The Rise of Asian Powerhouses

Transcription

1 The Rise of Asian Powerhouses Zinnov Center of Excellence for Emerging Markets June 2013 This report is solely for the use of Zinnov Client and Zinnov Personnel. No Part of it may be quoted, circulated or reproduced for distribution outside the client organization without prior written approval from Zinnov

2 We are an 11 year old management consulting company 2 Global Office Locations: Santa Clara (US) Houston (US) Bangalore (India) Gurgaon (India) Expansion Plans Singapore Shanghai/ Beijing IAOP: 2013 World s best outsourcing advisors Onwards Globalization strategy for large technology companies & India market expansion (ME) strategy Globalization strategy including Market Expansion, R&D and shared services (IT) Zinnov center of excellence for emerging markets Our Customers: Global Technology Firms Indian IT-BPO Companies Government Industry Associations Globalization advisory for US based VC funded companies, R&D center setup for mid size technology companies 120 People 150+ Customers Focus Areas Modern IT/ Cloud SMB Innovation Start-ups R&D Shared Services

3 Market expansion offerings are structured to deliver long term value to our customers 3 Growth Strategy/ Business Plan/ Vision Statement Detailed Go-to- Market Strategy Financial Planning Risk Assessment & Mitigation Plan Market Opportunity Assessment Customer/ Peer Group Insights Channel/ Distribution/ Monetization Model Insights Start-up Scan/ M&A Target Identification Thought Leadership Whitepapers Customer Satisfaction/ Brand Perception Survey CIO Roundtables/ Technology Conferences Joint PR/ Media/ Marketing Campaign SMB Large Enterprises Government Cloud Enterprise Mobility Data Digitization Developer/ IT Pro Programs

4 Agenda 4 1 Rise of Asian Powerhouses 2 Unique Characteristics of Asian Powerhouses 3 Appendix (Other Case Studies)

5 % of Global GDP Source: IMF World Economic Outlook 2013 The balance of global economic power is shifting in favour of Asian economies 5 Country Wise Contribution In Global GDP (PPP), E USA V/S Asian Powerhouses (China, India, Indonesia, Malaysia and Philippines) Asian Powerhouses Asian Powerhouses have already overtaken US in terms of contribution in the Global GDP China 23.1% 18.9% US 14.9% % 2.6% India Indonesia, Malaysia & Philippines

6 GDP growth in Asian Powerhouses is being driven by increasing government spending, personal consumption and foreign investments Source: World Bank 6 3% Growth In Government Spending CAGR % 17% 21% 12% 12% Key sectors for investment : Technology led inclusive growth Education & healthcare sectors United States China India Indonesia Malaysia Philippines Growth In Household Spending CAGR Rising young population (15-45 years) driving the household expenditure 2% 16% 14% 14% 10% 9% Growth In Foreign Investments CAGR United States China India Indonesia Malaysia Philippines -8% 9% -9% 25% 17% 9% Liberalization of key sectors such as multi-brand retail, aviation etc. United States China India Indonesia Malaysia Philippines

7 The investment led growth has already resulted in Asian Powerhouses gaining leadership across verticals 7 India 2 nd largest road network of 4.6 Mn Km 2 nd largest manufacturer of 2 wheelers with production of 15.5 Mn units in 2012 China Largest telecom subscriber base of 1.1Bn customers Highest PC shipments; 69 Million in 2012; Surpassed USA in nd largest Railway Network of 98,000 Km Malaysia 2 nd largest exporter of LNG; exported 25MT in 2012 Highest Tele-density of 129% in ASEAN region as of 2012 Indonesia Largest producer of palm oil Highest number of ports (1,918) among the Asian Powerhouses Philippines Top destination for Voice BPO 2 nd largest Geothermal energy producer in the world (1.9Gw) Filipino s account for 10% of world s global SMS s Source: Government Agencies, World Bank

