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Bright but challenging times ahead

Market observer paints continuing positive outlook, but some things continue to hang in the balance for Asia's tech industry.
Written by Isabelle Chan, Contributor

The Asian tech sector can look forward to growth in 2007, but it will not be without challenges for tech sellers as they face increasingly discerning buyers.

Pierre Hennes, a partner with Upstream Ventures, a venture capitalist in Singapore, said: "2007 will continue to be an exciting year for technology in Asia. The strong growth in Asian consumer and business tech spend witnessed in the past 24 months will continue."

There are, however, notable differences between the regional markets.

"Often overlooked, Southeast Asia is likely to emerge as a key area for tech investment as these markets begin to consolidate," Hennes predicted.

"Vietnam, with its young, ambitious workforce, is a key market both in terms of domestic consumption as well as manufacturing," he added, pointing to Intel's US$600 million investment.

Describing Singapore as having a "solid infrastructure" and "stable political environment", Hennes said the island-state is well-placed to play a key role in bridging the Southeast Asian markets.

"[Singapore] will also be a bridge to the large Chinese and Indian markets," he added, noting that "Singapore will continue to benefit from the turnaround in the semiconductor market".

However, his forecast for the world's two most populous nations centers on "diversification".

"I expect to see a diversification away from India as the sole provider of outsourcing services, toward lower-cost providers such as those that can be found today in the Philippines," Hennes said.

While Indian service companies will continue to make investments in secondary markets, including China, in order to maintain overall market share, Hennes noted that "investment in Indian infrastructure and a review of China's SEZ (Shared Economic Zone) policies will help drive growth in domestic manufacturing".

It appears that China's huge research activities will also pay off. "[The country's] significant investments in its overall R&D ecosystem, including universities, tech parks, incubators and MNC research labs, will make it the new R&D powerhouse of the region. China is already setting standards for its own consumption and markets, and it will not be long before it sets standards for the international markets," Hennes noted.

As for other predictions, he said inter-Asian trade and investment will continue to grow, and China will become India's largest trading partner.

So what bodes for North Asia? "Watch out for a continuation of the Korean phenomenon posing a serious challenge to Japan," Hennes said.

The buyer and seller perspective
Despite a bright outlook, 2007 will be no less challenging than previous years for technology sellers and buyers.

Michael Warrilow, director of Hydrasight, an IT industry analyst firm specializing in enterprise software and software services in Asia-Pacific, told ZDNet Asia: "For vendors, it is becoming increasingly difficult to penetrate enterprise customers due to market saturation. This will be a major challenge for enterprise vendors in the tech sector in 2007 in the Asia-Pacific.

"Hydrasight also expects continuing consolidation among software vendors," he added.

Vendors targeting enterprises will have to find more creative ways to differentiate their products.

Warrilow said: "It is also becoming harder for vendors to compete just on product functionality. In fact, we believe that functionality now has limited importance as a differentiator. We believe that it is solution delivery, including services--and business outcomes--that will determine winners and losers in the tech sector in 2007, and beyond."

According to the industry analyst, the tech market for medium-sized businesses remains confused. There is "too little differentiation" and "vendors 'flip flop' on their targets", he noted.

"This results in a lack of long-term commitment, with many SMB vendors chasing 'trends' which in turn makes this market unstable," he explained.

But it is not all doom and gloom for vendors targeting the regional SMB market. Warrilow said: "That said, there will be growth in the SME because there are always new small and midsize companies starting up, particularly in countries such as China and India but also Indonesia, Thailand and Vietnam."

From the technology buyer perspective, he noted, growth can be expected in areas such as server virtualization, as well as workgroup-driven analytics and business process management.

"Overall, we expect relatively flat enterprise IT budgets to continue in 2007. However this will mask several spending patterns, including doing more with same--as opposed to doing more with less," he added. "There will also be continued spending by business units outside of the control of the IT organization."

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