more fully participate in the new emerging global economy – we must embrace them.

Without misleading you, let me remind you that e-commerce is still relatively small compared to the rest of the economy. Last year, even though retail sales on the Internet tripled, they still accounted for much less than one percent of all retail trade in America. Business to business transactions are larger – four to five times larger, with equally large rates of growth. But even they are less than a percent of our $9 trillion economy.

Still, e-commerce's potential to change the way we work, shop, get our news, and conduct business is enormous. It is creating businesses that would not exist without it. It is creating whole new forms of businesses. And perhaps most relevant to our clients here in the Pacific islands — it is a phenomenon that can actual help to minimize the disadvantages of our small, and increasingly isolated, economies.

The Internet, by its nature, removes hurdles of distant locations. By creating a new cyber-space mall that is open every day, all day, regardless of time zones, the Internet provides unparalleled access to the world of consumers with complete disregard for the geographic isolation that has heretofore handicapped our business community. Rest assured that as the Internet and e-commerce grows traditional models of doing international business will melt away. Already consumers from Hohut Inner Mongolia can order their Kona coffee direct from the farms on the Big Island. Without even knowing how to place an international phone call, much less hire the services of a customs broker, international banker or freight forwarder, these consumers can have the coffee delivered directly to their homes in less than three days. No exotica required.

Since our islands have been relegated to smaller roles in the game of trans-Pacific trade, perhaps this new model is a positive development.

I suspect that everyone in this room understands the value of e-commerce and has read about this remarkable economic revolution that is sweeping our world. But, I would be remiss if I did not offer some evidence to you today.

Perhaps what is most remarkable is that e-commerce is redefining the power relationships between buyers and sellers. By using web-site catalogues and services, consumers are able to seek out and identify manufacturers directly and in the comfort of their own homes. The gatekeepers of distribution are losing their powerful toeholds on international markets. For virtually no incremental costs beyond setting up web sites, sellers can now access the world marketplace directly on their own. It is possible and increasingly popular for manufacturers to bypass traditional wholesalers, distributors, and retailers and go direct to the consumers. The benefits of this flatter, straighter distribution channel are obvious and include lower costs, faster turn-around and higher profits. For small and medium sized businesses like the ones who are most common in our islands, this is a remarkable tool that can level the playing field between Davids and Goliaths.

SLIDE 2: Growth Analysis

This chart shows Internet generated growth revenues from 1996 to 2002. This chart represents a sector of the global economy that is clearly rocketing with growth. I remind you that it is also a sector of the global economy that has no border or limitations on who can participate – no matter how far away or how small they may be. Let me share some statistics:

• An estimated $180 billion worth of revenue was generated over the Internet in 1999.

• By the year 2003, the amount of electronic commerce will top $1.3 trillion, with 183 million people buying on line.

• Non-U.S. users will account for 65% of the total Internet population.

SLIDE 3: Trends in E-Commerce, The Small Business Environment

This evidence is impressive:

• Dell Computers' online sales more than doubled during 1998, rising to more than $14 million per day, and accounts for 25% of the company's total revenues. During the quarter ended April 30, 1999, online sales rose further to an average of $18 million per day and now account for 30% of the company's $5.5 billion first quarter revenues. Dell expects this percentage to increase to 50 percent by 2000.[11]

• During first quarter of 1999, Travelocity.com had gross sales of more than $128 million, a 156% increase over the same period last year, and registered 1.2 million new members.[12]

• Users of Quicken Mortgage, Intuit's online mortgage provider, arranged for $400 million in loans in the first three months of 1999 compared to $600 million in mortgage loans for all of 1998.[13]

• During the first quarter of 1999, according to Piper Jaffray, online brokerages broke their fourth quarter 1998 records by adding another 1.2 million accounts and $100 billion in new assets, and increasing the average number of daily trades by 49%.[14]

Usage & Access

Before closing, I would like to emphasize three points:

First, what does all of this mean for small businesses in the Pacific islands? For me, one of the most interesting aspects of the Internet is the fact that a mom-and-pop store in the Pacific can sell to the world just like a Fortune 100 can with a massive distribution system. Remember, names like Amazon.com, AOL, and Yahoo were all small businesses, if they were businesses at all, five years ago.

