INFORMATION TECHNOLOGY Y2K concerns and the increasingly popularity of e-commerce dominated the past year

All aboard the e-trade express

Tony Waltham & Borisuthiboun Dasaneyavaja

The past year has been a tough one for information system professionals in Thailand, with an uncompromising Year 2000 (Y2K) deadline to meet while purse strings have been generally held tight in the wake of the recession.

Adding to the pressure of meeting Y2K deadlines has been the growing awareness by businesses large and small that they can no longer ignore the Internet phenomenon, which brings the promise of electronic commerce for those who leap aboard the bandwagon, but also raises the threat of being left stranded for companies who remain idle at the starting post.

For Thailand, the challenge presented by e-business has been compounded by the limited funds that managers have been making available for IT investments at a time when recession-driven belt-tightening is still being felt.

However, despite these constraints - and indeed because of the necessity for businesses to both address the Year 2000 problem and because of the urgency of getting on the web - suppliers of IT products had a relatively good year in 1999, with some exceeding their best years of trading in the 1995-1996 boom period.

This has also been facilitated by the Chuan Leekpai government's policy to boost liquidity, as well as the Miyazawa loans that helped launch many government projects, ranging from small through to the very large.

The chairman of the Value Systems, Narong Intanate, said that 1999 was the best year yet for this supplier of a diverse range of IT products, ranging from large servers, to CPUs, to software and peripherals. While revenue for the first quarter of the year was still down on the same period in 1998, the recovery had begun by the second quarter, with a strong rebound in the second half of the year, he said.

He also noted that the consumer business had now grown to become the largest market segment, accounting for between 40-45% of all his company's revenues this year, compared with a figure of just 30% some two years ago.

Driving this has been the Internet explosion and, in another government policy spin-off, PCs in schools being used to encourage purchases for homes as students need to do their homework on PCs in many cases, Mr Narong pointed out.

Overall, he estimated in early December that the market growth for 1999 had been between 10-12% in US dollar terms, and he went on to forecast that the market would grow in the coming year to range between 12-15%. (See accompanying story for IDC Thailand's mid-year figures.)

Taken separately, software fared better overall in 1999, and the Association of Thai Software Industry (ATSI) president, Arporna Sribhibhadh, said that over the past year the industry grew by around 30%, although he estimated that over 70% of these revenues were for foreign software packages.

The piracy rate was still above 80%, he added, and for the consumer software market -- edutainment, entertainment, leisure -- there was a 90% piracy rate. This market comprises over 120 small Thai publishers and was worth less than 200 million baht, which Mr Arporna pointed out was for a possible market of some 1.5 billion baht, if it was not for the piracy problem.

Mr Arporna said he believed that some 270,000 PCs were sold in Thailand last year, while the home market comprised at least half or more of these shipments, including those PCs where value added tax was not paid.

This reflects a very quickly-growing consumer market, although he added that this did not translate into many copies of licensed software because most of the software was illegally copied.

Looking ahead, after February 29, 2000, the last major Y2K transition date, he foresees that IT spending should be ''back to normal'', rebounding with a growth next year of around 30%. Business-to-business electronic commerce would continue to pick up speed exponentially, he said, with EDI at the retail level leading the way.

In addition, he also predicts that software developed for export, both in the form of outsourcing from foreign sources and by local organisations, would grow by at least 100% in the coming year.

By any yardstick, the past year saw the Internet make dramatic strides in Thailand. While the number of Internet users around the middle of the year was estimated to be some 600,000, this figure had jumped to a million by the end of the year, according to the ISP Club.

ISP Club adviser Prasart Sribhadung noted in early December that the total international bandwidth at the end of 1999 would be around 120 Megabits per second (Mbps), and this was expected to continue to soar as more users come online.

Estimates suggest it will increase to 210Mbps next year, then 368Mbps, 644Mbps and 1,127Mbps in 2001, 2002 and 2003 respectively. If we just look at the past 12 months, bandwidth soared from 37 Mbps in December 1998 to 113.75 Mbps in early December 1999, an increase of over 200% - which compares dramatically with the 13.8% increase over the previous 12-month period.

Every indication is that the rapid expansion in growth will continue in line with the global Internet trend. Helping this somewhat is the highly competitive nature of Internet access in Thailand, with some 17 ISPs who have been competing fiercely over the year for this huge potential market of new users, although not all are making profits.

Access prices have been substantially reduced, and ISPs are offering various bundles, including free PCs for subscribers who sign up for a long-term access contract in some cases.

