Apple had a rip-roaring second quarter, as I’ve just reported here for IDG Connect. But the financials were about more than putting yet more dollars in the bank. In years to come, the quarter may well be seen as a tipping point – the point when the Cupertino giant came to rely way too much on China.
Although sales in China have yet to surpass the Americas, that point is not too far away. But the quarter did see iPhone sales from the Middle Kingdom overtake the US, and it also witnessed total revenue from China leapfrog that of Europe – two pretty significant milestones.
Apple is in a position that its American rivals and counterparts – Google, Microsoft, Amazon, Facebook etc – would dearly love. They’ve all been either banned or investigated for anti-trust dealings – in other words harangued by the authorities. These firms face an uncertain future in the world’s soon-to-be largest technology market. But while Apple is largely loved by consumers still in style-obsessed China, its days too could be numbered.
Certainly the government has been making life difficult for US tech firms over the past year or two. The revelations from NSA whistleblower Edward Snowden has given it the perfect excuse to request stringent security checks on products destined for the public sector market. It’s a de facto ban for many providers. Beijing is trying to do the same with the banking industry. And it will get its way, eventually.
What does it mean for Apple? Yes the firm is a large investor in the country. But that won’t count for much if or when Beijing wants to apply some pressure. Apple has already been forced to comply with its unpalatable censorship demands, withdrawing apps from its store. It was notably silent when the authorities launched a Man in the Middle attack on iCloud last year. And CEO Tim Cook was forced to make a grovelling apology when a state TV-led witch hunt found issues with its customer service in the country. Cook has reportedly also agreed to give the government access to its source code in a bid to pacify regulators and ensure its devices are approved. This in itself could backfire if Beijing uses that intelligence to create backdoors to spy on Apple users outside the country.
Then there’s the issue of growth. China is not necessarily the license to print money many think it is for Apple.
IDC analyst Xiaohan Tay told me smartphone growth will begin to slow in the country over the coming years.
“Most of the growth in the smartphone market will come from the lower end segment of the market. As Apple is a high-end product in the China market, most of its growth will come from replacement users which are the Apple fans, as well as those who may be using the higher end Android phones at the moment,” she added.
“The new iPhones were a hit in the Chinese market as consumers were awaiting the release of the larger screen sized phones from Apple for the longest time, and this helped to drive growth in the past two quarters since the new iPhones were launched in China.”
Growth will continue, but at a slower rate, although the Apple Watch represents a great opportunity to arrest that slide, she added.
“The die-hard Apple fans as well as the middle and upper-middle class consumers in the cities will help to sustain the growth,” said Tay. “I believe that Apple’s high prices actually makes its phones more desirable for the consumers. Owning an iPhone represents a status symbol that the average consumer wants to work towards.”
Plenty of positives for the future for Apple in China, then. But what the Middle Kingdom giveth it can also taketh away. In my opinion, Cupertino had better disperse its eggs into other BRIC baskets if it wants to avoid a nasty surprise down the road.
On the one hand the jobs market is booming and there are plenty of vacancies. The Harvey Nash CIO Survey of 2014, for example found 76% of Hong Kong and China CIOs were concerned about a technology skills shortage. A further 42% said they were planning to increase headcount last year and APAC MD Nick Marsh told me by email that he “expects to see that demand continue” this year.
Skills particularly in demand, he said, are big data, mobile, cloud and digital, although more traditional areas are also important. “Fundamental areas such as project management, enterprise architecture, and business analysis are still the top areas of skill demand,” he said.
Candidates with leadership capabilities and “exceptional communication skills” as well as those who can demonstrate an ability to innovate will be favoured.
However, Marsh also warned that employers in the region are increasingly likely to favour “glocals” – that is, locals who have overseas education and/or experience.
This is bad news for the ex-pat IT job seeker looking to land a plum job in China or Hong Kong.
“Candidates should focus on the strength of their understanding of the local market, customers, and their industry,” Marsh advised. “This understanding is critical, and without it they are likely to lose out to local or ‘glocal’ talent.”
More bad news came in the form of a recent Regus study on office stress in Hong Kong and China.
It found that in Hong Kong, working to deadlines (24%) was rated stressful by a far higher percentage than the global average (14%), while “colleagues” (11%) was more than double the global norm of 5%.
Unreliable or obsolete technology (26%) and a lack of staff (28%) were also major factors.
“When employees don’t have a good work/life balance, they feel overstretched, unhappy and, ultimately they become less productive,” Regus Hong Kong country manager Michael Ormiston told me. “Flexible working can alleviate some of the pressures that create stress, while at the same time reducing a company’s costs.”
Given that most employers in China and Hong Kong are putting ex-pats on local packages these days, a move out East is becoming less and less attractive to Western IT professionals. It might be worth staying put for the time being.
