Issues such as intellectual property protection and the US-China trade wars could dissuade some companies from investing in Asia in general, and China in particular, but there is still plenty of interest in the region. In China, Beijing is tightening its grip on its thriving tech industry, forcing companies such as Alipay to hold off on their public debuts, launching probes against companies like Didi Chuxing and restricting domestic start-ups’ ability to list abroad.
However, are things really as bad as they seem? After all, in many ways the Asian markets have weathered the turmoil of the past 18 months better than other regions of the world.
Take mergers and acquisitions (M&A) deals for example. Given the pandemic, it shouldn’t come as a shock that 2020 wasn’t the best year for M&A deals globally. A GlobalData review reports that $2.87bn-worth of M&A deals were announced over the 12 months across the globe, a decline of 5.4% from 2019. Deal volume also posted a year-on-year decline of 4.8%. However, investment in Asia tells a very different story.
Here’s where it gets interesting: the same report notes that while deal activity remained muted across most regions, Asia-Pacific was the only region that managed to witness growth in deal value as well as volume. Total deal value and volume for the Asia-Pacific market increased from 6,594 deals worth $486bn in 2019 to 7,621 deals worth $666bn in 2020, a 15.6% and 37% increase, respectively. The region’s technology sector led the way with a 121% growth in deal value and a 45% jump in deal volume.
GlobalData puts this success down to the fact that several Asia-Pacific economies managed to control the spread of Covid-19 and recover relatively quickly compared with the rest of the world. China in particular led the way on this front and accordingly led M&A deal activity during the first two quarters of 2020, when the pandemic and related uncertainty was gaining strong momentum globally.
This, contrary to any pandemic-related misgivings, could suggest that expanding tech companies looking to up their investment in Asia would do well to set up a base in China.
How Payoneer became a pioneer
One company that entered Asia long before Covid hit was commerce tech brand Payoneer, which is headquartered in New York but opened its first Asian offices in Hong Kong in 2015. Since then the company has opened three offices in mainland China: in Shenzhen, Shanghai and Guangzhou.
Opening an office in China was a natural step for us as China is a world leader when it comes to cross-border e-commerce and has been for years. Charles Rosenblatt, Payoneer
“Opening an office in China was a natural step for us as China is a world leader when it comes to cross-border e-commerce and has been for years,” says Charles Rosenblatt, Payoneer’s chief strategy officer.
“As the world enters a new era of commerce, China remains at the leading edge of digital and borderless trade. Today, there is a new focus in China on social commerce – livestreaming, gaming and more. We expect to see other countries quickly follow suit.
“While we do have other offices in countries throughout the Asia-Pacific region, China is a crucial hub as sellers based in other countries throughout Asia and beyond look to China for guidance on how to grow their own cross-border sales.”
Rosenblatt believes the Covid-19 pandemic showed this power in action, with the shutdown of the Chinese economy impacting commerce all over the world as almost all major manufacturers are heavily reliant on Chinese supply chains and businesses.
However, speaking with other industry insiders, a more complicated picture of Asia emerges, one that presents various options for technology brands looking to expand into the region.
Asia investment and the Great China Flight
Covid-19 may have demonstrated China’s resilience in tech and pandemic handling, but other factors mean companies aren’t necessarily scrambling to open bases in Shanghai or Beijing. Hong Kong too has lost some of its lustre in attracting outside business, with the number of foreign company offices there having fallen in 2020 for the first time in 11 years.
The exodus is caused by a number of reasons. These include China’s controversial national security law, a new data security law forcing Big Tech to share information with the government and the increasing influence of tech hub Shenzhen.
Hong Kong, though, was never a technological stronghold to begin with. Instead, it offered a chance for businesses to make money on China and Asia-Pacific’s doorstep with little regulation, much like Singapore. However, companies are feeling spooked and leaving the mainland, with US companies leaving China due to the ongoing trade war, while big names such as Alphabet, Dell, GoPro, HP, Intel and Microsoft downsize or are rumoured to be downsizing Chinese manufacturing.
Asian companies are doing the same: South Korean giant Samsung Electronics shut its last Chinese smartphone, TV and PC factories in 2019, while Kia and Hyundai have closed key car manufacturing plants in the country.
