The Rise of Asian Powerhouses


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The Rise of Asian Powerhouses

  1. This report is solely for the use of Zinnov Client and Zinnov Personnel. No Part of it may be quoted, circulated or reproduced fordistribution outside the client organization without prior written approval from ZinnovThe Rise of Asian PowerhousesZinnov Center of Excellence for Emerging MarketsJune 2013To Access full report, please send your request to
  2. 2We are an 11 year old management consulting companyGlobalization strategy for largetechnology companies & Indiamarket expansion (ME) strategyGlobalization strategy includingMarket Expansion, R&D and sharedservices (IT)Globalization advisory for US based VCfunded companies, R&D center setup formid size technology companiesZinnov center of excellence foremerging marketsGlobal Office Locations:• Santa Clara (US)• Houston (US)• Bangalore (India)• Gurgaon (India)Expansion Plans• Singapore• Shanghai/ Beijing2005 - 20072008 - 2012Our Customers:• Global Technology Firms• Indian IT-BPO Companies• Government• Industry AssociationsFocus Areas• Modern IT/ Cloud• SMB• Innovation• Start-ups• R&D• Shared ServicesIAOP: 2013World’s bestoutsourcingadvisors120 People150+ Customers2002 - 20042013Onwards
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  4. 4Agenda1 Rise of Asian Powerhouses2 Unique Characteristics of Asian Powerhouses3 Appendix (Other Case Studies)
  5. 5The balance of global economic power is shifting in favour of Asian economiesCountry Wise Contribution In Global GDP (PPP), 1980-2020EUSA V/S Asian Powerhouses (China, India, Indonesia, Malaysia and Philippines)1980 1985 1990 1995 2000 2005 2010 2012 2015 2020%ofGlobalGDPAsian Powerhouses have already overtaken USin terms of contribution in the Global GDP23.1%18.9%14.9%5.6%2.6%AsianPowerhousesChinaUSIndiaIndonesia,Malaysia &PhilippinesSource: IMF World Economic Outlook 2013
  6. 6GDP growth in Asian Powerhouses is being driven by increasing government spending,personal consumption and foreign investmentsGrowth In Government SpendingCAGR 2008-1117% 17% 21%12%12%United States China India Indonesia PhilippinesMalaysia3%Growth In Household SpendingCAGR 2008-11United States16%China14%India14%Indonesia9%Philippines10%Malaysia2%Growth In Foreign InvestmentsCAGR 2008-11United States9%China India25%Indonesia9%Philippines17%Malaysia-8%-9%Key sectors for investment :• Technology led inclusive growth• Education & healthcare sectorsRising young population (15-45 years)driving the household expenditureLiberalization of key sectors such asmulti-brand retail, aviation etc.Source: World Bank
  7. 7The focus on technology investments in the Asian economies is on the riseShare Of IT SpendingUSA V/S Asian Powerhouses (China, India, Indonesia and Philippines)Expanding base of globallycompetitive large and mid-market enterprisesStrong base of growingdomestic SMBsGrowth of enabling ITinfrastructureA B CGrowth in IT Spendingin Asian Powerhousesis driven by:Source: BMI, Zinnov Analysis86%14%Asian Powerhouses2008USA%ITSpending65% 35%2020USAChinaIndiaIndonesiaPhilippinesAsian PowerhousesIT spending growth in Asian Powerhouseswill be more than that of the USA Malaysia
  8. 8Asian Powerhouses have an extensive base of globally competitive large & mid marketenterprises ALarge & Mid Market EnterprisesEmploying more than 200 employees (2012)United StatesChinaIndiaIndonesiaPhilippinesMalaysiaAsian Powerhouses41,000175,00095,00055,0004,80015,7003,500Total Enterprises in Forbes 2,000 ListUnited StatesChinaIndiaIndonesiaPhilippinesMalaysiaAsianPowerhouses2020 E2012543275182569208CAGR- 4%17%23%11%2%6%26%3781,160938129113251Source: Government Agencies, Forbes
  9. 9Strong base of domestic SMBs is increasingly contributing to the growth of Asianeconomies BNumber of Small and Medium BusinessesEmploying less than 200 employees (Mn) (2012)United StatesChinaIndiaIndonesiaPhilippinesMalaysiaAsian Powerhouses231355148250.60.8China has the largest base of SMBs inthe worldSMBs account for over 20% of the totalGDP for Asian PowerhousesIndian SMBs contribute to 40% of totalExportsPhilippines’s SMBs contribute to 36% ofTotal Manufacturing outputIndonesia’s SMBs contribute 24% to thecountry’s total GDPSource: Government Agencies, World Bank
