Global E-Commerce: Asia

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GLOBAL E-COMMERCE: ASIA

With a tremendous population, several highly developed countries, and a rapidly escalating Internet penetration, Asia is among the most promising regions for e-commerce development. In March 2000, about 69 million people had access to the Internet in Asia, compared with 83 million in Europe. Still, internal disparities and a series of logistical difficulties hampered some of the most optimistic expectations for online commerce in the region. James Wang, an Internet analyst in Taiwan, told Far Eastern Economic Review in late 2000 that, when it comes to e-commerce, "Asia is where the U.S. was two to three years ago. Once consumers feel more comfortable buying on-line, it'll start to pick up." The challenge for both Asian and non-Asian entrepreneurs was to generate that level of comfort and provide the infrastructure to take advantage of it.

ASIAN E-COMMERCE STUCK AT THE GATES

Despite the emerging possibilities, Asian businesses were slow to fully integrate e-commerce strategies into their overall business plans, according to Far Eastern Economic Review. They also were slow to overhaul the physical and network infrastructures necessary for Internet-based business. Though Asia was bursting with firms of all sizes using all manner of e-commerce software, only a tiny minority of Asian firms had radically transformed their internal and external operation to reflect a serious concern with, and involvement in, e-commerce.

Meanwhile, without substantial investment in an online presence, the average Asian business that had set up an online outlet didn't establish an infrastructure capable of actually making sales over the Internet. Rather, Asian business Web sites tended to be little more than electronic brochures where the company and its products were introduced and explained, but without the kind of interactivity that allowed for sales, customer service, and so on.

In Hong Kong, one of the most technologically developed centers in all of Asia, only 40 percent of the local firms conducted business over the Internet, according to Systems Union, a financial systems company based in the United Kingdom. The Boston Consulting Group, meanwhile, conducted a far broader survey of 500 executives in markets throughout Asia and reported that Asian companies were, for the most part, taking their initial steps toward setting up shop online in 2000. As of the early 2000s, only a few markets, including Singapore, South Korea, and Hong Kong had the reliable and advanced telecommunications infrastructure necessary for widespread Internet access. According to International Data Corp., less than one percent of all Asian-Pacific Internet surfers (outside of Japan) engaged in at least one e-commerce transaction in 1998, a figure that was expected to reach 2.6 percent in 2002. In Japan, the most advanced nation in the region when it came to e-commerce, 8.7 percent of Web users shopped online in 1998, and fully 60.8 percent were expected to do so in 2002.

However, Asian business-to-business e-commerce enjoyed a significant boom, beginning with the recovery from the Asian economic crisis of the late-1990s and continuing into the early 2000s. According to New York-based eMarketer Inc., this field of online business in Asia and the Pacific Rim reached $36.2 billion in 2000, exceeding the business-to-business market in Europe by some $10 billion. eMarketer expected the boom to continue through 2002, when it predicted the figure would hit $121.2 billion. By way of comparison, the firm pinned North American business-to-business e-commerce at $159.2 billion in 2000, and expected it to reach $563.9 billion in 2002. Stanford, Connecticut-based research firm Gartner Group was even more optimistic for the Asian business-to-business future, expecting total sales in this sector to reach $995.8 billion by 2004, equal to 13.6 percent of the $1.3 trillion global business-to-business market. One segment of the business-to-business market that was exceptionally healthy in Asia in the early 2000s was the digital marketplace—central Web locations that brought buyers and sellers of supplies together to haggle over prices and build new company relationships.

Despite the lower penetration of dot-coms on the Asian landscape than in the United States, the technology market meltdown of spring 2000 washed up on Asian shores as well, littering the market with dead or dying Internet businesses. Like the United States, this shock was felt most severely by business-to-consumer models and content sites, while business-to-business online firms, although hardly emerging unscathed, were nonetheless able to stay afloat with relative ease. Still, by 2001 many dot-coms that seemed doomed were hanging on and seeking out new models to breathe life into their businesses. Many firms tried to build a constant revenue stream by offering e-business strategies and solutions to firms looking to get their storefronts online.

E-COMMERCE HURDLES IN ASIA

Unfortunately, the explosion of e-commerce in the west, particularly in the United States, coincided fairly closely with the Asian economic crisis, which began in 1997 and continued for about two years. When one country after another saw its currency plummet and other economic cracks widened into gaping holes, foreign investors divested from the region in a hurry. In turn, this accelerated the economic hardships. As a result, during e-commerce's developmental stage, most of the Asian region was too busy trying to hold existing economies together than to take the time or money to open up whole new business and technological strategies.

