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The difficulties in the IT market have been well illustrated by the recent problems afflicting some of the largest Japanese vendors. Companies such as Toshiba and Fujitsu are expected to record their largest ever losses for the year to March 2002. They have been hit by the dual problem of a domestic recession and a global slowdown in technology demand. For example, US demand for PCs has been at its lowest in over a decade.

Many of the large vendors will undertake major strategic changes to re-position themselves towards the areas of high growth starting from 2003. A good illustration is Sony which is committed to the first change in its business model since its foundation 50 years ago. IT companies across the region will need to adapt to some of the major changes facing their industry.

Three of the main drivers of changes are mobile applications, broadband and e-business.

Mobile Applications

Mobile applications will grow in the next 12-18 months. The teething problems with 3G (third generation), whether it be for license bids or handset availability, will start to go away. It is often forgotten that 3G is a new technology, with Japan the first country in the world to launch a full commercial service. Initial difficulties were certain to happen. These difficulties should not be seen as an indicator of long-term problems.

For consumers, some of the most exciting applications will be centered around video and TV. The 2002 World Cup will be a great stimulus. LG Electronics is planning to launch, in May, a mobile handset capable of receiving video on demand at data speeds of up to 2.4 Mbps. This is faster than many xDSL connections, and offers excellent picture quality. KTF, Korea's second largest mobile carrier, has formed alliances with three major broadcasting stations to offer television programs over mobile handsets. Thus, Korean consumers could be watching whole games, or at least the major incidents, from the World Cup on their mobile devices.

Business users have often been left out of the mobile revolution. Of course, many business users use mobile voice and data services, but these have tended to depend on the individual. Mobile services will make the next step in the next 12-18 months, and become an integral part of the IT and communications systems of corporations. Mobile solutions will become integrated with other IT applications such as Intranets, CRM (customer relationship management) and procurement. This will require mobile operators and application providers to convince users that they have the security, systems management and reliability to provide critical business services via the mobile network. This will be a challenge for many mobile operators, and it will provide opportunities for smaller mobile providers to grow in this market.

For business users and consumers, the combination of immediacy, interactivity and personalization of mobile services is unbeatable. The higher speeds, enhanced devices and greater functionality of 3G will provide a major progression in mobile applications.

Broadband

Broadband, high speed connections to home and businesses, is the basic requirement for many IT and telecommunications services. It creates demand for additional applications and features, and the hardware and software to support them.

Broadband can be offered by the telephone company, through a technology often referred to as xDSL (the "x" indicating the different types of DSL which can be provided). It can also be offered by cable companies through a cable modem service. There have been widespread concerns that users were not prepared to pay for the additional costs of broadband connections, and telephone and cable companies were not prepared to invest in new networks and equipment.

However, the outlook looks bright for broadband. Market researchers Yankee Group believe that the number of broadband subscribers will grow by 44% a year between 2000 and 2004. They believe that Korea will remain the leading market, with 13.2 million broadband subscribers and a penetration rate of around 90% by 2004.

For the last couple of years, Korea Telecom has been the role model for other telephone companies in introducing broadband services. It has the highest penetration of broadband services in the world. Its success has been based on pricing, marketing and offering additional functionality.

The researchers believe the countries with the second and third highest broadband penetration are Singapore and Hong Kong respectively. Both countries have benefited from a competitive marketplace where cable companies are offering broadband services in addition to the telephone companies. These cable services are also being expanded to offer voice services using a technology known as voice over IP.

Other countries in the region are also keen not to be left behind in the race to offer broadband services. Chinese companies are investing in higher-speed VDSL, rather than ADSL, equipment. Japanese operators enjoyed increased growth in broadband users at the end of 2001, although the penetration rate remains far behind that of Korea.

E-business

After the boom and bust of the dot com companies, it is sometimes easy to forget the radical impact that the Internet and Internet-based technologies will have on companies. Many of these applications have had limited impact so far, partly because they remain unproven and immature, and partly because users have not had sufficient confidence in their value. Some of this user caution is justified -- many of the companies offering new "e" services will no longer be in business in the next two years. Many of the e-applications have been over-sold and over-hyped. Integrating e-business solutions with existing services can also be expensive and problematic. Yet, over the next 2-3 years, users will face a compelling logic to move more of their procurement, supply chain management, training, sales and internal communications to e-business. The benefits will not just be improved productivity and reduced costs, but much better customer service, enhanced business intelligence, and higher flexibility and service offerings.