  10. 10The enabling IT infrastructure is further supporting the growth in Asia (2/2)Source:Government AgenciesOver 52 MillionSmartphone users;Smartphone sales expected togrow by 51% in 20137.8 Million SmartphoneUsers. Greater than the entirepopulation of Hong KongOver 44 MillionSmartphone users;5th Largest Smartphonesubscribers in the worldOver 29 MillionSmartphone userswhich is comparable to theentire population of SaudiArabiaOver 330 Million Smartphoneusers more than the population of US;Largest Smartphone market in theworldAccounted for 22% of world’s totalSmartphone shipments in 2012ChinaIndiaIndonesiaPhilippinesMalaysiaC
  11. 11Agenda1 Rise of Asian Powerhouses2 Unique Characteristics of Asian Powerhouses3 Appendix (Other Case Studies)
  12. 12Telecom: Apple had to change its global GTM strategy to service the predominant pre-paid telecom subscriber market in India75%25%Pre-PaidSubscribersPost-paidSubscribers95%5%Asian Powerhouses arepredominantly pre-paidUnited StatesIndia2008Introduced iPhone in Indiaand followed its developedmarket strategy:• Offered exclusively byTelecom Operators• High priced and long-termSubscription models only– 36/48 months contracts• Discounts and pricing ishighly dependent on theoperator• iPhone Plans were pricedquite high ~ 50% higherthan other post-paid plansprevalent in markets Failed to generate volumes Treated India as lowpotential/low priority market• Shifted from telecom operatorsto specialised distributioncompanies Redington andIngram Micro• Expanded reach to brick &mortar technology stores and e-commerce sites• Introduced Buyback, Exchange,EMI & Cash Back schemes inpartnership with banks andcredit card providers• Introduced unlocked phones towin over pre-paid segmentsShifted DistributionStrategy2012 - 2013Changed Sales Models 400% increase in shipments Expected to generate $1 Bnsales in FY 2013Source: Informa, Economics Times
  13. 13Telecom: This has given a strong push to Mobile Ads ecosystem in Asian PowerhousesInternet giants have been focusing on the Mobileadvertising spaceAcquired mobile advertisingspecialist for $750 MnAcquired China’s digital advertisingspecialist for $ 3.8 Bn including itsinternet advertising arm AlleyesAcquired mobile advertisingspecialist for $ 3.8 BnMobile Advertising is growing at atremendous pace in Asian powerhousesThe APAC mobile advertisingmarket is estimated to increasefrom $4.3 Bn in 2012 to $9.5 Bn in2016India & china are the largestmobile markets with 864 Mn & 1.1Bn mobile subscribers respectivelySMBs have started adopting Social,Local, and Mobile (SoLoMo) modelfor advertisingSource: Company Press Releases, Gartner
  14. 14Retail: New models such as e-commerce have been growing rapidly to reach the un-served marketsAsian Powerhouses’ e-commerce market size isexpected to cross US in 2013United StatesChinaIndiaIndonesiaPhilippinesAsian Powerhouses2012 2013YoY GrowthE-Commerce Market ($Mn)31%224,621 262,00036%217,074 286,00033%200,000 265,00031%14,000 18,340115%1,000 2,15039%104 145.5Gross Merchandise Value, 1997-2012Amazon V/S eBay V/S Alibaba/Taobao1997 2005 2012Ebay Amazon Alibaba / Taobao~$165 Bn~$160 Bn~$75 BnChina based Alibaba / Taobaoexceeded Amazon and e-Bay interms of Gross MerchandiseValue• Pioneered Cash/Card-on-delivery distributionmodel in India• Expects to touch over $1 Bn sales by 2015Source: KPCB, Business Today, Zinnov Analysis
  15. 15Automotive: Limited budgets is no longer an impediment in car ownership in AsianPowerhouses as OEMs increase their focus on small car salesCar Sales By SegmentUnited StatesIndia25%30%45%56%17%27%Small Carssuch as hatchbacksMedium Carssuch as sedansLarge Carssuch as utility vehiclesSmall car sales are nowexpanding indeveloped economiesas well such as USIn India small carscontribute 56% of carsalesSmall cars dominates sales inAsian PowerhousesAsian Powerhouses arepromoting smaller cars throughreduced taxesIndia levies half the rate ofexcise duty on small carsSource: Wall Street Journal, Motor Intelligence, Financial Times
