Asian Internet stocks were hit with a new wave of speculation in recent weeks when Hong Kong investors flocked by the thousands to local banks to get a piece of new Internet offering Tom.com. The huge demand for shares and the scuffles that ensued over the month-old Chinese portal signify that the Internet boom has arrived in Asia and is there to stay.
Three years after the meltdown of Asian markets, the economies there are showing strong signs of a recovery and are once again beckoning investors, as the rush for Tom.com shares vividly illustrated. This time around, however, the engines of growth are not lumbering industrial giants but young and innovative high-tech businesses.
The Internet market in Asia has already exploded in ways reflecting the boom in the United States two years ago. Entrepreneurs across the continent are trying to duplicate the successes of such Internet powerhouses as eBay, Amazon.com and Travelocity with an eye to amassing vast personal fortunes.
The pace of Internet deals, partnerships, infrastructure building and consumer acceptance has picked up dramatically in the past six months. Meanwhile, some Asian governments have taken initiatives to relax rules and regulations to encourage foreign investment, while offering incentives to local companies to establish themselves as strong competitors in the global marketplace.
According to International Data Corp., Asia-Pacific represents a lucrative e-commerce opportunity, with online spending projected to increase from $2.7 billion in 1998 to $72 billion in 2003. The number of Internet users is predicted to rise from 21 million to more than 81 million during the same period. Much of the growth in the region, outside of Japan, will be driven by the business-to-business (B2B) sector, where the value of online trade is expected to swell from $8 billion in 1999 to $280 billion in 2003.
The new commitment by Japan the world's second-largest economy to open up its markets and deregulate is good news for Asia. At the end of 1999, Japan had an Internet market of over 15 million active users, far outstripping all other Internet economies of the Asia-Pacific region, according to a Nielsen/NetRatings survey.
Most of the popular sites in Japan are run by well-known industrial behemoths such as NTT, Fujitsu and Sony rather than Internet pure-plays, as in the United States. But Tokyo is far ahead of the game in mobile communications and such related technologies as Internet appliances, mobile e-mail devices and Web-enabled iMode phones.
Despite problems that have hindered fast net growth in Japan such as low PC and Internet penetration, high telecom charges and a dearth of Japanese-language Internet applications Tokyo is already posting substantial B2B revenues $22 billion in 1998 and is sure to remain the dominant regional player.
In China, dozens of companies have invested in the country's fledgling Internet industry on a bet that growth not just absolute figures is assured in the world's most populous nation. China now has only 8.9 million Internet users, but that's nearly four times the number of users just a year ago. Meanwhile, the Chinese government is placing a greater emphasis on market reform, particularly in the use of the capital markets, and has shown a determined effort to implement financial reforms.
Last November's agreement between the United States and China on Beijing's accession to the World Trade Organization, for instance, allows for foreign ownership of half of Chinese content providers by 2002 and 49 percent of Chinese Internet service providers (ISPs) by 2006. The deal has lifted China's ban on foreign investment in Internet stocks and has cleared the way for U.S. companies to enter China's online market.
Questions still remain, however, over the extent of government control of Chinese Internet ventures.
This is a big boost to the young entrepreneurs who are developing sites and using them to woo local and foreign investors who can help build their vision. Among the lucky ones to get foreign funds is Chinese portal Sina.com, which took in $25 million from Goldman Sachs and Walden. In the wake of the whopping IPO of China.com on the NASDAQ, two other Chinese portals, Sohu.com and Netease.com, are racing to make the list.
And Beijing won't seek to stop the startups from raising cash abroad. Indeed, in line with the e-commerce push, MeetChina.com, which is owned by U.S. Business Network Inc., enjoys exclusive status as a "wholly owned foreign enterprise" and will join ChinaWeb Ltd. to offer business-to-business Web solutions.
Undoubtedly, the advent of the Year of the Dragon on the Chinese calendar signals an era of new opportunities for the Chinese, and the Internet is giving them the tools to embrace the world regardless of the government's policies. If Beijing continues to keep its hands off, the Information Age might do more to revitalize China than all the fiscal stimuli packages in the world.
South Korea, which was badly bruised by the Asian economic crisis, is bouncing back, thanks partly to the International Monetary Fund's provision of a $57 billion bailout in 1998. Today foreign reserves are healthy again, economic growth is accelerating briskly and the currency is much stronger. Online business is expected to take up 42 percent of South Korea's trade this year, up from 15 percent in 1997. Much of the boom will result from the emergence of cyber brokerage houses; commercialization of the wireless Web; greater affiliation among financial institutions; and increased Internet service competition, particularly in pricing. Many ISPs will offer such free services as Internet phones, experts said.
