BUSINESSWEEK ONLINE : OCTOBER 23, 2000 ISSUE
BUSINESS WEEK E.BIZ -- STRATEGIES ONLINE EXTRA: Q&A with Gartner Group's Lane Leskela "Managers need to think bigger, but there is very little history of doing that in Asia-Pacific" Talking about a topic as vast as business-to-business e-commerce in Asia demands both a command of the facts and a propensity for thinking big. Lane Leskela, research director for Gartner Group's Asia Pacific e-market intelligence group, has a knack for both. For Leskela, who has worked in distribution, e-marketplaces in Asia are in a Darwinian battle for supremacy that will end with the largest, best organized players in the offline world dominating the online world. Only they, he says, have the experience in trading over such large distances and jumping through so many regulatory hoops. Leskela spoke from his Hong Kong office to Tokyo Correspondent Ken Belson. Q: How do e-marketplaces differ from those in the States? A: In the Asia-Pacific region, years of experience in family businesses grew out of a focus on quality and a return on equity, rather than spending for market share, which characterizes the earliest phase of the Internet pure-plays in the U.S. The focus on leveraging skills and fairly conservative business practices requires milestones for return on investment that are combined with long-term strategy, not short-term gain. Big Asian players know their industries intimately, work on referral partnerships, and are in it forever. Many Asian businesses have been watching for mistakes in the pure-play strategy and are looking for opportunities to arrange e-marketplaces in a different way, like by building private marketplaces with known players. Businesses in the Asia-Pacific are also more directly exposed to international trading. In a very large market like the U.S., companies can organize themselves nationally. In Asia-Pacific, the pace of development and the opportunities relate more to fragmented supply chains across great distances. Specific industries that invested first tend to be financial consortia with direct capital investment from manufacturers to create an opportunity for outward-bound trade. Q: How are other companies approaching the Internet? A: In Asia, the focus of investment is on new technologies. Some companies in Southeast Asia just became aware of the benefits of Enterprise Resource Planning (ERP). When you get markets where there are substantial numbers of small businesses that barely have PCs, like in China and most of Southeast Asia, you've got markets with management that only very recently got exposed to using the Internet and exploring the benefits. Many of these ideas have come in very suddenly and collided in these markets in the past two years on top of all the previous messages, which were very confusing. Outsourcing is not nearly as common or popular for business-culture reasons as it has been in the U.S. or Europe. Q: What are the consequences of this resistance to outsourcing? A: Businesses not only like to keep knowledge in-house but they also like to have that transferred to their staff. A lot of businesses have been relatively skeptical [of the Internet thus far], and that was reinforced by the crash and burn of the dot-coms this April. These companies were getting a lot of confusing messages about what e-business is. We are just now starting to see managers looking into e-business as a partnership strategy with known players, or using it to get new business. That was not apparent six months ago. Businesses with a large supply chain will gravitate towards the Internet. Over the next six months, we'll see a doubling of the e-marketplaces in the Asia-Pacific. But within 24 months, we'll see a massive consolidation because of the requirements for scale. Until now, smaller companies have mostly watched from the sidelines with a skeptical view of the benefits. That's because the Internet took off in a part of the marketplace that is not highly visible or directly relevant to Asian businesses: business-to-consumer. That whole phenomenon [did not develop here]. Q: So B2B was pushed on Asian companies? A: One of the first urgent messages about B2B marketplaces was quite negative. Around the worst part of the last recession, in 1997-1998, very large buyers [in the West] were sending messages based on their decision to develop their electronic procurement around the world. [These buyers] were telling suppliers to join and threatening them with a loss of business at a later stage. However politely the message was sent, some manufacturers felt forced to go on exchanges overseas to please buyers, rather than initiate the strategy on their own and in a collaborative way. That collaboration has only started this year, and this strategy is really the mirror of the overseas procurement push. But many of the marketplaces in-region, with all the energy and best practices being developed, have a very low likelihood of success unless they link in complementary ways with closely related industries, or via geography. Q: Asian companies appear to prefer dealing with those they know. Are they too cautious? A: Managers need to think bigger, but there is very little history of doing that in Asia-Pacific except for the smallest percentage of companies that are already global players, like the very large Japanese trading houses, telecommunications companies, or shipping lines. That's the premise for consolidation. Over the next 24-to-36 months, we'll see 3,000 marketplaces in the world, and about one-third of those will place buyers and sellers in the Asia-Pacific. All the rest of the marketplaces will establish private networks for supplier networks. In America and Europe, there is more focus on distribution points where products or services are offered. Q: So will American marketplaces make headway in Asia? A: Wall Street doesn't like anything now, except for really core technologies. There's a blurring of strategies and so much competition that is being pushed out of the U.S. and Europe. There's a perception that there's already a critical mass and one of the ways left to expand is to spend a huge amount of effort on globalization. The bigger players accelerated their push into Asia-Pacific in terrible market conditions. The very large commodity marketplaces with high volume and low margins are seeing an opportunity to link in with markets overseas. That looked like a long-term strategy, but now they are accelerating it to become a hub in a global network. Q: Do American companies know what they are getting into in Asia? A: In most cases, no. The whole marketplace is one big experiment. That's admitted by the players, no matter how much experience they have. None of them know where it will lead. The more successful firms will erode the value of their original revenue stream because they will drive down margins to zero. Most of these folks will not make it through on their own, and the vast majority will get scooped up into larger networks. In the end, we'll be left with more highly developed marketplaces. We're not talking about the cure for cancer, or the life or death of an economy. We believe the net impact of e-marketplaces will be generally positive. This is a rapid, Darwinian life cycle that's happening much faster than ever before. The upside is that the technology may uproot some of the inefficiencies in industries -- but the downside is that the replacement of these systems may not entirely return. The Internet is a pervasive technology, but it's very likely to become just another part of the business environment. Q: In a worst case, will Asia become simply a supplier for Western buyers and lose control of its destiny? A: Yes, but there's no reason why companies in Asia can't provide any of the high-end services on par with those overseas. But ultimately, the Internet will reward highly specialized makers of products who can provide them extremely fast. There's also a big difference between the cultural influences on different generations within families. In certain countries, there's a real possibility that generations will leapfrog -- in China, for example, where there are big differences in vision and opportunities. There is a lot of cool technology out there, but the commercial adaptation is far more complex. The period of innovation is not something to take lightly, even after all the individual failures. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS EBIZ Contents for issue dated Oct. 23, 2000 Asia's Internet Deficit (int'l edition) CHART: Asia Execs Tiptoe into E-Commerce TABLE: Playing Catch-Up (int'l edition) Prodding Singapore (int'l edition) Revving Up in India (int'l edition) Korea's B2B King (int'l edition) Drug Coup in China? (int'l edition) ONLINE EXTRA: Q&A with Gartner Group's Lane Leskela INTERACT E-Mail to Business Week Online

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