Yong Ying-I, Chief Executive Officer, IDA Singapore - Opening Address eSymposium, Raffles City Convention Centre
Yong Ying-I, Chief Executive Officer, IDA Singapore - Opening Address
eSymposium, Raffles City Convention Centre
Singapore, 9 May 2001
Mr Willie Cheng, Chairman of ecThink
Ladies and gentlemen,
Good morning
1 Much has changed in the 12 months since I spoke here last year. The mood was exuberant then; the market is much more subdued today. I do not know if I have many pearls of wisdom to share with you, but I believe that in uncertain times, it is all the more important for us to share our views and exchange insights. I have had a particularly interesting few weeks recently, with the opportunity to meet a large number of business leaders from India to the US. So I am not making any policy pronouncements today but I thought I would share with you some of the perspectives that I have picked up.
2 First, the dot.com story is different from the story of the broader economy but they have become intertwined. It may be helpful to our understanding to tease the strands apart. Let me start with the economy. The broader US economy is going through a cyclical downturn, generated by excess inventories and the falling off of unsustainable growth rates. As companies cut back on costs, expenditure on IT has dropped. This has hit e-consultants, then the so called internet arms suppliers, then the PC and equipment manufacturers, and the communications providers. But the weakness in the US economy is not uniform: while the tech sector is very weak, US housing sales and consumer spending are holding up. Federal Reserve rate cuts are expected to eventually stimulate the economy, when the excess capacity is used up. The point about it being a cyclical downturn is that the recovery will come. The question is not if, but when: I heard views ranging from 4 months to an average of 8 months, with a few pessimists arguing for as long as 18 months.
3 And as they say, when the US economy sneezes, the rest of the world catches cold. Hence, Asia has been hit by reduced demand for our electronic exports and reduced capital investments. Unfortunately, the Asian economies and Europe are not able to take up the demand slack, so growth across Asia has been affected. But the story is also mixed. Many of you will have noticed that the US dollar remains strong, which is helpful to our exports; anecdotal feedback from our tech companies and software and services companies is that they still expect revenue growth this year, although at lower rates than the dramatic growth of the last 2 years. Some analysts argue that US companies will respond to the tremendous pressure to cut costs by outsourcing their IT developments to Asia. This will actually benefit countries like India, Philippines, Thailand and Singapore.
4 The dot.com story is a separate story from that of the broader economy. I am prepared to argue that the boom and bust pattern we have seen in the last 12 months is similar to the development path of most technology innovations. In the early stages of a new technology, there is a wide range of experiments, some sensible, some not. These early experiments typically build up to a "pinnacle of euphoria" with many participants having totally unrealistic expectations. Euphoria collapses into a "trough of disillusionment" when these unrealistic expectations are deflated. The industry restructures and rationalises; mergers and consolidations take place. Only after that is there a steady and more gradual upward course by the strongest survivors on "path to prosperity". The difference between the current experience and previous ones is in the speed and scale of new experiments. Compared to past technologies like the steam engine, electricity, the motorcar or the aeroplane, the excitement created by the internet was especially huge, possibly because its nature allowed very widespread participation and also because information flows much faster in this era than previously. The wider capital market also enabled far more ideas to be funded.
5 Looking back, the exuberance was due to the lack of understanding and clear market signals on the viability of internet businesses. Companies raced to gain first mover advantage and to capture market share and mindshare (whatever that is). Distorted revenues, costs and share prices meant that companies did not have reliable market information in an emerging space. Businesses were thus encouraged to experiment rampantly by offering products below cost to generate transactions. They also used suspect performance metrics like expansive definitions of revenue, number of site visitors and click-through rates, which are only loosely related to economic value. Spurred by the excitement created, by curiosity and by the fact that most surfing and services were free, customers gamely tried out anything that was online, further distorting market signals on what customers' real needs. The turning of the stock market suddenly brought back a demand for economic feasibility. Start-ups with ill-conceived and poorly executed business models ran out of money when investors stopped their funding. Dropping click thru rates hurt ad-dependent companies as it showed that this model did not work. The slump in tech stocks made IPOs not feasible, further reducing companies' access to capital. Well, this downturn is not cyclical. I believe that path to prosperity phase will come after we come out of the present trough of disillusionment, but only after shakeouts, changes in corporate strategies, and restructuring.
6 So, where does this leave us? Is "e" over? Was e-commerce just a fad? No, it was not and our efforts to develop online commerce in Singapore has not been in vain. E-commerce is not going to go away. The current disdain for dot.coms is an overreaction to the market crash of last year. But there is nothing wrong with e-commerce in and of itself. For the companies focusing on online commerce, they are learning from these failed experiments and I strongly believe that the second wave of e-commerce will be more robust than the first. Chief amongst these lessons are the importance of customer service and customer utility, and sound competitive business strategies:
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one of the basics of business that most of us forgot about in the last year was that customers will only be willing to pay for services that they find valuable. I had the honour and pleasure of hosting the creator of NTT Docomo's iMode, Ms Mari Matsunaga, to dinner when she was in town 10 days ago to speak at the International Women's Forum. As many of you will know, iMode is the product that has changed the face of mobile commerce.
