Original URL: https://www.theregister.com/2014/05/06/farewell_to_asia_feature/
Reg man says '拜拜' to Honkers, ponders Asia's future role in tech world
Asia dominates mobile agendas: can it do the same for enterprise tech?
Posted in On-Prem, 6th May 2014 07:02 GMT
Phil Muncaster, The Reg's man in Hong Kong, has said his final '拜拜' - that's bye-bye in simplified Chinese - to the special administrative region. Before he moved on, we asked him to assess his two-and-a-bit years covering Asia's technology industries. Here's his assessment on where Asia sits in the technology world. – Ed.
Over the past couple of years from my perch in Hong Kong I’ve watched Asia’s technology giants flex their muscles on the global stage. Many, like China’s Tencent, have started to expand internationally after building up a huge power base domestically or regionally. Others, like Samsung and Lenovo have firmly established themselves at or near the apex of their target markets.
The question remains, however: are Asian technology companies really setting global agendas for enterprise technology, driving industry standards with innovations that create new markets, or are they following Western leaders?
It’s undeniable that Asia has become the manufacturing heartland of global IT. Yes, there have been attempts by the Obama administration to bring jobs back home. The Boston Consulting Group interviewed 200 execs last year and found 21 per cent said they were relocating manufacturing from China to the US and 54 per cent planned to do so.
However, China remains the number one destination for hardware makers, with Taiwanese ODM/OEMs like Foxconn, Pegatron and Wistron accounting for the vast majority of mobile devices and PCs sold globally and doing most of their work in China.
Asia goes mobile
But where is the IP and innovation happening? Inside a Foxconn plant, or back in Cupertino where the latest fondleslabs and iThings are designed? Intel’s SD-card sized Edison computer might have been designed and built in China but the firm is very much still an American product.
Despite this US dominance, things are a-changing, and nowhere more so than in the mobile computing space. Not only are most of the world’s smartphones and tablets made in Asia but they’re also sold by Asian brands. According to IDC, the top 5 smartphone vendors by global shipments all hailed from the region except for Apple. Samsung came in first place, followed by Apple, after which came Huawei, LG and Lenovo. More tellingly, the year-on-year growth rates of Samsung (42.9 per cent), Huawei (67.5 per cent), LG (81.1 per cent) and Lenovo (91.7 per cent) dwarfed Apple’s 12.9 per cent and show who has momentum.
Another moment demonstrating how Asia drives mobile agendas came when first Samsung and then a few months later Huawei announced they would be establishing R&D facilities in Nokia’s backyard of Finland last year. The contrasting fortunes between these expansive Asian players and the once-proud global mobile phone leader, now haemorrhaging jobs and even forced to sell its Espoo headquarters, could not have been more stark.
Chinese firms in particular have flourished thanks in part to the “complete supply chain ecosystem” on their doorstep, according to Forrester analyst Bryan Wang. “When they want to pull something together they can always find the supplier for any component and module to build a quality product in a short period of time,” he told The Reg.
This is in contrast to Google-owned Motorola, he said, where development of the Moto X took over 12 months because prototypes had to be manufactured and then shipped back and forth from China, delaying the whole development cycle. Once Lenovo finally gets its hands on the firm such issues should be a thing of the past.
Chinese smartphone firms have also benefitted from a huge domestic market, enabling the most successful ones to rake in cash and spend it getting to scale. This is the perfect launching board for international expansion in the mode of Middle Kingdom smartmobe poster child Xiaomi, said Wang. The firm is ready to join the likes of Huawei, Lenovo and Samsung on the world stage and let its ambition be known last year with the hire of former Googler Hugo Barra as VP of Xiaomi Global.
The firm has been a genuine innovator in its engagement with the user community, primarily through social media, and incorporating feedback into new product designs, according to IDC analyst Melissa Chau. However, Xiaomi and its Asian counterparts are facing significant challenges expanding their global presence, she told The Reg.
“Every market’s different. Xiaomi found its direct sales model didn’t fit with Singapore’s operator driven market, so it had to adapt and thrash out agreements with operators, for example,” she explained. “Asian vendors are used to certain ways of doing business but they have to change [to become global]. To an extent Huawei has already faced those challenges and built relationships with operators in various markets.”
