The Asia-Pacific region holds a great deal of growth potential for vendors, distributors and resellers – but moving into the region is by no means straightforward.
In the introduction to its Asia-Pacific Tech Market Outlook for 2012 report, Forrester Research suggests that for many tech vendors, the Asia Pacific market is the new frontier – a region of fast growth, endless opportunity and dynamic businesses. Some countries are even relatively unencumbered by legacy technologies and practices.
"But the region is gigantic and there are important nuances that make individual country markets more different than alike. China is a very different market from India, which differs from Japan, which differs from Australia or Indonesia," the market research company notes.
In fact, looking at the Asia-Pacific may mean considering South Korea, Malaysia, Thailand, Taiwan, Hong Kong, Singapore, New Zealand, and many other places. Using the same approach with each won't work. And obviously suppliers need not only to adopt a different approach in each, but ensure they target the countries that offer the best opportunities for their products and services.
According to an IDC report entitled Top 10 Predictions for 2012, China (excluding Hong Kong) accounts for 28 per cent of the IT spend in emerging markets, and is expected to expand 20 per cent in 2012 to reach $145bn (£90.1bn). The Chinese market, like many others in the region, is currently dominated by hardware.
Australia is the next largest IT market, reaching about $40bn, but enjoys more subdued growth in its IT spend of around five to seven per cent. It is quite mature and looks much like a Western market, with more than half of its IT revenues being generated by software and services.
India, at $34bn, is close behind. This rather open, dynamic giant is growing fast, but is fragmented and localised. It is also more driven by software and services than China. South Korea is next at $33bn, followed by Indonesia ($13bn), Hong Kong ($9.7bn), Thailand ($9.6bn), and Singapore ($9.5bn), all growing at different rates, according to an IDC spending forecast for the region released November 2011.
It is easy to see why these markets may appeal to vendors finding it difficult to drive growth in already developed economies. The Asia-Pacific region, excluding Japan, generated $266bn or about 13 per cent of the $2trn global market in 2011, according to Forrester. Japan alone was worth $195bn.
Tirthankar Sen, a Singapore-based analyst at Forrester Research, warns that China can be relatively insular and difficult to break into. Furthermore, growth in the country (indeed, across the region), is expected to decelerate over the next couple of years – and that includes growth in IT spending.
Barriers to entry
Philip Carter, an associate vice president at IDC, has followed Asia-Pacific regional developments for many years. "There is growth, but also complex challenges in all countries across the whole region," he says.
IDC stats suggest that 75 per cent of the business done across the region is with a local supplier, and it is impossible to take a one-size-fits-all approach. "In each country the channel ecosystem is different, so the opportunity to derive scale is limited. You have to go via the local channel," says Carter.
Forrester's Sen agrees that simply exporting what works at home won't work.
"When [UK] people [vendors] think about APAC they think about one region and they have only one channel strategy. In China it's a very hardware-oriented market and you really need to have a local sales presence. In India there are a number of large cities and you can have a two-, three- or even four-tier model. The channel there is slowly developing and moving from boxes towards software and services," Sen says. "Australia is more developed and very much follows what happens in the US."
Sen says that India holds the most promise of all the Asia-Pacific markets at present, but is vast and diverse.
"There are six major cities and almost 600 smaller cities. India is a huge goldmine and still growing fast, but it is not following the same trends as the US. Adoption of some technologies is much faster. They don't have legacy technologies, so that's an advantage here and a lot of people are getting into the cloud much faster," Sen says. "People are becoming more aware of technology and SMBs don't have as much dependence on the reseller. They are not afraid of new technologies."
IDC's Carter (pictured, right) also singles India out. "It's a global delivery centre for services, and that has translated into the market and started to lead to some quite progressive business models being developed in India."
There is, for example, a move towards sharing risk with supplier rewards being linked directly to business outcomes, he says. If a product is sold on the basis that it will save money, a supplier may be offered a cut of savings, rather than a straight price.
In China, there is much more regulation and pressure to buy from homegrown companies, he notes. "China is very closed; the local ecosystem is dominant and there is pressure to have products made in China for China."
When it comes to Singapore and Hong Kong, both are finance and logistics hubs for the region. Demand is high, but there is no shortage of suppliers and most major Western firms already have a strong presence which, in addition to servicing the local commercial markets, they use to manage major global corporate accounts across the region.
Most of the big global vendors rely heavily on local distributors, integrators and resellers across the region. Most distributors are indigenous companies, although some big global names, including Ingram Micro, Weston and Avnet, continue to make acquisitions and build their presence across the Asia-Pacific.
Right across the Asia-Pacific region, the reseller community is almost exclusively local. Sen says that there are some foreign ISVs addressing these markets, but most are doing this via the cloud and without setting up a regional office of any kind. Like distributors, resellers looking to move into these markets may need to do so via acquisition, but at present there are only a handful of businesses in each country that may be suitable targets.
India, of course, has its own world-beating, globally active IT services and software companies, like Wipro and Infosys. Many of these companies operate in a multi-faceted way that transcends different levels of the channel. They are also investing heavily in services and the cloud. India remains a major centre for outsourced IT and development, powered by large numbers of IT-literate and highly educated employees.
Forrester's Sen says that Indonesia and Malaysia, on the other hand, have a lot of SMBs and a lot of potential. "They are growing slowly and they are similar to India in that they have two or three major cities and hubs of activity," Sen says.
In China, India and Korea, SMBs account for around 40 per cent of the market, according to IDC, but only about 30 per cent in Malaysia, Thailand, and Australia. In many countries, the IT spend is dominated by corporations and the public sector, resulting in a focus on local suppliers or direct relationships.
The SMB sector is developing in line with the wider economies in each country, and it is only when SMBs really start to spend on technology that the distribution channel will become more developed and dynamic.
Investment in infrastructure
Some countries are investing heavily in IT infrastructure. In Forrester's Asia Pacific Tech Market Outlook for 2012, it was estimated that the Chinese government had spent around $8bn on the cloud, setting up hubs in five major cities and planning to build an additional 20 datacentres.
About 10 million square feet were under construction at the time of the report – roughly the size of the total datacentre footage in India at that time.
However, growth rates appear unlikely to continue at the rates seen in recent years, with the global slowdown affecting Asian economies as well.
"Over the past six months the forecasts [for economic growth] have come down. That's linked to the uncertainty in the US and the West, and the two markets causing most concern are India and China because they have delivered the most significant growth over the last few years," says Carter.
That will have an effect on IT investment. If the biggest markets don't see much growth, the whole region will suffer. When the global economy turns the corner, though, the Asia-Pacific region should recover quickly, and Western IT companies may be compelled to look East.
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