I’ve just been putting together a piece for IDG Connect on tech predictions for China and Hong Kong in 2015. It’s always difficult to fit in all the comment I manage to get on these pieces, so here’s a bit more on the cyber security side of things, from FireEye threat intelligence manager Jen Weedon.
The long and the short of it is “expect more of the same” from China. The US strategy of naming and shaming PLA operatives ain’t really doing much at all.
“In the next six to twelve months, targeted data theft by China-based actors is likely to remain consistent with patterns we have observed in the past,” Weedon told me by email.
“We expect Chinese threat groups to conduct espionage campaigns that are in line with the Chinese central government’s political and development goals.”
So what exactly will these goals be in 2015? Well, according to Weedon we can expect data theft to focus on climate change and the tech sector.
“China’s ongoing pollution challenges provide strong incentive for threat actors to steal data related to technologies that can help China stem the environmental impact of its heavy reliance on coal,” she said. “We also expect cyber espionage activity against governments and policy influencers in the run-up to the 2015 UN Climate Summit as China seeks intelligence to enhance its negotiating position on global climate policy issues.”
As for the tech sector, China is stepping up its efforts to develop homegrown computing and semiconductor policies – ostensibly for reasons of national security, ie to close down the risk of NSA backdoors in US kit.
“As the country pursues these goals, we anticipate Chinese actors will leverage data theft to supplement knowledge acquired through legitimate channels such as joint ventures with experience foreign partners,” Weedon told me.
“We regularly observe China-based threat actors target firms engaged in joint ventures with Chinese enterprises.”
Territorial disputes in the South and East China Seas will also continue to drive cyber espionage activity, she said.
As for beyond that, we’ll just have to wait until after the National Development and Reform Commission (NDRC) outlines development priorities for the 13th Five Year Plan.
“As the central government solidifies its goals for the 2016 to 2020 timeframe, we expect further clues to emerge about which topics are likely to enter threat groups’ cross hairs in 2015 and beyond,” said Weedon.
It’s very much a question, therefore, not of whether China will continue its blatant state-backed cyber espionage campaigns, but where it will focus its considerable resources.
IDG Connect has just published another of my forays into Asia’s ICT markets, this time focusing on Malaysia and whether it can possibly sneak in to take the crown of regional digital hub from its rivals in Hong Kong, Singapore and elsewhere.
The truth is that the country has flown under the radar for much of the past 20-odd years, although in reality the government had been pushing for foreign investment there since the early 1970s, when Intel and six other firms set up facilities in what was once nothing more than mud and rice fields.
Fast forward to today and Malaysia has something of an image problem, according to Ng Wan Peng, COO of Malaysia’s Multimedia Development Corporation (MDeC), the government agency leading the charge.
“While the country is fast-becoming viewed as a top Asian holiday destination, with beautiful beaches and luxury hotels, it doesn’t immediately spring to mind as a place for foreign firms to invest or in which to establish their Asian hub,” she told me.
Its efforts to change this and help the country move up the ICT value chain were spearheaded by the founding of the Multimedia Super Corridor (MSC) – a hi-tech investment zone running from Kuala Lumpur airport into the city centre. It’s designed to spur foreign investment (33% of which comes from the UK) and encourage that transformation into a “digital economy” by 2020.
The Malaysian government has put together a very generous set of inducements to invest here, including a “Bill of Guarantees” which promises MSC-status companies: a 10-year income tax “holiday” or investment tax allowance for up to 5 years; freedom of ownership; strong cybersecurity laws; and no internet censorship, according to Peng. The government also offers unrestricted employment of foreign knowledge workers, cutting visa-related red-tape.
So what else? This is what Peng had to say:
The answers range from the economical, to the cultural, to the financial. For one, we are politically and socially stable. We also believe our multi-cultural society holds a business advantage – we Malaysians are used to sitting across the table from someone of a different ethnicity to us from an early age, so we’re used to conducting business with people from all geographies and walks of life. Being a largely English-speaking population is also attractive to Western investors, while our world-class infrastructure helps to facilitate global commerce without fear of being disrupted by natural disasters.
So far so good. But there are challenges, as Frost & Sulivan APAC associated director Pranabesh Nath explained to me.
“Areas that stand out as challenges include inadequate technology infrastructure, lack of sufficient talent, small domestic market, and not enough ‘knowledge jobs’,” he argued. “Adoption of technology for consumers in terms of usage, and lower e-commerce penetration provides additional growth challenges. The government, though, recognises these shortcomings and is expect to be implementing policy to overcome them.”
Indeed, Peng explained separately without prompting that these areas of concern are being addressed by the government.
There’s certainly a will from the top to make this work which is heartening to see and some impressive growth stats already. Yet I wonder whether the problem Malaysia might face is in that delicate balance between encouraging foreign investment via tax breaks and other inducements and nurturing its home-grown companies.
