Seminar on tech investment trends in asia (bird & bird may 2013)


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This is a presentation I delivered in Europe to highlight the growing importance of Asia in tech investment. The purpose was to rebalance certain views about the position of Asia in the tech investment world. I followed a theme of reality checks and myths - though some myths are true. The presentation was ably supported by input and insight from my good friends and colleagues, Conor O'Mara (Jefferies), Robert Agnew (Marlin LLC), and Ted Chwu (Bird & Bird, IP team). The presentation sets out personal observations, and the responsibility for errors remain mine.

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Seminar on tech investment trends in asia (bird & bird may 2013)

  1. 1. Padraig WalshPartner, Hong Kong28 May 2013Tech Trends & Asia
  2. 2. © Bird & Bird 20132Reality check #1: Asia is one of the fastest growingIT markets3,545 3,5883,737640 689 7432011 2012E 2013FGlobal AsiaUS$BillionGrowth in the overall technology spending in Asia-Pacific will continue tooutpace global growth in 2013 (7.9% vs. 4.2%)Source: Gartner
  3. 3. © Bird & Bird 2013Myth #1: Global tech innovation leadership isin Silicon Valley• True, but Silicon Valley is at its tippingpoint• 44% of the tech sector believe the globaltech centre will move from Silicon Valleywithin four years• And move to?● China (44%)● Or India● Or Japan• Fact: Technologyinnovation will soon berooted in Asia.Source: KPMG Technology Innovation Survey 2012
  4. 4. © Bird & Bird 2013Global tech innovation leadershipChina’s innovation investment has fostereda growing environment for the developmentof disruptive technologies. The Chinesegovernment is encouraging significantinvestment in three key areas:Shared services and outsourcingPaymentsCloud computing
  5. 5. © Bird & Bird 20135Reality check #2: Asia is poised to dominate the ITindustryPeter Sondergaard,Senior VP and Global Headof Research, Gartner Inc.As global markets improve in2013 and resume growth, AsiaPacific remains one of the brightspots of the global ITmarket, allowing organizationsin this region to acceleratecompetitiveness$30 billion$8 billion$8 billionSource: GartnerBy 2014, most IT and software related jobs in the western countries are expected to becreated by Asian IT companies, which are enjoying double digit growth rates in recentyears
  6. 6. © Bird & Bird 2013Myth #2: Asia does not have brands in tech• Computing, communications andconsumer electronics represent 2/3 ofglobal technology demand.• Asian brands such as Samsung, LG, HTCand Sony already dominate.• Lenovo is the second top brand globally fordesktop computers.• ZTE is the third largest selling phonemarker in the world.• China has overtaken the United States tobecome the world’s largest LCD TVmarket, and the average Chinese consumerbuys a larger TV than the averageAmerican.The global PC landscape is being reshaped. Emergingmarkets now represent two of the top three consumptionPC markets in the world. China is now the number one PCconsumption market in the world, while Brazil has becomenumber threePaul Otellini, Intel CEO, Oct 2011Key message:Brands develop where marketsgrow. The Asian market isthe growth region in the worldeconomy. This is drivinginnovation, sales, andbrand development.