Although ISP revenues have jumped by 35% this year, more than half these providers are unprofitable, according to Mr Prasart, with only six ISPs managing to turn a profit from providing services, those being Internet Thailand, KSC Internet, Loxley Information Service (LoxInfo), A-net, SGA and Idea Net.

This increase in bandwidth means that the three largest ISPs now all have fast international circuits, meaning that Thailand will actually enter 2000 with a surplus of bandwidth.

In addition, because the broader bandwidth is also cheaper, ISPs can drop their prices without putting themselves out of business, while the bottom line is that users are going to find a better deal and everyone will be happier, as one source at a leading ISP explained.

The ISP Club also estimates that by 2008, approximately 14 million Thais will be using the Internet and that by 2006, when the telecommunications sector is expected to be completely liberalised in Thailand, there should be about 12 million Internet users.

Internet access in Thailand is still primarily through PCs, rather than set-top boxes or other devices and, as such, the relatively high cost of a personal computer still presents a barrier to entry for many would-be Internet users.

However, the global trend is for PCs to become ever cheaper and Value Systems chairman Narong believes that by early next year the price of Internet-ready PCs from brand-name suppliers like Compaq, IBM and Hewlett-Packard will come down in price, to below 25,000 baht, and maybe as low as 20,000 to 22,000 baht from their current price of around 35,000 baht.

This new price will generate a whole new group of Internet users, he pointed out.

All of which will help to stimulate the excitement -- indeed, some see it as a feeding frenzy -- around the Internet that has seen a rapid rise to fame and fortune for some selected Thai Web portal sites, such as Sanook.com which was acquired by South African-based MWeb in a deal which was said to be worth US$2 million.

The Shinawatra Group also bought a 30% stake in HunSa.com and the Nation Multimedia Group bought into Pantip.com, while other sites such as Siam2you.com were launched amid claims that 10 million baht would be invested in the site.

Local web sites have been rapidly maturing and while a Thailand Development Research Institute Foundation (TDRI) study conducted earlier in 1999 found that most travel sites here offer only information rather than e-commerce, a subsequent survey by the Boston Computing Group (BCG) claimed a few months later in October that in the meantime many travel vendors had since added online payment capabilities.

While there are around 150 web sites in Thailand ready to sell products and services today, according to the BCG's report entitled ''E-tailing in Asia'', Thailand lags far behind the most active country, South Korea, that had 409 web sites out of the 1,400 Asian-based sites it found to be selling products to end-users online.

The other top categories for products available online included cards, gifts and flowers, online malls, book stores and auction sites, according to the BCG study which also projected that revenue from the e-tailing business in Thailand for 1999 would be some $7 million (273 million baht) -- up from $2 million (78 million baht) in 1998.

This is a figure that will certainly grow over the coming year, while the distributors of Internet servers such as Sun, Dell, Compaq, IBM and HP, all anticipate brisk sales of these high-end computers in the coming months.

The broadening of services over the Net over the past 12 months was also reflected in the establishment of two major job recruitment sites, jobsDB and Topjobs.com, adding to the offerings in the employment market from Jobs&Adverts in this category.

Also, reflecting another global trend was the introduction of an application hosting service by Oracle (Thailand), Application Hosting (A-Host) and Arthur Andersen Business Advisory, aiming to provide services to local small- to medium-sized enterprises, providing their applications ''on-demand''.

Challenges to growth

However, Internet access fees in Thailand are still among the most expensive in the world due to the high levies that the Communications Authority of Thailand (CAT) imposes, particularly for the leased lines that are necessary for efficient business-to-business e-commerce.

In addition, the CAT also sets tough conditions for entry to the market for Internet Service Providers and this deters foreign investment in this area. This is blamed for being partly responsible for a situation where the existing infrastructure is often insufficient.

This is most noticeable outside Bangkok where some ISPs offer a 64Kbps link that is shared among 3,000 or 4,000 dial-up subscribers, none of whom can obtain satisfactory service most of the time, according to one business user with a large network of online business-to-business customers.

This executive argues that there are too many ISPs, many of whom are 'technically bankrupt' and he says the biggest challenge for the Internet in Thailand is bandwidth. This acts as a deterrent to newcomers to the Internet and stifles e-commerce, he said.

Thailand's current installed base of Internet users has less than 3% of Thai households on the Internet, compared, for example, to some 60% in the United States and 40% of households in Europe. This is believed to be too small to support serious advertising or domestic business-to-consumer electronic commerce.