A bigger picture
Smartphones may be the hot new category of endpoint device, but when one considers tablets and PCs Asia is nowhere near as dominant. Samsung comes top followed by Apple, Lenovo, HP and Huawei, according to IDC stats cited by Chau. Aside from Xiaomi, innovative challengers capable of reaching this premier league are hard to find, she argued.
“There are vendors like LG, Sony and Coolpad, but I think the market is more likely to consolidate than any of these move up to the big league,” said Chau. “The industry is less about hardware-driven innovation now and more about software and services.”
As for India, although its smartphone market is currently “dwarfed by China”, it’s already the size of southeast Asia and will catch up to the Middle Kingdom over the next five years, explained Chau. However, its domestic handset players like Karbonn and Micromax are still at a fairly immature stage of development and unlikely to be able to take their business model outside the country anytime soon.
Nor are we likely to see a resurgence of the once-mighty Japanese tech giants. Many are struggling to shake-off the legacy of years of poor strategic decisions, and a bloated workforce. In 2013 alone, Fujitsu announced plans to dissolve a chip JV with NEC and NTT; Panasonic and NEC pulled out of consumer smartphones altogether; and Sony said it was selling its struggling PC business. The overall trend in the Land of the Rising Sun is very much still of streamlining, reducing headcount and refocusing on core areas.
One counter-example is Softbank, which has a potentially-lucrative 37 per cent stake in Chinese e-commerce giant Alibaba and acquired US player Sprint in a $22bn deal last year, with its eyes now on snapping up T-Mobile US.
Innovate much?
If it’s true traditional PCs are in irreversible decline – 2013 was the worst on record according to Gartner – and that smartphones have to a great extent become commoditised, then the best chance Asian tech companies have of setting global agendas may lie in online services.
Again, however, it is hard to find much local innovation. Believers will point to mobile messaging from the likes of Tencent’s WeChat, LINE and Kakao Talk. Facebook’s recent $19bn outlay on Whatsapp has suddenly focused public attention on these instant messaging services, as several have colossal user bases. WeChat is said to have had about 270m active users in January and a global marketing campaign featuring Barcelona superstar Lionel Messi to boot. Estimates put active users for the other two – both owned by South Korean companies – at around 100 million, but growth outside of Asia so far has been restrained.
Nevertheless they are innovating on functionality and in so doing driving the industry forward, perhaps more so than Whatsapp.
“WeChat is now increasingly becoming an access point for companies and organisations to distribute information and to serve customers,” Canalys analyst Nicole Peng explained.
“It successfully demonstrated through its Hongbao ‘red pocket’ campaign that, with its own payment system, it can open up many possibilities for companies to innovate in the ways they reach customers and differentiate around customer experience through its platform. This can help them generate significant commercial opportunities.”
What’s more, innovation isn’t necessarily about filing a patent but about how an existing technology is deployed, IDC’s Chau added.
“WeChat popularised the voice note system and influenced Whatsapp. It wasn’t the first but it was very easy to use. There’s a fine line between whether you need to create something or just position it in a way to make it successful, in order to be ‘innovative’,” she argued.
“You could argue that in terms of hardware specs on the first iPhone there was nothing that didn’t already exist, but it was put together in a way that was very easy for people to use – an innovation in itself.”
Back to the enterprise
When it comes to enterprise software, Asia is far behind the rest of the world. Software accounted for just eight per cent of total IT spending in China in 2013, according to Forrester stats. “Decisions are still made by senior executives based on their experience rather than computer-aided calculations. It still happens nowadays despite rising investment overall in IT,” said Forrester’s Bryan Wang.
“This means that Asian software companies or SaaS providers are not able to get potential customers to realise the value of their offerings.”
With this cultural backdrop it’s no surprise Wang regarded the chances of the next SAP coming from the region as “very unlikely”. However, there’s a different avenue by which Asia’s biggest technology firms can still influence global agendas.