8 % IT Spending Source: BMI, Zinnov Analysis The focus on technology investments in the Asian economies is on the rise 8 Share Of IT Spending USA V/S Asian Powerhouses (China, India, Indonesia and Philippines) Asian Powerhouses USA 86% IT spending growth in Asian Powerhouses will be more than that of the USA USA 65% 35% Malaysia India China 14% Asian Powerhouses Growth in IT Spending in Asian Powerhouses is driven by: Philippines Indonesia A B C Expanding base of globally competitive large and midmarket enterprises Strong base of growing domestic SMBs Growth of enabling IT infrastructure

9 Source: Government Agencies, Forbes Asian Powerhouses have an extensive base of globally competitive large & mid market enterprises A 9 Large & Mid Market Enterprises Employing more than 200 employees (2012) 41,000 Total Enterprises in Forbes 2,000 List 2012 CAGR - 4% E United States United States Asian Power houses 175,000 Asian Powerhouses % 1,160 95, % 938 China China 55, % 129 India India 4, % 11 Indonesia Indonesia Malaysia 15,700 Malaysia 20 6% 32 Philippines 3,500 Philippines 8 26% 51

10 Source: Government Agencies, World Bank Strong base of domestic SMBs is increasingly contributing to the growth of Asian economies B 10 United States Number of Small and Medium Businesses Employing less than 200 employees (Mn) (2012) 23 China has the largest base of SMBs in the world Asian Power houses 135 SMBs account for over 20% of the total GDP for Asian Powerhouses 51 China India 48 Indian SMBs contribute to 40% of total Exports Indonesia 25 Philippines s SMBs contribute to 36% of Total Manufacturing output Malaysia Philippines Indonesia s SMBs contribute 24% to the country s total GDP

11 Source: Government Agencies, World Bank The enabling IT infrastructure is further supporting the growth in Asia (1/2) C 11 Internet Users (Mn) and Population Penetration (%) (2012) United States 244 (78%) Potential Internet User Base in Asian Powerhouses Note: Estimated based on the fact that Asian Powerhouses will be nearing the internet population penetration of USA in the coming years Asian Power houses 810 (22%) 2,256 Asian Power houses 564 (42%) 1056 China China 157 (11%) 954 India India Indonesia (23%) 55 (23%) 191 Indonesia Philippines (35%) Philippines

12 Source:Government Agencies The enabling IT infrastructure is further supporting the growth in Asia (2/2) C 12 Indonesia Over 52 Million Smartphone users; Smartphone sales expected to grow by 51% in 2013 China Over 330 Million Smartphone users more than the population of US; Largest Smartphone market in the world Malaysia 7.8 Million Smartphone Users. Greater than the entire population of Hong Kong India Over 44 Million Smartphone users; 5 th Largest Smartphone subscribers in the world Accounted for 22% of world s total Smartphone shipments in 2012 Philippines Over 29 Million Smartphone users which is comparable to the entire population of Saudi Arabia

13 Agenda 13 1 Rise of Asian Powerhouses 2 Unique Characteristics of Asian Powerhouses 3 Appendix (Other Case Studies)

14 Telecom: Apple had to change its global GTM strategy to service the predominant prepaid telecom subscriber market in India 14 Asian Powerhouses are predominantly pre-paid United States India Pre-Paid Subscribers 75% 25% 95% 5% Post-paid Subscribers Source: Informa, Economics Times 2008 Introduced iphone in India and followed its developed market strategy: Offered exclusively by Telecom Operators High priced and long-term Subscription models only 36/48 months contracts Discounts and pricing is highly dependent on the operator iphone Plans were priced quite high ~ 50% higher than other post-paid plans prevalent in markets Failed to generate volumes Treated India as low potential/low priority market Shifted Distribution Strategy Changed Sales Models Shifted from telecom operators to specialised distribution companies Redington and Ingram Micro Expanded reach to brick & mortar technology stores and e- commerce sites Introduced Buyback, Exchange, EMI & Cash Back schemes in partnership with banks and credit card providers Introduced unlocked phones to win over pre-paid segments 400% increase in shipments Expected to generate $1 Bn sales in FY 2013

