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Challenging environment limits growth prospects of Asian Internet firms: EIU report

Jul 03. 2013
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Asia's Internet businesses, notably those outside of North Asia, continue to face a challenging business environment that prevents them from growing to the scale of their counterparts elsewhere, according to new research from The Economist Intelligence Un

The report, “Good to grow? The environment for Asia’s Internet businesses”, notes that while Asia accounts for nearly 50 per cent of the world’s Internet users, it has yet to produce an Internet giant on the scale of an Amazon or a Facebook.

The report, which was commissioned by the Asia Internet Coalition, examines why this is the case.

It is based on interviews with more than 30 Internet platforms and content creators across Asia, and examines their global aspirations and looks at the business environments in which they operate.

The Asia Internet Coalition is an industry association formed by eBay, Facebook, Google, Salesforce and Yahoo! Inc to promote understanding and resolution of Internet policy issues in Asia-Pacific.

Among the main findings of the research is that online payment channels are fragmented and underdeveloped, hindering business. Improving the payments landscape is a pressing issue for many Internet entrepreneurs in Asia.

 There are several challenges: credit-card penetration is low, there is limited ability to use debit cards online, and there is a general reluctance to conduct transactions online.

In some markets, businesses rely on offline channels for revenue collection, such as through ATM machines or convenience stores, or even in-person collection of payments.

Internet regulation is also on the rise, and many governments are focusing more on control than enablement, failing to understand the negative impact on the sector, according to the report.

Asia is still finding its way with respect to governance and regulation of the Internet. In some markets such as Vietnam, regulation is mostly undeveloped, which can be seen as a blessing since it allows companies to move quickly and freely.

In others, such as South Korea and Taiwan, there are stricter regulations which operators say hamper their businesses.


Uncertainty in Thailand

In India and Thailand, poorly worded and confusingly interpreted laws on liability for carrying illegal or even merely controversial content, cause a great deal of uncertainty for businesses as well as high administrative costs, says the EIU report.

Regulation is hindering talent flows. The talent required by Internet businesses is being fought over globally and Asian talent is often lured overseas.

Many entrepreneurs say a free flow of talent is necessary to help the region’s nascent industry develop. Yet some governments, such as those in Singapore |and Thailand, are tightening |regulations on bringing in foreigners.

The industry across the region is in favour of incentives to lure talent home, says the report.

There is global demand for Asian content and platforms, but few entrepreneurs are thinking globally. Asian content and platforms have wide appeal.

Examples of companies that have successfully built a global user base include Alibaba from China, Japanese messaging app Line and numerous gaming companies from North Asia. Yet few Asian Internet companies are developing with a global audience in mind, say the researchers.

Of the companies that have built up a global user base, this has frequently been through viral traffic rather than by design. Asian Internet businesses typically focus on home markets, either because they are potentially huge or because they feel they need to build scale before venturing abroad.

Monetisation is an uphill battle for many entrepreneurs. Entrepreneurs in many parts of Asia face a challenging commercial environment. Online advertising budgets, while growing, remain small and skewed towards the larger players.

While e-commerce is growing rapidly, finding the winning business model remains difficult in many markets, says the EIU.

Outside of North Asia, entrepreneurs report that Internet users are reluctant to pay for intangible items such as content. This is particularly so when |there is pirated content easily available.

Some larger foreign players, such as music-streaming service Spotify, are convinced that consumers will pay if more content is made available. They have recently launched their services in some of the most pirate-prone markets in the region.

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