2017 Hoontrakul

CHAPTER 8
Asia’s Digital Economy
INTRODUCTION
Advanced technologies and internet business innovations are shaping Asia’s
new economy including e-commerce and disrupting the traditional econ-
omy including physical retail shops. New-value industries with the highest
potential in Asia over the next decade include digital online services, the
sharing economy, and the Internet of Things (IoT) including automation
and robotics.
Many of these knowledge-based innovations are from the USA. China,
Japan, and South Korea have not only adopted them well but have become
global leaders in areas such as financial technology services (fintech), mobile
devices, and robotics. China is now the world’s largest fintech industry
serving the rural masses and undermining traditional financial institutions.1
Asia is setting standards and timelines for 5G wireless devices that will enable
IoT.2 Asia’s weaknesses as a laggard in technology and a latecomer to
industrialization have become Asia’s strength, allowing it to spectacularly
leapfrog into the new economy unhindered by resistance from the structures
of the old economy. Asia’s large young population and high-density mega-
cities provide competitive advantages in scale effect and platform effect in
mobile telecommunications and internet-related industries.
Government policies play crucial roles in shaping the new economy.
China’s closed internet system, the Great Firewall, has kept out foreign
influences and helped the country’s three private internet giants surge
ahead. Baidu, originally only a search engine, Alibaba, originally an
© The Author(s) 2018 269

P. Hoontrakul, Economic Transformation and Business Opportunities in
Asia, DOI 10.1007/978-3-319-58928-2_8
270 8 ASIA’S DIGITAL ECONOMY
e-commerce site, and Tencent, originally a game and chat site, have
expanded into spaces such as fintech and media and to expand geographical
coverage. (See the Alibaba case study.) India, on the other hand, is
supporting e-commerce through greater liberalization.
The 10 members of the Association of Southeast Asian Nations
(ASEAN) had about 260 million internet users in 2015 and are projected
to have nearly 480 million in 2020, the fastest-growing internet region in
the world.3 Private equity and venture capitalists gave ASEAN’s startups
estimated funding of almost $3.5 billion during 2013–2015.4 The 2016
funding was even stronger. In April 2016, Alibaba invested about $1 billion
for majority control of the Singapore-based e-commerce startup Lazada. As
in China and India, ASEAN’s largest digital economy sector is e-commerce,
followed by online services, e-gaming, and fintech.5 Fintech, including
internet finance and online payments, is at an early stage but has a very
promising future in the medium term.
After the global financial crisis, quantitative easing (QE) and near-zero
interest rates have provided little reason for the old industrial firms like steel
and mining to reinvent themselves or to downsize despite their overcapacity
and overleverage. The fast-changing pace can be mainly found in the new
economy, including internet-related businesses and technology products
and services that cater to unmet needs. In the midst of a national economic
slowdown, China’s overall stock market index filled with old economy
industry stocks was on the verge of collapse in 2015. But the new economy
index that comprises companies in entertainment, tourism, technology, and
services was up almost 200 percent during 2014–2015.6
THE DIGITAL ECONOMY VALUE CHAIN

The digital economy value chain broadly consists of three components:
applications (apps), networks, and devices, as shown in Fig. 8.1a.7
First, the most lucrative component, apps, can be split into three parts:
online services such as Alibaba and MakeMyTrip, content rights such as
Tencent’s e-gaming, and enabling services such as Alipay and Paytm.
Regarding social media and messaging apps, the Chinese-based Tencent’s
WeChat and the South Korean-invented and Japanese-based LINE, which
both started in 2011, were early creative adopters of the US-based
WhatsApp’s over-the-top (OTT) technology that started in 2009. LINE,8
predominately used in Asia outside of China, had over 220 million monthly
active users in 2016, while WeChat9 had over 750 million, mainly in China.
THE DIGITAL ECONOMY VALUE CHAIN
Fig. 8.1 (a) The digital economy value chain in Asia is multiplex, but with estimated revenue in ASEAN only for 2015. (b)
271
E-commerce comparison in India and China with timelines. (c) Ecommerce market size for 2015 and 2025e for selected
Southeast Asian countries
LINE is projected to have annual sales of 193 billion yen ($1.7 billion) with
average growth of 10 percent per year during 2018–2020 and average net
profit growth of 20 percent per year.10 Comparable successes in online
services can be found in China’s largest search engine Baidu, India’s online
and offline (O2O) travel agent MakeMyTrip, and ASEAN’s largest e-com-
merce site, Singapore-based Lazada.
The network is the second most lucrative component. Dominant tele-
com firms across Asia include China-based China Mobile, Singapore-based
SingTel, Indonesia-based Indosat, and India-based Bharti Airtel. Advanced
technology for new data pipes like OTT and WiFi has disrupted the telecom
network, once the only internet enabler. Because of high fixed investment in
infrastructure and spectrum licenses, telecom firms are now facing margin
compression pressure not just from telecom rivals but also big web content
names like Facebook, Google, Tencent, and LINE.
The least lucrative component is hardware-related devices such as
smartphones, IoT, routers, and PCs. Familiar names are Beijing-based
Lenovo, the world’s largest PC manufacturer; Shenzhen-based Huawei,
the world’s largest telecom and network equipment producer; Seoul-
based Samsung group, a conglomerate making smartphones and electron-
ics; and Tokyo-based Sony, a conglomerate in diversified business including
electronics, entertainment, gaming, and financial services. As hardware is
being commoditized quickly, software and content are valued for creative
ideas and innovative uses.
Four of the world’s top five countries in the 2016 Global Retail Devel-
opment Index were in Asia. China was ranked first, followed by India,
Malaysia, Kazakhstan, and Indonesia.11 China is becoming the global cen-
ter of e-commerce and fintech. India has the world’s largest information and
communications technology (ICT) services outsourcing business. ASEAN’s
digital economy revenue was estimated at $143–$171 billion in 2015, as
shown in Fig. 8.1a.12
ONLINE SERVICES LESSONS FROM CHINA

In 2014, Alibaba’s debut on the New York Stock Exchange raised $25
billion, the largest IPO ever; in 2016, the Hangzhou-based firm was the
largest e-commerce firm in the world in terms of numbers of online shop-
pers and operating profit.13 In 2015, for the first time, China eclipsed the
USA in attracting venture capital investment for its early-stage internet-
related startups. China raised $20.3 billion in internet business-related deals
ONLINE SERVICES LESSONS FROM CHINA 273
compared to the USA’s $16.3 billion.14 In March 2016, five of the world’s
top 14 privately owned high-technology startups valued at over $1 billion
based on fund raising – so-called unicorns – were from China.15 They were
Xiaomi, a smartphone producer worth $46 billion; Didi Chuxing, a ride-
hailing app worth $20 billion; Luxan, a peer-to-peer (P2P) lending platform
worth $19 billion; Meituan-Dianping, a group discount and dining infor-
mation site service worth $18 billion; and DJI innovations, an unmanned
aerial vehicle producer worth $10 billion. In August 2016, Didi Chuxing
spent about $7 billion16 to acquire the Chinese unit of the Uber ride-hailing
service, the world’s largest unicorn, worth $63 billion.17 Didi Chuxing then
became the largest ride-hailing service app in China with new estimated
value of $35 billion.18
In May 2016, out of 163 global unicorns, China had 31, with a total
valuation of $154 billion or about 26 percent of global unicorn valuation.19
Nearly all are home-groomed internet-related startups. This was second
only to the USA, which had 94 unicorns worth a total $338 billion.20
India ranked third with seven unicorns worth a total of $32 billion, while
South Korea and Singapore both ranked sixth with three unicorns worth
totals of $11 billion and $6 billion, respectively.21
Why is the smart money increasingly investing in China and the rest of
Asia? The simple answers: scale, innovation, and entrepreneurialism.
First, China has a large population with a rising middle class in the post-
LTP maturing of industrialization phase under an autocratic leadership.
China has closed its internet system to foreign influence with the Great
Firewall and an army of cyber “mentors.” This government protection has
given ample room for young computer science graduates and entrepreneurs
from local private startups to creatively copy Western models and scale up
with Chinese attributes. The Alibaba Group, the holding company with the
B2B (business-to-business) site Alibaba.com, adopted the Amazon and
PayPal models to create Tmall for B2C (business-to-customer) and Alipay,
respectively. Consequently, China’s three private internet giants Baidu,
Alibaba, and Tencent (BAT) have risen comparable to USA’s FAG
(Facebook, Amazon, and Google) in terms of scale and scope.
Second is innovation and technology. China’s gross domestic expendi-
ture on research and development (GERD) was $373 billion, second only
to the USA ($497 billion) in terms of purchasing power parity (PPP),
according to the Global R&D Funding Forecast from the USA in 2016.22
Japan and South Korea were distant third and fifth. Furthermore, China’s
GERD will surpass that of the USA by 2020 in PPP terms and potentially
become the world’s innovative disruptor.23 After economic liftoff in the

post-LTP period of the 2010s, China has emerged as a world leader in
telecom equipment, internet, new energy vehicles, nuclear, big data, artifi-
cial intelligence (AI), IoT, and biotech.24 Chinese leading innovations
include e-commerce, mobile internet, mobile payment, fintech, social net-
working, games, and QR codes.
While the USA’s FAG is focusing on cutting-edge and next-wave tech-
nology such as a space elevator, clean technology, and virtual reality,
China’s BAT is focusing on business innovation model development to
serve unmet demand. One clear example is the O2O business model.
Given its inferior fixed-line network and infrastructure, especially in rural
areas, China has leapfrogged into mobile network solutions. WeChat has
revolutionized the concept of the “mini program” – a simple idea of apps
working better and cheaper in a single program – and turned it into the
major long-term threat to Apple’s iPhone.25 Consequently, China has the
world’s largest number of mobile smartphone users and digital wallets users.
About half of its population – 600 million people – owned smartphones and
had digital wallets by 201526 and the numbers are still increasing. Logistics,
warehousing, and selling agents in towns and villages are organized to assist
rural people with O2O services. Customers also use mobile phones and
smart devices to connect with selling agents in real estate, automobile
services, and so on, especially in places lacking brick-and-mortar service
shops. P2P lending, car-sharing, e-medical services, and low-cost delivery
are examples of the new O2O services. As a result, in 2016 China had the
world’s largest e-commerce sales, totaling $641 billion. By comparison,
second-ranked the USA had e-commerce sales of $395 billion.27
Last, China’s acute sense of entrepreneurialism cannot be
overemphasized. The Chinese entrepreneur is typically an early follower,
then a creative adaptor, and later a business innovator. The founders of BAT
are national heroes who have inspired millions of young digital natives. BAT
also provides seed money and digital playgrounds for training and innova-
tion. This creates a virtuous cycle of wealth creation in the digital economy.
In the 2000s, BAT focused on gaining traffic and market share in order
to take first-mover advantage as the e-market expanded rapidly. BAT since
has shifted focus to monetize this traffic. BAT already captured almost
70 percent of the total mobile time spent in China in 2016.28 Acquisition
of new users is slowing down as the market is becoming saturated. Content
has become progressively more important to convert lookers into buyers.
BAT has lots of cash to incubate startups to create new ideas for money-
making and productivity enhancement.
INDIA AT A TIPPING POINT 275
In the country’s post-LTP maturing of industrialization era, BAT can

