Asia Wired

The internet revolution may have a bigger impact on Asia-Pacific than any area of the world, argues Michael Enright

THE internet and modern technologies, which offer low cost communication, the availability of virtually infinite information, and unprecedented interactivity, are reshaping the way business is done around the world.

Although Asia-Pacific has been behind the West in adopting some of the new technologies, arguably their impact has been as far-reaching if not more far-reaching in the region than anywhere else in the world. Given the vast distances, variety of languages, and traditional difficulty in obtaining information in the region, this is likely to persist well into the future.

When most people think of the new technologies, they think of internet companies, particularly the "dotcoms". Asia-Pacific has had its own dotcom boom and bust. If anything, the rise and fall of Asian internet companies was even more dramatic than that of their Western counterparts. In the West, internet firms went public before they had any profits. In Asia, internet companies went public without profits, sales, business plans, or even operational websites.

In several instances, they attracted attention through the local reputations of their backers and general internet hype. The public offerings of some Asian internet companies seemed to be designed more to extract money from unsuspecting investors than to provide the capital base for sustained corporate success.
There is a massive shakeout underway among Asia's internet companies. Mergers, acquisitions, and closures are reducing the number of "me too" firms and investors have become far more wary of internet get-rich-quick schemes. Market research firm IDC expects no more than three to five horizontal portals to survive in most of the economies of the region.

No longer are business plans such as providing "an online community for the Chinese people" able to obtain financing. In addition, several of the "original" internet companies from the West are entering the Asian marketplace and competing against local copycats. As they come under increasing pressure, Asian internet companies are trying to find new ways of generating revenues, marketing their services, and combining online operations with other services.

While the dotcoms have been part of the story of the information revolution in the Asia-Pacific, more important have been the ways that individuals, organisations, companies, and governments are using modern technologies.

According to NUA.com, by mid-2001, Asia-Pacific accounted for 144 million of the world's estimated 513 million internet connections, or 28 percent of the world total, a percentage that is bound to increase given the rapid pace of internet growth in the region.

Several Asia-Pacific economies scored well in the Economist Intelligence Unit's May 2001 rating of the "e-commerce readiness" of the world's 60 largest economies, with Australia (ranked 2nd), Singapore (7th), and Hong Kong (13th) among the "e-business leaders," and Taiwan (16th), Japan (18th), New Zealand (20th), and South Korea (21st) among the "e-business contenders."

Other Asian economies were e-business laggards, including China, Indonesia, Vietnam, and Pakistan. According to the Gartner Group, B2B internet commerce in Asia-Pacific reached $96.8 billion and was estimated to reach $2.4 trillion by 2005.

B2C revenues in the Asia-Pacific are estimated at only one-tenth the B2B level due to troubles with payment systems, a lack of fulfilment capability, and difficulties in changing shopping habits.

In some technologies, Asia-Pacific economies already are making their mark. Broadband internet penetration in South Korea is among the highest in the world. Some major companies, like Citigroup, have introduced new electronic commerce solutions in Asia before they were introduced elsewhere.

NTT DoCoMo pioneered the mobile internet through its i-mode system and was the first company in the world to offer 3G mobile communications services. Hong Kong, Singapore, and Tokyo already have a higher density of mobile phone penetration than most major cities in the West and China will soon be the largest single market for mobile telephones and mobile telephone services.

Modern information and communication technologies also are changing how many multinational companies organise and coordinate their businesses in the Asia-Pacific region. In the past, difficulties in maintaining continuous communications led many multinationals to set up country-based organisations with powerful country managers.

New technologies that allow multinationals to manage over greater distances have facilitated a shift in decision-making authority away from country management and to regional management, either to a regional headquarters or to regional functional or product line management, allowing companies to achieve an integrated strategy across the region while retaining the ability to deal with local conditions.

Country managers that were once kings or queens in their own domains often find their role reduced or they themselves replaced.

The new technologies also allow companies to slice their corporate activities more finely, place each activity in its optimal location, and use information technology to coordinate around the region. The result has been a shift from a rigid geographic hierarchy, based on a single regional headquarters and country managers, to a more flexible and virtual system in which decision-making is distributed among several centres around the region.

One multinational that I work with has its regional headquarters in Hong Kong and manages regional marketing and finance from Hong Kong. The same company manages logistics and treasury functions from Singapore, manufacturing from Tokyo and Bangkok, and information systems and call centres from Sydney.

Another has five product managers distributed around the region who come together once or twice a month to do the regional business in what I call the "floating poker game" model of management. In both cases, coordination is achieved through extensive intracorporate communications, involving numerous e-mails, phone calls, faxes, and intranet messaging.

Many companies in the Asia-Pacific are rushing to put the internet and modern information technology to use. Financial companies already are incorporating new technologies and offering numerous online services. Across the board, we are seeing an explosion of product and service information, corporate reports, newsletters, and consulting reports on the region's companies, industries, and economies.

In the process, information on Asian companies and economies, which always has been a scarce commodity, is becoming far easier to obtain.

However, most Asian companies are behind their Western counterparts in using the internet and communications technology to integrate and coordinate their businesses. In many companies, hierarchical leadership limits the value of decentralised information, reduces the need for extensive coordination among different decision centres, and engenders a desire to control communications to the point where many employees do not even have access to email.

Asian companies that let their traditional structures hinder their ability to use the new technologies to manage more effectively undoubtedly will fall behind.

One area in which modern information and communications technologies have had a clear impact on Asia's economies is in the facilitation of financial flows. Some $1.8 trillion are traded in foreign exchange markets each business day, meaning that the value of a week's worth of currency trades handily exceeds the value of the annual output of the US economy.

Enormous amounts of money can enter and leave an economy literally overnight, a fact that became clear during the depths of the Asian Crisis, when the region discovered just how quickly attacks could be mounted on currencies and stock markets.