Timing was a factor in slowing Asia's e-commerce acceptance in another way as well. With the pace of e-commerce in the region trailing that of the United States, the dramatic stock market letdowns that affected the U.S. Internet market in 2000 and 2001 hit Asian e-commerce when the latter was in a far more precarious state of development. By the 2000s, e-commerce was a more or less established shopping medium in the United States. However, Asian companies and governments were only beginning to seriously dive in and reorganize business and technological infrastructures to accommodate e-commerce. When the boom in funding was pulled out from under the dot-com market, the Asian Internet economy couldn't recover as easily, and many Asian investors thought it was wise to pull back on their e-commerce ambitions, at least for the time being. In this way, the tech market bust was more devastating to the nascent "Asian New Economy" than it was to the more advanced Internet economy of the United States.

Similarly, Asia suffered from a shortage of venture capitalists—the lifeblood of the dot-com boom—compared with North America and Europe. According to The Economist, high-tech startups have never enjoyed strong financial support throughout Asia. However, this problem was meeting some remediation among Asian tigers such as Hong Kong, Malaysia, and Singapore, where businesses and governments were coordinating efforts to pool funds and expertise in order to help innovative Internet companies get on their feet.

Asia was relatively susceptible to trends in the international economy, particularly in the United States. With severe financial shocks rocking the country in the late 1990s, largely due to unstable currencies and international investment, Asian businesses kept a close eye on the economic health of the most developed nations, from which international investment is most vibrant. In the early 2000s, when many Asian businesses were dusting themselves off from the economic crisis and seriously considered adopting e-business strategies, the slowing U.S. economy gave pause to many business leaders. With declining U.S. investment in Asia and diminishing demand for Asian manufactured goods by U.S. consumers, the prospects for e-commerce were held in check.

There were also cultural barriers to the mass proliferation of e-business, according to Far Eastern Economic Review. Throughout many regions of Asia, established, personal relationships confer a value of their own, something that is simply not accounted for in the purely cost-and efficiency-driven world of e-business. Meanwhile, credit card use in Asia remains relatively light, and those who do use plastic to shop were largely uncomfortable using it online, much as many U.S. consumers were. Additionally, many consumers didn't see the utility in shopping on the Internet, particularly in regions of bustling economic activity in which everything shoppers needed was available in a nearby store. Compounded with lingering security fears, such apprehension among consumers severely hindered the growth of e-commerce in the region.

Within Asia, the borderless world of the Internet didn't translate well into the real world, where physical products still had to be shipped. With complex and rapidly fluctuating currency conversions, exorbitant shipping costs, and excessive delays in delivery, the added costs of shopping online at international business sites tended to be prohibitive. As a result, the majority of Internet businesses in Asia trafficked only within their own countries.

Retaining quality high-tech and information-technology (IT) professionals was an additional problem for the development of sound IT infrastructures in many Asian countries. Far Eastern Economic Review indicated that many of the leaders in these fields, particularly in countries such as China and India, leave their home countries for positions in Silicon Valley. However, this didn't always culminate in the negative effects associated with a brain drain. Particularly in the late 1990s, many of these individuals capitalized on the skyrocketing venture capital industry in Silicon Valley to start their own businesses and pour investment back into their home countries. Still, in the aftermath of the dot-com shakeout that began in early 2000 when the market for technology stocks went bust, the level of venture capital spending tailed off.

International Data Corp. (IDC) concluded that a key to bringing Asia into competitive parity with Europe and North America was the harmonization of interregional legal and technological standards. However, IDC remarked that varying cultural patterns and conflicting legal frameworks likely would impede progress toward such harmonization. Moreover, the lack of pan-regionalism often made it difficult for Asian firms to compete with larger firms, such as Amazon.com, in established e-commerce market sectors. With its tremendous reach and economy of scale, Amazon.com was among the major international e-commerce outfits to strike a resonant chord with Asian consumers, and had begun to build a significant brand name and customer loyalty in the region. In this light, Amazon.com 's expansion past its original bookstore foundation and into a more comprehensive online superstore posed a danger to Asian e-commerce firms. This was something they would need to address in order to capture market share when the business-to-consumer market in Asia finally explodes, as it was expected to.