take advantage of the rising middle class and ride their consumption
upgrade online. Alibaba’s Taobao, the C2C (customer-to-customer) site,
in 2016, had about 75 percent of total mobile users who are Young China,
people under 35 years of age.29 The fastest-growing segment comprises the
digital natives born after the 1990s. Examples of consumption upgrade
include outbound travel, which grew at a CAGR of 16 percent from 2010
to 2015; online movie tickets (a CAGR of 34 percent); and O2O services
(no data available) like food delivery and household shopping.30 Alibaba’s
Tmall had flourishing cross-border e-commerce driven mainly by Young
China; those sales grew over 30 percent in 2016 despite toughening taxa-
tion policies.31 Beauty products, health foods, and nutrition supplements
are among the top goods imported from Japan, the USA, South Korea,
Germany, and Australia. These show the urbanites’ new preferences for
health-conscious and branded products. These are structurally multi-year
growth businesses as Young China gets richer. Alibaba has new put more
emphasis on regional expansion. (See the Alibaba case study.) Other firms
may horizontally expand into other areas such as cloud computing, enter-
tainment, and content-driven subscription including video and music.
INDIA AT A TIPPING POINT

Like China, India has a billion-plus population with an emerging middle-
class and underdeveloped organized retail markets. Like pre-LTP China in
1999, pre-LTP India in 2014 had about 10 percent organized retail pene-
tration and roughly 33 percent urbanization, as shown in Fig. 8.1b. India
had GDP per capita of close to $1500 in 2014, comparable with China in
2004, and 38 million online shoppers, comparable with China in 2006. In
short, India is a decade behind China in e-commerce development.32
Similar to China in the 2000s, India’s favorable structural factors today
include emerging aspirational consumers, increasingly fast and affordable
internet, low offline modern trade penetration, and proliferation of mobile
phones and smartphones. India’s e-commerce market could reach $60
billion by 2020.33
In 2015, India’s e-commerce gross merchandise value (GMV) was about
$11 billion, a 300 percent growth from 2014.34 Like China before, India’s
e-commerce firms focused on market share, traffic, and acquisition of users
to leverage on the demographic dividend. They raised funding in
2014–2015 mainly from the USA and some from China and Japan. Flipkart
and Snapdeal, India’s indigenous online shopping sites, raised $700 million
in July 2015 and $500 million in August 2015, respectively.35 Alibaba’s Ant
Financial invested $680 million for a likely 40 percent stake in Paytm,
India’s largest e-wallet firm.36 Alibaba together with Japan’s Softbank also
took some stakes in Snapdeal. Ola Cabs, a taxi-hailing service, raised over
$1.1 billion in funding during April to November 2015, partly from
Softbank and Didi Kuaidi.37 But they all operated at huge losses with high
capital expenditure to build up their infrastructure, including supply chains
and payment systems. Operations costs were far from optimal in logistics,
employees, and geographical coverage, while marketing costs, especially
price-cutting strategies, were very high. In 2016, Flipkart and Paytm lost
roughly 60 billion rupees ($881 million) and over 15 billion rupees ($220
million), respectively.38
In 2016, the global internet giants experienced sharp valuation changes.
Tencent was the top performer with its price up 28 percent.39 The biggest
loser was Twitter (-30 percent), followed by Chinese online discount
retailer Vishop (-28 percent), Chinese e-commerce site JD.com (-21 per-
cent), Japanese e-commerce site Rakuten (about-18 percent), and search
engine Baidu (-13 percent).40 India’s Flipkart and Snap chart were marked
down significantly as well. Worse was India’s funding squeeze. Total
funding for India’s internet companies in 2016 dropped to just over $7.5
billion, or about half that of 2015.41 Many investors preferred to wait and
see as India’s GMV turned flat and logistics expansion was limited at India’s
leading sites. They began to doubt whether India would inevitably follow
the early e-commerce trajectory of China.
India’s firms have focused more on profitability rather than GMV. The
category mix is shifting from low-margin merchandise such as electronics
and books to high-margin merchandise such as fashion, apparel, and per-
sonal care. Private labels, loyalty programs, lower logistic costs, market
segmentation, and expansion into service sectors are among the common
strategies to boost profitability. Market consolidation is unavoidable.
Flipkart took over control of two leading online fashion sites, Myntra and
Jabong. Snapdeal, partnered with Urban clap to offer personal services.
Unlike China, India has opened its internet space, particularly e-com-
merce, to foreigners to own and to operate. Amazon continues to expand
aggressively in India because it has no funding constraints. By the end of
2016, Amazon India, wholly owned by US-based Amazon, had committed
to invest $5 billion compared to Flipkart’s $3 billion and Snapdeal’s $1.6
billion.42 Amazon India has the top apps downloads and site visits in India
INDIA AT A TIPPING POINT 277
since its marketing budget is substantially higher than other sites’. Using the
US model of highly efficient logistics, Amazon India spent heavily on its
own logistics and had 27 fulfillment centers with over 7.5 million cubic feet
of space in 2016. This forced Flipkart and Snapdeal to build up logistics
capacity to better manage merchandise delivery and to enhance users’
experience. At the same time, foreign-owned third-party logistics firms
like DHL, FedEx, and Blue Dart are competing to be e-commerce logistics
specialists in India, raising efficiency and lowering costs.
It is a matter of time before Alibaba, which already has significant
investment in India, will actively engage in the market. Some believe India
will eventually feature the clash of the titans, Alibaba and Amazon, on a level
playing field.43 But India’s own titans – the Tata Group with CliQ, an
online shop with offline retail infrastructure, and the Aditya Birla Group,
with abof.com, a leading online fashion site – cannot be ruled out of this
race.44
India’s policies and regulations are positively shaping its internet business
structure. A Goods and Services Tax bill passed in August 2016 enables
e-commerce to move merchandise across states at ease without state tax
issues and helps to optimize logistics operations. India’s demonetization in
November 2016 had the effect of boosting online finance services. The
government canceled the 500- and 1000-rupee notes – 85 percent of the
paper currency in circulation – to counter the proliferation of black money
and counterfeit notes. The move spurred people to adopt digital modes of
public payments such as e-wallets, ePOS (electronic point of sale), and the
public e-payment system UPI (Unified Payment Interface). It was easier for
people to change their old paper money into electronic form than wait in
long queues to exchange them for smaller bills at the banks. The govern-
ment also gave discounts for digital purchases and incentives to use ePoS
like free insurance and complimentary transfers for digital transactions.
The government allows 100 percent ownership of e-marketplaces by
foreigners; no single seller can have more than 25 percent of the GMV in
a marketplace. To comply with this regulation, Amazon India ceased to sell
mobile phones, while Flipkart broadened its merchant base. Last, taxi-
hailing services may face licensing and minimum fare regulations to prevent
predatory pricing.
India can learn many lessons from China’s experience.
First, e-commerce can be a net additive and enhance the productivity of
the overall economy. O2O can be big business in bridging the offline and
online worlds and the large retail infrastructure gap between urban and rural
areas. In 2015, Snapdeal got about 65 percent of its revenue from people in
smaller cities and rural areas who enjoyed the convenience in buying per-
sonal household and basic goods and food, while the rest of its sales came
from upgrader urbanites.45
Second, in 2017 India had over 267 million smartphones, representing
year-on-year growth of close to 20 percent.46 More than eight out of
10 Indians under 35 years old used smartphones to do online shopping in
2016. However, internet penetration is low and broadband access is expen-
sive, especially in rural areas. Hence, non-internet connected mobile
phones, not just smartphones, drive m-commerce.
Third, logistics is key to success and must be managed diligently with a
digital enabling system in-house as well as through outsourcing. Like the
website’s navigation and the call center, this “last-mile” service will critically
affect customers’ experiences. Choosing the right third-party logistics firm
with a clearly defined target and geographical coverage is key. Amazon
India is showing an example to follow by providing good users experiences
from website to delivery.
Fourth, having the right partner is as important as finding sources of
funding. The Alibaba-Snapdeal partnership is a good example. Snapdeal
gains experience from China in luring first-time online buyers and first-time
online sellers and both sides gain future sharing platforms and cross-selling
opportunities.
Fifth, horizontal e-commerce requires scope and scale in order to have
the first mover’s advantage for winner-take-all strategies. Specialized travel
agents, plus-size fashions, and healthy gourmet food are among the fast-
growing niche markets targeted at younger Indians. Still, these niche players
are vulnerable to market consolidation. Mergers and acquisitions (M&A)
are typical, as seen in Flipkart-Myntra and Ola taxi for sure cases.
ASEAN’S INTERNET ECONOMY TAKING OFF

ASEAN is the fastest growing internet region in the world. Its 260 million
users in 2015 will grow to 480 million users by 2020.47 That’s a CAGR of
about 14 percent.48 There are several main reasons for this high growth.
First, people under 35 – digital natives – account for over 65 percent of
ASEAN’s population.49 Second, after China and India, ASEAN is Asia’s
third-largest consumer market, with total nominal GDP of $2.5 trillion in
2015 and projected growth of over 5 percent per year from 2015 to 2025.50
Third, as income rises, over 80 percent of the population will have internet
ASEAN’S INTERNET ECONOMY TAKING OFF 279
access on par with the global average (23.3 mbps or megabits per second)
by 2025.51 The payment ecosystem, online and offline, is forecast to cover
everyone on average by 2025, up from 70 percent in 2015. Last, ASEAN on
average has only a third as many organized retail outlets as the USA. As in
China and India, the rural areas have unmet demands that e-commerce
can meet.
Broadly speaking, ASEAN is running along two different tracks in terms
of internet-related business development. The fast track is ASEAN-6, the
region’s six biggest economies – Singapore, Malaysia, Thailand, Indonesia,
Vietnam, and the Philippines. They represent more than 80 percent of
population and over 80 percent of the total GDP. The slow track is the
rest – Brunei, Laos, Cambodia, and Myanmar. In fact, the world’s fastest-
growing internet market is Indonesia with a CAGR of 19 percent in 2015,
compared to India’s 14 percent, China’s 4 percent, and the USA’s 1 per-
cent.52 That means Indonesia’s 92 million users in 2015 will grow to
215 million users by 2020.53 Regionally, pre-LTP Vietnam is the second-
fastest, with a CAGR of 13 percent.54
E-commerce, Online Travel, and Online Media

