Rising in the East

The Asia-Pacific E-commerce market is ripe with potential and set to explode.

The E-commerce market in the Asia-Pacific region is set to explode. Forrester Research reports that worldwide E-commerce spending will reach $6.9 trillion in 2004, with the Asia-Pacific accounting for $1.6 trillion – over 20 percent of the total forecast.

Sheer volume of numbers and the youth of the market are what make the potential of the Asia-Pacific region so tantalizing. The numbers are staggering, and even more so considering that Internet usage and E-commerce adoption are still in stages of relative infancy throughout the region. According to Gartner Dataquest, analysts project that the Asia-Pacific will have 183.3 million Internet subscribers in 2003, compared to 162.8 in the United States and 162.2 million in Western Europe.

Increased Internet usage translates into a corresponding growth in E-commerce. The progression is quite natural: as Internet users become more comfortable with the medium, their behavior gradually changes. Sooner rather than later, users begin moving from E-mail and chatting to shopping and conducting personal financial transactions online.

NetValue’s November 2001 Audience Report on Singapore, Hong Kong, Taiwan and South Korea finds that the growth of Internet usage in these Asia-Pacific countries has been accompanied by a corresponding increase in E-commerce transactions.

If your company is engaged in business-to-consumer E-commerce, the Asia-Pacific is a market with size and potential that is impossible to ignore.

MerchantSelect.Com looks at the obstacles that E-commerce vendors face, followed by a series of snapshots of the leading markets in the region.

Barriers

What are some of the main barriers to E-commerce development in the region?

Language - Many different languages are spoken throughout the Asia-Pacific, hindering communication and potentially limiting market reach. To further complicate things, many of the languages spoken are built on unique phonetic systems. This is a huge barrier when it comes to translating software packages and designing web sites.

Credit Cards - Many of the countries in the Asia-Pacific do not have credit cards ingrained in their consumer cultures. In some ways, credit cards are even associated with negative connotations such as debt. Credit cards remain the most efficient way for vendors to reach online shoppers. But in many Asian countries, consumers are still more comfortable with cash.

Security - Credit cards also bring up security issues. Many shoppers in Asia-Pacific countries simply do not trust the Internet and remain wary of giving away personal information.

Personal Computer Ownership - Personal computer ownership is another barrier. According to IDC, PC ownership is 0.40 per person in the US compared to a paltry 0.01 in Asia.

Consumer Culture - The consumer culture in Asian countries is also a barrier. In countries like Hong Kong, shopping is a national pastime. Nowhere in the world will you find more shopping malls open 24/7. People in many Asian cities enjoy the shopping experience. It’s a social thing to do, rather than a chore. Shopping online takes away from something that many Asians have come to enjoy.

Infrastructure - Many countries in the Asia-Pacific lack modernized banking systems to go along with a weak overall IT infrastructure.

Where is it Happening?

While there are certain obstacles that hold back E-commerce development in the Asia-Pacific, the potential is still enormous.

Where is it happening? The simple answer is, all across the region.

However, E-commerce is growing at an uneven rate across the many different sub-regions of the Asia-Pacific. Some countries like Japan and South Korea are further along, while countries like Malaysia, Indonesia, China and Thailand, lag further behind.

IT outsourcing giant, Electronic Data Systems (EDS) Australia believes there is no single consolidated Asia-Pacific E-commerce market. The differences in market maturity and the spending potential are so varied that almost no two countries in the region are identical.

Market Snapshots

Australia and New Zealand

The former British colonies (and Singapore) are the only English-speaking countries of the Asia-Pacific region. The fact that English is spoken in these countries is extremely beneficial to the continued growth of E-commerce. English is both the international language of business as well as the dominant language in computing.

Australia and New Zealand are also well known for their extremely technology-savvy populations – a characteristic that bodes extremely well for the E-commerce market. And they are online in great numbers. Australia and New Zealand have Internet penetration rates of 51 and 52 percent respectively (Nielson/NetRatings).

The combination of an advanced IT infrastructure, strong banking system and net savvy populace, make Australia one of the most mature E-commerce markets in the Asia-Pacific region (EDS Australia). The National Office for the Information Economy in Australia finds that Australia ranks 7th in the world with 14 percent of the population of Internet users having made an online purchase within a six month period.

Japan and Korea

The Japanese and Korean Internet populations are sizeable, highly sophisticated and extremely active. South Korea holds the highest household Internet penetration rate in the Asia-Pacific with 58 percent (Neilson/NetRatings), while Japan hovers right around 50 percent (NUA Internet Surveys).

Japan’s story is unique, having carried an economic miracle to G-7 status in less than a generation. Its Internet economy is the most dynamic in the region and most closely mirrors E-commerce development in North America. It has a strong IT infrastructure, modern financial systems and robust legal frameworks. The B2B sector is particularly dynamic. Gartner estimates Japan will take up 11.8 percent of the entire global B2B E-commerce market by 2004. On the consumer front, Market Research Group, Macromill conducted studies revealing that 80 percent of Japanese Internet users have made at least one online purchase.