  16. 16Energy/ Power: Household electrification rates in Asian Powerhouses markets are low onaccount of transmission and distribution losses• Under investment in infrastructure is a common problem across Asian PowerhousesInsightFrequent Power Outages Power TheftsHousehold electrification rates in Asian Powerhouses still remain lowUnited States India PhilippinesIndonesia~100% 66.3% 64.5% 89.7%Very high transmission & distribution losses (~ 22%) in countries like IndiaSolutionSmart GridsReal time monitoring forefficient power distributionIdentify and access outagesquickly and offer quickrestorationHelps consumers monitor theirpower usageExamples of Smart grid adoption inAsian PowerhousesNorth DelhiPower Limited, IndiaMajor Utilityin Philippines• Partnered with GE Smart GridTechnologies to implement anadvanced Outage Management System• Selected GE to implement smartmeters for their smart grid initiative toallow consumers to better managetheir energy usage and expensesSource: IEEE, World Bank, Company Website. Meralco
  17. 17Energy/ Power: Micro grid solutions are now being conceptualized to serve the unmetneeds in AsiaTackling Un-Electrified Rural Areas and VillagesMicro GridsA Micro Grid is a localized grouping ofelectricity generation, energy storage, andloads that normally operates connected to atraditional centralized gridElectrifying Rural Households• Weekly cost of just $ 0.5• Households also get mobile chargingpointNearly 48% of rural households in Indiaare un-electrified (2010)India national electrificationrate stands at ~66.3% withmany rural areas andvillages which are off-gridCompanies like Desi Power, Husk Power Systems, Saran Renewable Energies, Mera GaonMicro Grid Power, and Naturetech Infra operate micro grids in commercial basisSource: IEEE, World Bank, Company Website. Meralco
  18. 18Energy/ Power: Case study on Cummins small DG sets for India marketSource:BusinessModelSolutionCustomerInsight134BusinessOpportunity2• ~45% of power consumed by the Indian industry• Shortage of Fuel & heavy dependence on coal for power productionleads to low electrification rates• Lack of portable power generating sets in India in the early 1990s• Lack of natural gas and fuel cells powered gensets• Started renting model for gensets to gain mindshare/market share• Energy solutions & consultancy services for industries and individualbusinesses• Cummins manufactures low cost portable DGsets to serve the Indian market• Customized manufacturing of gensets forindustrial use with high levels of localization
  19. 19E-governance: Asian government are adopting and driving modern IT models toaccelerate e-governance initiatives• Governments in Asian Powerhouses have lagged in leveraging IT for governance deliveryInsight• Governments are leveraging modern IT to roll out G2B – Government to Business Services & G2C – Government toCitizen ServiceSolutionStart of e-Governance plan and IT spend as % ofgovernment BudgetUnited States China India Indonesia1998 2002 2006 20068-10% 6-7% 4-5% 3-4%Proposed modern IT spending by governmentsChina India2.5 Bn + 700 Mn +gCloud gCloud, VirtualizationIn Malaysia, Google partnered with the Information Ministry, SME Trade body and domainregistrar to help SMEs go online at low costs ~ $ 7In India, Microsoft signed its largest-ever cloud services deal with the All India Council for TechnicalEducation to deploy cloud solution to connect some 10,000 technical colleges in the country, covering7.5 million usersSource: Government Websites, World Bank
  20. 20Healthcare: Unlike the US, out of pocket health expenditure in Asian powerhouses issignificantly higher• Asian Powerhouses have a low insurance penetrationInsight• MNCs and local companies have re-engineered their products to serve Asian PowerhousesSolutionInsurance penetration in Asian PowerhousesChina Indonesia Philippines3.8% 1.5% 1.1%Out of pocket health expenditure is high in AsianPowerhousesTypical Out-of-pockethealth expenditure inUnited States21%Typical Out-of-pockethealth expenditure inAsian Powerhouses75%-85%• GE Healthcare reduced the cost of a typical ECG machine (now also sold in developedmarkets) by more than 6X for Asian Powerhouses• Cost was reduced by using commodity components instead of custom-designedcomponents e.g. printers etc., eliminating screens and using rechargeable batteries• Result: A Portable, battery-operated, easy-to-use, and easy-to-repair ECG machineSource: World Bank, AiIA Group