On the federal side, the U.S. Dept. of Commerce is working with the Small Business Administration, and DBEDT, and we have begun to mobilize resources to help small companies be a part of Internet growth. In the future, we will be reaching out to small retailers and manufacturers who do not use the Internet and information technologies as much as they should. It is my hope that forums like this will help us to shape our strategies.

Secondly, the issue of access is very important to me. For some years now, Commerce has looked at whether all parts of our society are participating in the digital economy or whether we are creating a digital divide. The numbers show there is not equal participation.

White households are more than twice as likely to own a computer than African-American or Hispanic households. There is a widening gap in computer ownership between those at upper and lower income levels and between urban and rural areas. We cannot be the society we hope to be if whole segments are systematically excluded.

Recognizing this, President Clinton and Vice President Gore want every school and library connected to the Internet by next year. We are well on the way with about 90%. Next week, the Federal Communications Commission is expected to vote on full funding for the e-rate. This, as you know, allows schools to connect to the Internet at a discount.

I cannot overestimate how crucial it is. It is important to ensuring our economy continues to grow strong and that all people have access. As stewards of our communities in the Pacific islands, we must demand and foster greater student education in the information technologies.

When you think about this, the Internet is colorblind. No one knows if the owner of the dot.com store is African-American, Hispanic, Asian or Native American. Some barriers that have existed in business in the 20th century should not exist on the Internet in the next century. That is very, very positive for our society.

Thirdly, we need to look closely at the composition of our workforce. It is no secret that our high-tech companies have faced terrible obstacles attracting and keeping workers. Employers are begging because not enough people have the high-tech skills to fill positions. Again, we as leaders in our communities must be responsible for providing training in information technologies to our workforce. If we lag in this vital sector, we certainly risk further isolation from the global economy.

E-commerce is much more than a service sector tool. It is becoming a basic element for most manufacturing operations – design, development, product, and distribution. To paraphrase Andy Grove, there won't be Internet companies and non-Internet companies. In the near future, a company will either be an Internet company or it won't be a company at all.

CLOSING

In closing, I would like to share with you one of my experiences from my three years as a Peace Corps Volunteer in Bujumbura, Burundi, Central Africa.

As volunteers we were constantly seeking out ways to help the people help themselves. We taught English, fish farming, diesel mechanics, and pisiculture. We made generous donations of desks and computers, trucks, and tractors. Everyone it seemed was an enthusiastic supporter of every idea we could conceive. We were brilliant and popular leaders. Yet, the drive and enthusiasm behind these projects faded in direct proportion to the decreasing stock in our gift bags.

We in this room represent many Chambers and noteworthy organizations who facilitate change. With our economies in turmoil and our limited budgets, we must choose our targets with care and precision. As my experience in the Peace Corps taught me, I seek out those projects, those processes that already have a groundswell of support and local initiative.

If it is my idea, I am immediately suspect. I don't organize trade missions to Nicaragua, where I might think my clients should go. I follow them to Japan and Hong Kong, where they already know they need to be.

I believe it is better to lend assistance to those projects and processes already underway. I don't want to blaze a new trail and hope people will follow. I want to lay down a stepping stone before a group already in their trek, knowing that my efforts will be useful, and trusting that I am NOT the smartest newcomer on the island or the visionary in an industry I know little about.

Clearly, the Internet, information technologies, and e-commerce constitute a remarkable and historic revolution in our society. That businesses around the world are blazing this trail in unmistakably clear. These are not trends. They are fundamental changes in the way we will live in our world. I truly believe that these changes present positive growth opportunities for our communities in the Pacific islands.

Let me end by saying I don't have the answers. I am just interested in getting your help to frame the right questions about the digital economy and finding productive ways to help our economies, our businesses, our teachers and our children to define a productive future in the new digital economy. I am honored to be at this forum with you. Together we can learn how to grow our digital economies to their fullest. Thank you very much.