~This Issue's Index~

Asia's Piece of the Pie:
Asia's entry into "Dot-Com" Universe

By Dr. Ang Peng Hwa

There is no question that the Internet has arrived in Asia. News of startups, mergers, and acquisitions of "dot-com" enterprises are splashed across newspaper pages on a daily basis. This phenomenon is typified by companies like Pacific Century Cyberworks, a loss-making company which saw its share price increase 190-fold, thus allowing it to take over Hong Kong Telecommunications, one of Hong Kong's largest and most profitable companies. This was a bolder Asian version of the AOL-Time-Warner merger, with the "dot-com" as the predominant partner in the deal.

The various governments are also scrambling to institute "dot-com" friendly institutions and policies. Japan, Korea, Hong Kong, Singapore and Malaysia have set up separate stock exchanges to cater to these riskier, but sometimes several-fold more rewarding, enterprises while venture capitalists have been busy scouring the region for good bets.

But these feverish activities are not the full extent of the changes the Internet is bringing to Asia; they merely presage the impact of what is to come. If Asia wants to stake its claims in this new cyber-based economy, it needs to make certain changes and unleash its own brand of the Internet revolution.

Granted, there are many things that the Asia is doing rather well in terms of "dot-com" development. For example, many Asian countries are investing or have announced plans to invest in an infrastructure necessary for supporting the Internet. Singapore has a fully wired island and Hong Kong has announced a scheme called the CyberPort where Internet Technology (IT) companies will be housed. Malaysia has similarly marked out a development site called the Multimedia Super Corridor, a piece of land larger than an entire neighboring island. India has also kept abreast of things, having recently announced plans to develop other IT-oriented cities along the lines of Bangalore.

But obviously, infrastructure is not everything. By some estimates, content will form 80% of revenues in the New Economy, 15% will go into software and application technologies, while only 5% will go towards infrastructure. From this perspective, Asia is investing heavily in the smallest component of the Internet, which also happens to have some of the fiercest competition and skinniest margins.

For these reasons, some fear that Asia will be overtaken by the developed countries of the West in the race of the new economy. But the biggest hurdle to the development of the Internet in Asia is not the external threat of competition, or even technology; it is the attitude of many businessmen in Asia towards cyberspace.

As recently as 1997, when there were few Asian success stories, companies were extremely reluctant to invest in "dot-com" outfits. The reluctance to take risks is partly cultural, partly due to a lack of sufficient knowledge, and partly traceable to an inheritance of bad business practices. Today, however, a mere three years later, investment funding is no longer scarce. Ideas are.

The main reason for this change of heart is the emergence of successful Internet companies all over the world. Just about every major stock market in Asia can cite a handful of spectacularly successful "dot-com" enterprises. In response to these successes, established, traditional firms are also looking towards this new infant industry. The media giant, Singapore Press Holdings, for example, loaded all of its offerings-including the classified advertisements of its leading newspapers-online. Until recently, it had worried about cannibalization; today, it's preoccupied with further broadcasting its networked unit.

Calling for Change

Despite these obvious up-sides, there has been some concern that the pendulum of development may be swinging too far in the opposite direction, resulting in some equally damaging results. The current preference for cyberspace has been hailed as a refreshing change from the pre-economic crisis days when Asian businessmen were spoiled by quick and easy real estate profits. Back then, with 80% financing and 20% down-payment, a 20% appreciation in property value meant a 100% return on investment capital. During the boom, this windfall scenario was rather commonplace in many Asian markets, the result being that lucky speculators often came away looking like business geniuses. Even as late as 1999, when Hong Kong announced its CyberPort project, the business community was squabbling over the real estate portion of the project and overlooking the Internet component.

This mentality of looking for quick returns on short-term investment seems to have carried over from the property speculation years to grip Asian businessmen in a new environment. In Hong Kong, for example, more than 30 real-estate developers, many of whom are listed, have sold or securitized their physical properties in order to enter into cyberspace. These entrepreneurs are putting formidable amounts of capital on the line for stakes in what they believe-or rather, hope-to be financial gold mines. As a result many of the "dot-coms" being started are aimed at a quick exit through listing. To be fair, this phenomenon exists in Silicon Valley as well and is not unique to Asia. But Asia cannot afford to lurch from one speculative asset boom to another speculative boom; experience has taught us that such booms invariably end badly.

In addition to adopting caution when advancing, businesses must also change some of their less desirable practices to conform with international norms. For example, more than one "dot-com" has lost its domain name because it neglected to pay Network Solutions, the American name-registration company, on time. Although this sort of laxity is not uncommon among Asian businesses, foreign creditors are not so forgiving. As a result, some other eagle-eyed companies have been able to snatch away precious domain names.

Hence, to succeed in this ultra-competitive world, businesses must be run more professionally. In order to recruit bright, hardworking workers, businessmen must allow outsiders into their hitherto family-run firms. To retain the new blood, firms must also maintain a professional management style, and not refer important decisions to the family matriarch or patriarch, though this is still done with stunning frequency even among established Asian firms.

In Asia, laws generally favor business over consumer interests so that, with few exceptions, buyer protection has been weak. This bias must be righted. Customers, despite facing a world of choices in cyberspace, will only shop online when they are assured of de facto protection. The West has seen Internet consumer commerce growing at a phenomenal rate precisely because of its strong buyer-protection laws.

