Asia Free Zones and Tech Cities: Game of Thrones!

Extract from View From Asia, fDi magazine, Financial Times, London, Sep 2019

OECD states that free zones are an industrial policy tool to boost technological skills, create jobs, attract inward investment and increase exports.

Free trade zones, located near seaports or airports, offer exemptions from national import and export duties on goods that are re-exported. Local services gain little value added to the goods traded. Export processing zones focus on exports with a significant value added, rather than only on re-exports. Special economic zones are multisectoral and focus on both domestic and foreign markets. Industrial zones target specific economic or sector activities with infrastructure adapted accordingly. Asia, host to three quarters of all SEZs globally, has 4046 SEZs (top 3 are China, Philippines and India) with 371 under development and another 419 being planned.

However, results in institution building and reform have been mixed. Many are underutilised like enclaves . Not all zone development programmes are sustainable. Fiscal incentives may still be ineffective especially in an asset-light international production landscape. Unfair competition may be fostered and specialised zone programmes exclude other sectors, industries or global value chain (GVC) activities.

In Asia, there is a concurrent development of both traditional sectors in free zones and smart city development with high tech SEZ and science parks. These smart cities are touted like weaponised dragons in Game of Thrones! Overall, most of Asia’s ICT industry maturity especially in digital transformation is still in the developing stage except for a few developed countries.

Ultimate key objective is to benefit most people living in the country but huge challenges remain. Some segments will be left behind (hinterland cities, sectors excluded in either free zones or smart cities, unskilled/non tech workers, ageing population). Also, communication and network service providers technology support do not always meet the needs of both businesses and citizens. Standardisation of integration amidst Asia’s multiple languages and digital economy use preferences may never be achieved.

Still, it is critical for city and urban planners with ground execution experience to keep updating their strategic planning and obtaining feedback from the ground to monitor what works on the execution side. Amid continuous change, ambiguity, disruptions and White Walker threats, planning and development is ever-evolving. The economic fate of citizens rests largely on the minds of a few central industrial planners and private sector management leading such developments. Welcome to the modern Game of Thrones, where cities are competing to be the Seven Kingdoms and take the Iron Throne of economic development!

Asia Recession: That Time Again…so what?

Extract from View From Asia, fDi magazine, Financial Times, London, Aug 2019

Economic and business cycles are a way of life for governments and businesses to manage and surf on a best effort basis amidst continuous ambiguity, blocks, complications and disruptions (ABCDs). Since I started writing for this column back in May 2005, I’ve lost count of the bearish economic outlooks as well as bullish recoveries.

Even the Big One in 2008 came, hit, went and many businesses reinvented themselves and progressed after some painful adjustments. If one fears headwinds and only ride tailwinds, then piloting a business is a wrong career move.

One should not be unduly worried as we read some media articles, academic scholar or Dr Doom prattling over fearful headwinds of recessions and some writer espousing how he/she pretends to know the mythical universal magic bullet solution.

A prolong global recession should be the only major source of concern when business flows simply evaporate. Then, the only option is to drastically cut arms and limbs to allow the business head to survive and tide out the years of ravage since in those times, government aid programmes cannot sustain supporting all businesses to survive, and probably only support bigger companies which employ more workers. SMEs’ best option is to grow prudently and remain frugal in their investment during their bullish years and save for the bearish ones.

A upbeat tailwind reminder: Asia’s economy comprises more than 4.5 billion people, has 60% of the world population living in 49 different nations and opportunities and hot spots are always present.

Government trade officers should continue studying these constantly evolving opportunities and hot spots on different levels (country, industry, cluster, tier 1 to 3 city level, etc), review what policies and programmes need adjustment and then actively communicate and reach out to support their local businesses.

Businesses executives are increasingly hiring more in-house Strategy Directors to keep monitoring of the changing ABCDs, government policies and regulations, competitor moves and customer tastes and preferences in order to quickly advise their senior management on business impact analysis and recommend optimum moves. Digitisation transformation will help many companies although impact and speed will vary. Most important is to keep your KYC (Know Your Customer) profiling current and improve product and service offerings to maintain high NPS.

