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China techs driving data center investment across Southeast Asia

Alibaba, Huawei and Tencent challenge Google, Amazon beyond Singapore

BANGKOK -- A string of new data centers across Southeast Asia has highlighted rising regional demand for digital services served by big tech names from China rather than the likes of Google and 

Alibaba Cloud, an arm of e-commerce giant Alibaba Group Holding, opened a data center in Malaysia in late October. Its first outside mainland China was built in Singapore in 2015, and there are 15 now spread through Australia, Japan, Europe, the Middle East, and the U.S.  More are planned for India and Indonesia in 2018.

Meanwhile, Huawei Technologies, one of the world's biggest telecom equipment suppliers and a major handset maker, announced in November it will invest at least $10 million next year in a data center in Thailand located in the Eastern Economic Corridor, which adjoins the Eastern Seaboard along the Gulf of Thailand. The center will host some of the country's public sector cloud services, including a natural disaster warning system.

Shenzhen-based Tencent Holdings, the world's largest games company by revenue and China's biggest social media operator, reportedly also has plans for Bangkok, and is considering India, Russia, Japan, and the U.S.

Search giant Baidu is meanwhile developing technologies and information systems that will regionalize its web products for Southeast Asia, including its flagship search engine. The company opened a research center in Singapore in 2012.

Tencent and Baidu did not respond to the Nikkei Asian Review's questions about their expansion plans.

Fourfold growth by 2025

China's interest is a response to surging demand in Southeast Asia for digital services, including e-commerce, mobile payments, and internet access. Some regional governments are also showing signs of wanting to retain certain data on home turf.

Southeast Asia's internet economy covers everything from games to online travel and ride hailing, and its expected turnover this year is $50 billion. On the present growth trajectory, it should grow fourfold by 2025, according to a joint report by Google and Singapore's Temasek Holdings in December.

The report expects Southeast Asia to have 330 million active internet users by the end of 2017 -- equivalent to the population of the U.S. and 70 million more than in 2015. Sales of goods through e-commerce will reach $10.9 billion in in 2017, almost double 2015.

The sums involved are too large for Alibaba Cloud to ignore. Its data center in Kuala Lumpur will "support the growth of small and medium enterprises and other businesses in the region", said Simon Hu, the company president.  

The cost of the Kuala Lumpur data center has not been revealed, but its products include elastic computing, database services, networking, security, middleware, analytics, and big data. The main target clients are large corporations and smaller internet companies offering games, multimedia, and financial services. The government sector is also a potential client. 

Explosive digital needs

While there are no authoritative figures available for Southeast Asia, U.S. business consultancy Frost & Sullivan estimates the data center services market in Asia-Pacific will grow at a compound annual rate of 14.7% between 2015 and 2022, reaching almost $32 billion by 2022. "The key theme driving growth across the Asia-Pacific is the explosive digital needs of emerging economies with huge populations such as China, India and Indonesia," the company said.

 The sector was initially driven by Google and, with Singapore as the location of choice due to its proactiveness in terms of tax incentives, business environment, and infrastructure. Google kicked off in 2011 with a $120 million investment in a regional data center there. Chinese rivals are showing themselves more prepared to venture beyond Singapore, and various regulatory requirements could encourage that trend. The Indonesian government, for example, is requiring that businesses conducting electronic transactions must store their clients' personal data inside the country. Other Southeast Asian countries have yet to follow this, however.  

The Chinese are taking on Western heavyweights, and will face challenges recovering their investments. For Alibaba, "right positioning, pricing, and local alliances will be the key to success," according to Baseer Siddiqui, a consultant at IDC in Malaysia, a U.S.-based market intelligence company. 

Changing landscape

Baseer told the Nikkei Asian Review that some enterprises prefer providers like and Microsoft because they offer better service capabilities, process maturity, and have already evolved best practices for the tech environment. Although IDC expects the landscape will change with Alibaba Cloud's arrival, he believes a lot of effort will be needed to build "trust and confidence" -- among many challenges. 

Tencent's overseas data centers mainly serve Chinese enterprises expanding internationally, or foreign companies developing in China. The centers offer globalized business solutions for video livestreaming, game servers, artificial intelligence, networking, and security services. 

John Choi, head of China internet research at Daiwa Capital Markets in Hong Kong, said that there is still a big gap between Chinese internet companies and their global peers in terms of research and development spending, particularly on artificial intelligence that is so critical to cloud computing. He expects the gap to narrow in the coming years because of strong government support, more research funding, deep pools of talent, and private investment.

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