While western dot-coms wobble, in many emerging markets the internet is ready for take-off
Despite Nasdaq's fluctuations, investors in the world's emerging markets are bullish about the future of the internet and e-commerce. From China, where the children of the country's top leaders are getting into the business and believe the 21st century will be the Chinese era, to Latin America and eastern Europe, the web is pregnant with potential, although somewhat hampered by local restrictions.
In most emerging markets, for instance, full internet capability has been hampered by a lack of sophisticated communications infrastructure, varying regulatory environments and an absence of compelling content. But analysts believe that as more countries loosen their controls, people will spend more time online and make more frequent visits to the internet.
Australia and New Zealand have set examples for the rest of the world. According to a study by Nielsen/NetRatings, governments down under have allowed phone companies to compete for consumers, lowering the costs of phone services. This evolution may be slower in the emerging markets, but ambition remains high.
Far, far east
Asia, for instance, is full of dot-com dreams. Up to 50 internet companies are expected to go public this year in India, Singapore and China. These companies have revived a market left moribund after the Asia crisis.
The far-eastern internet boom has a number of key factors. Asia contains about half of the world's population, promising a mammoth number of online subscribers - the number of users is expected to triple over the next four years.
Even though only a fraction of the population understands English, industry analysts predict Asia's internet usage could overtake the US within a few years. China is the catalyst, but Singapore, another Asian tiger, is also making advancements online.
The Singapore government has traditionally engaged in conservative business moves, but now there is a push to get the country into the internet revolution. At an e-commerce festival organized by the Singapore government this year, programmers, investors and on-lookers ogled the possibilities offered by the internet. One programmer at the fair showed software that would instantaneously translate any web site into Chinese - a promising endeavor since 95 percent of online content is in English.
Singapore has backed its new push into the sector with a venture capital strategy. Through its Technopreneur investment fund, the government has accumulated up to $1 bn from state reserves. It hopes to attract venture capital funds from those companies that are already based in Singapore or that want to enter the Asian market. With help from players such as Doll Capital, Sequoia and 3i, one of Europe's largest venture capital companies, the fund has already invested over $600 mn.
The most significant deal in the region has been Pacific Century CyberWorks, which took over Hong Kong Telecom in a $38.1 bn stock-and-cash deal that should create Asia's largest satellite and cable broadband network.
The Chinese market is brimming with opportunity. It is the children of the country's party bosses and the politically-connected who run the internet sector. King Lai, chief executive of Netease 163.com, is one of a growing band of entrepreneurs known as the dot-communists. 'China has demonstrated an ability to go beyond people's expectations,' he told a conference on emerging markets in Shanghai. Still, the Chinese boom is limited by few telephone lines and excessive hardware and access costs.
Jian Mianheng, the son of president Jiang Zemin, is one entrepreneur who stands to make a fortune, according to local reports. A graduate of Drexel University, he worked for a period in the strategy department of Hewlett-Packard. Since arriving back in China, he was named chairman of a high-tech investment company, chief executive of a telecoms company and director of two internet companies.
China is still careful to limit the influence of foreign entities in the field of information technology because it sees foreign influence as a threat to social stability. But as the operating field increases - there are 48,685 internet-based businesses in China today - the ruling Communist Party will have difficulties maintaining tight controls.
As costs begin to come down, the potential for growth is expected to be spectacular. As of last year, according to Chinese government figures, there were 8.9 mn internet users. Estimates for the end of April 2000 showed there were 13-15 mn users, most under the age of 35. According to a study by International Data Corp, China will see a 57 percent growth in online users, reaching 33 mn in four years.
The communist government, however, has tried to regulate internet use. In a recent decision, the government increased regulations over the type of news allowed on Chinese sites. A web site based in Wuhan was fined and temporarily closed recently for carrying what police described as 'a false media report'.
As a defense, companies buy protection against government sanctions by working in joint ventures with the children of China's top leaders who are desperate to get into the internet plays. Many companies believe such connections would help them circumvent the strict government regulations.
Latin play
In Latin America, roughly 1.5 percent of the households have internet access. For a while the market predictions for growth were sky-high, and Spanish-language portals proliferated. But Wall Street analysts say the crash of technology stocks earlier this year had an indelible downward impact on the Latin American industry.
'The party is over, and it hadn't even begun,' says Emilio Ocampo, managing director for Latin America at Salomon Smith Barney in New York. The implications of the crash were explained at an industry meeting in Miami in May. Analysts at the meeting said Latin America has always been highly sensitive to interest-rate movements because the flow of money to the region depends on a low interest environment in the US.
For many companies, their work in Latin America is augmented by the large US Hispanic community, which uses Spanish-language sites. Yet only 20 percent of the 31 mn Hispanics in the US are online, though the numbers are expected to multiply in the next few years.
In all, four Spanish-language web services - StarMedia Network, Quepasa.com, Terra Networks and El Sitio - have gone public since May 1999. Yahoo has been available in Spanish since 1998 and Lycos since last year. AT&T and Prodigy have launched Spanish-language internet services. Univision, the Spanish-language TV network, is expected to launch a new internet-based service. America Online and Excite@Home have also joined a growing list of companies targeting Hispanic markets.
'Four years ago, nobody believed there was an internet market for Spanish-speaking people around the globe. We're going to see a huge explosion this year,' Fernando Espuelas, CEO of StarMedia, told reporters recently.
Back east
The eastern European dot-com business is expected to rise to $178 bn by 2002. But e-Europe is not a single entity, says Richard Downs, CEO of Iglu.com. 'From our experience, it makes business sense to deal with the global web through
localization and acknowledging each nation as a unique market,' he wrote in a Netimperative.com feature.
According to Jiri Zaoralek of Prague-based Wood & Co, 'Most of the internet companies here are not regional but country by country.' The only one to cross more than one border is Euroweb International, he says, which operates in Hungary, Czechoslovakia and Slovakia.
In the Czech Republic, there are three main internet portals: Seznam, Atlas and Centrum. The three are owned in joint partnerships of Czech citizens and foreign investors. Seznam is partly owned by Spray, one of Sweden's biggest internet providers. Atlas is partly owned by Microsoft, and Centrum is owned by Intel, in partnership with ING Group.
The biggest internet and e-commerce push is expected to come after January 2001, when the telecommunications sector will be privatized, bringing lower prices for phone access, according to Zaoralek.
Poland, despite its advanced internet services, has only 2 mn people online. Growth expectations are also low - only 4 mn are expected to be online within the next eight years. This is one country where internet usage is restrained by expensive access charges - the highest in the world, says Wood & Co's Sovek Bajak. The two most important portals are Optimus, a local start-up, and WP, a subsidiary of Prokom, a local internet company. Privatization of the telecom industry is underway, and should be completed in the next few months, perhaps reducing costs. TPSA, the local telecom, will be bought by France Telecom, says Bajak.
It would seem then that the dot-com backlash is a false sunset - because, with an enormous untapped audience and rapidly developing technology, consumers are hungry for more. And that's sure to pique the interest of investors.