ASEAN-6’s internet economy is projected to reach approximately $200
billion by 2025.55 This economy can be divided into three sectors:
e-commerce, online travel, and online media.
The largest and fastest-growing segment is the e-commerce market
worth $87.8 billion by 2025, representing a CAGR of 32 percent during
2015–2025, as shown in Fig. 8.1c. About half will come from Indonesia, its
$46 billion representing a CAGR of 39 percent. Thailand will be the
second-largest-commerce market with $11.1 billion and a CAGR of 29 per-
cent. Still, ASEAN-6’s online shopping was a mere 0.8 percent of the total
retailing business in 2015 and will reach only 6.4 percent by 2025. So there
is plenty of room to grow.
The online travel market size will be about $90 billion in GMV by 2025,
with a CAGR of 15 percent from 2015 to 2025.56 Flight bookings driven
by low-cost airlines will account for about 45 percent of the total GMV, or
about $40 billion, representing a CAGR of 12 percent. Hotel bookings will
account for over 40 percent of the total GMV, or $36.4 billion,
representing a 19 percent CAGR.
The online media market is expected to reach about $20 billion by 2025,
a CAGR of 18 percent from 2015.57 Global internet players have long
dominated search, social networks, and messaging. Key indigenous startups

in these spaces are Vietnamese-based web browser and search engine Coc
coc, the Thailand-based discussion forum Pantip, and the Indonesia-based
discussion forum and classifieds site Kaskus. But these are limited scale
(valuations under $30 million) and they thrive because of first-mover
advantage in local languages.58
Barriers to ASEAN’s Full Potential

To unleash ASEAN’s full internet market potential of $200 billion by 2025,
about $50 billion investment from private equity and venture capital is
needed for startups and their expansion.59 While Singapore is now the
center of internet economy funding and ideas incubating, Indonesia stands
out as the most promising and largest market. Singapore helped to raise
over $3.3 billion for internet startups during 2010–2016, while Indonesia
was second with about $900 million.60 Ten of ASEAN’s top 15 startups
that raised funds of $50 million or more in recent years have their head
offices in Singapore; three are located in Indonesia and one each in Malaysia
and Vietnam.61 Singapore startups include ASEAN’s top three unicorns:
Garena, a game and consumer internet platform worth $3.8 billion as of
April 2016; Lazada, an e-commerce site worth $2 billion; and Grab, a taxi-
hailing app worth $1.7 billion.62
ASEAN’s startups face six roadblocks to success.
First is the shortage of qualified human resources, particularly engineers
and tech-focused talents. More flexible policies on migrant specialists may
be desirable for the short term. Engineering is among the professions that
the ASEAN Economic Community (AEC) has included in freer labor
movement across borders. New curriculums to nurture creativity and tech
focus are needed in the educational system for the long term.
Second, cash-on-delivery is used for nearly all e-commerce transactions
across ASEAN. This must be urgently addressed.
Third, more high-speed broadband internet access at affordable cost is
needed in order to scale up the digital economy.
Fourth, except for Singapore, ASEAN has weak last-mile logistics infra-
structure capacity. Singapore, Malaysia, and Thailand have very good trans-
portation infrastructure. Indonesia and the Philippines comprise thousands
of islands, compounding logistics difficulties. Vietnam is far behind the
pack. All the ASEAN-6 countries already have decided on a strong pipeline
of infrastructure projects and many have been undertaken.
ASEAN’S INTERNET ECONOMY TAKING OFF 281
Fifth, regulatory hurdles across ASEAN have to be addressed in order to

create single window clearance. While the AEC frees up the movement of
goods and services, the big differences in consumer preferences, payment
modes, and fragmented logistics make cross-border e-commerce challeng-
ing. Inconsistent and time-consuming customs clearance is also a major
barrier. For example, if shipped cross-border in 2015, a dress that cost $100
in Singapore would incur an import duty tax of $39 in Thailand, $36 in
Indonesia, $32 in Vietnam, $29 in the Philippines, and $10 in Malaysia.63
Because of its free port status, about half of online transactions in Singapore
are from overseas. On the positive side, recently Indonesia, Thailand, and
Vietnam allowed 100 percent foreign direct investment in e-commerce and
logistics, following the footsteps of Singapore, Malaysia, and the Philip-
pines. E-commerce across borders in the “green belt” among Singapore,
Indonesia, and Malaysia is growing faster than domestic sales, while the
Philippines, Indonesia, and the rest are progressively opening up. As a
matter of fact, e-commerce can be a unique catalyst for common multi-
year productivity growth within the AEC.
Last is the lack of consumer trust in online shopping. High levels of
cyber-attacks and fraud are apparent in Indonesia, the Philippines, and
Malaysia.64 Close to 60 percent of people in ASEAN express concerns
about giving financial information online, against the global average of
49 percent.65 Despite the ASEAN ICT Masterplan 2015, a regional
governing entity is urgently needed to settle cross-border disputes and to
counter cybercrime.
Thailand has a booming e-commerce business because of its large pop-
ulation, savvy online users, and good infrastructure. But the country is quite
disappointing in terms of local internet startups, which are on a limited scale
and cater to mostly locals. Great opportunities may come as the government
is building a digital economy following in the footsteps of Digital Malaysia
in 2012 and Digital India in 2015. In December 2016, the Thai Cabinet
authorized the state-owned TOT telecom firm to provide broadband inter-
net access for over 24,000 villages across the nation within 2017. The first
phase of an e-payment gateway for all citizens, called PromptPay, was rolled
out in early 2017, although some people hesitated to sign up because of
concerns about the security of the digital identification. Moreover, Thailand
has long enjoyed strong exports to its neighbors Cambodia, Laos, Myan-
mar, and Vietnam (CLMV). One business potential is to build a vertical
e-commerce hub in Thailand catering to CLMV, where people look to
Thailand’s products and services such as fashion, beauty care, and hospital
services for lifestyle upgrades. Thailand can bridge these frontier markets
and make big profits in the medium term as CLMV is in the early stage of
industrialization and urbanization. This has been overlooked by large
investors.
In sum, ASEAN’s e-commerce is in the take-off stage. Singapore is
ASEAN’s natural e-commerce hub because of its free port status and
world-class competitiveness. Startup deal flows are highly concentrated in
Singapore and Indonesia. Vertical e-commerce and logistics-related
startups, particularly prominent names like Lazada, Grab, and Property
Guru, received over 60 percent of the funding during 2010–2015.66 Viet-
nam has been a big positive surprise. Enjoying strong backing from people
who left the country during and after the Vietnam War and returned home
to build their fortunes. At the same time, the entry of Alibaba via Lazada will
further lift the standard of e-commerce in ASEAN.
THE RISE OF FINTECH
China Dominates
The West invented fintech and over the past decade invested over $40
billion in the sector.67 Using much less funding, China’s internet giants
BAT have created the world’s largest fintech industry. China is the world’s
largest P2P (peer-to-peer) lender, totaling over $66.9 billion in 2015 and
dwarfing the second-largest lender, the USA ($16.6 billion).68 Global
venture capital investment in fintech reached $18 billion for the first
9 months of 2016.69 Of that, 46 percent went to China and 41 percent to
the USA. How has China achieved this?70
First, China has massive numbers of people without bank accounts and
an underdeveloped banking system dominated by state-owned enterprises.
Second, as e-commerce led by Alibaba and online gaming led by Tencent
expanded exponentially in the 2000s, their payment gateways, Alipay and
WeChat, expanded alongside. Global e-commerce in terms of GMV will
reach $3 trillion by 2018, and China’s market will be $1.6 trillion, more
than half of the world market.71 Of that, Alibaba will account for $1.1
trillion, or 36 percent of worldwide GMV. Thus, Alipay has become the
world’s largest e-payment gateway, over three times the size of the USA’s
largest gateway, PayPal. Ant Financial, which operates Alipay, has become
the world’s biggest fintech firm, with a valuation of $60 billion in 2016.72
Third, China has scale – a billion-plus population user base. Fourth, apart
THE RISE OF FINTECH 283
from the government’s strategic policy for inclusive finance and inclusive
growth, BAT uses fintech as a strategic business component. To foster its
O2O strategy, Alipay has recruited more than 130,000 offline agents or
merchants including from taxi companies, restaurants, supermarkets, and
hospitals.73 And it has over 17 million point-of-sale machines in China.
Like Elsewhere in Asia, Inadequate Traditional Banks

The inadequate traditional banking infrastructure is another main driver of
Asia’s fintech. As much as 80 percent of the small and medium enterprises in
China are not served by brick-and-mortar banks and finance companies.74
Traditional banks find this segment lacks economy of scale and has dubious
performance records.
Big data fuels the P2P lending and the digital economy. Transaction data
from online commerce is used to assess the creditworthiness of SMEs.75
Fund users, asset providers, or borrowers are gathered offline for personal
verification, credit screening, and pricing for regulatory compliance. Inves-
tors and borrowers are matched online. The loans are bundled in different
tranches with third-party guarantees and then often auctioned off online to
fund providers, investors, and institutions, corporate and retail. The busi-
ness model of China’s largest P2P lending platform, Lufax.com, is shown in
Fig. 8.2a.76 P2P lending platforms in Asia include MicroGraam in India,
KEKAR in Indonesia, and Society One in Australia. The highest potential
markets are in pre-LTP nations like India, Indonesia, and the Philippines
because they all have low penetration of consumer credit and high numbers
of unbanked people.77 Early movers in the P2P marketplace in these nations
will leverage on their rapid industrialization and urbanization.
As customers migrate to online banking, post-LTP nations like Thailand
and Singapore have started seeing traditional bank branch closures. Most of
the growth in branch openings will be in South and Southeast Asia’s
pre-LTP nations like India and Indonesia.78 In China and Japan,79 the
trend is toward collaboration rather than competition between fintech and
brick-and-mortar financial institutions. The two sides are almost asymmet-
rical and almost perfectly complementary.80 Fintech’s needs include culti-
vating personal relationships with borrowers, lenders, and regulators,
administrating funding gaps and operational risk in the middle office, risk
management and capital allocation in the back office, regulatory compliance
talent, and banking licenses. Traditional banks need digital innovators, IT
talent, and entrepreneurial spirit.
284
8
ASIA’S DIGITAL ECONOMY
Fig. 8.2 (a) Lufax’s P2P ending platform. (b) Potential fintech disruption to traditional banking
THE SHARING ECONOMY 285
Bitcoin
Bitcoin, the digital currency, is stored on a decentralized computer network
without any central bank’s support or regulation and transactions are dig-
itally booked in a decentralized ledger known as the “blockchain.” Because
bitcoin has no real bitcoin economy and operates in a regulation vacuum, its
trading value has been highly volatile and prone to speculative investment.81
So poses limited threat to banks in the near future.
But the blockchain concept is well recognized by many for its potential to
disrupt financial intermediaries.82 Blockchain technology enables the crea-
tion of digital (private) currency for use as unambiguous transfers and
non-counterfeitable cash for business payments. That frees up capital and
reduces transaction costs to near zero. The biggest impacts are in the areas
of financial securities exchange, trade, settlement, and registrars and in
international trade, exports and imports.83 Early adopters in Asia are the
Australia Stock Exchange and Japan’s Mizuho Bank in 2017 and Bank of
China in 2016. Six in 10 top executives said in a survey in September 2015
that they believed blockchain will store value equivalent to 10 percent of the
world’s GDP by 2025.84
THE SHARING ECONOMY