15 Millions Millions Source: Industry Regulators FCC & TRAI, Stats Counter Telecom: Asian Powerhouses are essentially emerging as mobile first markets 15 United States Growth Of Mobile Phones and Telephone Lines Growth Of Internet Traffic 100% 75% 50% 25% 0% United States telecom revolution was brought by a well penetrated fixed line network Mobile Phones Telephone Lines Desktop Mobile Growth Of Mobile Phones and Telephone Lines Growth Of Internet Traffic 100% 75% 50% Telecom revolution started with mobile phone networks in Asian Powerhouses India Mobile Phones Telephone Lines 25% 0% Desktop Mobile Internet traffic on Mobile leads the traffic on desktop in E+ economies

16 Source: Company Press Releases, Gartner Telecom: This has given a strong push to Mobile Ads ecosystem in Asian Powerhouses 16 Internet giants have been focusing on the Mobile advertising space Acquired mobile advertising specialist for $750 Mn Acquired China s digital advertising specialist for $ 3.8 Bn including its internet advertising arm Alleyes Mobile Advertising is growing at a tremendous pace in Asian powerhouses The APAC mobile advertising market is estimated to increase from $4.3 Bn in 2012 to $9.5 Bn in 2016 India & china are the largest mobile markets with 864 Mn & 1.1 Bn mobile subscribers respectively Acquired mobile advertising specialist for $ 3.8 Bn SMBs have started adopting Social, Local, and Mobile (SoLoMo) model for advertising

17 Retail: Unorganised retail sector in Asian Powerhouses forced many global FMCG companies to develop large distribution networks Source: Business Week, Company Website 17 Share of unorganized and organized in retail markets United States 85% 15% Indonesia has over 17,000 islands Unilever Delivery Reach in Indonesia 3 Co-Packers 3 Central Distribution Centres 10 Depot Warehouses 21 Sales Area Offices 473 Distributor China 20% 80% India 8% 92% Unilever products are sold in 600,000 outlets, from modern malls to grass-roof huts in the distant villages Indonesia 22% 78% Unorganized Market Organized Market Micro marketing approach being followed. One-size-fitsall strategy being avoided by Unilever

18 Retail: New models such as e-commerce have been growing rapidly to reach the unserved markets Source: KPCB, Business Today, Zinnov Analysis 18 Asian Powerhouses e-commerce market size is expected to cross US in 2013 United States E-Commerce Market ($Mn) 2012 YoY Growth , ,000 31% Gross Merchandise Value, Amazon V/S ebay V/S Alibaba/Taobao China based Alibaba / Taobao exceeded Amazon and e-bay in terms of Gross Merchandise Value ~$165 Bn ~$160 Bn Asian Power houses 217, ,000 36% ~$75 Bn China 200, ,000 33% India Indonesia Philippines 14,000 18,340 31% 1,000 2, % % Ebay Amazon Alibaba / Taobao Pioneered Cash/Card-on-delivery distribution model in India Expects to touch over $1 Bn sales by 2015

19 Automotive: Limited budgets is no longer an impediment in car ownership in Asian Powerhouses as OEMs increase their focus on small car sales Source: Wall Street Journal, Motor Intelligence, Financial Times 19 Car Sales By Segment United States 25% 30% 45% Small car sales are now expanding in developed economies as well such as US Small cars dominates sales in Asian Powerhouses India 56% 17% In India small cars contribute 56% of car sales Asian Powerhouses are promoting smaller cars through reduced taxes 27% India levies half the rate of excise duty on small cars Small Cars such as hatchbacks Medium Cars such as sedans Large Cars such as utility vehicles

20 Source: Company Press Releases Automotive: Tata Motors partnered with over 200 vendors to design its ~ $2,000 car 20 Tata Nano is the Indian innovation in the automotive sector and was developed in collaboration with global & local companies Brake solutions, Fuel injection systems, Electronic control unit, Starter motor and generator, Turbocharger Low-cost Centrally Mounted Instrument Cluster; Now replicated by Toyota and Renault Windshield Wiper System with only a single wiper reducing costs Airbags To develop the world s cheapest airbag s for USD10 vs. current airbags in small cars which costs USD 150 Gasoline fuel supply system, Fuel level sensor Air Induction System, Audio System Brake System Developed jointly by the Visteon Technical Service Center in Chennai, and the Visteon China Technical Center in Shanghai

