Traditional intermediary industries face challenges from new business models and the sharing economy
By Esther Chan & Zoe Lai
A police raid on the Hong Kong office of the car-hailing app Uber in August drew attention to the social and legal implications of the global spread of what is being called the “sharing economy”.
The idea of the sharing economy or “collaborative consumption” is based on providing access to resources rather than ownership. An undisputed example would be an app that enables someone to borrow or hire a power drill from someone else who has one to spare.
But as marketing professors Giana M. Eckardt and Fleura Bardhi point out in an article in the Harvard Business Review, sharing is a social activity. When it is mediated by a company between people who do not know each other, for profit, it is an economic exchange.
According to this analysis, businesses like Uber and Airbnb, the online accommodation booking service may be disrupters, but they are disrupters of traditional intermediary businesses as well as of service providers. And this is a phenomenon that is happening across swathes of industries and businesses in Hong Kong.
In the face of climbing costs and diminishing profit margins, Antony Yiu Koon-tung, founder and creative director of Blitz Brand Consultancy, has been turning to freelancers instead of hiring production crews and companies to make advertisements for his clients. This starts with the models, who Yiu finds through his own personal network and on social media instead of through the modelling agencies he used to rely on for selecting models.
“We save the intermediary costs from the modelling agencies and hence it is more cost efficient when introducing the job to our customers,” Yiu explains.
Yiu says that cutting out the agencies means he has less choice and more work to do. He and his staff may have to do the casting themselves and even design the models’ calling cards to show clients.
Hiring freelancers also comes with risks. Yiu recalls a model was nearly two hours late for a shoot to advertise a bra catalogue. His company had to pay the cameraman extra for the time. In such cases, clients may complain and even call off the production.
Despite such experiences, Yiu does not intend to stop hiring freelance models as well as individual units for productions such as cameramen, lighting crews and editing teams. He says hiring each production member separately can cut costs by up to 40 per cent compared with going through a production company. The trend to cut out the middleman is well under way and is irreversible, he says.
Regina Lee Lok-yee, a 21-year-old student who works as a freelance part-time model, acknowledges that established, reputable agencies offer better protection for models by securing work for them and making sure they are paid, but she prefers the freedom of working freelance because she can choose her jobs. A contract with a model agency usually lasts around five years and the agency will decide all the assignments.
With more models thinking in the same way, it is becoming an increasingly competitive market. “The market is so large that no matter how low the remuneration is, there will always be someone who will do the job,” she says.
In modeling, cutting out the middleman has not resulted in higher pay for the models. Lee says freelance models are seen as less professional and are paid less because clients hire them precisely to cut the costs of paying an intermediary.
These drawbacks mean the traditional modeling agency is not yet in danger of disappearing. But in some other industries, the spread of freelance operators, social media and mobile apps is more disruptive.
Li Chi-leung, the chairman of ABA Taxi Radio Call Services Centre has witnessed the sharp decline of traditional taxi calling centres. Li strongly opposes apps for ride-sharing services such as Uber because of the lack of insurance for customers and because drivers do not possess Passenger Service Licenses. He says call centres such as his can still retain their business by covering remote districts as they have large radio networks –but he wants the government to take action.
“The government should protect our industry. We are playing an important role in protecting the elderly and providing services for short distances,” he says.
However, Jonathan Shea Tat-on, chief executive of the Hong Kong Internet Registration Corporation Limited thinks the government should not to be too protective of traditional industries.
“For me, consumer rights always outweigh the commercial profits,” Shea says. He cites the example of Hong Kong Telecom’s monopoly on international direct dialing (IDD) telephone services. Prices for calling internationally dropped drastically once competition was introduced and again with the emergence of Voice Over Internet Protocol (VoIP) calls and free online services such as Skype.
“Consumers always go straight ahead and look for the best service, and that should be a work in progress. If the providers make no advancement, they cannot blame anyone for taking the bread out of their mouths,” Shea adds.
Shea is positive about the growth of the so-called sharing economy which he thinks can help to reduce wastage and conserve resources. He says it can also change the relationship between consumers and suppliers, providing a more enjoyable environment where the shopping experience becomes an experience of making friends.
This is exactly what attracted Mandy (who does not want to disclose her full name) to her current work as an independent private tour guide. She was unfulfilled by her job as a flight attendant and therefore quit to start a service with her sister, providing local tours for foreign tourists.
Unlike tours operated by mainstream travel agencies, Mandy and her sister do not fix an itinerary beforehand. Instead, they communicate with the tourists to understand their needs and interests. Their clients are usually foreigners who are interested in Hong Kong’s local culture, so they show them public housing estates, markets and traditional villages.
Mandy enjoys encountering different people and listening to their stories. But she admits neither she nor her sister have obtained the official Tourist Guide Pass issued by the Travel Industry Council of Hong Kong. Their customers find them through word-of-mouth and on travel sites like TripAdvisor.
Mandy avoids any dangerous activities and tells her clients upfront that they are not insured for the duration of the trip. She understands it is illegal to post on websites to advertise tour guiding services and that the established way to search for a tour guide is through a travel agency.
“We are in the same situation with Uber, existing in a grey area,” she explains. But she says she is able to provide clients with personal, customised services without the added cost of an intermediary, and she is put off from “going legit” by the cost. “To small-scale businesses like us, it is worthless to pay about HK$10,000 to apply for a pass. It is unreasonable to suppress the opportunities of individuals to start their businesses,” she says.
Despite the competition from travel sites, Wayne Yiu Si-wing, the legislator representing the tourism functional constituency, says traditional agencies still have their advantages in providing professional advice and reservation services for those who are unfamiliar with the internet.
However, he acknowledges that travel sites can fulfill individual needs as they can serve as platforms collating and comparing information such as flight tickets, hotel or hostel reservations and other transportation needs provided by different suppliers.
But he remains concerned about the potential safety issues arising from cases like Mandy’s. Yiu explains that while there are regulations governing intermediary agencies that are selling travel “products”, there is a grey area when it comes to regulating the “referral” of services.
Although it is illegal to provide tour guide services to visitors without the official Tour Guide Pass, participants in a tour could claim they were friends of the guide to avoid legal repercussions. Yiu says current laws are hard to implement and if there was an accident, nobody would take responsibility.
The Consumer Council says current regulations on the trade of goods and services only regulate the trading of safe and accurately represented goods and services between manufacturers and retailers. In a written reply to Varsity, the council said it was uncertain whether transactions under the sharing economy model had the same protections.
Whether you call it sharing economy, collaborative consumption or access economy, the world is seeing a rapid growth in new business models based on putting suppliers in direct contact with consumers and cutting out traditional intermediaries. This is being driven by the popularity of smartphones, social media and the rollout of new apps.
Legislator Wayne Yiu, who represents the travel industry, says his constituents will need to transform if they are to survive. They are not the only ones – the new business models are changing the way people do business and the way they consume. Not only do the industries that are under threat need to respond, but regulatory authorities and governments also need to rethink the existing systems.
Edited by Sherry Tsui