As of March 2016, four of the world’s top six unicorns were sharing
economy-related startups.85 The first two were San Francisco-based. The
taxi-hailing service Uber was worth $63 billion in March 2016, and the P2P
accommodation marketplace, Airbnb, was worth $46 billion. The other two
were from China. Beijing-based taxi-hailing service Didi Chuxing was
appraised at $35 billion86 in August 2016 after it took over Uber China,
and the Shanghai-based P2P lending platform Lufax was valued at $19
billion87 in March 2016. India and Indonesia also have their own unicorns:
the Mumbai-based taxi-hailing service Ola Cabs and the Jakarta-based two-
wheel-hailing service Go-Jek.
Some common characteristics of these unicorns emerge: B2C model
home-grown startups based on major cities with on-demand mobile apps
and a decentralized concept. Without holding any physical inventory, all
operate as online P2P marketplaces, aggregators with crowds as the source
of information, suppliers, and/or consumers. All of them disrupt traditional
industries such as taxis and hotels and re-aggregate into new value creation
businesses such as on-demand car hire and P2P funding. P2P networks
streamline excess in business processes and capitalize on unused assets and

spare capacity.
Drivers of the Sharing Economy

The rise of the sharing economy in Asia and worldwide is structural and a
multiple-year, value-creating business strategy.88 Asia’s sharing economy is
structurally driven by at least four factors.
First is the increasing comfort with digitalization. The proliferation of
smartphone users, lower prices, and greater convenience has propelled
e-commerce demand.
Second, social media is a key enabler of the trust-building infrastructure.
People gain trust from blogs, reviews, and comments on social media. They
must gain that trust before they are willing to try new experiences online.
Third is the rise of digital natives under 35 years old, especially in China,
India, and ASEAN. One survey showed that a higher proportion of these
digital natives (over 80 percent) were willing to share their belongings than
people in other parts of the world. In Europe and North America, it was
between 50 and 60 percent.89 About half of these potential sharers in Asia
were urban millennials. Boomers accounted for 18 percent.90
Fourth, rapid urbanization in Asia is expanding the middle class and
creating higher population density in major cities. Air pollution, traffic
congestion, the higher costs of living, and the “time-crunch” economy are
prompting people to use car-sharing and on-demand delivery services. Also,
the younger people tend to be more environmentally conscious and see the
sharing economy as energy saving and efficient use of assets. Thus, business
strategy should include emphasizing how the sharing of goods and services
contributes to sustainability.
High-Potential Sectors
Globally, four sectors have been identified as having the highest potential
for the sharing economy.
First, most of the venture capital is going to transportation sharing
startups. A car is a high-cost and underutilized asset and hence perfect for
the sharing economy. On average, a car is used less than 10 percent of the
time on any given day. In 2018, about 26.5 million passenger vehicles will
be sold in China, the world’s largest automobile market.91 Assuming aver-
age cost per vehicle at $10,000, total sales would be over a quarter trillion
THE SHARING ECONOMY 287
dollars per year. To convert only a fraction – say 10 percent – of this car
ownership to car-sharing, the potential annual car-sharing business in China
might be more than $25 billion.
Second, Airbnb’s explosive growth indicates strong changing consump-
tion demands in accommodation. The business model in Asia is typically still
in online travel agents like India’s MakeMyTrip and Singapore’s Agoda.
One interesting possibility is support senior citizens in Asia’s aging societies
to engage in home-sharing as micro-entrepreneurs for home and service
providers. At present, local legal, tax, and regulatory requirements are the
major roadblocks to the accommodation-sharing economy.
Third is the P2P finance platform as an alternative to financial institu-
tions. China is leading the way, as previously discussed.
Fourth, online outsourcing has become global as more people monetize
their skills. The major contractors are from North America and Australia.92
South Asian nations such as India, Pakistan, and Bangladesh and to a lesser
extent the Philippines are the major talent suppliers.93
Asia can also develop new niches for the sharing economy. Young Asians’
preferences for unique and individual experiences will boost the luxury
sharing business, as discussed in the vanity capital chapter. Connecting
consumer demand with luxury suppliers affordably is key. The ideal items
for renting are those high in value and hardly used. Some items like labor,
rooms, and cars are high on the list of willingness to share. Others like
clothing, jewelry, purses, and shoes are in the middle ground, depending on
condition and price. Not-willing-to-share items are personal items like
underwear and bank accounts.94 For the middle-ground items, there are
no popular sharing business models like Airbnb or Uber. One interesting
business model of a fashion rental and clothes sharing service is a startup in
New York named RenttheRunway.com. It has expanded into many US
cities and had more than 5.5 million members in 2016. The startup is
basically trying to monetize the over $8 billion worth of clothing and
accessories that is left unused in US households.95 There are ample possi-
bilities for the sharing luxury model in Asia if businesses can think beyond
the tangible product to serving up unique experiences that suit customers’
changing preferences.
In sum, the sharing economy is rising in Asia. Ride-sharing has seen
explosive growth in China and India. While online accommodation sharing
is dominated by Airbnb, Asians can benefit as suppliers and consumers.
China leads in the world in fintech and P2P lending platforms and soon the
rest of Asia, especially India, will follow.
WIRELESS DATA, TELECOM, AND THE DIGITAL ECONOMY

The internet and digital technology promote inclusion by overcoming
information barriers in international trade, efficiency by augmenting capital
and labor for better capacity utilization, and innovation by generating
economies of scale for competition.96 Broadband internet and e-commerce
allowed pre-LTP Vietnam to gain a cumulative additional 1.7 percent of
total factor productivity growth during 2007–2012.97 In fact, it’s estimated
that a 10 percent increase in broadband penetration in pre-LTP emerging
markets pushes up GDP growth an additional 1.35 percent and in post-LTP
developed nations about 1.2 percent.98 Out of all global flows in 2014, data
flow worth $2.3 trillion was the second-largest GDP contributor after
goods trade flow worth $3.5 trillion.99
From 1G to 5G
To appreciate the potential of affordable wireless bandwidth, we need to
understand the economics underlying this evolution.100 In the 1980s and
the 1990s, 1G (first generation of wireless technology) and 2G were analog
voice and mobile digital voice and messaging. Wireless data economics was
simply driven by voice and economy of scale. Population density and
spectrum were the critical determinants.
In the 2000s came 3G led by Europe for mobile internet access. Data
services were now provided at different levels of diseconomies of scale.
Spectrum become more important. The more spectrum, the more “data
throughput” capacity and speed.
In the 2010s, 4G or LTE led by Japan and the USA was about mobile
broadband and integration of voice and data. The 4G economics of wireless
is now a function of technology choice, spectrum, and population density.
Broadband penetration is rising across Asia with proliferation of 4G
smartphones. All of Asia’s high-income nations like South Korea, Singa-
pore, and Taiwan have very high (on average above 90 percent) penetration
of smartphones and 4G, as shown in Fig. 8.3a. Post-LTP middle-income
nations like Thailand, Malaysia, and China have high (on average above
60 percent) penetration of smartphones. But only China has 4G penetration
above 50 percent. Despite rising smartphone penetration, pre-LTP nations
like Indonesia, the Philippines, and India have low 4G penetration, as
shown in Fig. 8.3a.
WIRELESS DATA, TELECOM, AND THE DIGITAL ECONOMY
Fig. 8.3 (a) 4G and cellular fixed-line broadband penetration in Asia. (b) A policy framework for improving connectivity.
289
(c) The factory of the future: data and software linkage

Fixed-line broadband can supplement high-speed cellular, especially in

post-LTP nations. As shown in Fig. 8.3a, Thailand and Malaysia have low
fixed broadband penetration compared to China. China Mobile, the largest
mobile provider, took over fixed-line operator China Railcom in 2008 as a
part of an industry consolidation. With fixed and cellular assets integrated,
China Mobile accelerated broadband connections in 2016. In 2015,
Thailand’s largest mobile operator, AIS, launched fixed broadband services.
Finally, the 2020s will bring 5G led by Japan, South Korea, and China.
5G will enhance mobile broadband to support a massive IoT ecosystem
with ultra-reliable, low latency.101 5G is potentially a disruptive force with
speeds of up to one terabit per second, 100 times faster than 4G.102 In
October 2015, Japan’s NTT DoCoMo with cooperation with China’s
Huawei first tested 5G high-speed internet at 3.6 gbps in Chengdu, Sichuan
Province, China. SK Telecom, Korea’s top mobile provider, will showcase
5G at the 2018 Winter Olympics in Pyeongchang. China Mobile will run
trials of 5G in 2018 and roll it out in 2020.
Telecom firms in Asia’s emerging nations are facing structurally lower
returns in investment and slower incremental revenues. Increasingly higher
capital expenditure and operational expenses are expected from base station
proliferation, greater spectrum bandwidth, continuous technology
upgrade, and regulatory risks, but the value capture from data use is declin-
ing. Unlike advanced economies, many Asian nations like China, India, and
Indonesia have very low fixed-line and telecom asset bases because they all
leapfrogged into wireless technology. Among Asian nations, India had the
highest rise – 78 percent – in total telecom assets during 2010–2015, but its
ability to service debt as measured by change-in-net-debt-to-earnings
before taxes during that period was only 25 percent.103 During the same
period, Indonesia had the highest rise (68 percent) in total telecom assets in
ASEAN, with only a 25 percent increase in ability to service debt.104 Asset
consolidation in telecom is unavoidable, first through mergers and acquisi-
tions, until natural monopolies emerge to reverse this low profitability
trend.105
Governments should design comprehensive frameworks to address both
the demand and supply side for universal and improved connectivity, as
suggested in Fig. 8.3b. On the demand side, governments can subsidize
broadband internet access for low-income households. Many Asian nations
like Singapore, Malaysia, and Australia have done this. On the supply side, in
South Korea, the government accounted for nearly 40 percent of the capital
expenditure on the country’s broadband convergence built during
WIRELESS DATA, TELECOM, AND THE DIGITAL ECONOMY 291
2005–2014.106 China has comprehensively intervened on both the supply

and demand sides to ensure affordable, high-speed, and secure broadband
as a national priority. To lower internet connectivity costs, China first
subsidized the cellular networks rollout and later pooled together all the
base station towers and pressured its state-owned telecom firms to increase
its capital expenditure. Moreover, China has lowered the spectrum license
costs for all mobile operators. China’s spectrum costs as a proportion of
service revenue was, at 0.4 percent, the lowest in Asia in 2016, followed by
Singapore at 0.9 percent.107 On the flip side, the highest spectrum costs as a
proportion of service revenue was 19.6 percent in India, followed by
Thailand at 18.2 percent.108 It seems India and the ASEAN nations with
the exception of Singapore are trying to achieve the impossible – “have their
cake and eat it too.” Experts suggest that governments nationalize109
telecom networks as public goods110 and let the private sector do the service
operation part.
Digital Technology to Watch: IoT, Automation, and Robotics