  7. 7. © Bird & Bird 2013Myth #3: US companies are leaders in internet• More than half of the world’s internet users will bein Asia by 2015• China and India have only 40% and 11%population penetration• By virtue of market dynamics, China and Indiawill dominate the internet industry within tenyearsTop 21 Global Internet Companies October 2011Rank Company Country Market cap (US$ bn)1 Google US 1772 Amazon US 1083 Facebook US 774 Baidu China 465 eBay US 426 Tencent China 417 Priceline US 248 Yahoo US 209 Yahoo Japan Japan 2010 Rajuten Japan 1511 NHN Korea 1012 Expedia US 813 Yandex Russia 814 LinkedIn US 815 GroupOn US 7.516 Netflix US 617 Netease US 618 Russia 619 Alibaba China 520 Ctrip China 521 Sina China 5Top 10 Internet Users 2012Rank Country 2008-12 UserAdds (mm)Users(mm)Y/YGrowthPopulationPenetration1 China 282 538 10% 40%2 India 88 137 25% 11%3 Indonesia 39 55 58% 23%4 Iran 35 42 205% 55%5 Russia 33 70 6% 49%6 Nigeria 31 48 15% 30%7 Philippines 28 34 32% 35%8 Brazil 27 88 6% 45%9 Mexico 19 42 9% 37%10 United States 18 244 3% 78%
  8. 8. © Bird & Bird 2013Reality check #3: Asia will pass North America asthe largest market for B2C spending by 201627.9% 30.5% 33.4% 36.2% 38.2% 39.7%35.9% 33.5% 31.5% 29.7% 28.8% 28.2%28.0% 26.9% 25.7% 24.3% 23.4% 22.6%8.3% 9.1% 9.5% 9.7% 9.7% 9.5%2011 2012 2013 2014 2015 2016Asia-Pacific North AmericaWestern Europe OthersIndonesiaAustraliaSouthKoreaIndiaJapanChina9122742794236112530773223102319732202012 2014 2016Global Ecommerce Sales by Region (%) Digital Buyers in Asia-Pacific (in Million)Source:
  9. 9. © Bird & Bird 2013Reality check #4: The SaaS market in Asia is growing fast- 24.4% growth in 2012 against global growth of 17.9% SaaS financial accountingapplications are most popular inChina and India Other ERP functions in demandinclude expense management andemployee performancemanagement followed by officesuites, email and the CRM salesfunction“SaaS demand in Japan will grow for sales forceautomation solutions to improve reaction tocustomers, while demand for marketing analysissolutions will also be higher. In addition, it is easy toadopt SaaS solutions for B2B call center servicesbecause the workflow of this business is standardizedand transaction volume is constant in Japan”GartnerSource: GartnerExperts expect 85% of new software to be delivered by SaaS model by 2015
  10. 10. © Bird & Bird 2013Reality check #5: Social media in Asia is a hugeopportunitySocial media can potentially provide businesses with a line of direct communication withmillions of connected individuals in new markets Philippines has the most avid social networkers in Asia -Facebook is the countrys most visited Internet site Japanese Internet users are the most active bloggersglobally - posting more than one million blogs per month Indonesia has the highest penetration of Twitter users as aproportion of Internet users worldwide. Philippines andSingapore are also among top 10 countries In China, Japan and South Korea, the growth of socialnetworking has been driven by strong consumer interest inonline games Online product reviews are the third most trusted source ofinformation when making purchase decisions - 55% Indianswho read online product reviews have purchased productsbased on feedbackNick Ingelbrecht, GartnerSource: Gartner, AC Nielsen“Building an early critical mass of local users, featuring locallanguage and content provides a good basis for sustaining a longterm and loyal user base”
  11. 11. © Bird & Bird 2013Myth #4: The US and Europe will lead in newtech. Asia is not ready.Alternative energy vehiclesNew materialsRenewable energyHigh end manufacturingequipmentBiotechNext generation ITEnergy saving& environmental protectionChina’s 12th FiveYear InvestmentPlan
  12. 12. © Bird & Bird 2013• Asia became the leading regional destination for clean energyinvestment for the first time in 2012, with 42% of the global total• Asia was the only region to record investment growth in clean energyin 2012• Solar attracts the largest share of clean energy investment; China’sinvestment in solar energy doubled from 2011 to 2012, reaching$31.2 bn• Japan has prioritised clean energy investment following theFukushima Dai-chi disaster• China is the leading country in installed renewable energy capacityMyth #5: The US and Europe will lead in newtech. Asia is not ready.China is the world’s clean energy leader.Culminating a remarkable eight-year rise inthe clean energy sector, the data suggestthat China is the world’s leader and is likelyto remain so for the foreseeable future.
