UPDATE: ICG, HK's Hutchison Tie Up on E-Commerce
- 10 March, 2000 12:01
HONG KONG (03/10/2000) - U.S. Internet holding company Internet Capital Group is staking a claim on the fast-growing Asian e-commerce market by teaming up with Hutchison Whampoa Ltd., one of Hong Kong's biggest conglomerates, the two companies announced at a press conference here yesterday.
The partners will form a joint venture, ICG AsiaWorks Ltd., to nurture business-to-business e-commerce startups and help foreign firms enter the region, and will launch by mid-year a business-to-business procurement portal.
Through ICG AsiaWorks, ICG will extend to Asia its model of investing in business-to-business e-commerce companies and providing industry expertise, operational assistance, and relationships to help them grow. The company will invest US$150 million in the ICG AsiaWorks venture and plans to take stakes in 10 to 20 companies in Greater China over the next year, according to Managing Director and Co-Founder Ken Fox. Hutchison will invest $50 million.
AsiaWorks will establish several incubation centers in the region, beginning in the next few months. In addition to nurturing e-commerce companies in Greater China, the centers will provide expertise to help U.S. companies move into Asian markets, Fox said.
Among the centers will be facilities in Beijing, Shanghai, and two other sites in China, Fox said in response to a query.
"We're going to go where the action is," Fox said.
Fox, who appeared at the press conference via teleconference, said ICG AsiaWorks will be ICG's main vehicle for bringing its U.S. partner companies into Asia, which he said is a critical step to take.
"To be number one in the U.S. is only meaningful to one-third of the global economy, if that," Fox said.
Fox said the primary focus of the ventures with Hutchison will be Greater China, and said the company might make other deals to enter the Japanese and Korean markets.
ICG last month created a European business-to-business e-commerce venture along with British Telecommunications PLC and VerticalNet Inc. (See "BT Forms US$227M European JV With Two U.S. Firms," Feb. 2)Analysts said the high-powered partnership shows how important and competitive the business-to-business e-commerce market has become in less than one year.
"Asia is heating up, and more and more companies are looking east," said Matthew McGarvey, an analyst at International Data Corp. (IDC) Asia-Pacific, in Hong Kong.
With more competitors from both inside and outside the region getting involved, newcomers now need prominent partners, he added.
"Six months ago, a deal like this probably wouldn't have happened," McGarvey said.
ICG was wise to choose partners affiliated with the Li family, because of both the size of its business empire and its local reputation.
"Look what his name alone did for Tom.com," McGarvey said.
The companies' e-procurement portal will tap into a critical need for Asian companies, especially small and medium firms, added analyst Joe Sweeney of Gartner Group Inc. The Internet can help Asian companies reach broader markets through "electronic trade associations" tailored to local needs, he said.
"The business-to-business electronic trade associations are the killer app for Asia-Pacific," Sweeney said.
However, he added that Hutchison and ICG will have to set up specialist groups within their portal to properly serve industries.
"You can't be good at the supply chain if you're all things to all people," Sweeney said.
The companies' other venture, an e-procurement portal, will be led by Hutchison, which will draw on the purchasing power and relationships of Hutchison and Cheung Kong (Holdings) Ltd., both controlled by the family of Hong Kong billionaire Li Ka-shing. Cheung Kong will also hold a stake in the portal business. One other partner in the venture has yet to be named.
"We will form the largest and most complete procurement exchange in Asia," said Canning Fok, group managing director of Hutchison Whampoa Group Ltd. A highly liquid procurement portal will increase corporations' supply options and decrease their procurement costs, the executives said.
Hutchison's tie-up with ICG comes on top of a series of aggressive moves into the Internet by Li Ka-shing and his family, including the well-received launch of consumer portal Tom.com by Hutchison and Cheung Kong (see "Hong Kong's Latest Internet IPO Draws a Crowd," Feb. 23) and the planned purchase of Cable & Wireless HKT Ltd. by son Richard Li's Pacific Century CyberWorks Ltd. (See "Update: CyberWorks Details C&W HKT Merger Offer," Feb. 29) Last week, Hutchison joined with Donaldson, Lufkin & Jenrette's DLJdirect unit to provide online financial services.
Also investing in ICG AsiaWorks is the Li Ka-shing Foundation, the officials said.
Fox said Hutchison was the best partner for Greater China because its management excels at execution.
"They're adapted to the pace of the Internet economy and are driving their companies at that pace," Fox said.
ICG AsiaWorks will be formed through the acquisition of a toy manufacturing company already listed on the Stock Exchange of Hong Kong, Harbour Ring International Holdings Ltd. The venture requires the approval of Harbour Ring shareholders and regulatory agencies.
ICG, based in Wayne, Pennsylvania, can be reached online at http://www.internetcapital.com. Hutchison Whampoa, in Hong Kong, is online at http://www.hutchison-whampoa.com.