Nations with aging populations have high hopes that advanced digital
technology can help solve problems such as productivity shrinkage and
labor shortages. In 2016, the World Bank said the top six enabling digital
technologies that can potentially disrupt supply chains and everyday life are
not new.111 All were greeted with inflated expectations in the early stages
and are now at different stages of the hype cycle, as discussed in Chap. 1 and
shown in Fig. 1.2a.
First is the latest hype – 5G to enable IoT including connected cars,
smart factories, and wearables. Second is artificial intelligence (AI), such as
the virtual assistance and voice recognition found in Apple’s Siri and
Android’s Jeannie. As AI advances, many service jobs such as in call centers,
online marketing, and big data analytics will be lost permanently in service-
intensive industries like banks and insurance, especially in high-wage coun-
tries. The third technology, automation and robotics, was invented over
four decades ago. Most of the applications have been concentrated in a few
industries. Fourth is the self-driving car, now at almost the peak of the hype.
This will be discussed in the next chapter. Fifth, the Internet of Things
(IoT) was at the peak of hype in 2015. IoT promises to make everything
smart by wirelessly connecting all machines with each other. Last, 3D, or
additive manufacturing technology, which builds objects layer by layer from
a design model, is useful for customized work such as titanium jaws and
rocket components, but it still lacks economy of scale for mass production.
The concept of Industry 4.0,112 also called Industrial IoT (IIoT) or the
factory of the future, was originally announced by the German government
in 2011. Industry 4.0 was envisioned as a cyber-physical system with smart
digital connectivity among technologies in product design, factory automa-
tion, operation technology, and information technology, as shown in
Fig. 8.3c. Software and data are the main enabling drivers of these
connected factories and supply chains. Despite the initial hype, IIoT has
been slow to be adopted, as one survey indicated in October 2016, because
each machine uses its proprietary software system so the machines may not
be able to “talk” to each other.113
Factory automation, robotics, and IIoTs have been progressing but
concentrated in four industrial groups. These four groups – automobiles
and transportation equipment; computers and electronic products; machin-
ery; and electrical equipment, appliances, and components – will account for
three-quarters of global robotics installation during 2015–2025, as has been
the case during the last few decades.114 Apart from technical issues, eco-
nomic, cultural, and social barriers have significantly slowed adoption of the
smart factory. Public institutional rigidities – hire-and-fire practices, politics,
and so on – also determine the pace of this development.
The most aggressive adopters of these new technologies are all in Asia.
All but one are post-LTP nations with aging populations. South Korea is
No. 1 in the world, followed by Thailand, Taiwan, and Indonesia, the only
pre-LTP nation.115 South Korea will be the world’s biggest gainer in
deploying IIoTs and automation, with up to 33 percent cost savings over
human labor by 2025.116
Below this group are the fast adopters: China, Japan, the USA, Canada,
the UK, and Russia. Japan produced about half of the industrial robots on
the world market in 2015.117 It has heavily invested in efforts to be the
world leader in automation and robotics applications.118 It’s projected that
Japan’s robots market will achieve over 6 trillion yen ($57.7 billion) in sales
by 2025.119 China was the largest consumer of industrial robots in both
2014 and 2015.120 Its industrial automation market was worth roughly
106 billion renminbi ($17 billion) in 2015, or about 11 percent of the
global market.121 With heavy government subsidies, China’s robotics
industry is now booming, particularly in automobile manufacturing.
China is projected to have a CAGR of 35 percent in robotics demand and
a CAGR of 15 percent in automation from 2014 to 2020.122
WIRELESS DATA, TELECOM, AND THE DIGITAL ECONOMY 293
Asia’s national robotics policies include Japan’s New Robot Strategy,123

South Korea’s $1 billion fund for AI, Thailand 4.0,124 and Made in China.
The slow adopters are mostly the Western European nations and
pre-LTP nations like India.125 Europe, an aging continent with high-wage
structures, is expected to face serious skilled labor shortages because at this
slow rate, robots will perform at most 15 percent of tasks by 2025.126 India,
with abundant cheap labor, lacks incentive to push for automation.
In the future, affordable robots and automation will be able to replace
low-skilled labor. One analyst suggests that over 85 percent of the jobs in
textiles, clothing, and footwear in Vietnam, and over 80 percent in Cam-
bodia and 64 percent in Indonesia, have a high risk of being replaced by
automation.127 This means over 5 million jobs. Robotics and automation
may cause “re-shoring” in advanced economies and “premature deindus-
trialization” in emerging economies.128 This means the emerging markets
may not undergo the pre-LTP to post-LTP transitional phases because
automation will allow rich countries to do the manufacturing at home,
without need for cheap labor. Still, pre-LTP or low-income nations like
India, Indonesia, and CLMV face no risk anytime soon of mass migration of
production back to the West.129 It is still very difficult to have cost-effective
robots to compete with low-wage workers in pre-LTP countries.
One vivid example is Taipei-based Foxconn, the world’s largest contract
electronics manufacturer and supplier to Apple’s iPhone. In 2015, Foxconn
employed more 1.3 million workers in China. Foxconn decided to auto-
mate its production lines by installing 10,000 robots as Chinese wages
began to rise. But massive human labor was still needed because robots
cannot do many functions like work with electronic components with flat
surfaces like circuit boards and very small parts like connectors at
non-precise angles.130 Subsequently, Foxconn announced plans to build
12 factories and employ over 1 million workers in India.131
On the other hand, the proliferation of e-commerce in China, ASEAN,
and India will structurally lead to warehouse automation with intra-
logistics132 as a part of Industry 4.0, as illustrated in Fig. 8.3c. Amazon
has taken the lead on this in India. Up to 90 percent of all material
handling in warehouses across Asia is still done manually.133 Alibaba is
catching up on automation fast because e-commerce customers demand
shorter delivery times and increased customization of orders.
Apart from industrial robots, aging societies will look to expand the use
of service robots in the decades ahead. Japan is likely to take the global lead
in the service robots market, which is forecast to be worth 24 billion yen
($230 million) domestically in 2020, 9.6 times the figure in 2010.134 Robot
taxis for the Tokyo Olympics and self-driving Toyotas on the highway are
scheduled for 2020. The global nursing robots market is expected to soar
from $8.2 billion in 2020 to over $21 billion in 2025, mainly in Australia,
Western Europe, and Japan.135 The world’s first hotel staffed only by robots
opened in Japan in July 2015. (See the Henn-na Hotel case study).
On a macroeconomic level, the factory of the future will improve a
nation’s productivity and competitiveness if these technologies are adopted
in a timely and aggressive manner, as in South Korea’s case. Service-related
industries create high-paid jobs. Governments must open up the service
sectors to foreign investment and know-how in order to improve their
productivity, especially in the longevity and leisure economies. On a micro-
economic level, it is critical for firms to adopt the factory of the future at the
right time and at the right location, depending on the economic tradeoff,
labor supply constraints, and other factors.
In summary, like other digital enabling disruptions, the factory of the
future, robotics, automation, and IoT were started in the West but Asia has
been an aggressive and fast adopter and added innovations to reach global
ranks. As with fintech and e-commerce, digital enabling technologies for the
smart factory are gravitating to Japan, South Korea, China, and Thailand.
BUSINESS IMPLICATIONS FOR REAL ESTATE

The internet revolution will progressively change three basic segments of
the real estate business in the next decade, including in retail and office
space.
Office Space
The demand for an office traditionally has been for a fixed, long-lease, large
space in a hierarchical multistory building. In pre-LTP nations such as India,
Indonesia, and CLMV, that may still be the case for at least a decade.
But in more advanced countries, the internet revolution has upended the
traditional office. AI and fintech are cutting workforces in the banking and
service industries in Japan by 58 percent, in South Korea by 48 percent, and
in China by 45 percent.136 Social media, webcam conferences, and online
community file sharing allow people to work together on projects even if
they are in different nations and at near-zero cost. The internet empowers
people and firms to work in decentralized and distributed loads in an
BUSINESS IMPLICATIONS FOR REAL ESTATE 295
on-demand manner. The demand for an office is shifting in favor of shorter

leases and more open, modular, flexible, and adaptable spaces since startups
and firms are now much smaller. Office design is oriented more toward
communal areas allowing tenants of multiple firms to actively engage
with each other to brainstorm ideas. High-speed connectivity, enabling
time and productivity enhancement, is valued, not just raw space. In
2016, as judged in one survey, Asia’s three best co-working spaces for
independent tech entrepreneurs were in beachfront, not urban, areas.
Two were in Thailand’s Koh Phangan and Koh Lanta islands and the
third was in Bali, Indonesia.137 One survey indicated that 58 percent of
Asia’s millennials work in the city, 25 percent in the suburbs, and
11 percent in small towns, and they all dislike to commute more than
1.5 hours per day to and from work.138 With explosive growth in Asia’s
internet business, the office space market opportunities are plenty, and
no longer just in the cities.
Retail Space
Consumer shopping behavioral ways evolves with shifts in mobility and in
technology.139 Where vehicle ownership is low and refrigeration and cold
storage food delivery are limited, like in pre-LTP India and Indonesia,
markets are concentrated in town centers. When car ownership or ride
penetration is rising fast and mass refrigeration is available, like in Jakarta,
Manila, and Ho Chi Minh City, shopping centers emerge. In a “time-
crunch” economy, convenience is key. In the post-LTP maturing of
industrialization phase, niche community malls emerge in suburbs of
major cities like Bangkok and Kuala Lumpur. People commute from the
suburbs to work in the city and stay home on the weekend. Last, when
cosmopolitan cities rise with extensive metro networks, like in Tokyo and
Shanghai, consumers migrate from town retailers to out-of-town shop-
ping parks.
Digital enabling disruption will structurally change the use of retail and
logistics spaces. Where e-commerce is booming, real demand for offline
retailers and storage is substantially tapering off. Brick-and-mortar malls will
become distribution centers and pickup points for O2O orders. With self-
driving cars expected in Singapore within the next decade, abundant
parking lots will no longer be needed. One possibility is to convert the
spaces for use in the wellness and healthcare services that are increasingly in
demand as societies grow richer and older.
THE OLD AND THE NEW ECONOMIES