Industry also has a big part to play in furthering the development of the Internet. This role does not entail forming cartels, collusion, or anti-competitive practices. Industry needs to be involved instead in self-regulation because that is the only form of regulation that can be permanently effectual in cyberspace. These industrial players should cooperate with legality, for the benefit of both buyers and sellers. While a number of associations dealing with the promotion or the regulation of cyberspace have been set up in Asia, they tend to lack autonomy, being merely chapters of American associations. These smaller chapters constitute good starts but they also mean that Asians trail rather than lead, even on their own turf.

In South Korea and Japan, countries which boast a more club-like atmosphere among the large business corporations, these business associations are working together to promote e-commerce. In contrast, Singapore and Hong Kong are neck to neck in the race for the dubious distinction of being the freest economy of the world. The price of being the freest, they forget, is the lack of cooperation among the players in the industry.

On the Vanguard

Because the Internet favors larger multinational companies, there are not many Asian brands that can carve out a niche on the world market. Most of those that already exist are in Japan and Korea with a handful sprinkled over the rest of Asia.

For all intents and purposes, it looks like Japan will lead Asia for some years to come. At the end of 1999, it was estimated that Japan alone had 22 million Internet users, almost half of the 50 million in Asia. There is no doubt that as the penetration of the Internet furthers in Asia, Japan's share of users will fall. But with their incredible critical mass, Japanese "dot-coms" will still dominate a hefty portion of the market and continue to capitalize off of the advantages enjoyed by the early Internet developers. It seems the only real weakness impeding the Japanese is their lack of competence in the English language.

Korea appears to be catching on quickly. The 1997 economic crisis, which the Koreans call "the IMF," has been in fact a blessing in disguise. In a land where age is synonymous with sagacity and unquestionably revered, the IMF provided a legitimate excuse for changing some outdated methodologies which have in recent years hurt the country. The favorable repercussions are starting to emerge as the Korean high-tech stock market, KOSDAQ, is beginning to register a larger number of listings.

Hong Kong seems to have caught a full-blown case of "dot-com" fever. The island has always had to be nimble to survive-hence the rapidity with which it has adapted to the Internet craze-but it still suffers from several handicaps. First of all, unlike Japan and Korea, Hong Kong lacks a self-sufficient market. Although the booming Chinese population can play backup, the disparity between the two cultures will be an undeniable obstacle. And with costs in mainland much lower than those in Hong Kong, it would probably be more reasonable for a "dot-com" servicing the region to be based closer to their customers, in say, Shanghai. Secondly, and just as crippling, is the fact that Hong Kong does not possess a sufficient pool of technical expertise. These two weaknesses could indicate that Hong Kong's sustainable role in the Internet economy may be as a financial center for funding start-ups, and not as an actual spawning-ground of "dot-coms."

Singapore is similar to Hong Kong in many regards. It has a small market, which the economic crisis has since further diminished. And as in Hong Kong, the rush into "dot-com" has meant that companies are hopping onto the Internet bandwagon without the necessary bearings. This eagerness to join cyberspace has been greatly encouraged by an IT-oriented Singaporean government, whose enthusiasm-while admirable-should be very carefully applied to the private sector.

Malaysia's plans on entering the Internet arena have been thus far held in check. On the one hand, it is clear that Prime Minister Mahathir's self-reliant "no-thank-you-IMF" approach has brought the economy back to life. However, it has also meant that unlike Korea, the country has missed an opportunity to revamp and rejuvenate its financial institutions.

For the other parts of Asia, there is much catching up to do. India has pockets of world-class excellence swimming in a sea of poverty; Vietnam recently awarded a tender to update its telecommunications infrastructure; while in some Asian countries, the Internet is still a fresh entrant onto the national scene.

The Next Step

Asia is a large mosaic of land and humanity. For the least developed, getting plugged into the Internet is a giant step, which necessitates the emergence of companies able and willing to take the plunge into cyberspace. In all of these countries, governments certainly have an important part to play, the most immediate of which is the setting up of regulations and policies to stimulate Internet activity. Leaders should look to the example of development-oriented Singapore, where a number of successful "garage-based-startups" have flourished since a law barring one-room-sized offices was relaxed.

In the longer term, governments should ensure that their citizens are prepared for life in an Internet economy. This means pivotal changes in the emphasis of the education system. For example, at least in the near to foreseeable future, Internet users will have to rely on English as the medium of communication. Even in those countries with sizable domestic markets, such as Japan and Korea, the native language will be adequate only in the short-term. One might argue that with China's emergence as an economic heavyweight, the Chinese language will start claiming an augmented role. However, even so, competence in English ensures access to the incomparably larger world market. So Hong Kong's move to promote Cantonese as the medium of instruction, while politically expedient, is actually economically regressive in the long run.

Analysis of the region should thus give pause to the ready assumption that the Asian boom of the first half of the 1990s will resume, for there are still many changes left for the Asian countries to tackle. But the prospects for future development are not entirely dim, for at least one good reason. The basics of education-good writing, good thinking and good ideas-have long been the bedrock of any economy. The Internet, for all the current emphasis on short-term gains, has highlighted the need for such basics. With its age-long emphasis on solid education, Asia has at least this one strong factor propelling it through the cyberspace of the new millennium.