Recession? Don’t let it discourage you. Research constantly, maintain your strategic planning, keep upgrading organisational competencies and happy customers will always sustain your business in vast Asia goldmine of opportunities. Fighting!

Asia Tier 2 Cities: Red Storm Rising…

Extract from View From Asia, fDi magazine, Financial times, London, April 2019

World Bank states that East Asia and the Pacific is the world’s most rapidly urbanizing region, with an average annual urbanization rate of 3% . Also, it was estimated that by 2018, half of the region’s population will be urban – more than 1.2 billion people in all. However, the growth and development between cities is different. Different city tiering definitions exist, whether by GDP (US$68B to US$299B), population (3 to 15 million), or administrative hierarchy (prefecture or county level). Most common definition of a Tier 2 city is one whose population exceeds 1 million.

For China’s 613 cities, both Yicai Global magazine and SCMP listed 30 tier 2 cities. India has 26 tier 2 cities. Indonesia, Asia’s third largest populated country, has 7 cities over 1 million and another 7 cities over 2 million in population. In Japan with 47 prefectural governments (like county level), it has 13 cities with more than a million people.

The rapid income and middle class growth of Asian tier 2 cities is well known. Several drivers are causing this growth. Major driver is local government policies which offer stimulus packages and investment incentives and tax breaks to investors and entrepreneurs to lower operating costs, enhance the educational and research institutions, facilitate urbanisation by upgrading infrastructure in transport, energy, utilities, IT and housing, as well as attracting talent to foster innovation.

Some sectors expected to do well in Asian tier 2 cities include retail and commercial real estate, luxury, media, air and land transportation, logistics and manufacturing.

Together with opportunities, challenges exist in Asian tier 2 cities. Companies must be prepared to operate outside their familiar tier 1 ecosystem and infrastructure. They must be able to invest in basic infrastructure, logistics and training of their workforce in exchange to gain access to a growing consumer market, cheaper labour and real estate. In many tier 2 cities, pollution is high while intra city bus services and utilities remain very poorly developed.

Once such tier 2 cities speed up their development and connect with neighbouring tier 1 and 2 cities, the hinterland market attractiveness will improve significantly. For impatient companies eager to reap first mover advantages, now is the best time to perform strategic analysis and segment target markets carefully and develop specific go-to-market entry strategies. Why contemplate a blue ocean strategy when the rich red hinterland already beckons?

Asia Industry 4.0: All That Glitters…

Extract from View From Asia, fDi magazine, Financial Times, London, Mar 2019

Industrial revolutions now come with fancy buzzwords. Industry 1.0 was the age of mechanisation, 2.0 was mass production, 3.0 was computerisation with automation and now the evolving 4.0 is digitisation in manufacturing enhanced by smart systems, data and machine learning with a key feature being IoT and the Cloud. Much has been written and touted on the benefits, like a non-motorist walking into a sportscar showroom.

Currently, Asia Industry 4.0 theoretically sounds promising. Almost every IT vendor will sell Industry 4.0 without blinking an eye, hollering the arrival of the IT Holy Grail. It’s like a throwback to the 1990’s when early enterprise resource planning (ERP) suites burst onto the scene driven by the Y2K fear and Euro introduction. Blind implementation then wreaked havoc on decentralized smaller companies with different processes, business rules, data semantics, authorization hierarchies, and decision centers. The promised ROI did not surface but unneeded implementation badly impacted smaller companies who were often instructed by their parent company to ‘just do it’.

For larger centralised companies, they often are more suitable and ready to adopt or are already using Industry 4.0’s four new core technologies like advanced production methods, analytics, human-machine interaction as well as computation power with connectivity.

While Asia remains a manufacturing powerhouse, Industry 4.0 will never be relevant nor beneficial for every Asian company. Much depends on their ability to meet their customer needs without Industry 4.0, the cost-benefit analysis of investing in costly Industry 4.0, and whether any planned shift in this digital infrastructural space aligns with their vision, long-term strategy and core competencies.

