Technology & Innovation

Good to grow? The environment for Asia's Internet businesses

July 03, 2013

Asia

July 03, 2013

Asia
Our Editors

The Economist Intelligence Unit

_____________________

Executive summary

Over the past decade Asia has become the world leader for the majority of Internet-related statistics. It has close to 50% of the world’s Internet users, some of the fastest broadband speeds globally, and the most rapid growth in mobile broadband out of any region worldwide. Yet it is curious that there are some areas where Asia is lagging. The most obvious is the size and global interests of its Internet businesses.

Where are the Asian Internet giants that should be visibly competing with the likes of Amazon, eBay, Twitter and Facebook in the global arena? Do Asia’s Internet businesses want to build up their presence in Western markets or are they focused on dominating within Asia? What do they see as their highest potential path for growth?

In addition to posing these questions, this report analyses the business environments in which Asian Internet companies operate, and the effects that these have on their ability to grow. It is based on desk research and interviews with more than 30 Internet entrepreneurs and other experts around the region.

The key findings of the research are as follows:

  • There is global demand for Asian content and platforms, but few entrepreneurs are thinking globally.

Asian content and platforms have wide appeal. Examples of companies that have successfully built a global user base include Alibaba from China, Line, a messaging app from Japan, and numerous gaming companies from North Asia. Yet few Asian Internet companies are developing with a global audience in mind. Of the companies that have built up a global user base, this has frequently been through viral traffic, rather than by design.

  • Asian Internet businesses typically focus on home markets, either because they are potentially huge or because they feel they need to build scale before venturing abroad.

Owing to the sheer size and market opportunity available in India and China, there is little incentive for home-grown entrepreneurs from these countries to look outside. Others with overseas ambitions tend to remain regionally focused, believing Western markets to be too competitive and difficult to navigate.

  • Monetisation is an uphill battle for many entrepreneurs.

Entrepreneurs in many parts of Asia face a challenging commercial environment. Online advertising budgets—while growing—remain small and skewed towards the larger players. While e-commerce is growing rapidly, finding the winning business model remains difficult in many markets. Outside of North Asia, entrepreneurs report that Internet users are reluctant to pay for intangible items such as content. This is particularly so when there is pirated content easily available. Some larger foreign players, such as music-streaming service Spotify, are convinced that consumers will pay if more content is made available. They have recently launched their services in some of the most pirate-prone markets in the region.

  • Online payment channels are fragmented and under-developed, hindering business.

Improving the payments landscape is a pressing issue for many Internet entrepreneurs in Asia. There are several challenges—credit card penetration is low, there is limited ability to use debit cards online and a general reluctance to conduct transactions online. In some markets, businesses rely on offline channels for revenue collection, such as through ATM machines or convenience stores, or even in-person collection of payments.

  • Internet regulation is on the rise, and many governments are focusing more on control than enablement, failing to understand the negative impact on the sector.

Asia is still finding its way with respect to governance and regulation of the Internet. In some markets such as Vietnam regulation is mostly undeveloped, which can be seen as a blessing since it allows companies to move quickly and freely. In others, such as South Korea, there are stricter regulations which operators say hamper their business. Singapore recently announced regulations requiring Internet sites carrying news to register with the government like traditional media must do. The one area where ample regulation is in place is around liability for carrying content that either contravenes laws or is otherwise frowned upon. These often poorly worded or confusingly interpreted pieces of legislation—notably those in India and Thailand--create uncertainty for business owners, as well as high administrative costs in order to put safeguards in place.

  • Asia’s market for tech talent is being fought over globally. To ensure supply governments need to think strategically, both in letting foreign talent in and building up the local base.

Entrepreneurs describe Asia’s talent markets for digital skills as being extremely tight. Asian Internet businesses must compete with global tech behemoths, as well as the traditional "job-for-life" industries that Asian graduates have typically favoured. Many entrepreneurs say the education system in their country needs an overhaul, with a greater focus on technology, and that foreign talent needs to be allowed to enter to ensure skills transfer. However, some governments are tightening regulations on foreigners.

  • A culture of collaboration is slowly replacing suspicion in Asia.

While America’s famed Silicon Valley has been built up on a culture of collaboration, Asia’s Internet entrepreneurs, notably outside of North Asia, describe fierce competition and caution that prevents companies from working together. However, this is beginning to change. There are networking events and communities being built up across the region, although mostly in pockets, such as Singapore, Kuala Lumpur and Beijing. The increasing need for governmental dialogue is one area that is spurring closer industry collaboration.

Economist Impact is a part of the Economist Group.
Occasionally, we would like to keep you informed about our newly-released content, events, our best subscription offers, and other new product offerings from The Economist Group.

The Economist Group is a global organisation and operates a strict privacy policy around the world. Please see our privacy policy here.

Enjoy in-depth insights and expert analysis - subscribe to our Perspectives newsletter, delivered every week