Alibaba and Tencent have already had a “huge” impact on the retail and finance sectors in China, expanding from origins in e-commerce and social media/messaging respectively, said Wang. Alibaba, for example, is starting to provide CRM, supply chain management and other cloud-based services to customers on top of regular e-commerce capabilities and this will only expand further as it grows.
“They’ll have a domestic focus for the next two to three years but in the longer term Alibaba and Tencent will both have to grow beyond [China] to support their share price,” he told El Reg.
“They both have strong teams in Silicon Valley where they can keep an eye on what’s happening globally and grab some of that opportunity if it appeals. They both have the potential to become successful software and services firms globally.”
Wang also pointed to Huawei, which has significant scale and presence in global markets thanks to its heritage in the telecoms space, as a potential leader in enterprise IT once it begins to innovate in software.
“It needs a couple more years to be truly innovative on the software side. Most European/Asia customers of its enterprise business are customers because of the TCO benefits rather than because of market leading innovation,” he added.
“However, it’s non-listed so it has been able to invest in new areas aggressively.”
The Chinese government certainly sees innovation as the key to becoming a “world technological power” by 2049, although it’s never made clear whether this means micro-innovation of the sort Chau pointed to or something more fundamental. Either way, with the Communist Party’s Central Committee Politburo behind efforts to become an “innovation-oriented country” by 2020 you can be sure significant sums of money and resources will be spent to achieve these ambitious ends.
A bright future?
As to whether Chinese firms are getting there, well it’s a mixed picture. KPMG interviews hundreds of technology executives from across the globe each year. In 2012 some 44 per cent said they thought China would supplant Silicon Valley as the world’s leading tech innovation hub, by as early as 2016.
However, by the following year the figure had dropped to 33 per cent.
What’s more, the IEEE’s annual Patent Power scoreboard – which ranks firms according to the size and quality of their US patent portfolios in various categories – has consistently ranked Japanese firms above their Chinese rivals. WIPO revealed a slightly more balanced picture, claiming that in terms of total patents filed in 2013, the US (57,239) came first followed by Japan (43,918) and China (21,516). The only other Asian country in the top ten was South Korea with 12,386.
However, “not all patents are equal”, according to Deloitte China TMT lead Po Hou. He told El Reg that with some R&D departments being paid according to the number of patents they file, volume is not a good indicator of innovation.
“Scale doesn’t necessarily equal power or setting a global agenda,” he argued, adding that Asia is too heterogenous – from its capital markets to language and cultural differences – to nurture the kind of clusters which could incubate the next global agenda-setting tech firms.
“Many Asian companies mistake a smart idea for innovation, which requires focus, structure and non-linear progress. Asian companies typically focus on smaller scale innovation to generate relatively short term results quickly rather than gradual innovation which is more risky,” he argued.
“They also often tend to yo-yo from over confidence to being overly risk averse, which is not good for innovation.”
State interference and regulation in many Asian markets has also distorted competition to snuff out the spark that can often kindle great ideas, although this is changing, he added.
One market where the state has perhaps done most to both help and hinder is China, where strict rules on content and censorship have had undocumented but potentially profound effects. For example, the blocking of Github briefly last year may have “made a generation of developers slightly uneasy about their prospects in China”, according to Charlie Smith of non-profit Greatfire.org.
“I think the area that probably most gets overlooked in this discussion is how censorship limits creative thought. Lively discussion can lead to an exchange of ideas. People get inspired when they see someone doing something that's super creative,” he told The Reg.
“Look at Ai Weiwei. How many Chinese artists have decided that it makes much more financial sense to paint things that foreigners and Chinese want to buy rather than to do what they know could be something truly artistic?”
When it comes to the global technology agenda, it's therefore clear the Asia pivot has already begun. Whether it can lead – or challenge leaders - isn’t clear. What we can say, however, is that as Huawei, Alibaba, Tencent and others invest increasing amounts of cash in Western start-ups and R&D centres from Silicon Valley to Espoo, it’s going to get a lot harder to tell just where innovation comes from and who's leading who.
Maybe that’s not entirely a bad thing. ®