By Tom Duncan
Executive Director of Data Centers Asia Pac
CBRE Pte. Ltd.

 

Asia encompasses some of the largest globally connected economies, as well as many of the most desirable emerging data center markets in the world. However, regulatory challenges and unique barriers to entry require careful navigation and a significant investment of time. Nonetheless, a prudently designed and well thought out approach to entering the Asian data center marketplace can reap significant rewards.

Differences Between the US and Asian Markets

One major difference between US and Asian markets is physical geography. Asia, the world’s largest continent, is massive in size in comparison to the US. Asia’s major markets, some of the most populated and fastest-growing cities in the world, are also more spread out within the continent. Singapore and Hong Kong, Asia’s two largest markets for example, are four hours apart by plane, with very little in between. Since one data center can’t effectively serve more than one large market in Asia, latency tends to play a major role across the continent. Rather than building big data centers in one or two markets, hyperscalers are deploying smaller operations in multiple markets.

This tactic presents its own challenges as cultural diversity also represents a difference in the two markets. The US market is considered a homogenous trading block, but with so many different countries and cultures across the Asian landscape, entry into each specific country offers its own unique barriers to entry. Entering multiple countries in Asia is far more difficult than operating in multiple states in America. You will need to adapt your business to multiple cultures, juggle a variety of native languages, and negotiate with very different governments in order to effectively diversify.

Advantages of Entry

Perhaps the biggest advantage of entering the Asian market is the markets themselves. At some point in the not so distant future, China is likely to become the largest global economy. Asia is also home Singapore and India, massive markets that are easier to enter than , along with a great deal of emerging markets, like Vietnam and Thailand. Singapore is a great market to consider because you won’t have to worry about a language barrier, they are very pro-technology, and they are geographically located tnearby submarine landing stations.

There’s a great deal of opportunity in opening a facility in Asia, with increasing demand throughout the entire region. In Singapore, for example, rapid growth over the last 18 months has expanded the colocation market by upwards of 80%.  This growth is a promising sign considering Hong Kong went through a similar expansion just a few years prior. Some of the emerging markets mentioned by Tom Duncan could go through similar growth spurts over the course of the next few years, making now an opportune time to enter.

Barriers to Entry

The biggest barrier to entry in most Asian countries is the political climate. Asian governments tend to be highly involved in deals where foreign companies enter the market, and are very concerned with the idea of money leaving the country. Countries like Thailand and Vietnam can be particularly difficult to enter for this reason.

Some Asian countries are itching to do business and bring foreign companies in, but it has to be done on their terms. China has very strict rules for entery, including this upcoming ban on VPNs. In India, you may have to adapt your business to meet cultural requirements, but the requirements are more or less set in stone with rules for entry that are consistent from one company to another. A place like Vietnam, on the other hand, may force different regulations from one business to the . So barriers to entry will vary drastically from country to country.

Japan would be exceedingly difficult to enter, for several reasons. Outsourcing has never been embraced as they prefer to keep things internal. The data center market is small compared to the population. Timing would be a significant hurdle. Construction would take at least 18 months as they don’t have the construction resources needed to facilitate a faster build. Power would take even longer to get. A best-case scenario means you would receive power to your site in 24 months.

For some countries, the location of the facility can present challenges. Hong Kong, for example, is concerned with additional pollution caused by data centers within city limits, which may require finding a location situated outside of the city. In other countries, vacant land is owned by the government. So, in addition to negotiating to enter the country, you will have to negotiate to purchase the land – on their terms, of .

Overcoming the Challenges

Understanding the political landscape is key. Before spending the time, money and energy in trying to do business in a country, be sure that your company’s core business ideas can be aligned with the requirements that government will require.

In many Asian countries, it’s tough to predict what hoops you’ll have to jump through, until you engage the government. In order to engage the government, you’ll need a local partner in the market you intend to enter. Whether that means an individual negotiating on your behalf, or allowing full or partial ownership of your company, it’s critical that you have a citizen and native speaker of the language to partner with. In some countries, the government will choose a partner for you, rather than allowing you to seek one out yourself.

While expanding into the Asian market is difficult, the potential benefits may be worth the risk. For help determining if making a move into the Asian market is right for you, or for more information about this topic, contact Tom Duncan of CBRE at tom.duncan@cbre.com.sg.

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