There are other obstacles, too, that make a made-in-Thailand Amazon.com e-commerce success story unlikely to take place yet.

One of these is the lack of specific laws to cover IT issues ranging from online identity, digital signatures and crimes such as hacking. However, after several delays, the first of six such draft laws was expected to go before Parliament in December 1999, following the National Information Technology Committee's (NITC) approval of the first reading of the Electronic Transactions Bill in November.

This law would make electronic transactions equal to paper documents, said deputy chairman of the drafting committee Prof Kanung Luchai. He said that the next bill to be completed would be the Electronic Signature Law, which would recognise the use of encryption techniques and assist in the authentication of electronic transactions.

The four other IT-related laws are the Computer Crime/Computer-related Crime Law; the Data Protection Law; the Electronic Funds Transfer Law; and the Universal Access law, which are expected to be enacted in early 2000 (See accompanying story).

Another requirement for friction-free electronic commerce is a local certification authority (CA). This will be a key infrastructure component and will act as a trusted third-party in the authorisation of private/public keys, digital signatures and other encryption services.

Currently, there is a debate whether this should be run by the government or by a private sector company, with the Thailand Development Research Institute (TDRI) arguing that it should be run by the private sector rather than the government because of the high initial investment costs.

Also presenting a potential problem for Internet users is an issue that has surfaced in a big way this year -- the relatively high-level of hacking of Internet accounts. Indeed, many ISPs say that hacking is too polite a term for what they call outright theft, when Internet accounts and passwords are stolen and then resold to unscrupulous Internet cafes, who resell the stolen online time.

This theft of identity is generally done using a Trojan horse program that someone is tricked into running, often a program sent as an e-mail attachment or distributed in IRC chat rooms. This Trojan program typically claims to do one thing (which it usually also does), but its real aim is to compromise the computer it is run on, allowing others to eavesdrop on a computing session over the Internet, including accessing all data on that machine, as well as having the ability to monitor log-on identities and passwords.

Security issues present the biggest headaches for ISPs in Thailand today, and the problem is a growing one as more and more less-sophisticated users get Internet access.

Another obstacle to growth or establishment of new, Internet-focused or software businesses is the relative scarcity of investors who are prepared to fund a start-up company. Many software development projects have failed to get off the ground partly for this reason, while of course rampant piracy is the other deterrent.

Unlike in the United States, where a relatively new company can quickly go public with an IPO, Stock Exchange of Thailand regulations require a minimum of three profit-making years before a local company can apply to be listed, which pretty much rules out the SET as a source of funding for a young, new age company.

There is hope, however, in the form of new venture capital organisations that are setting up offices here and around the region, hoping to finance and profit from high-technology start-ups, and ATSI president Arporna believes that next year we will begin to see 'real money' financing local software companies.

At a recent seminar organised by the Association of Thai Software Industry, Jeffrey R. Gigler of Silicon Valley venture capital firm Indo Pacific Investment said that Thailand offered a lot of promise.

He suggested that developers should target regional and international markets with their products, echoing the advice of others to ignore the domestic market for software products because of the extremely high and largely-uncontrollable level of software piracy.

One such fund is IFCT Nomura/JAFCO Capital (INJC) that has invested some US$60 million in 25 investments in various emerging sectors in Thailand since 1992, the main sectors being information technology, food and agriculture, life sciences, and auto-related industries.

INJC investment manager Tharin Eampetcharapong said that most venture capital (VC) offices in Thailand were joint-ventures with foreign or foreign-related entities looking for large returns from firms that will be leaders in their industry, and people who will lead them successfully.

The Vnet Capital vice-president of investment, Chanitr Charnchainarong, said that during the first half of this year there was around $460 million invested in the region by VCs and 36% of this was used in software, Internet and telecommunications.

This year, telecommunications giant Shin Group also established Adventure Club, a venture capital firm with 200 million baht in registered capital to tap into the potential for high-technology start-ups.

Software piracy is a lose-lose situation in Thailand. As the perception of the importance of the information economy grows and awareness of the need for Thailand to produce value-added products and services increases, so it is becoming clearer how this rampant theft of intellectual property is becoming a burden on the country.

However, it still flourishes openly despite the presence of a special Intellectual Property task force, an Intellectual Property Rights court and efforts of the Business Software Alliance (BSA) and other organisations to suppress the problem.

According to the BSA vice-president for Thailand, Huey Tan, in 1998 corporate piracy was still unacceptably high and he put the software piracy rate at 82%, which he said represented losses to the software industry of over US$48.6 million.

