ASIA: A POT OF INTERNET GOLD - South-east Asia may not have been the first region online, but it’s making up for lost time as the main players become more sophisticated. Alexandra Harney reports

Yoko Tsukamoto buys plane tickets, reads the newspaper and checks her e-mail online - not unusual for a modern Japanese woman. Except that she does not use a computer - all of her online transactions are through her mobile phone.

Yoko Tsukamoto buys plane tickets, reads the newspaper and checks

her e-mail online - not unusual for a modern Japanese woman. Except that

she does not use a computer - all of her online transactions are through

her mobile phone.



As a television producer, most days she is either on the road or

organising her next trip, so there’s little time to read a newspaper.

Looking up the latest news on her mobile phone saves her time.



Tsukamoto is one of more than five million Japanese who subscribe to

I-mode, the world’s largest internet-capable mobile phone service

operated by NTT Docomo. The internet in Asia is poised for explosive

growth - but not where you might expect it.



’The growth of the internet in Asia will be much faster than in the

West,’ Juliette Chow, an analyst at Lehman Brothers in Hong Kong, says.

’Because of the high penetration of mobile users and because the Asian

telecommunications infrastructure is more advanced than in the US or

Europe, it will grow far more quickly.’



In many countries the internet population is doubling each year. There

are nearly 44 million people online in Asia - a number some expect to

increase fourfold over the next several years.



In Japan, the largest internet market in Asia, about 18 million people

are online. There are several million more in Hong Kong. Add another 18

million in Korea and millions more in Australia, Thailand and the

Philippines.



One in two Singaporeans has access to the internet.



Most observers agree that the region’s history and geography will shape

the internet’s development in different ways from the US or Europe.

Asian countries have rebuilt their economies over the past 50 years,

installing the information highways essential to supporting higher rates

of internet use.



Singapore has spent about pounds 123 million in recent years on building

a high-speed, broadband network, and Korea was the first country to

approve code division multiple-access technology for mobile phones that

promise better quality access and a wider range of services than a

traditional cellular connection.



It’s not all of benefit to consumers, however. Japan has the highest

internet connection fees in the world, thanks to the decades-long

dominance of Nippon Telegraph and Telephone, which controls 98 per cent

of the local call market.



But there are great opportunities for mobile e-commerce, which avoids

high access costs and is ideally suited to the region’s

demographics.



Asia is densely populated and increasingly urban. More crucially,

because it is about two to three years behind the US in internet use,

Asia benefits from the latecomer’s advantage. Executives are loath to

make the same mistakes as their US and European rivals although the

recent depression in internet stocks bodes ill.



Many of the differences emerging involve how people get online. High

access charges have discouraged people from logging on from home. In

Japan, where personal computer ownership is lower than in the US, people

use mobile phones, portable internet terminals and computer game

consoles to get on the net.



Starting next year, Sony plans to provide internet access on every

PlayStation 2 games console it sells. From one terminal customers can

send e-mail and download music, software and videos. With a console

costing around pounds 246, this makes the internet look like a bargain.

Sega already offers a modem on its Dreamcast games console and Microsoft

is believed to be working on a similar project.



’The way this market is developing in video games consoles they should

be on the same level with PCs in terms of relevance,’ Luigi Limentani,

an analyst at Nikko Salomon Smith Barney in Tokyo, says.



Analysts also expect terminals in convenience stores could prove popular

in markets such as Hong Kong and Japan. These terminals - where

customers can download music, make hotel reservations and play the stock

market - bypass high phone charges and eliminate concerns common in Asia

about disclosing credit card numbers online. They also turn the corner

store into an e-commerce trading post; customers can order books online

on their way to work and pick them up from the same convenience store

that night.



Limentani says: ’There is a convenience store 100 metres from everyone

in Tokyo. Convenience stores are the Trojan horse for bringing the

internet within the reach of the people.’



However, despite the differences with the US and Europe, the

opportunities for e-commerce can be found in familiar places. The early

favourites are in online banking, auctions, entertainment and services.

Marketing will follow as other e-commerce initiatives develop.



More than 40 per cent of retail stock and bond trading in Korea is done

over the web, giving it one of the largest online brokerage markets in

the world, according to Lehman Brothers. There, the leading brokers

include Daishin, LG and Samsung Securities.



In Hong Kong, online brokers such as Boom.com, the area’s first purely

online trading house, are making gains. And Legend, China’s leading

computer company, revealed plans to sell set-top boxes that would allow

people to trade equities online using a television set.



In Japan, Nikko Salomon Smith Barney estimates that online accounts

could number 1.5 million by the end of this year and trigger a painful

consolidation in the industry. There are already more than two dozen

online brokers, all charging commissions that are a fraction of what

they were a year ago.



The internet has precipitated deeper changes in Japan’s banking

sector.



Softbank, the country’s largest internet company, has signalled its

intention to move into banking. Sony and Ito Yokado, a Japanese

supermarket chain operator, have also applied for a banking licence.

Analysts say this may have serious consequences for traditional

banks.