“There are frameworks and policies since the ’90s on encouraging home grown companies, however these don’t seem to have worked very well,” Nath argued. “Technology and markets have also changed rapidly in the last 20 years and it is always hard to keep up to date with the latest development and growth areas.”
However, he was optimistic of a way to surmount this problem and accelerate Malaysia’s ICT growth without this coming at the expense of home-grown companies.
“The internet of things and its applications in industry sectors such as automobiles, healthcare and consumer are enabling new business models and use-cases such as wearable technology. These highly integrated solutions use all key tech areas such as cloud, big-data and high speed connectivity,” he explained.
“A strong emphasis being a leader in this area, coupled with a focus on generating a knowledge intensive economy can propel Malaysian ICT to much greater growth in the next five years. Both foreign investment and local companies’ incubation can be simultaneously pursued in these cases. Now we just need strong policies that can implement the above.”
I’ve just finished another piece for IDG Connect taking apart the Taiwanese technology industry – it seemed like as good a time as any on the back of Computex 2014.
If you haven’t heard of the show it’s the second largest IT event in the world and is held every year in Taipei as it has been for 34 years.
Well, the island formerly known as Formosa has been punching well above its weight on the tech scene for decades now, thanks to lots of government investment, a booming chip industry and a steady stream of bright young engineers and designers pouring from its universities.
But as I found out, many of its major firms are facing an unprecedented set of challenges which could threaten its long term future.
Firstly the PC market is in decline – which is bad news for 4th and 5th placed global brands Acer and Asus. Whether terminal decline we still don’t know but it has certainly meant Taiwan’s major ODM/OEM firms have had to adapt to a new mobile-centric output.
The two big brands mentioned above, however, haven’t done a very convincing job so far.
“The whole shift to mobility including smartphones and tablets is the new growth curve for the whole industry,” Forrester analyst Bryan Wang told me from Computex. “What I have seen is that Taiwanese companies are losing in this space.”
Gartner’s Amy Teng was not much more optimistic.
“These manufacturers have to rely on brand vendors to consume their production outcome. This business relationship is weak because today’s PC supply chain is advanced and standardised enough to transplant from vendor to vendor easily,” she argued.
Teng added that the move from high volume, low customisation products to low volume, highly customised products is a big challenge – especially when these manufacturers are being asked to be more cost effective and quicker to market.
All is not lost, though. The country’s semiconductor firms are still well placed and there are opportunities in other areas for those ODM/OEM giants like Wistron, Foxconn, Quanta and Pegatron.
“Regarding how to overcome, or thrive in the coming decade, I do not see any opportunity in the smartphone/tablet space now. However, Taiwanese companies still stand a chance in the connected home space, which is set to evolve in the next couple of years,” said Wang.
“Home/smart gateways, set-top-boxes and smart routers – these could be the angles. At Computex here, I do see home grid, smart plugs, smart home solutions are evolving as an interesting area.”
I might be back in London now but I’m still keeping one eye on the East. My latest for IDG Connect is a piece on whether Hong Kong can really lay claim to the title “Silicon Harbour”, given its dubious track record of under-investment and the increasing strength of rival Asian cities including Tokyo, Shenzhen, Shanghai and Singapore.
Well, as always, the jury’s still out. There are a lot of good things going on in Hong Kong, as this upbeat infographic shows. It’s politically stable, safe from most natural disaster and you can use the internet freely (unlike in mainland China). It’s also well connected internet-wise and relatively cheap, as Frost & Sullivan analyst Danni Xu told me: “enterprises in Hong Kong using 100 Mbps Ethernet Point-to-Point (P2P) per month are paying only one third the price of a similar set up in Singapore”.
“However, despite these advantages/benefits, Singapore remains popular in certain cases over Hong Kong when it comes to selecting a destination to set up a data centre,” she added. “Google was a prime example of this when its plan to establish a data centre in Hong Kong did not materialise. The cost and difficulty of acquiring suitable land were cited as the key reasons for this.”
It also seems like HK’s key strengths, its value as a financial centre and proximity to China, are also its biggest drawbacks. This means Singapore and other cities are usually preferred as regional hubs while HK is the choice as a base for firms looking to expand into China. It also means investors can be reluctant to plough their money into untried or tested tech start-ups as the culture is mainly about finance and property.
Forrester analyst Clement Teo had this:
“There are some structural factors may constrain ICT development in HK e.g. its relatively small domestic market and shrinking manufacturing and industrial sector do not provide sufficient incentives to spur technological developments. Moreover, HK needs to divvy up scarce resources – like land, office space and investment funding and talent – among established economic pillars such as financial services, real estates and retail.”
The HK government this year released an ambitious Digital 21 Strategy – the latest in a long line of such policy documents from the SAR – and certainly talks a good game. But I’m still hugely sceptical whether the political will is there to help smaller tech firms – the start-ups and similar which could genuinely turn the city state into a ‘Silicon Harbour’.