Hong Kong barely figured on the digital map of the world until last year, when the government announced plans to build a $1.7 billion Cyberport to house high-tech companies. If successful, it will create a new information economy and thousands of new jobs and hundreds of millions of dollars in new business. Some estimate that online business transactions will reach $2.4 billion by 2003, and if those numbers materialize, it will be a huge jump from 1998's $60 million.
But most of the bets placed on Hong Kong's evolution from a real-estate-driven economy to a thriving Internet hub are based on its proximity to other market makers: China, Taiwan and Japan.
Among the startups, Pacific Century CyberWorks group is one of Hong Kong's biggest companies. Pacific Century is developing Asian versions of Lycos and AltaVista.
In a radical move last fall, the Chinese government entrusted three private venture-capital companies with $897 million to seed promising startups. Malaysia and Singapore have similar schemes, but only Hong Kong turned over management of the funds to the private sector.
Ready to roar?
Singapore, often cast as Hong Kong's archrival, clearly has Asia's most advanced physical infrastructure for e-business. The government-built Singapore One broadband network brings fast digital transmission capacity to homes and offices, allowing delivery of advanced multimedia services.
The one-party state has long been a major player in the electronics industry. But the Asian financial crisis, stiffer competition from Singapore's neighbors and constant change in the industry are reshaping the face of high-tech business. Currently, there are about 600,000 Internet dial-up subscribers and 3 million people in Singapore, which means one out of every five persons has Internet access.
Competition is fierce among rival Internet companies. Pacific Internet is a case in point: It recently announced it would pay online users to go to its e-commerce portal and Web site Pacfusion.com. By dangling the carrot, PacNet plans to hijack Internet surfers who use the free access provided by StarHub and SingNet to its e-commerce portal.
The successful stock market performance of such startups such as MediaRing has further encouraged entrepreneurs.
Although Singapore has a long way to go before it conquers its nanny-state status, the government appears to have eased its political and regulatory culture and is focusing these days on risk management rather than micromanagement and on creativity rather than conformity. As a step toward total liberalization, plans are afoot to lower the barriers for new entrants into the telecommunications market.
India, meanwhile, not only stands firmly at the center of many success stories in Silicon Valley but is seeing Internet enthusiasm build to a frenzy on its own shores as well.
After a little more than a decade of growth, the Indian industry has an estimated 280,000 software engineers in about 1,000 companies. Companies like Satyam, Infosys and VisualSoft fueled by domestic deregulation, entrepreneurial flair and the soaring demand for low-cost, high-quality software and services have become global companies, some with stellar IPOs in the United States. The prospect of a second wave of IT startups, focused on Internet and e-commerce software, has attracted the interest of both local and foreign venture-capital firms.
Several U.S. and European IT companies have established captive research and development centers in India; recent additions to the roster include Cisco, Computer Associates and Nokia. A leading Indian financial institution has teamed up with a Compaq-led consortium for setting up a payment gateway to facilitate secured online business-to-consumer and B2B transactions.
Measures taken by Delhi to open its doors to foreign business are expected to boost its IT sector from less than $4 billion this year to $50 billion in 2008.
The Internet craze is no less intense in countries crippled by currency crises. Malaysia and Thailand have welcomed the introduction of Web technology while working through problems created by years of crony capitalism and bad investment. The ambitious Multimedia Supercorridor, Cyber Jaya, in Malaysia is just getting off the ground. And Thai-owned ShinCorp is preparing for a NASDAQ listing and has set its sights on providing broadband access.
Vietnam, on the list of nations with the lowest per-capita income, has entered the first stage of e-commerce development with the opening of a software "zone" in Hanoi. Likewise, the Philippines' Cebu Property Ventures and Development Corp. plans to spend $32.4 million to develop the former Lahug airport property as an information technology park.
Even strife-torn Indonesia is finding it difficult to resist the tug of technology. Internet subscriptions have risen from 200,000 users in 1997 to around 890,000 today, and that total is likely to triple to 2.7 million by 2004. The government plans to sell most of its 70 percent-plus stake in Indosat as part of its privatization promise to the IMF. Indosat, along with Kablevision, is preparing to provide broadband services.
The financial and corporate problems in some parts of Asia are far from over. Banks are still nursing huge nonperforming loans, and businesses continue to restructure debt. The effort is a huge constraint given the potential of e-commerce and online banking. Also, the gap between rich and poor threatens to widen as the Net takes hold.
With the headlong rush to the Net, reform programs are losing their sense of immediacy, and the free flow of Western products and concepts across virtual borders will tug at the cultural and social fabric of Asian countries. But for now, the future looks promising.
Contributor Renuka Sarathi recently moved from New York to report on high technology in Thailand and south Asia