While Asia felt its share of pain in the recent high-tech downturn, success stories continue to be written by savvy companies.
Panelists at "Growing Asia Through the High-Tech Downturn" at the HBS Asia Business Conference told the audience that high-tech opportunities remain, but companies cannot throw caution to the wind. Hiroshi Mikitani, the Rakuten CEO who was recently honored as one of the top CEOs of the year by BusinessWeek magazine, started his e-commerce Web site in 1997 while Internet businesses were the darlings of VC in the U.S. But Mikitani started his company on a shoestring—$200,000 of his own money—and spent the company's IPO money judiciously.
Now the Japanese Web site, which Mikitani describes as a cross between eBay and Amazon, is flourishing. It has made twenty acquisitions, but it conserved its IPO funds and purchased brands such as Lycos and Infoseek at a relative discount after the market softened. Its users complete $100 million worth of transactions a month.
Unlike many U.S. Internet companies, Rakuten was profitable before it went public. Even so, it too was buffeted by stock market forces. It launched at a value of $3.7 billion, rose to $7 billion, then fell to $500 million and now has a market cap of $1 billion.
| By 2005 or thereabouts, China could be 50 percent of the worldwide consumer products output. |
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— James Root, Bain & Company |
"One of the reasons we became so successful is we believed in the growth of Internet commerce [and the] e-marketplace when nobody else did," Mikitani said. Mikitani (HBS MBA '93) also said the growth opportunity he found came in the complex distribution structure for Japanese consumer goods. Because consumers can skip most of the middlemen by using his Web site, merchandise is sold there for a 20 percent discount over most stores.
Yoshihiro Obata, chief technology officer for eAccess, a broadband company in Japan, said he expects explosive growth in Web-enabled appliances, more so than in PCs.
"Non-computer devices will play the key role in Asia," he said. Sit on a subway in Japan, Obata said, and you'll notice "one out of ten people are just typing e-mails [into their cell phones] on the train." One reason for the high penetration is plentiful, cheap DSL, of which eAccess is a provider. Broadband is available for less than $25 a month in Japan, about half the cost of residential broadband service in the U.S.
James Root, vice president and head of the Asia Technology Practice for Bain & Company, said that finding growth during the downturn has undoubtedly been the biggest challenge high-tech companies have faced. But Root said he expects an explosion of consumer-products manufacturing from China.
"By 2005 or thereabouts, China could be 50 percent of the world-wide consumer products output," Root said. He expects not only U.S. companies but also other Asian companies to relocate manufacturing to China as well. And he said the quality of the goods would be high.
"Over time, the notion of 'Made in China' will become a very high quality stamp of approval," Root said.
Localization is key
Mary X. Z. Ma, executive director and senior vice president and CFO of Legend Group, the manufacturer of China's top-selling computer brand and other IT components, also warned that companies should make sure they have plenty of information before trying to enter an Asian market.
"Many countries are still underdeveloped," she said. In China, for example, she said, proper corporate governance and accounting compliance are still issues—although she added, with a laugh, that U.S. companies have proven themselves vulnerable to problems in both areas. She said it is also vital for companies to understand that Asia is not a homogenous market, and localizing products and marketing campaigns is critical to success.
Obata agreed. "In this economy, financial support will play a key role, but it doesn't work without localization," he said.
Root also warned that entering Asia is not the answer for every company. He said individual firms must analyze their own profit economics before deciding whether they can deliver the return they need in Asia. Western high-tech firms entering Asia can expect to find local and international competition. Mikitani said his firm is challenged to manage the twenty brands it now owns while continuing to outpace the competition.
"We need to move pretty fast, and we need to compete locally as well as with global companies," he said.
Ma said the biggest challenge facing Legend remains finding the right people. She said Legend is working hard to develop appropriate incentive packages to attract the right employees.
"[Finding] talented people is the most critical issue," she said. "People make impossible missions possible."