Asian winners in the Internet Age
1000 Biggest Companies
Leng Tai for Asiaweek.
Goldman Sach's Barnert, 26, studies Asia's B2B space.
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
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
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
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
These B2B initiatives have yet to prove their worth,
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
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
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
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
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
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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