Looking at the statistics Asia seems like the natural home of the internet. It has nearly 50% of the world’s internet users and accounts for nearly one third of the global e-commerce market; the fastest broadband speeds in the world are based in Asia (one list places the top three countries as Hong Kong, South Korea, and Japan), and it has the quickest growth in mobile broadband of any region worldwide.
Despite all this, how many Asian internet companies can you name? Where is the Asian Google or Amazon, jostling its Western competitors for market share in Europe and the US? Although hardware companies from the region have been making strides recently the Eastern equivalents of the likes of eBay and Facebook – and they do exist - have barely any presence here at all. Why is this?
A new report commissioned by the Asia Internet Coalition and written by the Economist Intelligence Unit (an independent and specialised consultancy service within the Economist Group) has set out to answer these questions, finding out why “Asia’s internet businesses seem to punch below the region’s weight on the global stage.”
Many companies have only recently begun to care
For many companies it seems that globalisation has not been on the agenda until recently, with Japan’s e-commerce giant Rakuten for example, only attempting to reach global markets recently. Its first overseas acquisition was only in 2005 (a US affiliate marketing company) and in 2010 it made English its official corporate language.
Other Asian businesses simply prefer to focus on domestic markets. Looking at the likes of Baidu, QQ, and Taobao it’s easy to see why. All three are Chinese language sites aimed at their home market and yet even without global reach manage all three are in the top ten most popular websites in the world.
And expanding globally comes with its own challenges – language being the main difficulty, not only in terms of the spoken but also the coded; there are also the challenges of “unique cultures, technology preferences, business environments and e-business infrastructures” to contend with, the authors write.
A 'digital divide' in the region means potential markets are suppressed
Asia also faces greater challenges in the shape of the “digital divide” between the north and south of the region. Monetization for internet companies is often based on the willingness of markets to pay for intangible goods – be these online services or advertising – something that is far more difficult in developing countries.
Whereas companies in Japan and South Korea can rely on these ‘intangibles’ (the OTT messaging service Line for example bases a large chunk of its revenue on the sale of detailed emoticons known as ‘stickers’), other nations are not so lucky.
Whilst the likes of Indonesia and Vietnam have large and young populations which seem a ripe market for internet products, the paper describes these countries’ users as “accustomed to downloading content for free” with possible profits also eroded by “piracy or unauthorised distribution”.
It doesn’t help that many countries in the region are essentially cash-economies, hobbling online payments before they’ve even taken off. Credit card penetration in China, Thailand, India, Vietnam and Indonesia is less than 10%, whilst those that are able to use cards online often don’t out of fear of fraud. The paper gives the example of Indonensia, where “fraud is the reason that one-third of internet users did not shop online last year.”
Borders - physical and cultural - keep countries apart
Other borders to international growth are just that – borders. Some countries find that the talent they need has already travelled abroad and is safely settled overseas; others find it difficult to attract Western workers away from the benefits of home.
The authors of the report also cite “entrenched conservatism among Asian graduates”, with the cultural kudos of the start-up culture – a sort of rugged individualism that seems ubiquitous in the West – has yet to find favour in Asian societies.
Collaboration is also cited as problems, both domestically and internationally. Asian markets are only recently beginning to accept the need for sharing information with industry peers, and forming alliances to gain wider access to the market.
In conclusion the Economist’s report is tacitly optimistic for the region – especially considering the ease with which internet start-ups can find global audiences and the potential user-base of the region.
However, it does stress the need for clear legislation for Internet companies; one that “creates a solid foundation for Internet companies and builds consumer confidence in online channels" and that strengthens the legitimacy of online payment infrastructures.
Growth in the industry could only benefit the region, but the unasked (and less comfortable) question is whether such success would end up damaging Western businesses. On the other hand, we might welcome the competition.
A recent op-ed for Salon asked the question 'Who will stop Google?', describing the company as becoming too autocratic and too self-regarding to really serve any public good. Maybe a challenge from the east would do us all some good.