There’s always the constant temptation to yield to úpgradenitis’ and new toys blindly. Be forewarned. Study your organisation’s production needs carefully with a detailed cost-benefit analysis, implement slowly on a limited area, monitor for a while, and if the promised benefits of productivity or cost savings don’t appear, be like the non-motorist who was persuaded by the car salesman: just return the luxury sportscar if not needed and cut your sunk costs while they remain small. Hard earned retained earnings can be eroded quickly by unnecessarily comprehensive solutions when less comprehensive and cheaper ones are adequate.

Changing technology infrastructure, platforms and fancy new tools do not drive a company’s vision nor competitive strategy. Potential versus pitfalls. Productivity versus pain. Needs versus wants. Be forewarned. Better be a prudent slow adopter than a fast adopter riding a robotic IoT white elephant!

Asia Renewable Energy: From Strength to Strength

Extract from View From Asia, fDi magazine, Financial Times, London, Jan 2019

Renewable energy (RE) is energy generated from natural resources that can be replenished. These include wind, solar, bioenergy, geothermal and hydropower.

Demand for energy is driven by Asia’s rising economies, urbanisation and concerns of environment (especially burning coal), supply security and price volatility, prompting Asian governments to focus on RE. Energy demand, projected to increase 50% by 2025 , is expected to grow by an average of 4.7% per year to 2035 according to IRENA (International Renewable Energy Agency). Growth in energy demand will be highest in the power sector, followed by industry, transport and buildings.

Power generation is projected to double by 2025 . Asia’s total RE capacity in 2017 was 917 322MW, accounting for about 42% of global RE installed capacity . Asia’s top 3 producers being China (618 675 MW), India (104 968 MW), and Japan (83 401 MW). A distant fourth RE producer was South Korea (9387 MW).

On the supply-side, fossil fuels, led by oil and natural gas, account for more than half of the region’s energy supply. Crude oil and its derivatives are mainly used as transport fuel. While the share of natural gas in the total primary energy supply (TPES) has risen much over the past two decades, the fastest growth has been registered by coal, especially with the commissioning of numerous coal-fired power plants since 2000. Natural gas contributed the largest share (41%) to the power generation mix in 2015, followed by coal (33%) and hydropower (16%).

One often overlooked sector is solar PV (photovoltaic) sector. Richard Wong, VP, cites a Frost & Sullivan report that this sector continues on a period of exceptional growth but the pace of growth is forecast to slow significantly over the next few years. The market is largely driven by cost reduction of solar modules. Economies of scale, technological advancement, and increasing automation in production are key forces behind the price reduction in solar modules. The agenda for renewable and clean energy sources pave the way for the development of solar power. Technological advances in battery storage solutions integrated with solar PV systems provide residential and commercial/industrial end-users with the opportunity to reduce peak periods, by delivering their stored power on-demand.

Forbes reported that China is set to become the world’s RE Superpower, with its leading position in RE output as well as in related technologies such as electric vehicles .

Will energy demand, growing 50% by 2025, be matched by adequate energy supply?

Asia Sustainable Development: 1/16 so far

Extract from View From Asia, fDi magazine, Financial Times, London, Oct 2018

UN defines Sustainable Development as development that meets the needs of the present without compromising the ability of future generations to meet their own needs .

With the 2015 adoption of the 2030 Agenda, UN Member States pledged to ensure “no one will be left behind” and to “endeavour to reach the furthest behind first” .

With Asia Pacific having 16 Sustainable Development Goals (SDGs) , progress remains slow. The region is on target to achieving only 1 SDG (quality education #4) by 2030.

Sufficient progress (green targets) for SDGs is made in achieving no poverty (1), good health and wellbeing (3), clean water and sanitation, (6) affordable and clean energy (7), as well as industry, innovation and infrastructure (9).

Insufficient progress (yellow targets) is in achieving sustainable cities and communities (11), gender equality (5) climate action (13), zero hunger (2), responsible consumption and production (12), life below water (14), decent work and economic growth (8) as well as life on land (15).

The region is regressing (red targets) in 2 SDGs: reducing inequalities (10) and peace, justice and strong institutions (16).

So, while the progress is slow, good news is that major business opportunities exist in 4 key areas .

