Unlocking e-business opportunities in Asia

This article looks at the motivations for foreign companies to break into this market, and implications for Asian businesses.

The outlook for business opportunities in Asia Pacific is as buoyant as ever, and the figures speak for themselves...

According to a recent study by GartnerGroup, business-to-business (B2B) e-transactions for Asia Pacific, excluding Japan, will reach US$910 billion by 2004, a phenomenal growth of 157.3 percent. Deloitte Touche Tohmatsu estimates that total e-commerce revenues in Asia for 1999 were between US$6 billion and US$8 billion, with nearly 80 percent coming from the B2B sector. They also predict that the region will contain more than 25 percent of the global online population within three years.

With such compelling statistics, technology companies from the US and Europe--including companies in Internet infrastructure, telecommunications, wireless technology, and enterprise solutions--are finding it difficult to resist the lure of the region, particularly when their tried-and-tested technologies are in such high demand here.

Drawn by the huge, largely untapped, fast-growing Asian market for technology, coupled with the reality that the markets in the US and Europe are becoming saturated, many are moving into Asia as quickly as they can.

The attraction is not just for pure technology companies. Just last month, in a move that reflected its confidence in Asia, US-based investment giant Warburg Pincus announced that it would be investing most of its US$5 billion funds in Asia-based companies.

Avaya Corp, a Lucent Technologies spin-off, has already unveiled plans to invest between US$80 million to US$100 million in Asia Pacific. IBM, the world's No 2 software maker, said it will invest US$200 million to build Linux development centers in Asia. PurchasingNet Inc, a 17-year-old US e-procurement player, opened its Asian headquarters in Singapore last month, and has plans to invest US$10 million to expand into the region.

And for pre-IPO companies, the reasons are even more compelling: having a global game plan looks good to investors. It allows companies to command higher valuations.

Competition is no longer local, but global. Think of how e-commerce companies like Amazon.com have eroded away the businesses of neighborhood bookshops.

Unlocking e-business opportunities in Asia
Getting a foot in the door

Starting Asian operations is no longer seen as just a means to reap extra revenues, but a strategy of survival. Rapid globalization combined with the increased pace of technological advancements means that companies have to look beyond their shores to seek new business opportunities, or risk being overtaken.

While many companies realize that the move to Asia is necessary, many more are hesitant because of a lack of understanding of Asian business practices and political conditions, and cultural and language differences.

Fear of the unknown and lack of funds are the most frequently cited reasons for not making the move. But this need not be the case. There are many ways to make a successful entry into Asia.

One approach is to send someone from corporate headquarters to replicate the home country operations in Asia. However, this is very often a painful and expensive process, as the person has to start everything from scratch--from setting up the processes and infrastructure, to recruiting the "right" people, to establishing marketing and sales. Most daunting of all is the lack of understanding of cultural and business practices in Asia that can make or break them.

Furthermore, without local contacts, penetration into Asia is difficult at best. The Asian market is so varied, even between different countries, that unless companies spend time here, the odds of success are extremely low.

A less risky approach that many companies employ is the use of distributor or reseller services.

This is good for companies that want to set up in Asia quickly and relatively inexpensively, since the resellers would already have their distribution channels in place. However, while the risks are considerably lower, the downside is that companies can expect delayed and lower revenue returns and low or no company branding.

Another approach is for companies to find a management consultant to be their strategic partner--one that has a Western management style (therefore understanding the aspirant's corporate culture) as well as a strong foothold in Asia (therefore understanding the Asian culture and business practices).

The latter should be a win-win partnership where the company's product fits in with the strategic objectives of the consultancy, and they have as much to gain from pushing the product as the company does.

In addition to well-established distribution partners, financial soundness and availability of technical support, companies should ensure that their partners come with good references and are well-respected in the markets they are approaching. In Asia, good connections and reputation often make the difference between success and failure.

Above all, companies should choose partners which understand their business, and which are able to fit their products with the suite of solutions they offer.

Unlocking e-business opportunities in Asia
Raising the bar

According to the Institute for International Finance, investments in Asia will be US$76 billion next year, up from US$69 billion in 1997. All because the lure of opportunities in Asia will attract more and more technology companies from the US and Europe to the Asian market.

What this means for Asian companies is the acceleration of competition from foreign players, with related opportunities and threats.

The entry of new technology players means greater opportunities for partnership. Incoming companies will need support and services from their Asian partners in areas such as collaborative research, distribution, marketing and outsourced manufacturing.

They also bring with them new technology, skills transfer, advanced business practices and infrastructure, which will raise industry standards and manpower skills in Asia.

Wireless and Internet infrastructure, for example, allow knowledge sharing and decision-making to be quicker than ever, therefore shortening the business cycle and forcing companies to be more efficient, helping to cut out excesses. Companies in Asia can also benefit from business intelligence tools, such as the "balanced scorecard", which have allowed Western multinational companies to match strategy and objectives more effectively.

Asian companies will be forced to become more efficient and competitive, or risk closing down.

That is the inevitable result of globalization and rapid technological advancements in the new economy. The choices are simple: you either find your niche and compete in that space, or merge with a complementary business, or drop out of the race.

Take the American Online (AOL) Time Warner merger. Who would have expected a relatively young Internet company like AOL to have the clout to merge with a long-established content provider like Time Warner? But their merger, announced earlier this year will create the world's largest multimedia behemoth--and worries for their competitors. Another example is Amazon.com, which came from nowhere to replace well-established brick-and-mortar firm Barnes & Noble as the number one bookstore in the world.

The nature of the new economy demands that companies--whether from Asia, the US or Europe--have clear business objectives and yet be nimble and flexible enough to adjust to changes and new opportunities that the market throws their way.

Most important for companies wanting to start operations in Asia, is the need to understand why they are coming here. They need to look at their vision and business objectives to see if coming to Asia is worth it.

The transition is not going to be easy, but if successful, the rewards are tremendous.