GROWTH ON THE WAY

Despite the obstacles, analysts were optimistic for the future of Asian e-commerce. IDC felt 2001 was the breakthrough year for online business in the region, with forecasted sales of $10.7 billion. In the interest of pushing global competitive strengths, the pressure to put business online in Asia was expected to accelerate rapidly. More than half of Asia's products were sold to North America and Europe, which represented the greatest amount of Internet connectivity, the most advanced infrastructure, and the strongest consumer taste for e-commerce. Thus, market pressures were bound to force Asian companies to scramble to avoid being left out of the international trading system by more Internet-savvy competitors.

U.S. businesses looking to invest in Asia faced a number of tempting opportunities tempered by serious obstacles. On one hand, the market potential was enormous and growing all the time, particularly in light of closer trading ties with China. That country's economy was growing rapidly in the early 2000s and was largely untouched by the Asian economic crisis. On the other hand, the number of high-tech employees available for employment by U.S. firms in Asia was rather thin, and navigating the nuances of the region's IT infrastructure, regulations, and cultural patterns entailed a significant investment in its own right. According to World Trade, outsourcing work to local Asian firms can help alleviate the costs and headaches of learning the ropes and nuances of conducting business in Asian countries. On the World Wide Web, the business Web sites need to reflect the U.S. business model translated to the languages and cultural needs of the Asian countries in which they hope to do business.

The Chinese market was relatively warm to e-commerce. Approximately 60 million individuals were expected to be online in China by 2005. However, credit card penetration was exceptionally slight in the Chinese market, and most online transactions were paid for by regular checks or wire transfers. Moreover, China's markets were still under the tight control of governmental regulation, despite opening up considerably in recent years, and there were many technological shortcomings.

Far Eastern Economic Review explained that the Chinese government was very aware that business-to-business digital marketplaces were an extremely positive development for the generation of sales to alleviate the excess capacity in many of the nation's state-owned enterprises and industries. Still, from the standpoint of international commerce, the relatively large degree of governmental control over the economy was a hindrance to regional e-commerce. With tight control over a range of key technologies—including the crucial encryption technologies upon which many e-commerce transactions rely—and even Internet content itself, it was still tricky for international firms, both inside and outside Asia, to fully tap into the potential offered by China's large—and growing—Internet user base and strengthening economic foundation.

Korea benefited from a healthy infrastructure for, and widespread use of, broadband technology. This facilitated high-speed Internet access, which is a key component of online shopping. By 2002, broadband Internet access was expected to reach approximately 2 million subscribers in Korea, mostly in South Korea. This translated into a dramatically higher proportion of the population with high-speed access than existed in the United States.

In South Korea, giant, diversified conglomerates called chaebols maintain the lion's share of control over economic output. The Internet was seen as a force for loosening this control and spurring renewed economic vigor. While the chaebols were fierce international competitors, their size, according to analysts, allowed them to become slow and unresponsive to domestic market forces. This provided just the opening that startup companies needed. Meanwhile, major conglomerates like Samsung reacted by spinning off large chunks of their Internet-based business. The country famously welcomed the Internet with open arms and incorporated e-commerce more quickly and readily than any other Asian nation. Its total e-commerce market was second only to Japan's. However, according to Boston Consulting group, South Korea's per capita online spending was significantly greater than that of Japan. By the early 2000s, small Internet startups were all the rage in South Korea and were attracting a steady flow of venture capital. Through 2005, Salomon Smith Barney noted that South Korea would boast the largest Asian e-commerce market outside of Japan and account for more than one-fourth of all Asian e-commerce revenues outside Japan.

Business leaders within Asia remained confident, predicting that Asia would emerge as a pivotal region, and eventually a leading region, in the new economy. At the World Economic Forum's Asia Pacific Economic Summit in Melbourne, Australia in fall 2000, several speakers proposed that, despite the region's slow acceptance of e-commerce, its economic strengths and emerging trends portended a bright e-commerce future. The firms, both Asian and otherwise, that supply the infrastructure, such as telecommunications firms and those trafficking in data networks, were pouring money into the region. The relaxed telecommunications regulatory structures through much of Asia, allowing for greater competition, were expected to continue to spur greater investment in that area. Meanwhile, with many of the world's leading manufacturers of IT hardware based in Asia shifting their business strategies to capitalize on software and other knowledge-based products and services, a new paradigm was emerging in the region. According to The Futurist, this would coincide with developing IT infrastructure to push Asia to the fore-front of the e-commerce world.