The Asian Voice

Asia's technology transformation, China's surging online market, India's maritime woes

A Chinese man uses his mobile phone at an internet cafe in Beijing, China, June 26, 2015.
A Chinese man uses his mobile phone at an internet cafe in Beijing, China, June 26, 2015. PHOTO: EPA

Commentaries and insights from newspapers in the Asia News Network (ANN).

1. Great technology transformation comes to Asia

Andrew Sheng

Asia News Network

Chinese people use computers in an internet cafe in Beijing, China, June 26, 2015.  PHOTO: EPA 

After a week in Silicon Valley last month, I came to the conclusion that I am a dinosaur. The speed of change in technology has been so fast and so profound that we are lost in transition, translation and transformation. 

The digital revolution is already upon us, but the baby boomer generation, to which I belong, is having difficulty understanding this because we still upload (read) on paper, whereas the millennials (those born between 1980 and 2000) upload information mostly on mobile phones and video and communicate through social media. 

Demographics say a lot. At the turn of the 21st century, the baby boomers (born 1946-1964) were half the work force, but today in the US, millennials and Generation X (born 1965-1979) are roughly one third each. The baby boomers may own most of the retirement funds and wealth, but the new wealth is being created rapidly by the younger generations. 

A simple set of statistics says it all. The Forbes top 5 US companies by revenue are Walmart, Exxon, Chevron, Berkshire Hathaway and Apple.

Walmart employs over 2.1 million employees, with revenue just under $485 billion, but profits of $16 billion with a market cap of $265 billion. Apple, with only 80,000 employees, had double Walmart's profits of $39 billion and a market capitalization of $725 billion, larger than Walmart and Exxon put together. Twitter, with only 3,638 employees or less than 0.2 per cent of Walmart's workforce, is valued at 9.2 per cent of Walmart. Facebook, with only 9,200 employees but 1.44 billion users, is valued at 86 per cent of Walmart. 

In fact, if it wasn't for the fact that Silicon Valley is booming in terms of wealth creation, California would be suffering from the economic effects of the worst drought in years. But at $2.3 trillion, California is growing at 2.8 per cent per annum, faster than US real gross domestic product growth of 2.2 per cent in 2014. The Western Pacific states of Oregon and Washington are growing faster at 3.6 per cent and 3 per cent respectively, thanks to growing trade and services from the boom in technology.

Two things stand out in the Digital Disruption · speed and scale. The speed and scale of the digital transformation is so fast and so wide and deep that we are all having problems valuing what it means · which is why we have a tech bubble in the making. 

It is quite normal for us to accept that Silicon Valley in California is the world leader in digital change, but what was eye-opening as I dug into the data is that the next waves are already happening in China and India. This has mind-boggling implications on a geopolitical basis, especially for smaller economies, such as Malaysia, Hong Kong or Thailand. 

What struck me from delving into the pattern of growth in the Internet Revolution is the speed and scale of change in China and India.

Who would have expected even five years ago that four of the top 15 global public Internet companies, ranked by market capitalisation would be Chinese (Alibaba, Tencent, Baidu and with a combined value of $542 billion or 22.4 per cent of the total market valuation of $2.4 trillion of these 15 companies as of May 2015. 

The reason for this valuation is the scale and speed of the Chinese transformation, already overtaking the world leader, the US.

The rate of Internet penetration is over 80 per cent for the US, only 40+ per cent in China and 20+ per cent in India. But China already has more Internet users (618 million), double the US population and its growth in smartphones is double (21 per cent) that of the US (9 per cent). 

Although incomes in China and India are far lower than the US, Chinese and Indian millennials (for that matter, millennials in all emerging markets) are beginning to spend more time on their smartphones than the advanced countries. 

There are two implications from this broad trend, which the Chinese Internet platforms like Alibaba and Tencent are beginning to exploit.

The first is the ease and convenience of buying, selling and paying using the smartphone · an all-service tool. Partly because of regulation, the US leaders such as eBay, Amazon and Facebook are still in their core areas of strength, but Alibaba and WeChat (part of Tencent) have developed ecosystems that are simultaneously social networks, chatrooms, trading and investing platforms combined. 