Ms Matsunaga is not a technologist; her background is in french literature! But she is a genius in consumer marketing. Over dinner, she had us in stitches with her description of the fishing game that iMode offers: when you catch a fish, the phone vibrates just like a fishing rod would. IMode users were so hooked on the game that they were running up huge phone bills, and Docomo had eventually to limit the number of fish you could catch each day so protect consumers against themselves! I asked her what she would like to see the new 3G services offer and I was quite shaken by her answer -- no, she did not think that anyone would watch a movie on a handphone. But she believed that downloading karaoke videos would be a hit. She envisaged a wide range of consumers - office workers on the MRT and on the road going to work; teenagers walking along shopping malls or sitting in school canteens with their classmates - they would be willing to pay to download a song, one song at a time, and sing along with the karaoke. Sure, vibrating phones when you catch fish or downloading karaoke videos onto the handphone require technology, but the genius and the financial reward is in seeing the consumer need and understanding what your consumers will pay for.
- The second lesson is about competitive business strategies. The single most insightful article on e-commerce that I have read in the last quarter is by Professor Michael Porter published in the Harvard Business review. Using his 5 forces framework, Michael Porter argued that competitive strategies is about the intensity of rivalry between existing competitors, market power of individual players vs suppliers and consumers, obstacles to new entrants, as well as the threat of substitutes. The paradox of the internet is that its benefits - the removal of geographic barriers to entry, by being an open and not proprietary system, by making it possible for more buyers and sellers to meet - has a levelling effect on business practices. This reduces the ability of any company to establish an operational advantage that can be sustained. There is no sustainable competitive advantage to being in businesses where imitators can quickly enter at low cost. He suggested that by offering free services or going after market share and not revenues, internet companies were destroying the economics of the industry they were in.
Porter argues that we must move away from unhelpful rhetoric about e-biz strategies to see the Internet for what it is - a set of powerful tools to be used wisely or unwisely in almost any industry and almost any strategy. True to his 5-forces framework, he argues that "generic business models" is a totally wrong concept. The point is that each company's strategy makes sense or does not make sense in the context of that industry and the strategy of other players. To succeed, a company must have a distinctive strategic positioning, a tailored and integrated value chain, that makes the company able to define a unique value proposition to its customers. Speed and flexibility do not amount to a strategy, because it means that we are managing from day to day, unclear as to where we are heading. I hope I have given you enough reason to look up the HBR article.
7 In the meantime, the advent of the internet has generated fundamental underlying changes to take place in the Singapore economy. Since Singapore companies started embracing the net 2 years ago, there has been a huge growth in the dollar value of online transactions, whether B2B or B2C. At e-Awards tonight, my Minister will share the results of the Government's e-commerce survey which will show a phenomenal growth in the dollar value of online transactions in the last 12 months across all key sectors of the economy.
8 What this shows is that companies in Singapore, including the SMEs, have gradually understood the message that they need to have an online strategy, as part of their efforts to do business in a new way and to continue to raise productivity and cost-efficiency. The issue is not "if we should go online", but "how to". I am quite confident that while investments may slow down as a result of the current economic weakness, we will not see any reversal of trend. Companies have also begun to realise that this means changes in business processes, structures and systems. The internet only replaces certain parts of the value chain. Technology capabilities have to be integrated with strong product knowledge, proprietary content, a distinctive presence and strong customer relations. This is the tailored integrated value chain, the creation of a unique value proposition, that Michael Porter was talking about.
9 One of the companies in Singapore that appears to understand this well is Singapore Food Industries. The company was able to successfully set up e-mart.com.sg, an online supermarket for consumers to purchase groceries and foodstuff. It leveraged on its core strengths in food distribution through its warehouse and fleet of vehicles, knowledge and experience in food handling as well as its established network of suppliers to integrate its internet capabilities with its traditional strengths. We are likewise seeing the Singapore banks develop along these lines - for example, when the banks started their internet offerings, they typically put them outside their mainstream businesses in standalone e-bank operations for cultural acceptance and risk management reasons. We now see them integrating this into their mainstream offerings.
10 IDA expects to see continued exponential growth in e-commerce this year. Sure, there will be rationalisation and some short-term pain, but the progress we have made in e-commerce and going online is real and it is valuable. Many online services that have taken time to build are now coming on-stream. In particular, there will be a boost from the e-Government initiatives that will take off this year as many services under e-citizen come on stream. I also believe that the coming of stream of many commercial secure e-payments solutions will help close one of the major gaps in the e-commerce infrastructure in Singapore. The government-private sector collaboration on building trust and increasing consumer awareness will further spur online transactions. For our part, IDA will press on with our efforts to promote online capabilities and usage.
11 I would like to take the opportunity today to urge companies across the economy not to cut back on plans to go online. We are all the more sure today that incorporating online capabilities into our corporate strategies is a necessity, not just something interesting to do. This is not to say that the road ahead will be easy. Much of the real serious work is ahead of us. Indeed, it will be hard work uphill with companies having to prove that they are delivering real value to customers, partners and employees. But the challenge should be seen positively by Singapore companies. In the past, we were hampered by constraints that individual companies could do little about, such as geography and size of our domestic market. The competition in the broader global market will be world-class and we have to be world-class to do well, but the constraints are internal to each of us and not imposed externally. We have the world to play for. So let me conclude by offering a mixed quotation - one from Gary Hamel in one of his articles in Fortune magazine and the other from a local source, "the euphoria is over, the heavy lifting has begun; the best is yet to be".
12 On this note, I am pleased to declare the eSymposium open. I wish you all an insightful discussion.
Thank you.
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