Take the example of Web services. Web services are software components that can interact with one another dynamically via standard Internet technologies. By removing the need to use expensive proprietary solutions, users will see lower costs. By having standardized services, new services will be more easily created and integration will become less of a problem.

Web services is also a good example of the over-hyping of new solutions by the IT industry. It has been presented as an answer to all hardware and software problems, while it clearly has limitations. Different vendors use the term Web services in different ways to support their own strategies and existing product lines. This has created confusion among end-users.

However, the momentum behind Web services will ensure its success. Web services will dominate deployment of new application solutions for large corporations by 2004.

State and Government Initiatives

The penetration and success of different IT technologies and services varies widely between countries in the region. Partly this is due to issues such as wealth, population, culture, historical developments and vendor initiatives. However, Government and state initiatives play a major part. With increased globalization, many commentators thought that the role of governments in IT development would reduce. However, the opposite appears to have occurred. Government decisions, whether concerning IT spending, regulation, competition and merger decisions, license issues or a host of other initiatives, can make a major difference to the growth in an individual market.

It is important to realize that these government initiatives take place in a competitive marketplace. IT vendors have typically had a difficult year, and they are wary of new investments. They are assessing individual markets on a number of criteria, and making judgements on how helpful governments will be in the future. A critical element is people -- are the right skills present in the market? European and US governments have been keen to attract the brightest IT talent from around the world, using incentives such as fast-track visa programs.

An area such as California's Silicon Valley is also a great example of the benefits of attracting IT companies. Although it is one of the most expensive places in the world to live, IT companies still want to locate and stay there. The reason is not just the presence of suppliers, partners and clients, but of banks, law firms and marketing companies. Such regions can generate huge prosperity for a country.

It is also worth considering that OECD research has found that telecommunications infrastructure is one of the most important elements for corporations in deciding where to locate new offices. Broadband and mobile infrastructure are becoming increasingly critical in the ability of a country or state to attract inward investment.

IT and Business Change

Many IT vendors have claimed that their sales approach has changed in two key ways in the past 12 months. First, they emphasize the ability of their solution to save money and provide a tangible return on investment (ROI). Second, the IT vendors often claim to be changing the sales target in the corporation from the IT department to senior executives. Some commentators have suggested this is a sign of desperation -- they have not been gaining the sales required and are looking to sell to a different part of the organization. However, the truth is that many IT implementations do not meet expectations, not because of any deficiencies in the technology, but because the user does not make the necessary changes in their business processes.

A good example is CRM. Technology is at best an enabler to improve customer relations, but creating a customer focused organization requires changes in all areas of the corporation. E-procurement is also a useful example. Technology can enable online communications between buyers and sellers, and the tools to measure and track procurement. However, successful implementation of e-procurement requires changes in the organization, not just in purchasing but in the whole way that the company deals with its suppliers.

To get the maximum benefit from IT investments in areas such as e-procurement and CRM, companies need to make a clear decision to undertake change across the company. Ideally, the IT department should be just one element of this decision, concentrating on how to integrate the technology with existing hardware and software, and provide the necessary support and management. The real benefit will come from changing working practices. This can often be a difficult task. For example, one of the main challenges in procurement has been the different approaches taken by individual departments and country offices. This often creates waste and inefficiency, such as multiple parts of a company buying small amounts from the same supplier. Different country offices have to work with different taxation, regulatory and financial rules.

One of the main requirements in maximizing the benefit of e-procurement is to create a centralized and consistent approach to purchasing and dealing with suppliers, across the organization. The technology can help achieve this, and provide the ultimate goal of cost savings and a dynamic online picture of spending for the financial director. However, the real change is required in the business processes.


The Tangible Measures

IT solutions often have IT, rather than company-wide, metrics. For a solution such as CRM, success can be difficult to measure. Is it customer satisfaction, customer retention or simply revenue growth? Can the effect of CRM be differentiated from the influence of other factors?

The answers to these questions are not easy. The key requirement is to ensure that these measurements and metrics are decided as early as possible, and are clearly aligned with the success metrics of the whole business.

The success of many IT deployments, and particularly those in the e-business area, depend more on business than IT issues. Corporations need to ensure that their IT strategy is driven and supported by senior executives rather than just their IT departments.