In summary, the new economy can not only prosper but also support the
old economy. But the converse is not true. An orderly co-evolution
between the old and new structures has to be thought out. A new mindset
is required for both business executives and policymakers to capitalize on
the multiple-year productivity growth that the new economy makes
possible.
CASE STUDY 8.1: ALIBABA AND ITS DREAM TO DOMINATE ASIA’S

E-COMMERCE
By Pongsak Hoontrakul
Alibaba is the world’s biggest e-commerce B2B (business-to-business)
trading platform for small business with market capitalization of over $260
billion, net sales of over 100 billion renminbi ($14.4 billion), and net profit
of over renminbi 71.4 billion ($10.3 billion) at the end of 2016.1 Alibaba’s
net sales are forecast to grow roughly 50 percent in 2017, 30 percent in
2018, and 26 percent in 2019.2 The average annual net profit during
2017–2019 is forecast of fall to about 58.6 billion renminbi ($8.46 billion)
as the company expands in Asia.3
In the third quarter of 2016, Alibaba’s management said the company
would invest more in its three core investment areas. First, after capturing
nearly all China’s C2C (customer-to-customer) market with its Taobao
marketplace (over 600 million users), more investment is needed to build
up capacity. Alibaba has a distribution presence in one of every three villages
in China, but the country has 600,000 villages.
Second, Alibaba plans to use to integrate its Tmall.com B2C (business-
to-customer) online retailer with traditional stores. The strategy involves
acquiring portfolios of inefficiently run, brick-and-mortar shopping malls.
This would help Alibaba in buying merchandise that it can then market
online to consumers. Alibaba also can streamline the offline businesses by
integrating them with its online system. Thus, Alibaba bid $2.6 billion for
the 29 department stores and 17 shopping malls of Intime Retail in January
2017,4 paid over $300 million for a third of the stake in Sanjang Shopping
Club Ltd.’s 160 discount supermarket stores across Zhejiang province in
November 2016, and acquired Singapore’s small online grocery store
RedMart for an undisclosed price in November 2016.5
CASE STUDY 8.1: ALIBABA AND ITS DREAM TO DOMINATE ASIA’S. . . 297
Third, avoiding confrontation with Amazon in India, Alibaba plans to

expand its footprint in Southeast Asia. In April 2012, it invested $1 billion
for a two-thirds stake in Singapore-based Lazada, a leading regional e-com-
merce platform that had an estimated gross merchandise value of over $1
billion (over 160 percent growth year-on-year) and a loss of almost $300
million in 2016. The acquisition allows Alibaba to operate an in-house
logistics unit, Cainaio’s 4PL (fourth-party logistics) model,6 to seize oppor-
tunities in cross-border/e-commerce, especially in Southeast Asia and
India. In early 2017, Lazada had a dozen warehouses and over 90 distribu-
tion centers across six ASEAN nations: Vietnam, Thailand, Singapore,
Malaysia, Indonesia, and the Philippines.
Alibaba’s success in transforming Chinese small rural entrepreneurs into
“netpreneurs” appeals to many leaders in ASEAN. The Taobao village
platform helped transform Shaji town in Jiangsu, a coastal province north
of Shanghai, from pig farms in the 1980s to recycling businesses in the
1990s, to online shops selling simple furniture in the 2000s. By the early
2010s, Shaji had eight factories, 16 distribution companies, and seven
computer shops along with 400 households selling online. This phenome-
non became a World Bank’s case study in 2016.7 This makes Alibaba quite
different from Western e-commerce giants like Amazon.com.
Jack Ma, billionaire and founder of Alibaba, has been flooded with
invitations to be a special advisor from the United Nations trade body, the
Indonesian government, and Thailand’s prime minister. Ma’s big dream is
to expand his success in lifting up the “little guys” in China in to ASEAN,
then Asia, then the world.
At least two channels to realize his dream are Alibaba’s Ant Financial and
overseas Chinese. In cooperation with the World Bank’s finance arm, the
International Finance Corporation, in 2015, Ant Financial’s financial tech-
nology service provides credit to rural “netpreneurs” in China. The more
transactions these “netpreneurs” make, the more Ant Financial is more
willing to extend loans to them, apart from providing them with online
payment and settlement. Furthermore, there were more than 50 million
ethnic Chinese living outside China in 2012. Five of the top six countries are
in Asia. Thailand had over 9.3 million, Malaysia over 6.6 million, the USA
close to 5 million, Indonesia over 2.8 million, Singapore over 2.5 million,
and Myanmar over 1.6 million.8 Given their country’s unbreathable air,
more Chinese will study and live overseas. Coming with them is the internet
and e-commerce know-how embedded mainly by Alibaba.
NOTES
1. Alex Yao, Dough Anmuth and Binbin Ding (2016) “Alibaba Group Holding
Limited: Alibaba Investor Meetings Key Takeaways,” 15 September 2016, JP
Morgan, p. 1.
2. Ibid., p. 1.
3. Ibid., p. 1.
4. Anmol Sachdeva (2017) “Alibaba leads $2.6 billion bid to privatize Chinese
Department Store Chain Intime Retail,” 10 January 2017, http://thetechpo
rtal.com/2017/01/10/alibaba-intime-retail-bid-privatisation/.
5. Trefis Team (2016) “Here’s Why Alibaba Is Investing In A Physical Super-
market,” 23 Nov 2016, http://www.forbes.com/sites/greatspeculations/
2016/11/23/heres-why-alibaba-is-investing-in-a-physical-supermarket/#3f
09ae9c4a64.
6. 1PL ¼ manufacturing, retailing, 2PL ¼ transportation, 3PL¼ logistics and
4 PL ¼ supply chain management. See more discussion at http://cerasis.com
/2013/08/08/3pl-vs-4pl/ (accessed on 10 Jan 2017).
7. World Bank. (2016) “World Development Report 2016: Digital Dividends,”
Washington,DC: World Bank. doi:10.1596/978-1-4648-0671-1. License:
Creative Commons Attribution CC BY 3.0 IGO, Box 0.2, p. 10, http://
documents.worldbank.org/curated/en/896971468194972881/pdf/102725-
PUB-Replacement-PUBLIC.pdf
8. https://www.cia.gov/library/publications/the-world-factbook/geos/th.html
(accessed 10 Jan 2017).
References
Sachdeva, Anmol. 2017. Alibaba Leads $2.6 Billion Bid to Privatize

Chinese Department Store Chain Intime Retail, 10 January 2017,
http://thetechportal.com/2017/01/10/alibaba-intime-retail-bid-
privatisation/
Team, Trefis. 2016. Here’s Why Alibaba Is Investing in a Physical
Supermarket, 23 November 2016, http://www.forbes.com/sites/
greatspeculations/2016/11/23/heres-why-alibaba-is-investing-in-a
-physical-supermarket/#3f09ae9c4a64
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pdf
CASE STUDY 8.2: JAPAN’S HENN-NA HOTEL: THE WORLD’S. . . 299
Yao, Alex, Dough Anmuth, and Binbin Ding. 2016. Alibaba Group
Holding Limited: Alibaba Investor Meetings Key Takeaways. JP Mor-
gan, 15 September 2016, 13 pages.
CASE STUDY 8.2: JAPAN’S HENN-NA HOTEL: THE WORLD’S FIRST

ROBOT-STAFFED HOTEL
By Pongsak Hoontrakul
Henn-na Hotel means “Weird Hotel” in Japanese, and it lives up to its
name. Three robot receptionists greet guests and process check-in and
check-out. A scary-looking dinosaur with a bowtie speaks English. A
humanoid named Yumeko – “Dream Girl” – speaks Japanese. A small
android assists in Japanese. A robot porter carries your luggage to your
room, though very slowly. If you want to store your luggage, the robot
cloak room has a giant mechanical arm that will take your bags and
retrieve them.
This hotel without a minimal human touch, the first in the world, is part
of the Huis Ten Bosch, a 380-acre amusement park in Sasebo, Nagasaki
Prefecture. The hotel says it aims for “excitement with comfort.” The
complex of 140-room, low-rise buildings is designed with state-of-the-art
technology and an environmentally friendly concept.
Huis Ten Bosch means “House in Woods,” and the hotel’s interior is
filled with special cross-laminated timber. Its decoration is chic, modern,
and Muji store-like. No key is needed; facial recognition is used to open
your room. Inside your room, Churi-chan, a small cartoon-like android,
greets you and waits for your queries and instructions. To eat at the hotel,
vending machines offer a variety of Western and Japanese food including
hot dogs, nigari rice balls, soda, and sweets. A real restaurant, Health
Restaurant AURA, is a 5-minute walk from the hotel.
The hotel uses an advanced temperature control technology that draws
your body heat away when it is hot and preserves your body heat when it is
cold. This radiant-type heating and cooling system is more energy efficient
than regular air conditioning. The hotel also has solar panels and a clean
hydrogen energy system.
Huis Ten Bosch’s president, Hideo Sawada, compares the hotel’s con-
cept to a low-cost airline but it is actually not that cheap. Rooms average
$80 per night during normal periods; during the high season, rooms are
auctioned off to the higher bidders. So while Japan has one of the most
advanced robotics industries in the world, it still has some ways to go to
reduce the costs of initial setup and robots so that the prices for a place like
Henn-na Hotel could match its high efficiency. In any case, behind the
screen, Henn-na Hotel still needs human employees – to monitor the
closed-circuit security TVs and to clean the rooms and make the beds.
The robotics industry is booming in Japan as the population ages,
creating a shortage of labor. Many firms are adopting robotics solutions.
In 2015, the Bank of Tokyo-Mitsubishi’s branch in the Japanese capital
installed a humanoid robot at its reception. Tokyo’s Museum of Emerging
Science and Innovation uses robots as tour guides for visitors.
Sawada’s plans include having his humanoids speak English with differ-
ent accents and a robot for room service. If his experiment succeeds, he
plans to roll out hundreds of these “weird hotels” in Japan and overseas.
NOTES
1. Sachin Mittal and James Lloyd (2016) “The Rise of FinTech in China:
Redefining Financial Services,” DBS and EY, November 2016, pp. 12–22,
http://www.ey.com/Publication/vwLUAssets/ey-the-rise-of-fintech-in-
china/$FILE/ey-the-rise-of-fintech-in-china.pdf
2. Simona Jankowski et al. (2016) “5G: How 100x faster wireless can shape
the future,” Goldman Sachs, 18 April 2016, pp. 1, 5 and 21–25.
3. http://www.temasek.com.sg/Documents/userfiles/files/e-conomy%20SEA.
pdf (accessed on 18 January 2017).
4. Arya Sen, Abhijit Attavar and Ranjeet Jaiswal (2016) “Internet: E-Commerce
in ASEAN – Taking Off,” Jefferies, 21 April 2016, p. 9, https://www.jefferies.
com/CMSFiles/Jefferies.com/files/Insights/EcommerceinASEAN.pdf
5. Chien Yen Goh, Geraldine Tan and Martin Tacchi (2015) “E-commerce in
Asia: Bracing for Digital Disruption,” DBS Asian Insight, October 2015,
Diagram 1 on p. 6, https://www.dbsinsights.com/wp-content/uploads/
2016/07/151103_insights_e_commerce_in_asia_bracing_for_digital_
disruption.pdf and Arya Sen et al. (2016), pp. 1, 6–7.
6. Credit Suisse (2015d) “China A-Strategy: China New Economy Activity
Index (NEAI),” 2 December 2015, p. 1, https://doc.research-and-analytic
s.csfb.com/docView?language¼ENG&source¼ulg&format¼PDF&doc
ument_id¼1055841541&serialid¼0w9KbOpC6p8kaB4GPn3KdIhXEs6BB
O8cDqXLrmSqGH4%3D
7. Naveen Menon, Soon Ghee Chua and Nikolai Dobberstein (2016) “The
ASEAN Digital Revolution,” February 2016, Figures 1 and 2, https://
www.atkearney.com/innovation/asean-innovation/asean-digital-revolution
/ full-report/-/asset_publisher/VHe1Q1yQRpCb/content/the-asean-digi
tal-revolution/10192 (Accessed on 11 January 2017).
NOTES 301
8. Adam Minter (2017) “WeChat’s App Revolution,” 18 Jan 2017, https://