21 Automotive: General Motors US has become the No.1 player in China 2.8 Mn Sales in 2012, 11% YoY growth Source: Company Press Releases, Booz Co. 21 Formed over 12 joint ventures with vendors Shares investments and risks with vendors Focusses on to & fro knowledge sharing 1 Partnerships with local vendors China 2 Multiple Product lines to serve different segments

22 Source: IEEE, World Bank, Company Website. Meralco Energy/ Power: Household electrification rates in Asian Powerhouses markets are low on account of transmission and distribution losses 22 Under investment in infrastructure is a common problem across Asian Powerhouses Frequent Power Outages Power Thefts Household electrification rates in Asian Powerhouses still remain low Insight ~100% 66.3% 64.5% 89.7% United States India Indonesia Philippines Very high transmission & distribution losses (~ 22%) in countries like India Smart Grids Real time monitoring for efficient power distribution Examples of Smart grid adoption in Asian Powerhouses Solution Identify and access outages quickly and offer quick restoration Helps consumers monitor their power usage North Delhi Power Limited, India Major Utility in Philippines Partnered with GE Smart Grid Technologies to implement an advanced Outage Management System Selected GE to implement smart meters for their smart grid initiative to allow consumers to better manage their energy usage and expenses

23 Energy/ Power: Micro grid solutions are now being conceptualized to serve the unmet needs in Asia Source: IEEE, World Bank, Company Website. Meralco 23 Tackling Un-Electrified Rural Areas and Villages India national electrification rate stands at ~66.3% with many rural areas and villages which are off-grid Micro Grids Electrifying Rural Households Nearly 48% of rural households in India are un-electrified (2010) A Micro Grid is a localized grouping of electricity generation, energy storage, and loads that normally operates connected to a traditional centralized grid Weekly cost of just $ 0.5 Households also get mobile charging point Companies like Desi Power, Husk Power Systems, Saran Renewable Energies, Mera Gaon Micro Grid Power, and Naturetech Infra operate micro grids in commercial basis

24 Source: Energy/ Power: Case study on Cummins small DG sets for India market 24 1 Customer Insight ~45% of power consumed by the Indian industry Shortage of Fuel & heavy dependence on coal for power production leads to low electrification rates 2 Business Opportunity Lack of portable power generating sets in India in the early 1990s Lack of natural gas and fuel cells powered gensets 3 Solution Cummins manufactures low cost portable DG sets to serve the Indian market Customized manufacturing of gensets for industrial use with high levels of localization 4 Business Model Started renting model for gensets to gain mindshare/market share Energy solutions & consultancy services for industries and individual businesses

25 Source: Government Websites, World Bank E-governance: Asian government are adopting and driving modern IT models to accelerate e-governance initiatives 25 Governments in Asian Powerhouses have lagged in leveraging IT for governance delivery Start of e-governance plan and IT spend as % of government Budget Proposed modern IT spending by governments Insight United States China India Indonesia China India Bn Mn % 6-7% 4-5% 3-4% gcloud gcloud, Virtualization Governments are leveraging modern IT to roll out G2B Government to Business Services & G2C Government to Citizen Service Solution In Malaysia, Google partnered with the Information Ministry, SME Trade body and domain registrar to help SMEs go online at low costs ~ $ 7 In India, Microsoft signed its largest-ever cloud services deal with the All India Council for Technical Education to deploy cloud solution to connect some 10,000 technical colleges in the country, covering 7.5 million users