Neilson NetRatings reports that South Koreans were some of the most active Internet users in Asia, (based on indicators such as Web sessions per month, hours online and total page views), ranking them fourth worldwide, behind only the US, Japan and Germany. With such an active user base, it is not surprising that E-commerce continues to grow. According to studies by Neilson/NetRatings, 12 percent of all South Koreans online have made E-commerce purchases within a six-month period.

Taiwan and Hong Kong

Two developing E-commerce markets are a part of the Greater China Region: Taiwan and Hong Kong. Along with Korea, Japan and Singapore, Taiwan and Hong Kong are two of the most developed economies in the region.

Taiwan has an Internet penetration rate of just over 51.8 percent (NUA Internet Surveys). Taiwan regularly measures high in categories of technological sophistication - measured by indicators such as broadband access, and total volume of home computers and Internet access. Broadband access (largely ADSL) is growing quickly with 1.44 million users (NetCommerce Taiwan).

Hong Kong also has a highly wired society, with an Internet penetration rate of 54.5 percent (NUA Internet Surveys). Its colonial past has helped create a willingness to adopt foreign economic influences and global markets – a trait that will definitely aid E-commerce growth. Broadband usage in Hong Kong has quickly begun to creep upwards, with around 20 percent of the population now using high-speed Internet services.

E-commerce is gaining ground in both these countries. In Hong Kong and Taiwan, 4 (Neilson NetRatings) and 5 percent of the online population have made purchases over the Internet in a recent six-month period. Significant growth in high-speed Internet use is also important. In both countries, the fast-growing broadband population shows consistently higher levels of Internet usage and willingness to purchase online than their dial-up counterparts.

China and India

China and India are the two most populous countries in the world. However, Internet penetration rates lag behind most of the Asia-Pacific. Internet penetration rates run as low as 7 percent in India (Neilson/NetRatings) and 5.5 percent in China (Neilson/NetRatings).

China, like India will continue to be hampered by weak infrastructure and low levels of personal computer ownership. However, the massive size of the market makes its potential for growth so intriguing. Take China for example. It had only 1.5 million Internet users in 1999, but in three short years, that number has hit over 30 million. According to Pyramid Research, Internet usage in China is likely to grow 65 percent annually over the next four years and can be expected to reach 90 million in the year 2005.

China also has certain advantages that India does not. Taiwan, Hong Kong and Singapore have Internet infrastructures capable of handling the Chinese language. There are positive signs that E-commerce will continue to develop. Reports show that office workers in China’s major cities are warming up to the idea of purchasing things online. The approval rate for E-commerce was 44 percent (Global Fluency).

India also shows positive signs. Surveys indicate that 91 percent of Internet users know of online retailers, while 69 percent say they are interested in shopping online. (Global Fluency). Technical expertise is very abundant. Educated technology professionals are abundant in India, home to many of the finest software engineers in the world.

Singapore and Malaysia

Singapore and Malaysia are potentially lucrative E-commerce markets located to the Southwest of the region. A positive attribute that both countries share is strong pro-business governments that are committed to developing technology and wiring society as rapidly as possible.

The tiny island-state of Singapore has maybe the world’s most advanced Internet infrastructures. With an Internet penetration rate just above 50 percent and the world’s first nation-wide broadband network, Singapore is already well on its way.

Using the Internet to make secure transactions is already commonplace. Roughly 33 percent of the population chooses to file their taxes online and the government does 85 percent of its procurement through online channels. Another positive attribute is Singapore’s adoption of English as an official language. With a predominantly ethnic Chinese population, Mandarin is also widely spoken alleviating any communication gap between Singapore and the Chinese speaking populations in Asia.

Malaysia lags further behind the rest of the region with an Internet penetration rate of 17 percent. However, eMarketer predicts that Internet penetration should reach 25 percent by 2005. A proactive government should ensure continued development of the Internet infrastructure as the fabled MSC (Multimedia Super Corridor) – a high-technology park dedicated to attracting foreign investment and the development of hi-technology – continues to receive the full support of the government.

Comments

How far does the Asia-Pacific lag behind the US and Europe in terms of E-commerce adoption? EDS believes the gap lies between 1 to 3 years in some cases. A major factor is the varied degrees of market maturity and IT spending that pervades the region.

But there is plenty of reason to be optimistic. Trends throughout the region continue to point in the direction of progress. Western-based companies such as ebay have recently made forays into the region, looking to gain a foothold in the marketplace in anticipation of the E-commerce boom.

The continuing increase in Internet usage and the development of IT infrastructures is setting the stage for E-commerce growth in what is soon to be the world’s largest Internet market.

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To find out about E-commerce growth in Western Europe, check out "Western Europe Holds Promise", which concentrates primarily on the German, French and UK consumer markets.