www.bloomberg.com/view/articles/2017-01-19/wechat-s-app-revolution
9. http://www.businessinsider.com/wechat-breaks-700-million-monthly-
active-users-2016-4
10. Haruka Mori, Stanley Yang and Ying Tan (2017) “LINE: Model Update,”
JP Morgan, 10 January 2017, Figs 3 and 4 on pp. 3 and 4.
11. Hana Ben-Shabat et al. (2016) “The 2016 Global Retail Development
Index: Global Retail Expansion at a Crossroads,” ATKearney, Fig 1 on
p. 2, https://www.atkearney.com/documents/10192/8226719/Global
+Retail+Expansion+at+a+Crossroads%E2%80%932016+GRDI.pdf/dc84
5ffc-fe28-4623-bdd4-b36f3a443787
12. Menon, Chua and Dobberstein (2016), Figure 2 on 4.
13. Credit Suisse (Oct 2016c) “Ecosystem of Innovation and Technology in
China,” 26 October 2016, Fig 44 on pp. 32–33, https://plus.credit-suisse.
com/researchplus/ravDocView?docid¼V6dZS41AF-WElY95
14. Tom Birtwhistle (2016) “The Rise of China’s silicon dragon,” PWC, June
2016, Fig 3 on p. 4, http://www.pwc.com/id/en/Consulting/Asset/
Consulting%20Publication/rise-of-china-silicon-dragon-apr-2016.pdf
15. Ibid., Fig 1 on p. 3.
16. Arjun Kharpal (2016) “Taxi app rival Didi Chuxing to buy Uber’s China
business in $35 billion deal,” 1 Aug 2016, http://www.cnbc.com
/2016/08/01/chinas-didi-chuxing-to-acquire-ubers-chinese-operations-
wsj.html
17. Birtwhistle (2016), Fig 1 on p. 3.
18. Kharpal (2016).
19. Credit Suisse (Oct 2016c) “Ecosystem of Innovation and Technology,”
Fig 50 on p. 37.
20. Ibid., Fig 50 on p. 37.
21. Ibid.
22. Ibid., pp. 10–11.
23. Ibid.
24. Ibid., p. 1.
25. Minter (2017).
26. Credit Suisse (Oct 2016c) “Ecosystem of Innovation and Technology,”
Figs 34 and 35 on p. 25.
27. Ibid., Fig 36 on p. 25.
28. Alex Yao et al. (2016) “Nothing but Net – 2017 Global Themes & Best
Idea – China Section,” JP Morgan, presentation 15 December 2016, p. 31.
29. Ibid., p. 32.
30. Ibid., p. 33.
31. Emma Lee (2017b) “Post-90s are becoming pillar of China’s rising global
shopping force,” 13 January 2017, http://technode.com/2017/01/13/
post-90s-are-becoming-pillar-of-chinas-rising-global-shopping-force/
32. Credit Suisse (2015b) “India Internet Primer #2: Ten Lessons from
China,” 5 August 2015, p. 1, https://doc.research-and-analytics.csfb.
com/docView?sourceid¼em&document_id¼x649381&serialid¼Ll0f7s
WFVpMsRkKmM3k2NNJMY7cYat6H%2fWmuCb%2fb%2bKo%3d
33. Credit Suisse (2017) “India Internet Sector: E-commerce 2.0,” 12 January
2017, p. 1, https://doc.research-and-analytics.csfb.com/docView?lang
uage¼ENG&format¼PDF&sourceid¼emblast&document_id¼x746269
&serialid¼0rWPXaIoG7yfvuEswYrDq9W5oD8nJI8V5hS07BYU7VI%3d
34. Ibid.
35. Ibid., Figure 13 on p. 6.
36. Ibid., p. 27.
40. Ibid.
41. Nivedita Bhattacharjee (2016) “India’s biggest funding stories of 2016,”
28 December 2016, https://www.techinasia.com/top-10-funding-deals-
india (Accessed on 20 January 2017).
42. Credit Suisse (2017) “India Internet Sector,” p. 22.
43. Sachin Salgaonkar et al. (2015) “India E-com: Clash of the titans to tap US
$200bn GMV by 2025E,” 11 May 2015, Bank of America Merrill Lynch,
p. 1.
44. Credit Suisse (2017) “India Internet Sector,” p. 28.
45. Credit Suisse (2015b) “India Internet Primer #2,” p. 11.
46. Rahul Chadha (2017) “Young Adults in India Use Smartphones for Shop-
ping, Natch,” 18 January 2017, https://www.emarketer.com/Article/
Young-Adults-India-Use-Smartphones-Shopping-Natch/1015060?ecid
¼NL1007
47. Google and Temasek (2016) “e-conomy SEA: Unlocking the $200 billion
digital opportunity in Southeast Asia,” presentation, p. 3, https://docs.
google.com/presentation/d/1Bp4KT-W8RF4ZorPUthts8X-B7QHBh
sEnY1T5G7XifU0/pub?start¼true&loop¼false&delayms¼3000&slide
¼id.p; Rajan Anandan et al. (2016) “e-conomy SEA: Unlocking the
$200B Digital Opportunity,” 27 May 2016, http://apac.thinkwi
thgoogle.com/research-studies/e-conomy-sea-unlocking-200b-digital-
opportunity.html
48. Google and Temasek (2016) p. 3.
49. Ibid., p. 11 and Adrian Vanzyl (2016) “Overview of e-commerce in
Southeast Asia,” 2 August 2016, slide 7, http://aseanup.com/overview-
of-e-commerce-in-southeast-asia/
50. Google and Temasek (2016), p. 11.
51. Ibid., p. 11.
NOTES 303
52. Ibid., p. 7.
53. Ibid.
54. Ibid.
55. First-hand goods are the sale of new merchandise via online store, market-
place, and social media. The second-hand goods are the re-sale of used
products through exchange, marketplace, or social media. Google and
Temasek (2016), pp. 3 and 10.
56. Ibid., pp. 3–4.
57. Ibid., pp. 3–4 and 19.
58. Sen, Attavar and Jaiswal (2016), Exhibit 37 on p 15.
59. http://www.temasek.com.sg/Documents/userfiles/files/e-conomy%
20SEA.pdf
60. Sen, Attavar and Jaiswal (2016), Exhibit 30 on p. 13.
61. Ibid., Exhibit 31 p. 13.
62. Ibid., Exhibits 29 and 31 on pp. 13–14.
63. Geir Olsen et al. (2015) “Lifting the Barriers to E-Commerce in ASEAN,”
ATKearney and CARI, Figure 17 on p. 19, https://www.atkearney.com/
documents/10192/5540871/Lifting+the+Barriers+to+E-Commerce+in
+ASEAN.pdf/d977df60-3a86-42a6-8d19-1efd92010d52
64. Google and Temasek (2016), p. 32.
65. Ibid., p. 29.
66. Ibid., p. 24.
67. Ronit Ghose et al. (2016) “Digital Disruption: How FinTech is Forcing
Banking to a Tipping Point,” Citi GPS, March 2016, p. 3, https://ir.citi.
com/WTkglgFuF4DXh/xvh5yYARpBerjC3iQa6XodBJh/wkh2nlEw2Um
Uy3Yj+EQ87SP8OOKB54BnK8o¼
68. Ibid., pp. 8 and 56–57.
69. Ronit Ghose et al. (2017) “Digital Disruption – Revisited: What FinTech
VC Investment Tell us About a Changing Industry,” January 2017, Citi
GPS, Figure 3 on p. 8 and Figure 8 on p. 9, https://ir.citi.com/
Q6xrH71vl%2FPeuzNStK%2BxsCCZEDwAGvk%2BgeP3gvy%2BAprPd
3zT90nMSfo9eMFVKcY0QsY3UTLXY7Y%3D
70. Mittal and Lloyd (2016), p. 7.
71. Ghose et al. (2016), Figures 31 and 32 on p. 31.
72. Ghose et al. (2017), p. 10 and Figure 13 on p. 13.
73. Ghose et al. (2016), p. 32.
74. Ibid., p. 56.
75. More discussion by Lufax.com’s white paper, http://blog.lendit.com/wp-
content/uploads/2015/04/Lufax-white-paper-Chinese-P2P-Market.pdf
(accessed on 21 January 2017).
76. Ghose et al. (2016), Figure 77 on p. 58 and p. 60.
77. Ibid., Figure 79–82, p. 59.

