Asian Nations Lure Business

Asian Nations Lure Business

By Neil Munro
Staff Writer

U.S. companies are using contracts with governments in the Asia-Pacific region to get their feet in the door of the region's fast-growing marketplace for information technology and services.

"Government is one of the early implementers of new projects, so government tends to be one of the first areas in which we invest," said Todd Ramsey, who directs IBM Corp.'s government sector marketing in the Asia-Pacific region. In 1996, $14.7 billion of IBM's $75.9 billion in revenues came from Asia-Pacific accounts.

Although each country in the Asia-Pacific region presents different problems and opportunities, government contracts "are always good ways to establish yourself as a provider of services and you can use them as marquee accounts," when marketing to other local buyers, said Randy Tate, a senior analyst at market research firm G2R Inc., Mountain View, Calif.

Microsoft Corp., Redmond, Wash., is working closely with several Southeast Asian countries on government-funded high-tech development projects such us Singapore One in Singapore, the Multimedia Super Corridor in Malaysia and Nusantara 2000 in Indonesia, according to Orlando Ayala, a senior vice president of Microsoft responsible for sales to Southeast Asia and India.

Ayala has helped grow Microsoft's recent sales, via resellers and partners, in the area at an average rate of 60 percent a year. "Close work with the government is a must," he said.

In Vietnam, Oracle Corp. executives are working closely with local government officials as they try to devise a modern funds management system, complete with computers and software. The study can help Oracle land a government contract, putting it in a better position to win commercial customers, said Jack Pellicci, vice president of Oracle's global public sector unit.

"In many Asian nations, the principal customer is the government," which also opens doors to other contracts, he said. The Redwood Shores, Calif.-based company earns 80 percent of its Asian revenue via local resellers and partners, Pellicci said.

The Vietnamese effort is underwritten with $500,000 by the World Bank and is part of the gradual liberalization of the country, which has a population of 80 million. Oracle's annual revenue is $6 billion, including $1 billion from the Asia-Pacific arena.

A recent G2R study predicts that government spending on information technology in the region will grow to $25 billion by 2001, up from $17.6 billion in 1996. Japan leads the pack, with predicted purchases of $12.8 billion, followed by Australia at $3.1 billion, China at $2.24 billion, South Korea at $1.1 billion and Taiwan at $920 million in 2001.

The fastest growth rate, according to G2R, will be in China, where government purchases will jump by 10.1 percent per year. Government spending on information technology is only one portion of China's information technology spending, estimated at $14.5 billion in 1996. The U.S. share of this overall spending may be as low as 10 percent.

Overall, U.S. information technology exports to the Asia-Pacific region reached $40 billion in 1996, up from $16 billion in 1990. However, U.S. imports of high-tech products from Asia-Pacific countries reached $70 billion in 1996, up from $26 billion in 1990, according to the Washington-based American Electronics Association.

The recent Asian currency crisis, although painful in the short run, should not seriously slow government and commercial spending on high-tech, although it may make products from affected countries cheaper and more competitive, said industry and government analysts.

Throughout the region, government sales are overshadowed by commercial sales, experts said. For example, government and commercial information technology spending in China and Hong Kong will mushroom to $71 billion by 2002, up from $25 billion in 1997, according to a new study by Killen & Associates Inc., Palo Alto, Calif. The government's spending will rise, but not as quickly as commercial sales, said Bob Goodwin, Killen's marketing chief.

On Nov. 13, AT&T's China-based offices in Beijing and Hong Kong announced a new deal in which the company will ally with the government-owned China Telecom phone company to establish a high-speed data line to link the fast-growing regional capital of Shanghai to the rest of the world. The line will move data at a rate of up to 45 megabits per second, and is part of the Chinese government's $42 billion dollar investment in telecommunications infrastructure.

AT&T already has almost 1,000 employees - and myriad resellers - in the Asia-Pacific region.

Other companies aggressively selling in China include IBM Corp., Armonk, N.Y.; Microsoft Corp.; Hewlett-Packard Co., Palo Alto, Calif.; Andersen Consulting, Chicago; Digital Equipment Corp., Maynard, Mass.; and Unisys Corp., Blue Bell., Pa., said John McGilvray, Killen's senior China consultant.

In 1996, Motorola Inc., Schaumburg, Ill., exported $1 billion worth of information technology products to China, and sold another $2 billion of products from factories in China, generating $3.1 billion, or 11 percent of the company's $29 billion in revenue.

Although most companies are spending heavily on investment without generating immediate payback, "the long-range benefits ... far outweigh the short-term losses," McGilvray said. They are building a foundation for future business by forming partnerships with local companies and "just by being there," he said.

Most information technology trade between U.S. and Asian countries is commercial, but all trading is influenced to a greater or lesser degree by government policies that can impose, or clear away, trade barriers such as tariffs, telecommunications monopolies, restrictions on Internet use, lax copyright protection laws or burdensome technology transfer demands, said industry executives.

In China, where much industry is still owned or overseen by regional governments or the central ministries, government approval is needed for most deals. "The Chinese market is incredibly complex. ... There are rules and regulations making it very complex to get approvals" for business deals, said
Debra Waggoner, a trade lobbyist at the Washington-based office of the American Electronics Association.

Chinese government officials "can freeze you out. ... [Good relations with government] is an essential part of a marketing strategy," Goodwin said.

That's also true for the U.S. government, which hosted Chinese President Jiang Zemin in a week-long visit Oct. 26 to Nov. 3.

During the visit, Chinese officials announced they would join the International Technology Agreement, signed last December, which commits nations to eliminating tariffs on computer and communications technology over the next few years.

U.S. officials hope to build on the expanding success of the ITA by pushing forward with a wider agreement called ITA II. If completed, ITA II will liberalize international trade in information services, promoting the market for communications and computer technology used to process these banking, insurance, medical and other services.

Both sets of negotiations are an offshoot of the World Trade Organization agreement, approved by Congress in 1993.

However, these negotiations may be undercut by Congress' refusal in early November to extend U.S. President Bill Clinton's Fast Track trade authority, said Waggoner.

Although Congress may not be required to approve the emerging ITA II agreement, statements by congressional legislators may deter foreign government officials from undertaking the short-term pain of opening their economies to U.S. corporations, even though it will benefit all countries in the long-term, she said. "Without Fast Track, other countries are less willing to make concessions," said Waggoner.

ASIA-PACIFIC GOVERNMENT IT SPENDING

1996 2001
Australia
2,103
3,132
China
1,386
2,240
Hong Kong
184
255
India
1,260
1,880
Japan
9,483
12,813
Singapore
284
446
South Korea
749
1,111
Taiwan
641
920
($ in millions)

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