When I lost my Blackberry, MacBook and camera recently in Latin America, I was staggered that using WeChat on iPhone, I could go on video and instantly chat with friends across half the world for free. My only constraints were the battery on my iPhone and that I had not set up to get funds transferred in case of need. 

The second implication is that traditional service providers are way behind in this technology. My credit card companies are still on outdated phone banking, which meant that in order to report lost cards, I was frantically trying to Press 1, Press 2 and Press self-destruct! These companies are at least two generations behind in customer service technology. 

My conclusion from this survey of the Internet Revolution is that the disruption from technology on conventional businesses is yet incomplete.

In the 1990s, the Internet changed the music, photography, book sales and video rental businesses. Today, we book airline and hotel travel with the web.

But with the arrival of the iPad and iPhone, health care, finance, investing, education and social communications are being combined into one gadget (the cellular phone) to do all what we had to go to different companies for different services and solutions. 

This disruption is happening very fast in China and India, because these late-comers have no preconceived legacy ideas on what cannot be done with technology. If China is currently going through its tech bubble, watch out for the next tech bubble in India. 

Those who think only in terms of risks think that bubbles are to be feared. I have come to realize that the animal spirits in us change the game through excesses. But those who learn from their mistakes will create the new. 

Silicon Valley is not a place, but a mindset · nothing ventured, nothing gained. That mindset is truly the New Digital Transformation. 

Watch this space in Asia. 

Andrew Sheng, is a former chairman of the Securities and Futures Commission of Hong Kong, and comments on global trends from an Asian angle.

2. Foreign retailers being hurt by China's surging online market

With smartphone penetration going up, western retail outlets report drop in sales

Suwatchai Songwanich

The Nation/ ANN

Alibaba Group's Executive Chairman Jack Ma speaks during the opening ceremony of MYbank in Hangzhou, Zhejiang province, China June 25, 2015.  PHOTO: REUTERS

The popularity in China of online shopping using mobile phones is hurting major Western companies. Unilever, for example, suffered a drop of around 20 per cent in Chinese sales in the second half of last year. Other companies in the fast-moving consumer products sector to have suffered include Nestle, Colgate-Palmolive and Beiersdorf, while Walmart stores have also seen a drop in sales.

While physical store sales are suffering, e-commerce sales in China rose by 49 per cent last year. An estimated 461 million Chinese consumers are now shopping online, up from 46 million in 2007. It's estimated that nearly half of Chinese consumers are buying groceries online.

The main reason for the rapid growth in online shopping is the speed of smartphone penetration as the use of mobile internet surges. Shopping via smartphones has risen from less than 2 per cent in 2011 to 10 per cent last year and is projected to rise to 15 per cent by 2017.

Foreign companies haven't kept pace online with their Chinese rivals. One reason is the innovative marketing techniques used by Chinese companies. These include flash sales promotions, "Singles Day" transactions, and other special deals promoted exclusively online using platforms created by Alibaba, which account for 80 per cent of Chinese e-commerce sales. Since many wholesalers sell unsold inventory online at a discount, this is to the detriment of the traditional big retailers.

Another illustration of the creative methods used for selling online is cosmetics company Bai Queling, which had a rush for its products after first lady Peng Liyuan started giving them out on overseas tours. It also began sponsoring its products during popular television shows like Voice of China, promoting products which are sold only online.

Alongside the growing use of mobile devices to access the Internet, there is growing ease in making payments online. There are now four billion bank cards in China and millions of Chinese people are making online payments using mobile apps, which include features popularly known as virtual red envelopes.

These developments are opening up a massive new market for online retailers in rural areas - one of the fastest-growing markets is Lhasa, Tibet. Meanwhile in the big cities such as Beijing, Shanghai and Guangzhou, Alibaba is reportedly testing the use of drones for making deliveries.

The exciting potential of China's consumer market has attracted investments by many foreign retail companies.

The tough lesson they are now learning is that there are many unique factors about the Chinese market, including the efficient logistics system.