In August 1999, the BSA announced a 90-day grace period, making Thailand the first country for such a campaign, and Mr Tan said this was launched 'because of the country's readiness for this and also because the BSA had received a positive reaction from Thailand when compared with other countries'.

BSA plans to take this campaign to both the Philippines and to China, he said.

In other intellectual property developments in 1999, the Intellectual Property Rights and Trade Court (IPR Court) fined Atec Computer 600,000 baht for hard disk loading in June, while a Panthip Plaza shopkeeper accused of selling pirated software was sentenced to a two-year, four-month prison term.

What needs to be done

As usual, there has been no shortage of well-meaning advice as to how Thailand can better adjust itself to a networked world and on how to best take advantage of information technology.

These range from suggestions that the country quickly deregulate its banking and telecommunications sectors, providing better opportunities for students, giving Nectec more powers and, in general, to focus on promoting electronic commerce by providing funds and in having a clear direction.

Managing director of Informix Software (Thailand) Kwanchai Lertchurushan said that the government should take a major role in encouraging local firms and state agencies to modernise their business processes to be more competitive, particularly with regard to web-based technologies, and added that in order to remain competitive, Thai organisations need to adjust, improve their business processes and make their management roles more flexible.

When it comes to money, president of the Thai Venture Capital Association president Viraphan Gulges said that the government should promote the venture capital industry in terms of offering incentives through capital gains tax measures, especially for long-term investments.

Meanwhile, Boston Consulting Group (BCG) head of e-commerce for Southeast Asia Scott Desmarais believes the Thai Government should have a clear focus on e-commerce. 'You have to know what you are going to do and by when. That will allow e-commerce to happen. Otherwise businesses in the country will be left behind,' he said.

Sun Microsystems managing director for the Asia Pacific region Lionel Lim believes the Government should give more powers to the National Electronics and Computer Technology Centre (Nectec). He said in October: ''If Thailand doesn't have a decisive body that empowers it in the Internet age, you will just have to take too much time to lobby for it.''

He said he believed that Thailand needed to act immediately to take advantage of the exploding Internet economy, saying that there are opportunities for businesses to establish infrastructure for electronic commerce and to provide hosting services and payment gateways.

Thai businesses and the government should act now because the economic and social impact of the Internet will be very divisive, with a clearer demarcation line between the haves and the have-nots, he said.

''Thailand must do whatever it takes to make sure it never falls into the 'have-nots', because if that happens then Thailand will be relegated to the third or fourth world,'' the Sun Microsystems executive warned, adding that Thailand could not afford to let that happen.

''When you talk about Internet time, new companies start up, and within a year they have a market capitalisation that is bigger than a small country's GNP,'' he said.

''That's scary, so you have to enable certain bodies like Nectec, and give them executive power to build the infrastructure,'' he added.

Meanwhile, ATSI president Arporna believes that the government could play a larger role in software development by funding the development of strategic software tools for specific industry sectors, suggesting as an example a focus on developing software for the food processing industry, an important sector in which the country is a regional leader.

This could be ERP software or other tools and applications, he said, while other sectors might also be targeted for such a focus -- for example, educational software or software for the jewellery and gem trade could be promoted by the government.

Such a push will be necessary if the country is to achieve an earlier-stated goal, when the Software Park project was first announced, of generating software exports worth 20 billion baht in five years time.

Meanwhile, when it published a study on e-commerce earlier in 1999, the TDRI recommended that if Thailand was to catch up with the global e-commerce trend, the government should have a policy to promote computer literacy and the use of the Internet by reducing service fees and it should also make its own procurement purchases online.

Taking another perspective was Sun Microsystems science office director, John Gage, also a Nectec adviser, who said that Thailand must invest in students to avoid being bypassed by other countries in the information age.

He noted that all the major technical initiatives for the emerging networked world had been developed by students -- with examples being the Internet protocol, Ethernet, Mpeg 4, public key encryption and both the BSD (Berkeley Software Distribution) 4.1 Unix and Linux operating systems.

Similarly, vice president of Bell Laboratories David Lando also suggested that for a country such as Thailand to make the most of the networked world, ''it really has to provide the engines of education to enable not only the use of and participation in technology, but to be part of the contributing community towards it, because if you contribute to it, you benefit from it more than just from the use of it.'

Our place in the world

In May, the International Data Corporation in conjunction with World Times published its Information Society Index, which placed Thailand in 45th place among 55 countries, down two notches from the previous year. Singapore, meanwhile, moved up an aggressive five places to be ranked fourth globally in the International Data Corp (IDC) Information Society Index.