Rapid information flows allow the same financial markets that can create internet millionaires by the dozens to punish perceived policy errors or poor corporate performance swiftly and severely. The Asian Crisis also showed that the linkages among the region's economies make it difficult to contain volatility to just one or two economies, a fact that has created momentum for Asian financial cooperation, but which might limit the impact of such cooperation.

The new technologies also have had other effects on the economies of the region. Business centres, such as Hong Kong and Singapore, have used the new technologies to supercharge existing business relationships and to enhance their positions as business hubs. Relatively remote locations, such as Australia and New Zealand, have become better plugged into the rest of the region.

Australia, with its relatively advanced software industry and its diverse population, has benefited by attracting regional software, data processing, and call centre activities. Along with the obvious benefits of such linkages come some less obvious challenges.

In some parts of rural Australia and New Zealand, for example, if online purchases threaten the viability of the local general store, which often serves as the anchor for a rural community, the community itself may collapse.

The "death of distance" also has fostered the development of call centres, data input, and computer software in lesser-developed economies like India and the Philippines with pockets of modern infrastructure and skills. However, there are other communities in the region that simply are by-passed by the new technologies.

It is hard to see how the half of Asia's population that does not have regular access to electricity or telephone services will be helped by the new technologies. In Asia, the internet and modern information technology exacerbates the wealth gap, not by hurting backward economies, but by asymmetrically enhancing the prosperity of advanced economies and the portions of poor economies that can become wired into the rest of the world.

Governments in the region see several impacts of the new technologies. Some are finding the internet to be an efficient mechanism to distribute information to the public and to provide some types of services.

A January 2001 survey of the e-government initiatives of 22 governments around the world by consulting firm Accenture, characterised Singapore, which ranked second after Canada in the survey, as among the "innovative leaders" in e-government services, Australia (ranked 5th) as a "visionary follower," New Zealand (9th) and Hong Kong (10th) as "steady achievers," and Japan (17th) and Malaysia (19th) as "platform builders."

Several other Asia-Pacific governments, such as Thailand and South Korea also have significant e-government initiatives underway. Even China and Vietnam have started to make some government services available online.

The new developments also have created challenges for governments through the erosion of their monopolies on information and information provision. In March 2001, China's Premier Zhu Rongji was forced to go on national television to retract public statements he had made about an explosion that killed 38 children in a school in Jiangxi province. Websites, chat rooms, and phone calls told the story of a school that had been used to make fireworks before Chinese authorities could get out the "official" version that a single madman had planted a bomb.

Such a retraction would have been inconceivable a few years ago. The widespread use of information and communications technologies in Asia poses particular problems for regimes that wish to control the information that gets to the public and that consider seemingly innocuous information as state secrets.
Leaders in other countries have faced new challenges as well. The ouster of Joseph Estrada in the Philippines was orchestrated by a variety of loosely organised groups that coordinated their activities through cell phones and pagers.

The Falun Gong stirs fear in the hearts of Chinese officials largely because of its ability to mobilise large gatherings without tipping off officials. Tens of thousands can be brought into the streets in Indonesia at very short notice. Given government influence over the print media, many Malaysians get the bulk of their political news, at least that concerning the opposition, from the internet. Singapore, which has been very aggressive in trying to promote internet utilisation, has restricted political speech on the internet.

It is not surprising that several of Asia's governments have attempted to control information flows on the internet, but attempting to control such flows comes at a cost. Governments that try to control access to information slow their own internet and information technology development and give rise to other consequences as well.

Internet-savvy technicians, engineers, and information specialists tend to resent it. Companies have avoided placing sensitive activities into China rather than to submit to controls over information, thus limiting China's development potential. Malaysia finds it harder to bring companies into its Multimedia Super Corridor every time that it clamps down on access to information.

Although few companies were willing to complain in public, several quietly shelved plans to place management activities into Singapore after a Singaporean government agency accessed over 200,000 computers in early 1999, ostensibly to check for viruses. It seems that many corporations prefer not to locate information-intensive activities where government can control information flows or access company computers.

There are clear implications that are emerging from the present revolution in information and communication technology. Nations and regions clearly need the right hardware, but they also need the right software, including policy regimes that support the development of new ways of using technologies.

Economies where governments allow the persistence of monopolies in telecommunications or limit competition among ISPs cannot hope to benefit fully from the information revolution, which thrives on competition that spurs innovation, reduces costs, and allows new ideas to flourish.

Recent events, such as the legal case against the alleged author of the "Love Bug" virus in the Philippines, have shown that most governments in the region also have yet to modernise their legal systems to deal with the new technologies.

A variety of skills are needed to ensure maximum benefit from the internet and modern communications technologies. Most of Asia's nations and regions are focusing on expanding education and training in software engineering and related disciplines, but none seem to have grasped the fact that the new developments actually create far greater demand for writers, editors, graphic artists, and other content creators than for software engineers.

The internet and modern communications technologies already have had a dramatic impact on the Asia-Pacific region. By limiting the tyranny of distance, they are bringing the region closer together, facilitating pan-regional management and coordination, and allowing new areas to join the global economy.

By allowing for new levels of interactivity, they are supercharging existing business relationships and enabling the formation of new relationships. They have facilitated economic booms and busts as well as the emergence of political movements that have toppled some governments and put fear into others.
And when we realise how much of this has happened in just the last five years, with many of the new technologies in their infancy and with so much of the region not yet plugged in, we start to see the enormous impact that the internet and modern communications technologies will have in Asia-Pacific.

Michael Enright joined the School of Business of the University of Hong Kong as the Sun Hung Kai Professor after six years as a professor at the Harvard Business School. He is currently completing a three-year study on the activities of multinational firms in the Asia-Pacific.