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Will innovation in Asia rocket its Net economy?

A group of renowned executives, entrepreneurs and asset managers convene at the sixth annual Wharton Asian Business Conference in Philadelphia to discuss the changing face of Asia.

    Their message was clear: The future of the global economy is in Asia.

    A group of renowned executives, entrepreneurs and asset managers convened at the sixth annual Wharton Asian Business Conference in Philadelphia to discuss the changing face of Asia and its transition to the new economy.

    Despite the negative impact of the economic crisis of the late 1990s, experts at the Nov. 17 forum noted that further development of the Internet, construction of a technology and telecommunications infrastructure, and institutional reform are all signs that a second East Asian miracle--powered largely by foreign capital and Investments--will be taking place in the region soon.

    Development of the Internet and e-commerce has had a slow start in Asia, according to speakers at the forum. John Thomson, managing editor of the Chinese Web portal China Online, attributed Asia?s Internet lag to four factors: The Asian financial crisis; language barriers; an insufficient IT infrastructure; and tight regulatory practices of local governments. Shinji Honjo, of General Atlantic Partners, saw volume as the most significant factor keeping Asia from attaining Internet penetration comparable to that in the West.

    Despite these roadblocks, the region continues to develop its Web savvy, anchored by the Internet?s enormous potential as an engine for economic growth. Yoshihiko Abe, senior manager in the e-service practice group at AT Kearney in Tokyo, noted that the Internet has significantly penetrated Singapore, Hong Kong, Taiwan and Korea, contributing to the growth of those respective economies.

    Before the Asian region can experience another boom, however, developing a comprehensive telecommunication and IT infrastructure is essential. Adi Adiwoso, president of Indonesia?s first satellite company, Pasifik Satelit Nusantara (PSN), knows just how large the infrastructure gap is in Asia. The situation, according to Adiwoso, is that the infrastructure problem exists between countries within the region, making it difficult to gauge what standard will prevail and whether a regional standard will emerge at all.

    For example, the underlying technological problems facing Bangladesh are by no means the same as the cultural problems in Japan. Hence, the solutions required to develop adequate infrastructure are unique to each country. The situation is further complicated by the fact that some 3 billion people in the region are demanding access. Even so, bright spots remain, particularly in Japan, where mobile technology has pioneered the way people interact.

    As he held up his mobile phone handset, Takeshi Natsuno presented a glimpse of the future, stating, "We?re going into the Internet business." While these words may not seem significant, Natsuno does not work for an Internet content or service provider; he is the executive director of NTT DoCoMo, Japan?s largest mobile telecommunications provider, and totes a phone that enables him to surf the Internet on its color browser displa--making any handset currently used in the United States seem primitive.

    Despite criticism from industry experts who question the practicality of surfing the Internet on a 2-inch screen, Gerald Faulhaber, chief economist of the Federal Communications Commission (FCC) and also a Wharton faculty member, described NTT DoCoMo?s technology as a display of "East Asia?s wireless leap." Thus, while the region has been suffering from an economic malaise and an inadequate IT infrastructure, innovation in the mobile communications sector carries enormous promise and is an example of the investment opportunities available to companies that want to do business in East Asia.

    After the financial crisis that ripped through Asia, jaded investors made life very difficult for people like Siew Wing Keong, president of H&Q Asia Pacific, which manages $1.6 billion invested in the region. The track record of venture capital funds in Asia has been mixed for four reasons, according to Siew: The absence of companies in Asia experiencing the mercurial growth that Yahoo and Cisco Systems went through in the United States; the absence of a marketplace like the Nasdaq in the region; the absence of two key drivers of growth--creativity and innovation; and a large but highly immature market. Other challenges to growth in Asia include resolving ownership, lack of transparency and corporate governance problems.

    Even so, investors should remain bullish on Asia, according to Peter Joost, president of Orchid Asia Management, which manages a partnership focused on Asian investments. Joost said that the Internet has caused the traditional barriers to entry to fall in Asia, creating an environment he characterized as "the new entrants? paradise," in which incumbents that had been operating inefficiently are now forced to specialize while new competition emerges.

    Siew agreed that while the New Economy in Asia is still developing, the potential for profound growth in the region is contingent upon the emergence of globally competitive Asian businesses in high growth sectors that are managed and marketed well. While growth prospects are high in the region, according to Siew, the growth potential is enormous particularly in China, whose own economy could soon eclipse the economies of Taiwan and Korea.

    The growth potential of China is especially evident in the recent emergence of Chinadotcom--dubbed by some as the Yahoo of China. Chinadotcom CEO Peter Yip emphasized the enormous impact China and the Internet will have on each other and on prosperity in the region overall. According to Yip, the Internet will equalize social relationships, help bridge the gap between rich and poor, provide a 24-hour medium of information and lower business operating costs. China joining the WTO will accelerate the country?s growth, thanks to access to international capital markets and strategic partnerships with multinational corporations.

    Yip acknowledged that the diverse shareholder base of his company, which includes America Online and 24/7 Media, provides a strong team of managers running the company. This final point is the key differentiating factor between tomorrow?s winners and losers. Citing his own experience and perseverance, Yip encouraged investors not to lose faith, noting at one point, "If you have the guts in this market, now is a great time to buy." The same can certainly be said for much of the rest of Asia.

     
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