Gartner Sees Big Dot-Com Shakeout in Asia

HONG KONG (05/08/2000) - As many as 85 percent of today's pure Internet companies in the Asia-Pacific region will fail or be acquired by 2003, analysts at international consulting company Gartner Group Inc. predicted today.

Most of these companies lack the agility and other management capabilities they will need to survive in a market that has become even more competitive since last month's stock market correction, Gartner analysts said at a press conference here in Hong Kong.

However, the bloodletting is likely to be less severe than in the U.S., because the recent drop in the market prevented even more speculative investing in companies that cannot survive, predicted Research Director Joe Sweeney.

Because the dot-com frenzy in the U.S. started earlier and went on longer before the recent fall in technology stock on both the Nasdaq and Asian exchanges, a greater percentage of shaky U.S.-based start-ups had the chance to get off the ground, he said.

"With the market dropping in Asia, the investors are being much more cautious," Sweeney said.

A willingness to develop new business models, re-engineer business processes, and join with new types of partners, in addition to innovation and financial commitment, will be critical to e-business in Asia, according to Gartner.

Many dot-com companies in the region lack those capabilities, Sweeney said.

Most of those will be acquired very quickly, or face bankruptcy, he said.

"Unless a company has a real business plan that doesn't rely entirely on advertising revenue, they're going to collapse," Sweeney said.

Most successful will be established companies that are willing to embrace new ways of doing business, as well as those focusing on business-to-business international trade services, he added.

"It'll be the hybrid businesses that will emerge on top," Sweeney said.

Those that aim to break a high-margin industry through slashing costs and undercutting prices will also have an edge, he added.

Even as Internet companies fall out across Asia, Western companies will begin expanding their businesses to the region, Sweeney said.

"Expect to see a flood of very highly financed, very experienced businesses coming into the Asia-Pacific region," Sweeney said. The competition will benefit customers by driving up the quality of services offered, he added.

One area in which Hong Kong is likely to make its mark in e-commerce is value-added intermediation, in which trading companies both find merchandise for a foreign company and ensure that the merchandise meets a certain level of quality, according to Craig Baty, Vice President of Gartner's Dataquest division in Asia-Pacific.

Gartner predicts an explosion in e-business in Asia over the next several years, mostly in business-to-business (B2B) transactions. By the end of this year, the firm expects to see US$30 billion of e-commerce transaction value in Asia, excluding Japan, of which about 95 percent will be B2B and 5 percent business-to-consumer. By 2004, that region will see an estimated $1 trillion in transactions, 91 percent of the total being B2B, said Lane Leskela, research director for Gartner's e-Business Intelligence Services in Asia-Pacific.

Gartner Group, in Stamford, Connecticut, can be reached at +1-203-316-1244, or via the Web at http://www.gartner.com.

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