March 1, 2012
In their Asia Pacific Tech Market Outlook For 2012 report, Andrew Bartels and Frederic Giron show that government and business IT spending in the emerging markets of Asia (including China, India, and the ASEAN countries) will reach US$180 billion in 2012, growing by roughly 13% over 2011. While emerging Asia’s IT spending is surging this year, economic obligations in the developed markets of North America, Europe, and Japan will ensure continued austerity — and limited IT spending growth. In other words, emerging Asia is clearly a lucrative region of opportunities for US, European, Japanese, and South Korean vendors looking for new sources of growth to offset lower business prospects in their home markets.
Asia is a region of highly disparate countries, with regulatory complexity, cultural differences, and a limited pool of skilled resources. These barriers to entry and expansion will compel vendors to look beyond organic growth, which is simply too time-intensive. Instead, mergers and acquisitions (M&A) of local/regional incumbents with local know-how, skills, and client relationships will increasingly be a strategic imperative for vendors targeting emerging Asia. I’ve highlighted some examples from the Indian market below, but I foresee similar trends in the overall ICT sector throughout emerging Asia:
- IT services vendors. Cash-rich foreign vendors are pursuing a two-pronged objective: adding to their existing skilled resource base and expanding their geographical reach. For instance, Dell recently announced a US$1 billion fund to acquire one or potentially several Indian IT services firms with “several thousand staff.” Meanwhile, NTT Communications purchased a 74% stake in Mumbai-based data center services provider Netmagic to strengthen its IT services position within India. I expect similar activity throughout emerging Asia, as local vendors will be perceived as a cost-effective solution to rapid scale-up.
- IT product vendors. Vendors are investing in vertical-specialized channel partners for targeted expansion in emerging Asia. This will enable vendors to penetrate specific verticals much more deeply than they are currently able to do on their own. For instance, Ricoh India, the local subsidiary of the Japanese company, acquired India-based Momentum Infocare Private Limited to offer IT-enabled services for Ricoh’s imaging solutions. This trend is not confined to India — it will sweep across all of emerging Asia as vendors seek to jump-start their efforts in the region.
- Telecommunications service providers. With sky-high licensing costs and low margins, sustaining operations is a challenge for fringe telecom service providers in India. With the green flag waved for M&A, expect further consolidation to reduce the country’s current 15-operator landscape to 12 this year. Further, the revocation of 122 2G spectrum licenses has only compounded smaller operators’ misery. Etisalat and Batelco are set to exit India, leaving their Indian partners vulnerable to purchase. While this trend will mostly be confined to India in 2012, consolidation in this sector is likely to spread to other emerging Asian countries in 2013 and beyond.