In city development, opportunities are in providing affordable housing, energy efficiency, electric and hybrid vehicles, as well as vehicle and ride sharing.

In energy materials, opportunities are in recycling and remanufacturing of automotive, appliances and electronics industries, renewable energy, energy efficiency in non-energy intensive industries, energy access and energy storage.

In food and agriculture, opportunities are in reducing food waste in food chains, low income food markets, sustainable aquaculture, technology in smallholder farms, and reducing packaging waste.

In health and well-being, opportunities are in risk pooling, remote patient monitoring, telehealth and advanced genomics.

All these SDG opportunities could create 226 million jobs by 2030 in Asia, providing work for around 12% of Asia’s current labour force. City development is projected to contribute the biggest share at 99 million jobs, followed by energy and materials at 54 million jobs, food at 49 million jobs and health at 24 million jobs.

Murphy’s Law always applies in all visioning, planning, strategy development and programme execution, and Asia SDG planning is not exempted from challenges. Five such factors affect who is being left behind and why: discrimination; place of residence; socio-economic status; governance; and vulnerability to shocks, like growing protectionism.

2019 to 2030 will be a busy period indeed.

Asia Smart Cities: Developing Nicely

Extract from View From Asia, fDi magazine, Financial Times, London, Sep 2018

Many definitions exist on what a smart city is. It refers to an urban area that uses technology to increase its citizens’ quality of life and ease societal problems like urbanisation, pollution, inadequate housing and infrastructure. Cisco defines a smart city as one that uses digital technology to connect, protect, and enhance the lives of citizens. IoT sensors, video cameras, social media, and other inputs act as a nervous system, providing the city operator and citizens with constant feedback so they can make informed decisions.

Asia smart cities are rising. EasyPark Group’s 2017 Smart Cities Index listed Singapore at No. 2 and Tokyo at No 6. Taipei, Seoul and Daejeon, South Korea, Hong Kong, Beijing, Shanghai, Kuala Lumpur, New Delhi and Mumbai also made the list. IDC announced that New Zealand and Singapore lead the way in the most number of smart city initiatives in the 2017 Smart City Asia Pacific Awards (SCAPA).

Forbes wrote that Asia could become the world’s leading region for smart city development. China announced that 500 of its cities would be undergoing smart city transformations in 2017. In 2014, Singapore launched a landmark Smart Nation program. Frost & Sullivan estimated that there are about 10 cities that are expected to become smart cities by 2025 in Asia Pacific, of which more than 50% will be in China.

In SE Asia, ASEAN Smart Cities Network (ASCN) was developed. ASCN is a collaborative platform where ASEAN Member States work towards the common goal of smart and sustainable urban development using technology as an enabler to improve people’s lives. Singapore convened the first annual meeting in July 2018 alongside the World Cities Summit.

There are constraints and risks in smart city development, especially human factors. One is the population’s sub segments who are unable to fully understand and utilise the maximum potential of IoT. Asia’s growing ageing population and the poor are two such groups facing platforms and equipment that may not be user centric. Second are communication and network service providers’ investment in forming the right technological support to build smart cities that meet citizens’ needs. Third is the universality and standardisation of integration amidst Asia’s plethora of languages and IoT use preferences. A fourth factor is security and privacy issues.

Asia smart city development is now improving nicely. Let’s hope that the continuous monitoring, planning and execution help to address minor hiccups and avoid major problems.

Asia Fintech Outlook: Nascent but Fast Growing

Extract from View From Asia, fDi magazine, Financial Times, London, June 2018

Fintech (financial technology) is a new financial industry that applies technology to improve financial activities with key areas being the automation of insurance, trading, and risk management. Global investment in fintech increased more than 2,200% from US$930 million in 2008 to more than US$22 billion in 2015 .

Potential remains big. From the demand side across much of South-east Asia, the unmet need for basic banking services is significant. KPMG reported that only 27 per cent of the region’s 600 million inhabitants had a bank account in 2016 .