26 E-governance: With large student population & relatively low budgets, Asian Powerhouses are adopting technology solutions to educate their masses 26 Asian Powerhouses need to serve large base of students at low budgets Average spend per graduate and Total Education Spending Asian Powerhouses are focusing on education through constitution amendments and right to education laws Insight United States $10,900 $68 Bn India $500 $57 Bn Indonesia $800 $35 Bn $180 Bn Education expenditure in Asian Powerhouses; second highest expense head after defence Governments are increasingly turning to IT based solutions to serve this large base of students Google partnered with Philippines s Education Department of education to roll out cloud solution to connect ~45,000 schools, 200 divisions & 600,000 staff across 7,000 islands Philippines Solution Indonesia Deploying ICT across 100,000 schools by 2014 to facilitate online education Developing a National Education Cloud to store and share educational resources Indian government is aggressively pushing the use of Tablets in graduate studies and is providing subsidy for the tablets India Source: World Bank, Economics Times, Google

27 Healthcare: Unlike the US, out of pocket health expenditure in Asian powerhouses is significantly higher 27 Asian Powerhouses have a low insurance penetration Insurance penetration in Asian Powerhouses Out of pocket health expenditure is high in Asian Powerhouses Insight China Indonesia Philippines 3.8% 1.5% 1.1% Typical Out-of-pocket health expenditure in United States 21% Typical Out-of-pocket health expenditure in Asian Powerhouses 75%-85% MNCs and local companies have re-engineered their products to serve Asian Powerhouses Solution GE Healthcare reduced the cost of a typical ECG machine (now also sold in developed markets) by more than 6X for Asian Powerhouses Cost was reduced by using commodity components instead of custom-designed components e.g. printers etc., eliminating screens and using rechargeable batteries Result: A Portable, battery-operated, easy-to-use, and easy-to-repair ECG machine Source: World Bank, AiIA Group

28 Healthcare: Companies are leveraging mobility and modern IT to address the gaps in healthcare in Asian Powerhouses Source: Company website 28 Nambal.com In Philippines, Nambal.com provides an online and portable healthcare system which allows user to find and access health care services from mobiles or desktops Telkomsel In Indonesia, Obat Murah provides information on affordable pharmaceutical drug options to subscribers using short code SMS service

29 Source: Ministry of Cooperatives and SMB s, Press Article Economic Times, China Mobile Banking & Financial Services: A significant base of Asian population is unbanked, despite significant investments in the sector 29 Asian Powerhouses have a low Banking penetration compared to developed countries Banking Penetration and Unbanked population (Mn) Brick and mortar branches insufficient to serve the huge population Insight United States India Indonesia 89% 40% 39% Un-Banked Population 726 Mn 144 Mn Philippines 48% 46 Mn Developed world has typically 3X-5X times more branches / 100,000 population Mobile banking is now helping tap rural markets who have limited access to banking branches Asian Powerhouses are launching mobile banking services & initiatives Solution India: Resolving the issue of unavailability of identification documents by the unbanked population and helping them get bank accounts Indonesia: Launched mobile banking service specifically for rural areas China : China Mobile joined with six commercial banks to provide mobile banking services Philippines: Launch of mobile banking service to help penetrate and expand micro finance services

30 Agenda 30 1 Rise of Asian Powerhouses 2 Unique Characteristics of Asian Powerhouses 3 Appendix (Other Case Studies)

31 Source: Source Zinnov Analysis MNCs and local firms across Asian Powerhouses are playing to their strengths 31 A B In Philippines, Microsoft partnered with SMB trade-body, NATCO, to target SMB clusters and NATCO s 1.9 million members for its solutions In India, Tally, a local accounting solution provider, has developed solutions targeting SMBs and penetrated the market by forming relationships with CAs (key influencers) and Channel partners (~11K) Ecosystem Influence C D In Malaysia, Square.my assists small players set-up e-commerce store on social networking site Facebook (and target its 13.1 Mn users) Twitmusic started as a platform for music artists on Twitter to engage and interact with fans and share their music. It has now gone global and has signed many major artists (total 8,000+) and labels as it s clients Social Platform Led Growth E Zaptag introduced a card based solution in Philipines that combines benefits of daily deal websites, credit card and NFC technology Customer Intelligence F Introduced BBM money (mobile payment solution) in Philippines allowing consumers to exchange credit over BBM or use it for direct bank transactions. Generated ~3 Mn subscriptions till date Mobile Based Business Models