Online auctions are fast replacing traditional newspaper advertisements

as the place to sell unwanted items or pick up a bargain. Japan’s

Rakuten online market, as well as Yahoo! Japan, are gaining popularity

with younger customers. In other countries such as Taiwan online

shopping malls are expanding.



This growth is triggering expansion in other parts of the economy,

including in technology jobs. Muneaki Ueda, the vice-president of

Pasona, Japan’s leading temporary staff agency, says he has been

over-run with requests for information technology workers since last

year. ’Business is better than ever,’ he explains. ’Almost all

corporations are outsourcing more work than in the past and the internet

is changing the paradigm of work altogether.’



Recruit, a top publishing company, claims that nearly every recent

graduate in the country looking for a job with a private company has

registered with its online employment agency. Its website boasts 12

million page views a day.



But many people believe entertainment - movies, music, computer and

travel - will become the largest areas of revenue online. Bodysonic,

once a manufacturer of vibrating chairs before it reinvented itself as

an internet company, transmits ghost stories on the mobile phone network

in Japan. The service receives several thousand calls every day.



Although most Asian internet companies with e-commerce facilities are

still in their infancy, there are few clear winners. And in internet

time, where entire industries can flourish or perish in a matter of

months, the long-term winners and losers may be hard to predict.



The names to watch include: Yahoo!, the US group which has been

gathering partners in Japan, Korea, and China; Softbank, the Japanese

internet conglomerate headed by Masayoshi Son; and Pacific Century

CyberWorks, the Hong Kong-listed company headed by Richard Li, son of

tycoon Li Ka-shing. Microsoft is also likely be a player in the

region.



However, in Asia as elsewhere, the internet is not just an economic but

a cultural phenomenon. Although the region has produced the most

impressive economic growth in the world, it has also resulted in

incredible inefficiencies. The internet promises to eliminate layers of

costly middlemen by allowing companies to negotiate through

computers.



’The consumer is going to benefit - especially in Japan,’ Limentani

says. He expects business-to-business e-commerce to eliminate 75 per

cent to 95 per cent of the intermediaries involved in retail sales.



Business-to-business e-commerce is ideally suited to Asia where

manufacturing led the economic recovery after World War II and suppliers

have traditionally been closely involved in the manufacturing process.

Business-to-business e-commerce sales are expected to rise from dollars

2 billion in 1999 to dollars 32.6 billion in 2003, according to the

International Data Corporation.



Another important effect of the internet is on the social roles of men

and women. By creating new labour demand and bringing entire stores to

consumers’ computer screens, the internet elevates women’s status in the

new economy. About 40 per cent of new internet users in Japan are women,

according to the interactive agency, Flying Colour.



Women are also the biggest spenders in Japan, because men often leave

the family finances to their wives, and younger women are choosing to

stay single longer to bankroll their shopping sprees and trips

overseas.



Women are behind some of the most popular internet ventures - the I-mode

phone that Tsukamoto uses was invented by a woman. And unlike banks or

trading houses, many internet companies eliminated gender-based hiring

and promotion policies nearly a decade ago. In the fast-moving battle

for dominance in the internet world, companies such as Fujitsu and Sony

were desperate for capable employees regardless of gender. Some even

hope that this will make it easier to find a marriage partner.



As for Tsukamoto, the internet is making it easier for her to connect to

her heritage. Her latest goal? To buy tickets for kabuki, or traditional

Japanese theatre, online using her mobile phone.





THE OUTLOOK FOR ONLINE ADVERTISING



Todd Newfield, the chairman of Flying Colour, an interactive planning

and creative agency based in Tokyo, expects online advertising revenues

in Asia to grow to dollars 1.25 billion by 2003, from just a fraction of

that number today. Nikko Salomon Smith Barney predicts that internet

advertising revenue will exceed that of posters by 2003, reaching a

total of Y389 billion (dollars 3.78 billion) by 2005.



If these predictions become reality the implications are enormous for

marketing in Asia, especially as global advertising groups such as WPP

and Interpublic strengthen their presence by investing in local

agencies.



Many observers believe companies will stick with traditional agencies

because of historic relationships and important connections with

media.



But others predict the internet could offer huge opportunities for

newcomers.



Chinadotcom, the Hong Kong-based portal, has been raising revenues

through its advertising activities.



Paul Smith, an analyst at HSBC Securities in Tokyo, says: ’The internet

will accelerate change in the industry and encourage consolidation among

agencies because the new entrants have the skills to deal with

e-commerce.’



Dentsu and Hakuhodo, the first and second-ranked Japanese agencies,

created internet divisions only late last year. Executives admit they

are concerned about the possible arrival of experienced interactive

agencies from the US and Europe which offer better services online at

lower prices.



Already, American companies such as ValueClick are gaining ground in

Japan. New Japanese companies, with names like CyberAgent, are cropping

up every day to serve a growing number of internet start-ups.



’The issue is whether new economy companies will use Dentsu or not,’

Jonathan Hendriksen, the president of ValueClick Japan , says. He

expects revenue growth to jump next year after e-commerce companies

mature and Japanese consumers do more shopping online.



According to Hendriksen, ’the market is still trying to sort itself out.

It is a mixed bunch - there are gems and rocks.’