Analysis Singapore’s money is made of plastic, which makes it incredibly hard-wearing but also slightly slick and unreal. Which is just as well, given the amount of cash which was moving around when the Asia Pacific region’s channel players descended on the city state for the Canalys Channels forum last month.
The event was held at the Ritz-Carlton, a reassuringly expensive venue, even in a region that is growing like topsy, and where grand statement hotels and office blocks push upwards as relentlessly as regional GDP figures.
At the same time, compared to an anemic Europe and North America, the region is the only one showing growth both for IT vendors and the distributors and channel partners that get their products into the hands of growth hungry firms across the region.
In the third quarter, vendors grew 12 per cent in APAC Canalys said, compared to 8 per cent globally. Distributors grew just 6 per cent, while partners grew 15 per cent. By comparison, vendors in EMEA grew just 3 per cent in the first half, while distributors were flat, and channel partners grew 10 per cent. Not a direct comparison of course, but instructive all the same.
According to Gartner, overall IT spending in Asia Pacific will hit $743bn next year, up 7.9 per cent on 2012. That compares to this year’s 7.6 per cent.
The economies of Asia Pac are expected to grow 2 per cent faster than the global average, so it’s fair to assume its broader IT industry, not just the factories keeping the world’s Fanbois and Fandroids happy, will continue to show growth for the immediate future.
It’s a truism that Asian vendors have clearly taken over the commodity hardware market, whether it’s Foxconn building Apple’s products, or Lenovo and Acer grappling for supremacy in the PC market and making threatening noises at the US’ server giants. Huawei gives the impression of a serious contender to Cisco, showing that Western firms shouldn’t expect to keep the high-margin chunks of enterprise market to themselves.
Meanwhile, Asia’s channel players benefit from a surging market in their own turf, with less of the headaches of dealing with legacy infrastructures, and the confidence that comes with surfing a wave of growth.
So, any student of business history would assume it won’t be long before the Asian firms are looking to Europe and North America, and distributors, resellers and systems integrators can expect to find the sort of fierce competition that has hit, say, clothes and textile manufacturers in the US and Europe, or metal bashers in the Midlands over the last few decades. If anything, one might expect the channel to be even more exposed. While Saville Row or Harris Tweed might be able to carve out a luxe future, what are the chances of rebranding yourself as a heritage systems integrator, or a hand-crafted, traditional logistics specialist?
Well, not necessarily. The consensus seems to be that no great wave of Asian channel players is likely to be crashing onto Europe’s shores anytime soon. But while this might leave some indigenous players breathing a sigh of relief, others will be left sighing as they cast an envious eye at the very opportunities that will keep Asian players from heading West.
Nicole Peng, Canalys’ Shanghai-based research director for China, cites a number of reasons why the SI’s and resellers of London and the Thames Valley might not consciously notice a wave of competition coming over the horizon for the time being.
Not least is the level of fragmentation in the APAC market itself. Quite apart from the very real cultural and linguistic differences, the countries around the Pacific Rim are all at different levels of development, with the players in each facing different challenges. The channel in Australia might appear at first glance to be very similar to that in Europe, bar a bigger focus on wireless and logistics due to the vast distances in the country. Meanwhile, distributors and resellers in China are generally home-grown and focused entirely on their home market.
Stanimira Koleva, vice president for Cisco’s APJC business group notes how, to date, systems integration firms in the more developed countries in Northern Asia - Japan and Korea - have developed as the IT arms of the conglomerates that dominate in those countries. Think Fujitsu, or Korea Telecom’s KTDS. These groups have expanded beyond their borders in the past, but this has on occasion been fitful - though Koleva noted that she has many more meetings with Japanese and Korean players in the last six months.
China, inevitably tends to dominate discussion, both because of the enormous size of the market, and because of the way it has virtually taken over high-tech manufacturing for Western vendors while spawning companies such as Huawei and Lenovo are fighting hard to dominate their own market segments.
IT spending in China is expected to hit $312bn this year, a 12.6 per cent rise, according to Gartner, and this surge is actually a slight slowdown from the previous year’s 14 per cent growth. By comparison, spending in EMEA will likely hit $1.138tr this year - a 3.6 per cent decline - before scraping a 1.4 per cent increase next year, according to Gartner.
But Peng cautions that no-one should expect Foxconn, Huawei and Lenovo’s success in dominating hardware to translate into an ability to deliver services and solutions to Western firms. “It will take quite a long time to meet the standard of European or US companies.”
Which is perhaps academic anyway - the Chinese market opportunity is so huge the indigenous operators have got their hands full dealing with that market, never mind embarking on risky foreign ventures.
“We haven’t seen them really wanting to go outside China,” says Joergen Jakobsen, EMC’s vp and general manager for Asia Pac and Japan, of those lucky firms enjoying China’s growth surge.
China might seem an economic law unto itself, with its 1.3 billion population and plus 7 per cent GDP growth - itself a decline on the last few decades of 10 per cent plus growth. But the same might equally apply to other exploding countries in the region. Indonesia has a population of 240 million, and grew GDP over 6 per cent last year.
That doesn’t mean there aren’t areas where operators in China and the rest of Asia aren’t getting ahead of their Western counterparts
Kolvea points up the development around mobile, unsurprising in markets where either previous underdevelopment or simply the geography means latest generation telecoms are the default option.
Cisco predicts that cloud will become important to Asian firms at least as fast a rate as Western firms, with 36 per cent of all work in cloud being Asia-based by 2016.
Koleva highlights the potential impact of Smart Cities. This is one of those technologies that in the choked West always sounds like a vanity project on the part of more or less dictatorial regimes that can afford to move a country’s capital on a whim.
But in India along the government is planning 28 new cities over the next 10 years in a corridor between Bombay and Dehli, Koleva pointed out.
Peng reinforces the opportunity around cities being built from the ground up, pointing out there are 200 cities classed as “tier one” in China, with 2,200 in tier two, representing those with the biggest spending power. Investment in the PRC’s smart city initiatives are expected to hit $159bn, according to the official news agency.
At this point - huge untapped markets, absolutely green field projects - some adventurous Western players might start thinking of heading East.
But Peng also cautions that in China in particular, Western players face particular problems. From the start, there are the language and cultural barriers to overcome. It’s all very well sending your children to a kindergarten that teaches Mandarin, but try explaining your commitment to service, or the intricacies of your smart comms solution in the language. The reality is you will be searching for a partner.
“IT managers [in China] buy from trusted partners,” says Peng. Which sounds startlingly similar to Western markets. At the same time, large projects have to go through a bidding process, again, just like in the West.
Looking out across the region, similar hurdles apply to a greater or lesser degree in other markets. How’s your Thai? Or your Malay? Or Tagalog?
So, perhaps the systems integrators of the West can rest easy that they aren’t going to face a wave of competition from aggressive, lower competitors from the Far East, in part because the regional players face some of the same issues the Westerners might face.
But it’s worth remembering the Far East is not the whole of the East.
Jackobsen points out that India’s colonial past enabled it to carve out a strong position in systems integration and software marketing over the last 20 years.
“The Indians we see all over the world (in systems integration)”, he says. “We haven’t seen that much from the Chinese.”
And perhaps it is the way India’s software and services sector has developed that shows how Western players should view the threat from Asia-Pac players as a whole. It will inevitably come bit by bit, and it won’t be a question of competition from the Far East. Just competition. ®