From the supply side, a new wave of startups is increasingly “disaggregating” global banks. Milken Institute’s Centre for Financial Markets reported that much of the venture capital in Asia has mostly flowed into China, particularly among a handful of large tech companies. Yet, other countries also are seeking to position themselves as fintech hubs. Straits Times reported that multimillion-dollar investments were reported last year in Hong Kong in “digital wallet operator” TNG FinTech Group, in India in online lending platform Capital Float and in South Korea’s second-largest cryptocurrency exchange, Korbit. In Indonesia, motorbike delivery and ride-sharing app Go-Jek’s acquisition of payment portals Kartuku and Midtrans, and savings and lending network Mapan, is poised to be a digital payments leader. in Singapore, “digital disruptors” Blocko, Spark Systems, AGDelta, Flywire and six other companies won awards for implementing innovative financial technology solutions.

PWC and Startupbootcamp reported that the top Asia fintech trends in 2017 were (1) Financial inclusion Institutions facilitating microfinance in Asia will continue to play a critical role in improving access to finance for the underbanked (2) Wealth management (more emerging technologies like chatbots, robo-advisors and IOT are being adopted by tech savvy Wealth Managers) (3) RegTech (expect a rise in both government regulatory and non-governmental compliance initiatives to automate low-risk background checks) (4) InsurTech (more Internet-First Insurers and digital insurance companies using sophisticated data models and analytics for risk and claims management and customer onboarding).

Challenges include aggressive enforcement of the Bank Secrecy Act and money transmission regulations, representing an ongoing threat to fintech companies. Customers’ expectations of businesses are also increasing greatly, expecting the same level of service and access from firms of all sizes, a seamless mobile experience from their financial services providers, being able to pay with a credit card at all shops and from their mobile phone anywhere.

Asia businesses that do not adopt the latest technologies risk losing their customers.

Asia Second Tier Cities: Half of Asia’s Urban Growth

Extract from View From Asia, fDi magazine, Financial Times, London, May 2018

There are various city classifications. World Bank defines city tiers in terms of population size. Tier 1 Metropolitan city has more than 1 million people. Tier 2 Large City has between 500,000 to 1 million people. Tier 3 Medium City has between 100,000 to 500,000 people. Tier 4 Small City has less than 100,000 people.

UNESCAP describes the rise of secondary emerging ASEAN cities and that urban growth in Asia Pacific will be this century’s most important demographic trend. Half of Asia Pacific’s urban population lives in cities with less than 1 million.

Tier 2, intermediate or midsized cities (less than 5 million) will account for the largest share of urban growth in the region’s developing countries. They include: China (1-10 million) having 135 tier 2 cities. e.g. coastal cities such as Hangzhou, Shantou, Xiamen, and Zhuhai, and inland cities such as Chengdu, Chongqing, Nanjing, Xian; India (1-5 million) with 40 tier 2 cities. e.g. Nagpur, Pimpri Pune and Visakhapatnam; Thailand tier 2 cities being Chiang Mai, Pattaya-Bangkok, and Chiang Rai GMR; Malaysia’s tier 2 regional cities and urban corridors including Klang Valley, Penang-Georgetown, Johor Bahru, and Kuantan, and Indonesia’s tier 2 emerging cities being Bandung, Surabaya, Semarang, and Solo.

UNESCAP maintains that the development of these secondary cities will shape Asia’s urban future, their development is mostly untapped. Many have succeeded by providing effective branding, availability of land and lower land costs, leveraging on proximity to consumer and low cost labour markets, developing high value added and fast growing industries, developing infrastructure projects which connect to larger cities, developing networks and partnerships with other cities and private sector and developing diversified and integrated growth strategies. For example, strategic investment plans to attract business, industries & high skilled workforce.

Asia’s tier 2 cities are facing challenges like increasing competition for investment and placemaking. Other challenges include economic (weak linkages to new markets, providing bankable projects attractive to investors), social (rapid social change and conflict), infrastructural/environmental (deficits) and governance (weak fiscal base, dependence on allocations, information deficits).

World Bank reports that competitive cities foster their rapid economic growth through four categories of interventions: Institutions and regulations; Infrastructure & land; Skills & innovation; and Enterprise support & finance. How these Asian tier 2 cities compete in future will depend largely on their management of these interventions and whether tier 3 cities catch up in their development also.