  13. 13. © Bird & Bird 2013Myth #6: Asia is a sweatshop and does notcreate IPR• In 2012, the Chinese patentoffice overtook the US PTO asthe busiest patent office in theworld – patent filings run at1,500 per day• 80% of China’s patents wereawarded to domestic applicantsin 2012; In the US, 50% ofpatents were awarded to UScitizens• Asian strength shows in theLTE patent pool, and even moreso in essential LTE patents
  14. 14. © Bird & Bird 2013Myth #6: Asia is a sweatshop and does notcreate IPRTop 20 Organisations with Patents Granted by USPO 2012Rank Company Country Number1 IBM US 6,4572 Samsung Korea 5,0433 Canon Japan 3,1734 Sony Japan 3,0175 Panasonic Japan 2,7486 Microsoft US 2,6107 Toshiba Japan 2,4158 GE US 1,6509 LG Korea 1,61710 Fujitsu Japan 1,52711 Seiko Epson Japan 1,45412 Hitachi Japan 1,42813 Ricoh Japan 1,40714 HP US 1,39315 GM Global Tech US 1,37416 Qualcomm US 1,29217 Intel US 1,28718 Toyota Japan 1,17319 Broadcom US 1,15720 Google US 1,151Geographic spread of PatentsGranted by USPO 201248%20%6%5%4%17%U.S Japan GermanyKorea Taiwan Others
  15. 15. © Bird & Bird 2013Myth #7: The US is at the forefront of consumerelectronics• The two largest phone markets in theworld are:● China● India• Asian demand has driven growth in thehandset phone market with 57% of globaldemand, mainly to the loss of … Europe• Asia will drive growth in the smartphonemarket going forward with the move tolow cost smartphones• Twice as many companies in developingeconomies than advanced markets plan toincrease digital tech spend by over 20%• The trend is to develop in emergingmarkets and roll out to the developedworldSource: Oxford Economics, Jefferies, Irish Chamber of Commerce of Hong KongIf GE’s businesses are tosurvive and prosper in thenext decade, they mustbecome as adept at reverseinnovation as they are atglocalisation.Case study: The phone
  16. 16. © Bird & Bird 2013Myth #7: The US is at the forefront of consumerelectronicsSource: IDC, Gartner, JefferiesTotal Handset Market 2008 2009 2010 2011 2012 2013Asia Pacific 453,100 483,471 757,513 913,066 998,458 1,093,830Eastern Europe 96,068 79,510 104,448 108,843 113,980 120,486Latin America 142,323 117,122 155,379 158,828 161,152 168,661Middle East & Africa 133,471 125,006 155,876 159,383 164,718 173,801Northern America 182,246 182,569 191,576 188,492 195,983 202,542Western Europe 174,455 189,775 197,907 185,108 188,406 193,108Japan 40,588 33,785 34,106 34,401 35,385 35,992Global 1,222,251 1,211,238 1,596,805 1,748,121 1,858,082 1,988,420Asia % Of Total Demand 40% 43% 50% 54% 56% 57%Asian Growth 5% 53% 20% 9% 9%Global Growth -1% 32% 9% 6% 7%
  17. 17. © Bird & Bird 2013Myth #7: The US is at the forefront of consumerelectronicsTotal Smartphone Market 2008 2009 2010 2011 2012 2013Asia Pacific 28,119 37,579 73,449 134,431 249,615 350,026Eastern Europe 7,272 6,970 13,107 19,699 32,023 46,891Latin America 3,734 7,252 17,578 31,610 43,388 56,815Middle East & Africa 12,363 12,004 18,615 26,796 38,723 54,857Northern America 35,853 45,602 71,986 95,650 123,198 141,780Western Europe 32,202 45,541 86,184 115,817 126,232 140,969Japan 19,748 17,428 17,927 25,602 30,952 34,856Global 139,292 172,375 298,846 449,604 644,131 826,193Asia % Of Total Demand 34% 32% 31% 36% 44% 47%Asian Growth 15% 66% 75% 75% 37%Global Growth 24% 73% 50% 43% 28%Source: IDC, Gartner, Jefferies
  18. 18. © Bird & Bird 2013Myth #8: The Chinese will copy my IPR• US seizure statistics show that China orHong Kong was the suspected source of84% of seizures.• Tech-related seizures accounted for 14%.The China reputation for IPR infringementis from fashion and apparel goods.• IPR infringement is a global businessissue, for which prevention starts with theIPR owner.• The protection of IPR is at the heart of thebusiness expansion strategy of the newChinese tech companies taking the stage.• The critical issue is IPR enforcement … andChina is improving.Any Chinese company thatmerely copies and doesnothing else will fail. Thesuccessful ones are thosethat copy, localise, iterateand micro-innovate.
