BCG warns of dangers in lull in e-commerce initiatives

With dotcoms making a hasty retreat and the technology market sinking, Asian companies are putting e-commerce plans on hold. The Boston Consulting Group warns that this will polarize those that have committed and those that have not.

Asian companies are at risk of losing their fundamental competitive advantage - cost - because they are lagging behind in the introduction of e-commerce. Companies most at risk are those with trade flows outside of Asia, concludes a Boston Consulting Group (BCG) report, Arming for e-combat in Asia Pacific

BCG estimates that the saving potentially generated by the implementation of business-to-business (B2B) in its fullest form should be 6% by 2010. Therefore, if Asia continues to lag behind in the adoption of e-commerce, those cost benefits gained by the West could seriously challenge Asia's cost advantage in certain industries and all but eliminate it in others, states the report.

Currently, Asian producers enjoy an average 7% cost advantage over North American competitors. This could fall to 0.3% by 2010 if local producers do not fully integrate e-commerce to supply chains.

"This is a wake-up call for Asia CEOs," says Jim Hemerling, vice president and director of BCG. "E-commerce is not about dotcoms or get-rich-quick schemes, it is about using the internet to create a competitive advantage." Hemerling does place a caveat on the call for mobilization however.

"It is important not to adopt made-in-the-US strategies," he adds. "Asian companies must incorporate and recognize the differences."  These differences are principally that a majority of Asia's trade flows are to countries outside of Asia and that there is a different constituency of key players in the region.

The push  

If Asian businesses aren't moving down the e-commerce path on their own accord, they will be pushed to do so by major overseas buyers, the report continues. This is because 57% of trade flows from Asia are to countries outside of the region.

BCG estimates that 40% of purchases done by US companies will be completed online by 2004, and the majority of these companies will be procuring a substantial amount of goods from Asia. Hence, as Western companies realize the benefits of their e-commerce investments, Asian suppliers will be required to integrate their systems and processes with buyers' e-platforms.

Deconstruction of traditional Asian strength

The key players in Asia are different from the key players in the West. Conglomerates and trading houses, for example, play a more significant role in the fragmented markets that make up Asian trade.

Asia's trading houses, however, may be a lumbering giant of the past, say BCG consultants. E-enabled competitors offer the same services, such as logistics, quality assurance and payments services as trading houses, but at cheaper rates. Trading houses will have to demonstrate the areas in which they add value and find opportunities to provide this value online. Traders may, for example, be best positioned to provide quality assurance to international customers purchasing online from fragmented markets, if able to adapt and pre-empt their competition.

Similarly, conglomerate incumbents have an inherent advantage over new e-commerce counterparts. Liquidity, solid cash flow, long-standing relationships and an understanding of local business tradition and practices characterize their strength. BCG believes that incumbents, if able to leverage existing assets in new ways, will stay ahead of the game. Under-leveraged assets such as brand and intellectual capital, and latent assets such as proprietary content and customer relationships should be deployed strategically to increase competitive advantage.

Matsushita, for example, has launched a national lifestyle portal, LifeVit.com, which began a new marketing channel for its most popular home electronics products. Similarly, Malaysia's YTL Corporation is sharing information across its hotel and retail businesses to provide more personalized service to customers.

Internal and External barriers

The external constraints that shape Asia's battleground include cross-border logistical challenges, the differing levels of internet penetration and communications infrastructure throughout Asia, and regulatory and legislative barriers. Internal constraints include a lack of capable human resources, entrenched hierarchies which are slow to change, and legacy internal IT management systems and processes.