Chinese Firms Driving Digitalization in the ASEAN Region

In the ASEAN region (below, “ASEAN”), digitalization is progressing in a broad range of fields within society. Alongside local startups and U.S. tech firms, Chinese IT companies are driving this trend. Japanese IT firms rarely appear in the digital arena, and this is probably one of the reasons for the declining presence of Japanese companies, and indeed Japan itself, in the region. Conversely, the remarkable success of Chinese IT firms is helping to grow China’s presence there.

The strength of Chinese IT companies in ASEAN lies in their financial clout, technological capabilities, and know-how. Acquisition of and investment in local startups, as well as proactive technological cooperation with governments in the region, are a result of the rapid growth of Chinese IT firms in their home market and the ample cash they have available to invest. They also possess technological capabilities and know-how developed amid the fierce competition in their home market, and have become more competitive not just on price but also in terms of quality.

Chinese IT companies are focusing on ASEAN not only because they see huge business opportunities in the region, but also because they are looking overseas for new paths as their home market matures and their potential for further growth there shrinks. While the U.S.-China and India-China tensions have narrowed down their options in terms of countries that they can easily expand into, ASEAN countries are trying to keep their distance from these rivalries, and this is a factor that is impossible to ignore as a reason Chinese IT firms are giving the region so much attention. Given these circumstances, more and more Chinese IT companies are expected to expand their operations in ASEAN going forward.

Japanese companies have been unable to fully respond to the wave of digitalization in ASEAN because Japan has failed to produce any leading IT firms that rank among the world’s top tech companies in terms of market capitalization, the sorts of firms that would be expected to lead the charge. However, with the proliferation of digital technology, even non-IT companies are now able to leverage digital technology. This means that there is more potential for Japanese non-IT firms to do business in ASEAN utilizing digital technology than there was in the past.

A promising area for Japan’s non-IT firms is the problem-solving business. Despite ASEAN’s rapid economic development, the region still faces many challenges, some of which could be overcome by combining Japanese experience and know-how with digital technology. Local subsidiaries of Japanese companies operating in ASEAN would likely be the key players in such ventures. However, for this scheme to work, these local units will need to take on the additional role of creating new businesses, and change their corporate structures in accordance to their new role.

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