Asia ripe for Internet commerce

Just as Pacific Rim nations gathered in Vancouver last week to back a global framework aimed at governing and encouraging electronic commerce, a group of Internet providers, advertisers, and marketers were touting the opportunities for e-commerce in Asia.

During a conference hosted by the Asia Society in New York City, Hyojong Kim, president of Domain Asia, told attendees that the Internet in Asia is developing at an incredible speed. "The bad news," she said, "is that none of us are going to get any sleep in our attempts to keep up."

With IT spending doubling in Singapore in 1996; the number of Web users up 60 percent, to 5.5 million, since last March in Japan; and another 1.26 million users added in Taiwan, analysts believe that now is the time for U.S. companies to make a move onto the Asian market.

Domain Asia, which helps U.S. companies develop Internet businesses in Asia, says there are various incentives for e-commerce in Asian countries: in Japan, a high consumer demand for diverse products; in Korea, an emerging sensitivity to prices; in Hong Kong and Singapore, an attractive alternative to the high cost of a local physical presence; and in Taiwan, the highest Internet penetration in Asia.

"So far, there is no system to connect back-end businesses with front-end user systems in Asia," said Hiroshi Menjo, a partner with the McKenna Group. "Once the two systems are connected, there will be an enormous marketplace for e-commerce."

According to Menjo's projections, the e-commerce market in Asia will total $15 billion by the year 2000, with 20 percent to 40 percent of that figure going to front-end solutions.

Walter Miao, senior vice president of Access Media International, a consulting firm specializing in emerging markets and technologies, echoes Menjo's projections. "The Asian Pacific market is outpacing the rest of the world in host sites, not just developing content, but generating business," he said. "And the rapid growth exists almost across the Asia Pacific region."

In analyzing the potential of Asian markets, Miao identified immediately addressable markets for U.S. companies in Hong Kong and Singapore. With the willingness of those countries to embrace new technologies and little or no proprietary online service subscriptions, the Internet market is ripe, said Miao, adding that the fact that Hong Kong and Singapore are predominantly English speaking markets makes them even more attractive to U.S. firms.

In the medium term, Miao said U.S. companies can look to Taiwan, which has very high Internet adoption rates. However, with more regulation of Internet content and a requirement to find a local partner in Taiwan, Miao suggested that U.S. companies should leverage their presence in Hong Kong and Singapore to enter more challenging markets, like Taiwan.

One of the great advantages of the Internet, said Bryan Finkel, managing director of Technology Venture Management and chairman of the MIT Enterprise Forum, which cohosted the event, is that today almost any company can establish itself as a leader.

He added that the ability to outsource services for e-commerce fulfillment for around $2,000 has opened the e-commerce market to small companies as well as large, established firms.

A case in point: CDNow, one of the largest online music retailers, attracted its first international customer a month after its launch. Today, said CDNow president and founder Jason Olim, fully a third of the company's sales come from international clients. In fact, to keep up with its international following, CDNow is offering its products in nine different languages.

But even while the international e-commerce picture may look rosy, there are several difficulties to be overcome in entering the Asian Internet market. Regulations still vary greatly from country to country, standards for transactions differ, and language and cultural barriers often make it harder for U.S. companies to cater to Asian users.

Both PointCast and Yahoo (YHOO), who have made inroads into Asian countries, say that the key lies in partnerships and joint ventures with local companies. Douglas Boake, vice president, PointCast Asia Pacific and Latin America, said that finding a key partner enabled PointCast to invest in the local infrastructure, gather unique market knowledge, and, more importantly, understand the culture.

Yet as Asian governments and U.S. companies begin to grasp the potential for global e-commerce, the debate in the United States is heating up over whether to impose stricter encryption export laws. The battle being played out between high-technology companies and law enforcement officials may determine the future success of global e-commerce.

Exemptions allowing companies to export strong encryption software, once the exclusive province of financial institutions, are now being given to companies ranging from investment firms to software companies. If FBI director Louis Freeh has his way, controls on the export of electronic data scrambling systems would be tightened. Securities and software companies, however, argue that such a move would put a damper on the growth of e-commerce, which promises to be really big business.