ASEAN IT Sector Surpasses India in Investment Attractiveness

KUALA LUMPUR, 15 April 2008 – IDC today announced a key insight into the collective markets of six (6) ASEAN countries that showed a 43 percent larger IT spend than India in 2007 - making ASEAN more attractive in terms of investment opportunities to multinational ICT vendors.

The total IT spending for the six ASEAN countries, which consists of Malaysia, Indonesia, Thailand, Singapore, Vietnam and Philippines combined was USD25.1 Billion, compared to USD17.5 Billion in India.

According to Managing Director Selinna Chin, “It has been a widely held notion that India has greater IT investment potential. But, a closer look at IDC's data shows that the ASEAN domestic IT consumption is collectively bigger which means that ASEAN could be a better bet in terms of attractiveness for global IT players,” says Selinna.

In 2006, the GDP of the six ASEAN markets in question amounted to USD1.03 Trillion, as compared to India’s USD906.27 Billion (Source: World Bank, 2007).

“ASEAN will continue to be a bigger IT market up to 2011, after which India's domestic IT spending is expected to overtake it. This is especially so given India's 20 per cent IT market growth estimate for next year, compared to ASEAN’s 6 per cent,” says Selinna.

A key factor for India’s high IT growth opportunity is that a significant number of global IT companies are investing in India for IT exports, and that many local Indian IT companies have gone global themselves.

“In order to remain competitive and attractive to MNC IT players/vendors beyond 2011, ASEAN's domestic businesses and local governments will need to be more aggressive in IT adoption,” Selinna adds.

CHINA STILL LEADS

IDC reiterates that China still holds the biggest IT investment attraction with a domestic IT expenditure of USD57.3 Billion in Asia/Pacific excluding Japan (APEJ). This is more than double ASEAN’s IT spending size and represents 36 percent of the APEJ IT spending in 2007. China’s IT market is forecasted to grow 12 percent in 2008 over the current year.

SUBPRIME, SLOWDOWN

According to IDC, the US subprime and other economic issues pose a direct impact on the growth of ASEAN IT markets.

In a worst case scenario developed by IDC, US worsening economic issues will cause a “technical recession” in the US - defined as consecutive quarters of negative GDP growth, where US consumption will weaken further and detrimentally affect the IT markets in ASEAN.

“The ASEAN region’s IT market growth rhythm could slow to a mere 2 per cent in 2008, which is equivalent to a potential loss of market opportunity worth USD680 million, and USD1 billion in 2009,” says Selinna.

“The higher the country’s trade dependency is on the US, the greater the negative impact, although in some cases like China, significant domestic demands will offset some of the decline,” says Selinna.

These Asian countries, ranked in order of export business to the US, are Japan, Vietnam, China, Malaysia (4th in rank), the Philippines, India, Taiwan, Hong Kong, Thailand, Korea, New Zealand, Indonesia, Singapore and Australia.

Buffering the impact of the slowdown on Asia’s IT markets will be a challenge, due to the considerable reliance of Asian exports to the US, and more stringent credit policies as local banks become more risk adverse.

“However, in most slowdowns, leading companies tend to invest in IT for the next cycle of growth. Companies who lag behind those with the foresight will find themselves about nine (9) months behind,” adds Selinna.

IDC ASEAN DIRECTIONS 2008 - 29th April 2008

Amongst others, IDC will be providing insights into the impact of the US economic-subprime woes during the IDC ASEAN Directions 2008, which will be held on 29th April 2008. Details about the event can be found on http://www.idc.com.my/directions08/default.asp.

For Malaysia:
- The government is expected to cushion any negative impact with a series of different ICT related initiatives.
- The promotion of Malaysia as a potential shared services hub would likely help to drive business investments and services exports

For Thailand:
- As US is Thailand’s largest export market, weakening demand would impact the export sector marginally. However the incoming government is likely to run a stimulatory fiscal policy to boost spending on IT infrastructure development projects.
- Business investments are projected to return with strong growth rates as a result of investment pull back in the last 15 months.

For Indonesia:
- Indonesia’s recent spike in inflation will continue to shrink disposable income levels, which will lead to IT spend reduction among consumers.
- The optimal balance between the government’s subsidized fuel policy and generation of more export money will have strong impact on available funds for IT infrastructure expenditure.

For Philippines:
- Like Thailand, the US is the largest export market for the Philippines, so the US downturn will impact export businesses and manufacturers, and hamper IT investments.
- Strong remittance levels will continue to support real disposable income, driving domestic IT demand.