  21. 21Banking & Financial Services: A significant base of Asian population is unbanked, despitesignificant investments in the sector• Asian Powerhouses have a low Banking penetration compared to developed countriesInsight• Mobile banking is now helping tap rural markets who have limited access to banking branchesSolutionBanking Penetration and Unbanked population (Mn) Brick and mortar branches insufficient to serve thehuge populationDeveloped world has typically 3X-5X times morebranches / 100,000 populationUnited States India Indonesia89% 40% 39%726 Mn 144 MnPhilippines48%46 MnUn-BankedPopulationIndia: Resolving the issue of unavailability of identificationdocuments by the unbanked population and helping them getbank accountsPhilippines: Launch of mobile bankingservice to help penetrate and expandmicro finance servicesIndonesia: Launched mobile bankingservice specifically for rural areasAsian Powerhouses are launching mobile banking services & initiativesChina : China Mobile joined with six commercial banks toprovide mobile banking servicesSource: Ministry of Cooperatives and SMB’s, Press Article Economic Times, China Mobile
  22. 22Agenda1 Rise of Asian Powerhouses2 Unique Characteristics of Asian Powerhouses3 Appendix (Other Case Studies)
  23. 23Microsoft is leveraging ecosystem partnerships to penetrate the SMB market inPhilippines ASource: Company Website, Press Releases, Zinnov AnalysisBusinessModelSolutionCustomerInsight134BusinessOpportunity2• SMB’s lacked technology adoption and were in need of affordablesolutions• Use of non-genuine software among SMB’s was quite high due to highcost of genuine software• Low technology adoption as well as low use of certified solutionamong the large base of SMB’s• NATCO, being the largest federation of co-operatives in Philippineshad a large base of member SMB’s• Offer genuine Microsoft software to SMB’s using volume licensingmodel• NATCCO provided Microsoft with a huge base of potential customers• Providing bundled solutions toSMB’s with considerablediscounts• Providing training,1.9 million individual members and500 member cooperativesMicrosoft, NATCCO and Ng-Khai(Microsoft reseller) forges partnership
  24. has leveraged the social media platform to get SMBs online and enable theirdiscovery by the consumers CBusinessModelSolutionCustomerInsight134BusinessOpportunity2• Businesses are unable to tap into mainstream e-commerce due tointense competition• Limited investment by businesses in online media due to high cost ofadvertising• Limited number of e-commerce sites in Malaysia• ~13.1Mn Facebook users as potential online customers for an e-commerce website• Aggregator of products that can be traded over social media• Social media platform being usedfor e-commerce• Secured payment partnershipthrough MOLPaySource: Company Website, Press Releases, Zinnov Analysis
  25. 25Zap Tag combines benefits of daily deal websites, credit card and NFC technology in asingle card based solution EBusinessModelSolutionCustomerInsight134BusinessOpportunity2• Lack of real time analysis of consumer behavior and spending patterns• High expenditure on advertising for products by the retailers• Limited methods for customer engagement and reward programs• Philippines Retail industry valued at $32.4Bn in 2012• Limited offers for retail customers through NFC tags, credit cards• Zap Tag works on a revenue share model with retailers, daily dealproviders and banking networks• Connects retail businesses to consumers• Retail merchants get access to consumerbehavior and spending patterns• Merchants can track results of variouspromotions and hence can lower theiradvertising spendsSource: Company Website, Press Releases, Zinnov Analysis
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