Japan Expected to Dominate Asian E-Commerce

Companies looking to do electronic commerce in Asia should consider three priorities -- Japan, Japan and Japan, according to Mark Daniell, managing director of international consulting company Bain & Co. Asia.

Japan will account for 87 percent of developed Asian countries' $US39.4 billion e-commerce market by 2002, and will remain several times bigger than the often-touted China market, he said during a presentation here Thursday at the DotCommunityAsia conference.

And the country has some idiosyncrasies that make it ideal for e-commerce, according to Daniell.

"Japan has excellent technology infrastructure, but very inefficient distribution methods," he said.

The best chance for investors is in Japan's business-to-business e-commerce sector, which Daniell described as a huge, untapped market.

According to Daniell, other e-commerce sectors with varying levels of potential in Japan include:-- portals and content, which are a crowded and unprofitable market -- business-to-consumer e-commerce, where there are already many early movers-- online brokerage and financial services, another crowded and slow-growth market-- Internet service providers, a fragmented, crowded and hard to penetrate market-- infrastructure and services, a huge market which is filling up fast-- incubators and venture capital, currently dominated by three or four huge firms, leaving opportunities for niche companies.

The compound annual growth rate (CAGR) in the Japanese e-commerce market is currently 130 percent, according to Daniell, slightly outstripping the three other smaller developed markets of Taiwan (CAGR 123 percent), Hong Kong (CAGR 122 percent) and Singapore (CAGR 116 percent).

The overall Asian e-commerce market will grow at a CAGR of 128 percent from $US2.9 billion in 1999 to the $US39.4 billion expected in 2002, according to Daniell.

As business picks up, and more vendors come into the Asian e-commerce market, the ratio between market capitalization and revenue will fall sharply towards levels now seen in the U.S., according to Daniell.

On average, portals in the U.S. have market capitalization of around 70 percent of their annual revenues. In contrast to this, Yahoo Japan Inc. currently has a market capitalization of 1,480 percent of its revenues, and Chinadotcom Corp. has a market capitalization of 1,492 percent of its revenues, Daniell said.

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