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Cindy Payne
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By Cindy Payne, Managing Director
Asia-Pacific Connections Pte Ltd

January 2002

 

Asia-Pacific's staggering economic growth over the last 20 years was largely fueled by the manufacturing sector, mainly focused on cars and electronic goods for overseas consumption. According to a report by Deutsche Bank Global Markets Research, electronics account for 75% of all exports in Singapore, 60% in the Philippines, 58% in Malaysia and 37% each in Taiwan and South Korea. The United States has historically consumed approximately 40% of these electronic goods. However, the U.S. technology slowdown, which began in March 2001, has caused a depressed U.S. demand for all goods, with a particular slump in electronics.

According to the latest forecasts released in January 2002, International Data Corporation (IDC) does not expect the Asia-Pacific (excluding Japan) Information Technology (IT) market to recover until the third quarter of 2002. By year end, IDC expects that the regional IT market will grow by 13.5% to reach approximately US$70 billion, fueled by investments in security, e-business and network infrastructure. In addition, IDC remains bullish on growth in the regional telecommunications sector, with 2002 growth expected to be 20.6%, resulting in a year-end value of US$161 billion. Growth in the Asia-Pacific telecommunications industry will continue to be compounded annually at 19%, reaching a value of US$269 million by 2005.

A major force driving Asia-Pacific IT & telecommunications spending projections is China's recent entry into the World Trade Organization (WTO). Whilst the expected emergence of more low-priced, high-quality electronic goods from China is obviously in the region's favour overall, it is proving to be a threat to Southeast Asia's manufacturing base, in particular.

Consequently, Asian governments are fighting to maintain their relevance in the global economy, especially in the IT arena. In November 2000, the ASEAN nations, together with their North Asian counterparts, agreed to put into action a package of measures (collectively called the "Asian IT Belt" initiative), which will pour more than US$20 billion of investment into the region, mainly in physical and information communication infrastructure. Singapore is spearheading the initiative, in a quest to have the rest of the world view Asia as one single market. The intent is to pool India's software expertise with Korea's broadband capabilities, Japan's wireless innovations, Malaysia's Multimedia Super Corridor and Singapore's information communications infrastructure in a test-bed for new business models, products and services. This new economic powerhouse should then complement China's position in the world economy, whilst boosting the implementation of the ASEAN-China Free Trade Area, which will be the largest Free Trade Area in the world, with 1.8 billion people. ASEAN leaders hope that when this Free Trade Area is realised, Asia will become an even larger magnet for investments, not just to China, but to the rest of Asia as well.

Phiroz Vandrevala, chairman of India's National Association of Software Services Companies (NASSCOM), comments, "The formation of the Asian IT Belt is intended to increase the connectivity and harmonisation of IT standards and regulations across borders. Besides attracting global investment, we hope it will also attract ideas and talent. In the long run, the scope will later expand – with IT as the key enabler – to stimulate the growth of other related sectors, such as manufacturing and finance."

Below are key components of the Asian IT Belt initiative:

  • The e-infrastructure initiative is meant to strengthen links between the main city hubs in Asia-Pacific through the development of "soft" infrastructure, such as trust marks and public key infrastructure (PKI), to support greater use of online transactions and facilitate e-commerce – the B2B e-commerce market in Singapore alone reached US$60 billion by the end of 2001.
  • The e-markets initiative will focus on strengthening the business relationships between the various IT sectors through the promotion of Internet-based facilitators.
  • The e-capital initiative will encourage investment flow, allowing entrepreneurs greater access to funds across Asia, including the US$27 million Startup EnterprisE Development Scheme (SEEDS), which provides equity financing for start-ups in the seed stage of enterprise formation.

In China, the much-lauded WTO accession of the world's "most promising" market has high-tech executives excited but cautious. Jia Hong Bing, president of Star Group, one of China's leading PC makers, says, "I suspect that next year, the bulk of investment will go to the government institutes, such as banks, that need to reform in line with WTO principles. Therefore, stimulus for domestic consumption may not get strong support right away."

In 2000, total IT spending in China reached almost US$16 billion. IDC predicts that China's IT market will grow at an average rate of 27%, to become a US$50 billion market by 2005. The finance sector currently accounts for more than 27% of that spending, followed by the telecom sector with 22.9%, and transportation with 11.2%. Whilst finance is expected to remain the largest sector for IT-related goods and services, IDC expects growth from the distribution and retail sectors (which accounted for 6% of China's IT spending in 2000) and manufacturing (reported as 4.3% of China's IT spending in 2000). The growth in the distribution, retail and manufacturing sectors will mainly be driven by China's entry into the WTO and the entry of multinational companies into these sectors. In addition, Wan Ning, Deputy General Manager of IDC China, comments, "I think that the Olympic Games in 2008 will greatly help boost China's IT industry. A number of cities will set up an information platform, which will give rise to high demand for high-tech products and services."

In contrast to other Asian economies, China is less vulnerable to the vagaries of the global economy because of its huge domestic population of 1.3 billion. And Chinese consumers are currently earning and spending at unprecedented rates. Though all the Asian markets are eyeing the U.S., in hope of an early economic recovery and return to previous import consumption levels, the Chinese are the least at risk. Whether hitching themselves to the Chinese star will work for the Asian economies remains to be seen; but in the short term, Asia realises it must invest heavily in technology to survive and compete in the global arena.

 

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