Wei Leng Tai for Asiaweek. Goldman Sach's Barnert, 26, studies Asia's B2B space.

In a region grappling with the Internet and its impact on businesses, 26-year-old Radek Barnert is emerging as an expert. The Hong Kong securities analyst with investment bank Goldman Sachs is a principal author of a 358-page report on the state of business-to-business — B2B — commerce in Asia. Born in Czechoslovakia, Barnert grew up in Australia and completed his studies in finance and law at the University of Technology in Sydney. He spoke with Asiaweek's Cesar Bacani.

Which corporations in Asia do you consider to be the best placed for e-business?
Of the 70 companies we cover in 11 Asian countries [excluding Japan], three stand out for being the most aggressive in pursuing cost savings, revenue enhancement and defensive opportunities. They are Hong Kong trading company Li & Fung, Chinese computer maker Legend Holdings and Hong Kong conglomerate Hutchison Whampoa. We award silver medals to multinational bank HSBC, Korean telecom Dacom and CW Optus of Australia — they are enablers that will benefit from e-business transaction flows. Bronze medallists are companies with impressive e-commerce strategies that have yet to be executed. They include Thailand's Siam Cement and Parkway Holdings of Singapore.

Isn't the Internet supposed to make middlemen like Li & Fung obsolete?
It's a unique trading company. Li & Fung has a solid sourcing network of contract manufacturers, an infrastructure difficult for anyone else to establish. One of the big things that stood out for us is its program to expand its services to clients with transactions below $100 million. A large company that uses Li & Fung typically pays 4% to 12% of the value of the order [because of economies of scale]. It's about 30% for a small company. Those costs come down to 4% to 12% if clients use the Lifung.com Internet site.

So Li & Fung will be competing with smaller but nimbler players like Global Sources?
You can put Li & Fung and [Nasdaq-listed] Global Sources in the same pool of competitors. But when you look at what Li & Fung has got in terms of its incumbent business and its ability to fund anything new, it's in a very strong position. That said, Global Sources is also doing very well. That's because the market is fragmented. Trading, sourcing and excess inventories are among the unique situations where many players can carve a niche for themselves if they execute quickly and intelligently, and deliver value-added services.

How about Legend and Hutchison?
Legend is pursuing a four-stage business-to-business e-commerce plan. It has just completed the first stage, which is to get the online platform running, and is now introducing the system to its distributors [across China]. Traditionally, Legend has been an aggregator of supplies — it makes and sells its own computers and markets the machines and peripherals of foreign brands to distributors. Now it is also aiming to be the facilitator that makes a commission and service fees from each transaction. That's a much better model because it reduces the cost base and extends the revenue opportunity. It is also a defensive move. With technology, the distributors can potentially bypass Legend.

Hutchison is ideally positioned, too, and it is acting quickly. PortsnPortal [a website for electronic commerce with users of its shipping ports around the world] and bigboXX.com [a Hong Kong online supplier of office items with pan-Asian ambitions] represent ways to leverage the conglomerate's existing assets and also cost-savings opportunities.

You mentioned other companies like Siam Cement and Parkway Holdings.
The real opportunities for them are in cost-cutting, not so much in expanding the revenue side. It's still too early to tell how easy it is for them to plug into a larger regional or global market. If you take out each of the chinks in the supply chain, there's a lot of costs that can be taken out. Of course they might have to increase the budget for information technology over a period of time, but [the additional spending] will be justifiable in terms of the return on investment.

These B2B initiatives have yet to prove their worth, though.
The results of our June survey [of 70 companies] basically showed that close to 70% have only been thinking of B2B for the last year, and about 50% are still talking and thinking about what to do. There's a very small percentage that has finished implementing. And because they are the first, there is always going to be a risk [that they will make mistakes].

The short-term winners would seem to be the e-business enablers like systems integrator Datacraft of Singapore.
Before you adopt any sort of technology, you need the help of people who can show you how to go about it. At the most direct level, those are systems integrators, e-business architects and applications developers. I can be more general and include the I.T.-services companies and strategy consultants. The companies that fall into that space are players like Datacraft, [Nasdaq-listed] AsiaInfo, and Indian I.T.-services companies such as Infosys and HCL Tech.