32 Source: Company Website, Press Releases, Zinnov Analysis Microsoft is leveraging ecosystem partnerships to penetrate the SMB market in Philippines A 32 1 Customer Insight SMB s lacked technology adoption and were in need of affordable solutions Use of non-genuine software among SMB s was quite high due to high cost of genuine software 2 Business Opportunity Low technology adoption as well as low use of certified solution among the large base of SMB s NATCO, being the largest federation of co-operatives in Philippines had a large base of member SMB s 3 Solution Microsoft, NATCCO and Ng-Khai (Microsoft reseller) forges partnership 1.9 million individual members and 500 member cooperatives Providing bundled solutions to SMB s with considerable discounts Providing training, 4 Business Model Offer genuine Microsoft software to SMB s using volume licensing model NATCCO provided Microsoft with a huge base of potential customers

33 Source: Company Website, Press Releases, Zinnov Analysis Tally has build a vast ecosystem of influencers and channel partners in India to service finance & accounting needs of Indian SMBs B 33 1 Customer Insight SMB customers lack continual internet connectivity and IT maturity Business influencers play a critical role in the IT purchase decisions Currently keeping accounts and other enterprise details a in physical formats with significant overheads 2 Business Opportunity India has the world s second largest SMB base; ~47Mn SMBs Most of these SMBs today have very limited levels of IT Adoption and hence present a huge opportunity 3 4 Solution Business Model Tally 9. ERP with online-offline sync option SMBs served through 11,000 Channel Partners in India Strong relationships built with the CA influencer community Solution is charged at an upfront cost that varies between USD 300- USD 800 Tally also offers the on premise solution on a rental model

34 Source: Company Website, Press Releases, Zinnov Analysis Square.my has leveraged the social media platform to get SMBs online and enable their discovery by the consumers C 34 1 Customer Insight Businesses are unable to tap into mainstream e-commerce due to intense competition Limited investment by businesses in online media due to high cost of advertising 2 Business Opportunity Limited number of e-commerce sites in Malaysia ~13.1Mn Facebook users as potential online customers for an e- commerce website 3 Solution Social media platform being used for e-commerce Secured payment partnership through MOLPay 4 Business Model Aggregator of products that can be traded over social media

35 Source: Company Website, Press Releases, Zinnov Analysis Twitmusic provided a single platform build on top of twitter to connect the global music industry ecosystem together D 35 1 Customer Insight Limited sources and channels for selling music online High piracy rate for music High cost of marketing music through physical media compared to online medium 2 Business Opportunity Lack of a common platform for interaction between music artists and fans for sharing music Lack of international music aggregator on the online platform 3 4 Solution Business Model SaaS Platform allowing artists to share music and launch campaigns to reach new audiences Major global and local artists signing up on twitmusic Over 8,000 artists signed up Single platform for interaction between artists, music houses and followers Promotions through active micro-blogging and discussion forums

36 Source: Company Website, Press Releases, Zinnov Analysis Zap Tag combines benefits of daily deal websites, credit card and NFC technology in a single card based solution E 36 1 Customer Insight 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 2 Business Opportunity Philippines Retail industry valued at $32.4Bn in 2012 Limited offers for retail customers through NFC tags, credit cards 3 4 Solution Business Model Connects retail businesses to consumers Retail merchants get access to consumer behavior and spending patterns Merchants can track results of various promotions and hence can lower their advertising spends Zap Tag works on a revenue share model with retailers, daily deal providers and banking networks

37 Source: Company Website, Press Releases, Zinnov Analysis Indonesia was the first market in the world to get BlackBerry s payment platform - BBM Money F 37 1 Customer Insight Diverse geography of 17,000 islands. Difficult for brick & mortar banking network to be established 2 Business Opportunity Low penetration of mobile banking services 260 Mn mobile subscriber 52 Mn smartphone users 3 4 Solution Business Model Money transfer among other BBM contacts Purchase airtime credit for individual devices Money transfer to Bank accounts Integrates real-time mobile payments with BlackBerry Messenger A mobile money account is created and attached with the existing unique BBM Pin ~3Mn Blackberry Subscriptions in Indonesia till date

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