The Chinese market is changing rapidly and they constantly need to innovate in order to be successful.

The writer is Chief executive Officer, Bangkok Bank (China)

3. India's maritime capabilities: Woefully short of what is needed

China's foray in India's neighbourhood raises concerns

Harsha Kakar

The Statesman/ANN |

An Indian worker waits to cut away a support for the INS Visakhapatnam, the first Indian Navy P15-B stealth destroyer, as it is launched in Mumbai on April 20, 2015. PHOTO: AFP 

The visit by a Chinese submarine to Karachi for a week in May raised eyebrows in Delhi. It clearly indicated the Chinese desire to enhance their presence in our vicinity.

As Chinese military power grows, ours continues to decline thanks to the policies of a series of governments. The Chinese navy which had earlier called on ports in Sri Lanka was in Karachi for the first time. This foray into a region not normal for them was worrisome. In the long term we realize that we do not possess the capability to counter them, in case we even want to.

The Navy is woefully short of submarines.

Most of the fleet is old and needs upgradation. Modern armaments for its ships are essential. The Air Force is crying out for aircraft. The shortfall in squadrons and an ageing air fleet are major stumbling blocks for any future conflict resolution. The Army's reserves are running low, upgradation and modernization is slow and the raising of the Mountain Corps is held up due to shortage of funds.

This is not something which came about suddenly. The armed forces have been raising their demands for a long time, but due to mixed and chaotic policies, previous governments have just tended to ignore these.

Capability-building takes time and funds and if the government does not bear responsibility and plan well, such shortcomings create major voids and directly affect security.

The last government faced a string of scams in various spheres; however the defence ministry wanted to stay clean. In such situations, the best option is to avoid decisions which could lead to a controversy, or at the slightest pretext put off decisions for procurement.

This has thrown everything back by decades. To add to these woes is a listless Defence Research and Development Organization, which has largely failed to deliver.

When it has its products are way behind both time and technology. Their only success in decades and decades has been their missile development.

There is no doubt that the armed forces have in the past (as they will in the future too) ensured defence of the country and fulfilment of their tasks irrespective of shortfalls and nature of equipment.

However, poor and obsolete technology with a trained force is no match for an adversary who is capable of using more technology and lesser human element. The impact is even greater when we are to participate in the international arena and project our power.

India is amongst the largest importers of military hardware. Orders for any equipment from us can either create thousands of jobs or bring forth revival of a company which gets the orders. It could bring revenue to a government desperately needing the same.

It is for this reason that there is intense competition between companies and even governments (as has been seen in the recent past) providing similar equipment.

Claims and counter claims on kickbacks and scams is the order of the day. The end result is that the government not only blacklists the company but also the equipment.

When this happens after a series of intense trials and tests that the equipment has undergone, sometimes over years, it pushes the system back.

In a few trials that I was involved with during the 1990s, companies always wanted our observations. Their claim was that with the depth and intensity of our trials, they could sell the equipment in other parts of the world easily, solely on the basis of it having already undergone gruelling trials in India.

The saving grace is that our main adversary Pakistan is in the same state or maybe even a stage worse. However, when we consider China, or even the fact that we are now looking at being a global player with the ability for power projection, we are woefully short.

There is a need for some strong and quick decisions, something the present government seems to be well aware of. However, it cannot be done at a fast pace.

Defence equipment is not procured off the shelf. The procurement cycle, from trials to discussions, negotiations, placement of orders and subsequent provision of equipment takes years. Even in government to government deals, the gestation period is long. Therefore till the time all the equipment is supplied, the shortfall in capability remains.

In any armed force of a developing nation, the ideal combination of technology capability would be a healthy mix of mature, state-of-the-art and near obsolete. Ideally this ratio should be one third of each. In our case, thanks to government policies, most of our equipment is obsolete, and only a little is mature. State of art is almost missing.

To ensure security and maintain a credible and capable armed force, the government needs to seriously consider making up the shortfalls thus enabling us to continue to be a force in our area of interest.

The writer is a retired Major General of the Indian Army.