PwC’s ASEANZ telecommunications, media and technology lead partner Mohammad Chowdhury and telecommunications and technology partner Matt Benwell witnessed firsthand the astonishing growth defining modern Asia. As the cost of smartphones plummet and data usage soars, the prominent trend from a technology perspective is that connectivity is becoming the norm.
Asia is home to the world’s fastest growing internet giants in gaming, social media, ecommerce and search. Tencent, Alibaba and Baidu focus today on China’s consumer market, which continues to offer growth, but are beginning to look outside. Australia is now the third biggest market for Alibaba, according to the company.1 With a market capitalisation of around US$400 billion, the rapid trajectory of its growth has market pundits tipping it to soon join Amazon and Apple in the US$1 trillion club.
Western internet companies have been struggling to scale beyond initial waves of growth in Asia. Some have sold their operations to Chinese competitors or exited completely, such as the consolidation of Uber by Didi Chuxing in China last year.2 The lesson many foreign companies have learned is the need to look for ways to localise their content and services in order to penetrate deeper into the market, beyond the “globally” tuned, urbanised consumers they can pick up quickly. It’s worth it: with a consumer market of larger than 1 billion, a rapidly growing and maturing middle class, success pays dividends. Take Starbucks: part of its strategy involved creating products that appeal to locals (a tea-heavy culture) and partnering with local companies across different regions displaying understanding of the diversity of the nation.3
The modern agile workforce can be seen at scale in Asia: around half of the workforce in major Chinese internet players are made up of engineering graduates that work on technology every day. Now one of the world’s top innovators – Chinese spend on research and development stands at 21% of the US$2 trillion global total, behind only the US according to the World Economic Forum. China’s workforce is becoming agile at scale with scrum and squads focusing on user value, while striving for continuous improvement through micro-innovation, all the while embracing mistakes as an opportunity to grow. It’s also a result of a focus on STEM: according to the WEF, Chinese students studying science and engineering rose from 369,000 in 2000 to 1.65 million in 2014.4
Soon 5G networks and optimised cloud will be enriching the consumer experience in areas such as gaming, which requires super high data speeds to deliver a real-time experience. According to the PwC’s The Future of ASEAN: Time To Act report, approximately 60% of the population in the region is under 40 years old, and a majority of these young workers will be residing in cities by 2020. This presents a huge opportunity for over-the-top service providers: video-on-demand revenue is projected to increase by approximately 80% to 90% between 2016 and 2021.
The Internet of Things is fast becoming the norm. According to The Future of ASEAN report, 50 billion ‘things’ are expected to be connected by 2020, representing a compound annual growth rate of 23%. Of this, 40% is anticipated to come from the Asia-Pacific region.5 The new frontier in communications is optimisation of traffic and how it flows between the edge of the network and the core of the network.
In 1955, the population of the sleepy fishing village of Shenzhen, near the border with Hong Kong, stood at just 5,000. Half a century later, the population ticked over 10 million.6 Much of its growth has been due to being designated a special economic zone in 1980 and has since become a major tech hub, with hundreds of internet companies now calling the city home. Together they have formed a vast innovation and service ecosystem for the Asian markets. According to peak mobile network body the GSMA, tech hub ecosystems in the Philippines, Cambodia and Myanmar doubled in size in a little under two years.7
Companies such as Tencent are pursuing a strategy to win over as many users as possible, before focusing on maximising monetisation – not dissimilar to streaming platform Netflix. Social media platform WeChat has 1 billion users, with a peak of around 300 million simultaneous users daily. But just 18% of its revenue comes from advertising, compared to its competitors, where the majority of revenue comes from advertising.8 Instead, these companies are growing earnings through value-adds, such as gaming. With an ever growing user base, the monetisation potential is substantial.
Will China ultimately win out in the race to build the world’s most sustainable mega internet businesses? Or will US incumbents prevail? Perhaps new leaders will emerge from that other fast rising nation: India? Time will tell, but we certainly don’t think that you can discount any of those groups, given the level of innovation and investment pouring in from across the globe.
The biggest Asian internet players are not fully digitised in their core, indeed some companies are now two decades old or more, with legacy technology and infrastructure that means they will need to undergo their own digital transformation. It does lead to the question as to whether they will attempt to become fully digital, and if they do, will they manage this change better than some others have? Watch this space.