While LG and Hyundai Mobis have both done the same and ramped up manufacturing in South Korea, most Asian tech brands are moving manufacturing to South East Asia, with Samsung, Sony and Nintendo moving to Vietnam, joining US plants from Intel, Microsoft, Apple and Alphabet. Thailand is also getting some investment from Sony, Apple and Alphabet.
The rise of Taiwan
Taiwan, situated within close proximity to both East Asia and South East Asia, has also seen home-grown hardware-makers such as Quanta Computer, Asus and bike/e-mobility brand Giant bolster factories back home, adding $9.2bn to the Taiwanese economy in 2020. According to Jeremy Olivier, senior editor of Taiwan Business Topics, this is down to the US-China trade dispute forcing a large number of Taiwanese businesses with operations in China to reconsider the extent of those operations.
Many [Taiwanese businesses] began relocating some or all of their production to Taiwan or other locations in South East Asia [from China]. Jeremy Olivier, Taiwan Business Topics
“Many began relocating some or all of their production to Taiwan or other locations in South East Asia,” he says. “InvesTaiwan, an office under the Ministry of Economic Affairs, reports that programmes it launched in 2019 to take advantage of this trend have to date attracted more than NT$1tn ($36.11bn) in actual and pledged investment.
“Considering the rising costs of labour and raw materials in China and the increasingly less hospitable environment for foreign businesses there, we are likely to see this pattern continue.”
However, while Taiwan arguably weathered Covid better than China or any other country in the world, the country isn’t yet replacing Hong Kong, Singapore or even China in the eyes of foreign tech names looking to increase their Asian investments.
Mark Stocker, managing director of Direction Design Group (DDG), a leading brand consultancy based in Taipei and previously Shanghai, notes that while international news outlets such as the New York Times are leaving Hong Kong for elsewhere, he feels corporations “are still very much interested in opportunities in China”.
“There is some level of diversification within manufacturing, particularly in the technology space,” he adds, “but this doesn’t mean companies are pursuing a wholesale exit from China.”
Olivier notes that while multinationals have long viewed Taiwan as an ideal place to invest, expand operations and do business in, he hasn’t seen a marked uptick in the number of international companies looking to open or relocate regional HQs in the country.
“However, the interest in starting or increasing investment on the island has definitely shot up in the past few years, particularly in the tech, [R&D] and renewable energy sectors,” he adds.
“This can clearly be seen in the recent major investments made by companies such as Microsoft and Google, which plan to open large R&D and data centres in Taiwan, as well as offshore wind developers such as Ørsted, whose wind farms off the coast of Changhua are set to power the fabs of Taiwan’s ‘silicon shield’, TSMC.”
Through its semiconductor prowess amid the ongoing worldwide chip shortage, Taiwan already holds a lot of power and attraction on the tech stage; Olivier notes the city of Hsinchu as being the centre of Taiwan’s tech and semiconductor ecosystem.
“Another major location is Taoyuan, which is working hard to attract investment with its Aerotropolis development project,” he adds. “In addition, I have heard it mentioned recently that the next several years will be a ‘golden age’ for high-tech development in southern Taiwan.
“Both Tainan and Kaohsiung [cities in the south] are home to separate campuses of the Southern Taiwan Science Park, and given that the north is becoming overbuilt and more land is available down south, this area could very well become a hotspot for Taiwan’s tech industry in the coming years.”
Dragons in the Lion City
For all of China and Taiwan’s power, South East Asia seems to be the hotspot for Asia investment in technology, especially fintech. London-headquartered Napier, for example, a provider of AI-infused regulation technology solutions, opened a second Asia-Pacific office this year in Kuala Lumpur, joining Napier’s Singapore base, which opened in the region in 2020.
Singapore has also attracted Icelandic fintech company Meniga to open its first Asia-Pacific base, where it has launched banking apps for the likes of Singaporean multinational banking group UOB.
There is this impression that Singapore serves as a gateway to the world financially, much like Hong Kong, where your money will be free to move anywhere. Mark Stocker, Direction Design Group
So what makes Singapore, ‘the Lion City’, stand out above other locations in the region? For Stocker, it is all about marketing.