Statistics from the 1999 IDC/World Times Information Society Index also showed that the gap between the highest scores and the lowest had grown significantly.

Senior IDC research analyst Stephanie Hutchison said the long-term implications of this ''worrying trend'' were that with so many countries improving their ability to create, manage and use digital information so quickly, pressure on the more slowly-moving countries was intensifying.

Smashing through the barriers In mid-1999, International Data Corporation Thailand forecast that Thailand's IT industry would grow by 8% this year, fuelled by IT purchases from businesses that have now recovered from the recession and by additional spending on Y2K problems, according to the latest market report from IDC Thailand, with the total value of the local market to be US$797.5 million (29,507.5 million baht). However, in a poll of distributors and suppliers at the end of the year, Database learned that sales increased substantially during the second half of the year and heard figures cited of a greater than 10 percent growth for the whole year. IDC Research Manager Pavadee Kananurak said in July that Thailand's IT market would continue to grow for the next few years. The primary reason was that the economy had now started to pick up. In addition, businesses had a high demand for IT solutions to solve the Year 2000 problem. Vendors that offer enterprise resource planning (ERP) solutions or supply chain management software would likely see growth. The services sector will also increase in value as larger enterprises demand more services in areas such as consulting, systems implementation, operations, training and support. IDC forecasts that the value of the service market will increase from around US$90 million (3,330 million baht) to more than US$150 million (5,550 million baht) in the year 2002. The average growth rate for services will increase from 11 percent to 14 percent in the year 2002. Hardware purchases including PCs, workstations, servers, storage devices, printers and peripherals will account for 60 percent of all IT spending. The second largest sector of the market will be software (17 percent), followed by networking devices (12 percent) and services (11 percent). PCs (portable PCs, desktop PCs and PC servers) will continue to be the number one area of hardware purchasing. The average market share for PCs will be 88.9 percent by 2003, while the server market will be eight percent and workstations three percent. Windows NT will be the operating system for Thailand servers, with 50 percent of the server market by the year 2002, while Unix will have 35 percent and the remaining systems, including Linux, VMS and AS/400, 15 percent.

In figures released by IDC to the Bangkok Post, Thailand did not rank highly in any of four categories that include ''information rank'', ''computer rank'' and ''Internet rank'' -- being rated 47th, 39th and 40th respectively, and was nestled between Colombia and the Philippines in overall placing.

''The very real threat is that countries that do not create a national information policy -- and make the attainment of this policy a priority -- will fall further and further behind,'' she said.

Asia-Pacific countries led the world in the growth rate of information infrastructure in 1997, with a 10% increase from the year before, while the US grew 7.9%, Europe grew 7% and Latin America grew 5.5%, according to the index.

However, despite Asia's growth and Singapore's ascendance, most other Southeast Asian countries are straggling behind most of the rest of the world, according to the ISI rankings.

Malaysia was ranked 34th, the Philippines at 46th, after Thailand, while Indonesia was next to last at 54th before Pakistan.

The survey showed IT growth increased by more than 8% worldwide from 1996 to 1997. Internet infrastructure growth, spurred by e-commerce, increased 103%.

Social freedoms and programmes that lead to infrastructure development actually decreased in some countries, leading to an overall drop of 1%, while computer and information systems grew at 10% and 9% respectively.

IDC's Global Research Services Programme manager Matt Toolan said that the study showed how effective policy translated into progress, adding, ''the Singapore example shows just how quickly effective legislation promoting IT use and telecom deregulation can make an immediate difference in the information wealth of countries''.

This ISI report tracks data from 55 countries that collectively account for 97% of the global GDP and 99% of IT expenditure, with research including 1997 actual data, 1998 estimates and forecasts through to 2002 for 23 different variables spanning four infrastructure categories.

Countries were ranked and placed in four different categories, with seven in the top category, occupied only by the United States and Sweden the previous year.

The survey put countries in the following rank for 1997: US; Sweden; Finland; Singapore; Norway; Denmark; and the Netherlands.

Australia, Canada, Japan and Switzerland led the pack of 18 that comprised the second grouping, according to an IDC source.

Continental European countries ranked lower: the UK ranked 14th, Germany 5th, France 19th and Italy 23rd.

Older European countries are very regulated when it comes to telecommunications carriers and handicapped in their ability to move fast to change, Mr Toolan said.

 

 

 

 

 

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