  19. 19. © Bird & Bird 2013Myth #9: Asia does not protect or enforce IPR• Two Asian countries rank higher than theUS in rankings for property protection(Hong Kong and Japan), while fourcountries in Asia are ranked in the top 25globally for IPR protection (South Koreaand Taiwan additionally)• Malaysia has a good track record in IPRprotection and enforcement.• Thailand has a poor record on copyrightprotection. There is occasional politicalinterference in patent licensing.• IPR enforcement in India and thePhilippines is problematic due to thebureaucracy.• IPR protection and enforcement inVietnam and Indonesia is poor, with fewsigns of improvement.• China is improving, but remains thelocation that can do the most damageglobally because of the size of its economy.Country RatingMalaysia 5.80Thailand 6.20India 6.50Philippines 6.85China 7.90Vietnam 8.40Indonesia 8.50IPR Rankings for emerging Asia
  20. 20. © Bird & Bird 2013Myth #9: Asia does not protect or enforce IPR• There has been a dramatic increase in IPlitigation in China with approx. 60,000 IPcases filed in Chinese courts in 2011.• It is not only foreign parties who seek toenforce IPR in China. Increasinglydomestic Chinese companies are assertingIPR against foreign companies.• Significant damages awards can be handeddown for IPR infringement – in one case,US$50 million (Chint –v- Schneider).• Courts are not biased towards localcompanies in the bigger municipalities andhigh profile courts like Beijing andShanghai.• The zones targeted to be R&D hubs nowcompete on IPR protection andenforcement policies.
  21. 21. © Bird & Bird 2013Myth #9: Asia does not protect or enforce IPR• InterDigital filed ITC complaints and a USdistrict court action against Huawei andothers in 2011 and 2013.• In 2012, Huawei files an EU Commissioncomplaint arguing that InterDigital hasabused its position to demand exploitativefees to use its essential 3G patents.• In 2011, Huawei brings an anti-monopolyaction against InterDigital in the ShenzhenCourts.• Ruling stated that InterDigital royaltyproposals were beyond acceptable FRANDlevels, and found other licensing provisionsabusive but upheld the right to grant aworldwide licence and to bundle multiplegeneration SEP’s.• Chengdu placed IPR at the heart of itspolicy to attract inward tech investment.• The city government has investedRMB¥200 million annually to supportsoftware and tech service industries, andrevenue from those services has reachedRMB¥180 billion – 7% of the city’s GDP• The city issues its own IPR regulations,particularly for patent and trademarkprotection, and has its own IP Court andfour local courts that handle IP cases.• In 2012, the city reviewed 2,142 cases, andissued 1,947 decisions – including rulingsin favour of Microsoft and Louis Vuitton.• In 2012, the city attracted US$8.59 billionand RMB¥3.19 billion in investment, andhosts 238 of the Fortune 500
  22. 22. © Bird & Bird 2013An approach to software IPR protection• Use black box software services:• licensees dont know what happensbehind the scenes.• impossible to reverse engineer ( algorithm).• Register what is capable of registration:• Often, only copyright.• Register directly in owner’s name.• Register in the language of thelicensed territory and in English.• Typically, only the first and last thirtypages of source code required.• Use Non-Disclosure Agreements• As in Europe and the US, patents forsoftware inventions remains controversial.• Singapore is pro-software patents; Chinais not; and most are undecided or inbetween.• The landscape is changing. The rules nowmay not be so in 3-5 years time.• That time frame is the same as the patentprocessing period in China.• Due diligence your business partners andlicensees.• Consult with aligned industry bodies andparticipants.• Know and work with IPR regulators andenforcers.• Have proper safeguards – legal andpractical – in your licensingarrangements.• Don’t back away from enforcement.
  23. 23. © Bird & Bird 2013
  24. 24. © Bird & Bird 2013How to approach Asia• Business establishment should be the last stepof the process.• Due diligence, market research, and riskassessment are critical.• Avoid being a business tourist.• Set realistic time frames and targets.• Demonstrate a medium term commitment.• Be guided by local expertise and professionals.• Start in Asia-lite – Hong Kong or Singapore.• Have your people on the ground full-time,working with local hires.• Be prepared for a slow start.• Be opportunistic once the building blocks arein place• Asia is not one market.• Many regions, much diversity.• Regional diversity in China.• Many regions by single marketin ASEAN.• Need to localise offerings tomeet local needs.• More sophisticated approach isto develop offerings locally,rather than adapt from globalmodel
  25. 25. © Bird & Bird 2013 Page 25Change your mindsetInnovation centreClean tech centreBiggest global tech marketBiggest growth marketChina or India or JapanChinaAsiaAsiaThe leading global tech companies are basing strategy on Asia.Shouldn’t you?