78. Ibid., Figure 23 pp. 74–75.
79. See Shinichi Ina, Sumito Takeda, and Mistufumi Hoson (2016) “Fintech
and Japan’s Banks: UBS Evidence Lab: Disruptors at the gate?,” UBS,
5 September 2016, 30 pages.
80. See the interview of Greg Baxter, the Global Head of Digital Strategy at
Citi, in Ghose et al. (2016), pp. 23–26.
81. See more discussion by Huw Van Steenis et al. (2016) “Global Insight:
Blockchain in Banking: Disruptive Threat or Tool?” Morgan Stanley 31 pages,
http://www.the-blockchain.com/docs/Morgan-Stanley-blockchain-re
port.pdf
82. Alex Batlin et al. (2016) ‘How the Blockchain could transform finance
(and the world), UBS white paper, 19 May 2016, 48 pages, https://www.
ubs.com/microsites/blockchain-report/en/home.html (accessed on
20 January 2017).
83. Credit Suisse (2016b), “Blockchain.” 135 pages.
84. The survey was conducted among 800 participants at World Economic
Forum in September 2015. More details at Ibid., pp. 50–53.
86. http://www.reuters.com/article/idUSFWN1AF1DH published on
1 August 2016, http://www.timesofmalta.com/articles/view/20160802/
business-news/Didi-Uber-to-merge-in-China-in-35bn-deal.620758
re-published on 2 August 2016 and accessed on 20 January 2017.
88. This value creation may not be officially counted as part of the GDP
because the sharing economy is outside the scope of GDP measures rooted
in the old industrialization era. See more discussion by Credit Suisse
(2015c) “The sharing economy: New opportunities, new questions,”
p. 14, http://www.oxfordmartin.ox.ac.uk/downloads/GI_215_e_Ge
samtPDF_01_high.pdf
89. Credit Suisse (2015a) “Global Equity Themes: The Sharing Economy,”
18 September 2015, figure 25–26 on p. 13, figure 27 on p. 14, https://pl
us.credit-suisse.com/r/4mweXq
90. Ibid., figure 27 on p. 14.
91. Nick Lai et al. (2017) “Asia Autos 2017,” JP Morgan, presentation,
18 January 2017, p. 11.
92. World Bank (2016) “World Development Report 2016: Digital Divi-
dends,” Washington, DC: World Bank. doi:10.1596/978-1-4648-
0671-1. License: Creative Commons Attribution CC BY 3.0 IGO,
NOTES 305
p. 110, http://documents.worldbank.org/curated/en/89697146819
4972881/pdf/102725-PUB-Replacement-PUBLIC.pdf
93. Ibid., p. 110.
94. See more list and discussion by Credit Suisse (2015c) “The Sharing Econ-
omy: New opportunities, new questions,” pp. 15 and 29.
95. Helena Pike (2016) “Will the “Sharing Economy” Work For Fashion?”
8 May 2016, https://www.businessoffashion.com/articles/fashion-tech/
will-the-sharing-economy-work-for-fashion-rent-the-runway-rental
96. World Bank (2016), Box S1.1 on p. 45, Figure 1.1 on p. 51 and pp. 50–52.
97. Ibid., Figure 1.9 on p. 65.
98. James R Sullivan et al. (2016) “On the Nationalization of Networks: Part
Two”, JP Morgan, 12 April 2016, Figure 1 on p. 6 and p. 11.
99. Ibid., Figure 2 on p. 6 and p. 12.
100. This is extraction from Hoontrakul et al. (2014), pp. 108–113.
101. Jankowski et al. (2016), pp. 23–25.
102. World Bank (2016), p. 326.
103. Sullivan, James and Utkarsh Mehrotra (2016), p. 1 and Figures 14 and
15 on p. 11.
104. Ibid.
105. Sullivan et al. (2017), pp. 1 and 6–8.
106. Sullivan et al. (2016), Figure 42, p. 23.
107. Credit Suisse (2016a) “Asia Telecom Sector: Data use per subscriber:
Another dimension for growth,” 3 May 2016, Figure 41 on p. 24,
https://plus.credit-suisse.com/researchplus/ravDocView?docid¼NP
MuL1AF-WElY95
109. See Sullivan et al. (2016) “On the Nationalization of Networks: Part Two,”
JP Morgan, 12 April 2016, 107 pages and DalivorVavruska (201) “The
Re-Birth of The Telecom Monopoly,” Citi GPS, November 2014,
132 pages.
110. Technically, telecom (and more precisely internet) can be viewed as a club
good with positive externalities. For all the practical purpose of this book, it
is public goods. See more discussion by World Bank (2016) on Box 4.2
p. 204 and Sullivan et al. (2016), pp. 23–24.
111. World Bank (2016), Spotlight 6, pp. 326–330.
112. Industry 1.0 ¼ mechanization, stream engine; Industry 2.0 ¼ electricity,
mass production and assembly lines; Industry 3.0 ¼ computers and auto-
mation and Industry 4.0 ¼ cyber-physical systems.
113. A proprietary survey was conducted among system integrators (Sis) for
smart factor related deliver. About 315 responses, mostly from N America
were received. More details at Stephen C. Tusa et al. (2016) “Automation
Industry: JP Morgan/CSIA System Integrator Survey – Some Stabilization
in Overall Demand Trends; IoT Adoption Remain Slow,” JP Morgan,

17 October 2016, p. 1.
114. Harold L Sirkin, Michael Zinser and Justin Ryan Rose (2015) “The
Robotics Revolution: the Next Great Leap in Manufacturing,” Boston
Consulting Group, September 2015, p. 4, https://www.automation
smaland.se/dokument/BCG_The_Robotics_Revolution_Sep_2015.pdf
115. Ibid., exhibit 7–8 on p. 17 and p. 18.
116. Ibid., p. 20.
117. Junko Nirmala (2015) “Service Robots are Thriving in Japan,” 20 August
2015, http://www.roboticstomorrow.com/article/2015/08/service-
robots-are-thriving-in-japan/6598
118. Ibid.
119. Ibid.
120. Frank Tone (2015) “194 Chinese Robot Companies,” 25 August 2015,
http://www.roboticstomorrow.com/article/2015/08/194-chinese-robo
t-companies/6637
121. Credit Suisse (2015e) “China Industrial Automation Sector: Be selective
amid a ‘world factory’ upgrade,” 17 Aug 2015, pp. 1–3, https://doc.resea
rch-and-analytics.csfb.com/docView?sourceid¼em&document_id¼x651
606&serialid¼rK9RnvVoL7Ymqz%2fdAOhzSwew0Oh2dYgSw2Ql8xLJ
IgM%3d
122. Ibid.
123. http://www.meti.go.jp/english/press/2015/pdf/0123_01b.pdf (2015)
accessed on 26 Jan 2017.
124. http://www.ait.ac.th/news-and-events/2016/news/1thailand-4.0-engli
sh-dr.-suvit.pdf accessed on 26 Jan 2017.
125. Sirkin, Zinser and Rose (2015), exhibit 7–8 on p. 17 and p 18.
126. Ibid., p. 19.
127. Jae-Hee Chang, Gary Rynhart and Phu Huynh (2016) “ASEAN IN
TRANSFORMATION: How Technology is changing jobs and enter-
prise,” ILO.org, July 2016, pp. 40–44, http://www.ilo.org/public/
english/dialogue/actemp/downloads/publications/2016/asean_in_tran
sf_2016_r1_techn.pdf
128. Dani Rodrik (2015) “Premature Deindustrialization,” School of Social
Science, Institute of Advance Study, January 2015, https://www.sss.ias.
edu/files/papers/econpaper107.pdf
129. Narayanan et al. (2016), pp. 39–40.
130. Sirkin, Zinser and Rose (2015), p. 10.
131. Wilkie, p. 49.
132. Martin Wilkie, KlasBergelind, Ji Cheong and Sameer S Thakur (2016a)
“Warehouse Automation: If you come to a fork in the road, take it,” Citi,
7 September 2016, pp. 13–14.
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134. Nirmala (2015)
135. Frost & Sullivan (2015), pp. 14–16.
136. http://public.tableau.com/profile/mckinsey.analytics#!/vizhome/Inte
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137. Jason Lim (2016) “The 11 Best Coworking Spaces In Asia,” 31 July 2016,
http://www.forbes.com/sites/jlim/2016/07/31/asias-best-co-working
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138. CBRE (2016) “Asia Pacific Millennials: Shaping the Future of Real
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139. This is extracted from Tim Leckie et al. (2016a), “European Property:
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CHAPTER 8

Asia’s Digital Economy

© The Author(s) 2018 269

THE DIGITAL ECONOMY VALUE CHAIN

ONLINE SERVICES LESSONS FROM CHINA

become the world’s innovative disruptor.23 After economic liftoff in the

In the country’s post-LTP maturing of industrialization era, BAT can

INDIA AT A TIPPING POINT

ASEAN’S INTERNET ECONOMY TAKING OFF

E-commerce, Online Travel, and Online Media

dominated search, social networks, and messaging. Key indigenous startups

Barriers to ASEAN’s Full Potential

Fifth, regulatory hurdles across ASEAN have to be addressed in order to

THE RISE OF FINTECH

Like Elsewhere in Asia, Inadequate Traditional Banks

THE SHARING ECONOMY

streamline excess in business processes and capitalize on unused assets and

Drivers of the Sharing Economy

WIRELESS DATA, TELECOM, AND THE DIGITAL ECONOMY

(c) The factory of the future: data and software linkage

Fixed-line broadband can supplement high-speed cellular, especially in

2005–2014.106 China has comprehensively intervened on both the supply

Digital Technology to Watch: IoT, Automation, and Robotics

Asia’s national robotics policies include Japan’s New Robot Strategy,123

BUSINESS IMPLICATIONS FOR REAL ESTATE

on-demand manner. The demand for an ofﬁce is shifting in favor of shorter

THE OLD AND THE NEW ECONOMIES

CASE STUDY 8.1: ALIBABA AND ITS DREAM TO DOMINATE ASIA’S

Third, avoiding confrontation with Amazon in India, Alibaba plans to

Sachdeva, Anmol. 2017. Alibaba Leads $2.6 Billion Bid to Privatize

CASE STUDY 8.2: JAPAN’S HENN-NA HOTEL: THE WORLD’S FIRST

8. Adam Minter (2017) “WeChat’s App Revolution,” 18 Jan 2017, https://

77. Ibid., Figure 79–82, p. 59.

in Overall Demand Trends; IoT Adoption Remain Slow,” JP Morgan,

133. Martin Wilkie, KlasBergelind, Ji Cheong and Sameer S Thakur (2016b),

World Bank. 2016. World Development Report 2016: Digital Dividends.

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