Asia behind U.S. in e-commerce

Asia behind U.S. in e-commerce

HONG KONG (Dow Jones): In light of the recent plunge in technology stocks, Goldman Sachs analyst Rajeev Gupta highlighted some of the challenges facing Asia's Internet companies.

Due to the conservative spending habits of most Asian consumers, he says, electronic-commerce is unlikely to ever be as profitable a business as it is in the U.S.

As such, as the initial excitement over Asian Internet stocks has largely worn off, he believes that Asian stocks will lag behind their U.S. counterparts.

"This is not yet reflected in the multiples (of many Asian stocks)," said Gupta. "But I think that the great Asian premium will very quickly become the great Asian discount."

While the number of Internet users in Asia will eventually be huge, the value of those customers will be far lower than their U.S. counterparts, he said.

Becoming Pan-Asian Players Key To Success

According to Goldman Sachs, the average Asian Internet user will spend an estimated US$205 per year on online commerce by 2002, compared with US$951 in the US.

"People here do not have the propensity to spend in the real world," said Gupta. "Why would they spend more in the Internet world?"

Advertising will also be less profitable business in Asia. Goldman Sachs estimates that by 2001, US$18 in advertising will be spent per Internet user in Japan, compared with US$48 in the U.S. In Hong Kong, the figure will be US$12, US$9 in Australia, US$7 in Taiwan, US$5 in Singapore and US$3.5 in South Korea.

As a result, the key to success in Asia will be the ability to break out of the relatively small national markets and become pan-Asian players. He said the companies that can do so will achieve economies of scale and crowd out smaller competitors.

In this respect, he praised Ecorp Ltd., Chinadotcom Corp. and Pacific Century Cyberworks Ltd. for their strategy of targeting Asia as a whole.