Isn't this going to be a highly competitive space with global players like SAP, Oracle, EDS and IBM coming in?
The Asian players have the advantage of knowing how Asian systems work. They also know the Asian customer base, and they have a mobile workforce across the region, especially in the case of Datacraft. AsiaInfo has extremely strong customer relationships in China. Singapore Computer Systems has good local ties too. And these companies have access to a fairly cheap labor market.

Still, the reality is that the Asian guys have to expand their solution sets to offer end-to-end services. Datacraft has already made three or four acquisitions in the last 12 months, buying businesses in markets that it wants to move into, and also technologies and solutions that it wants to add to its overall service sets. It's becoming less of a data networking solutions provider and more of an e-business architect. It wants to move up to the consulting component, do more applications, do more e-business solutions. Asian enablers can certainly work with [global players] and be their implementors. But at the end of the day, doing the whole solution, and also bringing in the consulting component, is where most of the revenue is.

What about data centers, those companies that rent out their computers and offer services like maintenance and security?
One of the things we have in the fire as a result of B2B is a trend towards outsourcing. What B2B creates is brutal competition that helps focus the corporates on core competencies. What is it that you do best? In most instances, companies do not need to have an I.T. department and they don't need to host their own websites. Even the large corporates do not necessarily have to have a computer server farm. One of the big beneficiaries of outsourcing are the hosting players.

A hosting market has been up and running in the U.S. since 1997 and is growing very quickly. In Asia, we're starting to see a large-scale build-up of fifth-generation Internet data centers and complex housing services this year. [Hong Kong-listed] SUNeVision is one of those players that have decided to build a lot of space. [Nasdaq-listed] iAsiaworks is rolling out a pan-Asian footprint of data centers.

Pacific Century CyberWorks has opened two data centers in Hong Kong.
There are two models for data centers. SUNeVision and iAsiaworks follow the carrier-neutral model — they have multiple pipes coming into the data center and clients choose whichever they want as bandwidth provider. Pacific Century CyberWorks (PCCW) has a non-neutral model — its clients are stuck with it as the bandwidth provider. It gets additional revenue because it owns the networks, but bandwidth prices are dropping so quickly [because of abundant supply] so this is not really that much of a competitive advantage. PCCW's edge is the big number of corporate customers it has and its ability to cross-sell services.

Do these data centers also host servers for a company's internal processes?
Today, most are hosting only the Internet presence, the web servers and the database servers. As we move toward an applications service provider — ASP — model, you will see more of the things inside a company migrating to a data center. The ASP sector is still very embryonic. The first market ASP companies can try to penetrate are the small and medium enterprises, but they probably need to align themselves with a partner that has an existing customer base of such companies.

Let's talk about electronic-marketplace players.
Both Global Sources and [unlisted] Alibaba.com have changed their business models in the past six months. They have realized that going for volumes straightaway is going to be tough, especially since some of the players with domain experience [like Li & Fung] are moving to the e-marketplaces. So what they are focusing on now is adding value-added services to the market. They're saying, "Let's advertise, cross-sell some services, build in fulfillment, some logistics, some e-payment."

Anti-virus software makers, electronic security services, online payment providers — these are winners too?
I would say yes, with the usual investment caveats, which is one, the financial metrics, two, the valuation, three, the uniqueness of the actual solution that is being offered. We need someone who can establish a clear lead, and then maintain that lead simply because the solution is so unique that every iteration keeps the company a step ahead of everybody else.

Talking of online payment enablers, HSBC seems to be a favorite among websites.
It has positioned itself very well in that e-payment component. That's not to say that HSBC is the only bank that people are using, but it is the best-positioned in Asia. For banks, the B2B impact is really just on the transaction side. So if you don't move at the same speed as your customers, you're going to be left behind.

HSBC has also set up a business-to-consumers website.
Competition is basically the reason why banks are moving to the Internet. Your first line of defense in terms of improving customer service is to develop an Internet presence. It's a cost saver as well because an Internet banking transaction costs a fraction of an ATM or a call-center transaction. But like many other organizations, most banks are ignoring the back-end internal systems because it takes three years to redo them. That is why Internet banking is still a frustrating experience. You get in there and you can't transfer funds to your parents' bank account because the back-end is not capable of doing that. HSBC actually has an initiative to gradually rebuild the back-end.

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