“Singapore has certainly done a better job than Taiwan and Japan in building an image as a safe haven for corporate and personal finances,” says the DDG managing director. “There is this impression that Singapore serves as a gateway to the world financially, much like Hong Kong, where your money will be free to move anywhere. Although other countries offer the same freedom of financial movement, there isn’t so much this impression with Taiwan, South Korea and Japan.
“Another concern for Taiwan, true or not, is that no one is capable of saying whether or not Taiwan is only a few years or decades behind Hong Kong in terms of its integration with China, and that each new election in Taiwan opens the doors to a change in the current relationship. Singapore isn’t in this situation, and for this reason is probably seen as a safer long-term bet.”
For Robin Lee, head of Asia-Pacific at Napier, the Singapore and Malaysia move brings the brand closer to customers that operate both locally in the region and across global markets: banks, payment providers, foreign exchange and other financial services companies.
“While our customers can be based or operate right across Asia-Pacific, we chose Singapore and Kuala Lumpur because of the ease of doing international business in both places,” he says. “They both have really exciting tech cultures that help to drive innovation, and with that we have also got a wonderful pool of talent from which to recruit.”
Georg Ludviksson, CEO and co-founder of Meniga, says that Napier’s partnership with the bank, one of the largest in Asia, prompted the Asia-Pacific market expansion. He adds that the city state lies “at the heart of one of the most advanced fintech ecosystems in the world”, South East Asia, implying perhaps this Asia-Pacific sub-region offers a more exciting prospect than the Eastern leaders of China, Japan and South Korea.
“Singapore also has a demographic of digitally connected and tech-savvy millennials, which offers a perfect test bed for our solutions,” adds Ludviksson.
“Since opening [the office] back in 2019, our footprint in the region has gone from strength to strength. Beyond helping UOB roll out the first gamified digital bank of South East Asia across Thailand and Indonesia, [we assisted] in the launch of UOB’s Mighty app across Singapore and Malaysia.”
The CEO is confident that Meniga will soon be introducing digital banking solutions to “many more markets” in Asia-Pacific, begging the quesion: where does China fit in this picture?
“Although we have no immediate plans to expand to China, we are always on the lookout for new innovative banking partners around the world, and are currently in talks with several other banks across Asia,” says Ludviksson.
“That said, our areas of focus are [to keep] expanding the global footprint of our green banking solution Carbon Insight, which integrates into banks’ digital properties and allows its mobile app users to track their carbon footprint based on their spending data.
“With China being home to a growing population of carbon-conscious consumers and numerous innovative and forward-thinking banks, it would be hard to rule out launching [our solution] in the Chinese market in the near future.”
For Napier’s Lee, China is “definitely an important market” and the brand is already working with Chinese customers, including government institutions, to combat financial crime.
“A dedicated China base would be extremely viable and something that we will no doubt look towards,” he adds.
Hurdles for businesses in China
However, setting up in China may be trickier than doing so in Singapore and also Taiwan, according to DDG’s Stocker.
I feel that one finds the government departmental staff here in Taiwan more willing to assist you through the process, where in China there is less interest in helping you with the process. Mark Stocker
“We set up the Shanghai office nine years ago,” he says about DDG’s China footprint, which wound down this year due to the impact of Covid. “The process was not dissimilar to Taiwan; however, there were a lot more hoops to jump through in terms of setting up bank accounts, setting up with various government departments, signing on employees.
“Overall, I feel that one finds the government departmental staff here in Taiwan more willing to assist you through the process, where in China there is less interest in helping you with the process,” Stocker continues, adding also that DDG had great assistance from a local Shanghai accounting firm for the process back in 2012.
From Payoneer CSO Rosenblatt, the advice for foreign companies looking to join his brand in China is that the transition isn’t as hard as controversy about the country may make it look.
“There is definitely a certain mystique around doing business in China, but the reality on the ground is that operating in China is no different to entering any other market,” he says. “You have to understand your customers, be where they are, speak their language, follow local regulations and adapt to local business needs.
“For example, consumers and businesses in Asia use far more diverse payment options than their counterparts in the US and Europe; in order to flourish in China and greater Asia, being able to offer a variety of local payment methods is crucial.
“The key is putting people where your customers are, so you can be truly global and local at the same time.”
By Verdict’s Giacomo Lee. Find the GlobalData Global and Region M&A Report: Financial & Legal Adviser League Tables 2020 here.