Look for Mundane Companies to Profit From the Internet in Asia

Raymond Ch'ien, chairman of chinadotcom (CHINA:NASDAQ - news - boards), the pan-Asian Internet firm, likes to compare the last few months to The Perfect Storm.

Like the boats caught in the hurricane, virtually no tech company could escape this spring's Internet collapse -- especially Asian tech firms. Chi'en's own company, once an Asian tech favorite, has been hammered since March, falling from a high of $78 a share to roughly $15, an 81% drop.

But Asian tech companies can survive -- at least, the smart ones can -- by finding a safe harbor. This means having a sound business plan and finding a way to make a profit from the enormous growth potential of the Internet in Asia.

Making money off the Internet in Asia was the topic of a conference chinadotcom hosted Tuesday in San Francisco at the glitzy Sony Metreon shopping center. It was called Opportunity Asia, but the conference made it clear there are as many risks as opportunities when it comes to the Internet in Asia.

Ch'ien told TheStreet.com that the company was hosting the conference to "reaffirm that the megatrend is still there." Indeed, it is important to remember the enormous potential that growth in the Internet in Asia presents. The region is a compelling combination of two apparently contradictory trends. Asians are playing catch-up, just beginning to use the Internet, albeit at incredibly rapid rates. Internet usage is doubling every six months in China alone.

Even granting that millions of Asians are too poor to afford computers or Internet charges, there is still a market of hundreds of millions of people in the region. At the same time, the region is leapfrogging the West, as Asians, particularly in Japan, South Korea and China already surpass western, especially U.S., usage of mobile phones. Plus, they possess an eagerness for new mobile gadgetry that is unmatched here.

But the conference also demonstrated that it could be a long time before that potential is realized. The conference included presentations from a wide range of Asian companies, from Hong Kong wireless provider Sunday (SDAY:Nasdaq ADR - news - boards) to retail outsourcer Li & Fung, speculating on how to make money off the Internet in the region. They all pointed to a series of significant obstacles.

Yes, the region is hooking up to the Internet, but electronic commerce, especially by consumers, is in its infancy. There is little fondness for credit-card transactions throughout much of Asia and distrust of submitting a credit-card number over a Web site. There are also infrastructure problems in the region: a scarcity of warehouses to store merchandise, for example.

Not to mention companies that appear to be in good shape but may not know how to make money. "The new buzzword is now P2P: path to profitability," said Pauline Lo Alker, CEO of Amplify.net. She described "the four sins:" "big hat, no cattle," meaning looking like you have a business plan but not really having one; "lipstick on a pig," trying to make an ugly business look attractive; "1-mile wide, 1-inch deep," lacking a focus; and "true greed," focusing only on the short term.

And then, of course, there is the slowing of global growth, with possibly even a recession looming in major economies because of higher oil prices. Many Asian tech companies are counting on being profitable by 2001 or 2002, expectations that could be swept away by an oil-recession typhoon. That's a worst case scenario, but it's a real one.

Nevertheless, over the long term, the potential in Asia is also real, and there will be winners. Yet, as easy as it is to get excited about the Internet in Asia, the conference indicated that the ways to make money on it may be the most mundane. Craig Ehrlich, a managing director at Sunday, expects the company to make the most money simply by signing up new customers, not through mobile commerce.

Li & Fung is not a tech company, but it is using technology to better manage the supply chain with its customers. It does not trade in the U.S., but it is the chief holding of the Matthews Pacific Tiger Fund. The fund is up 13.5% from last year, beating the category average by nearly two percentage points.

Sometimes it is the mundane stuff that makes money. Take Tuesday's conference. The gathering was held in the Metreon's IMAX theater, which happens to be the highest-grossing movie theater in the country. Although the theater is a high-tech showcase, it is currently showing a Siegfried and Roy 3-D movie.

Enough said.

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David Kurapka's Global Portfolio column appears Mondays, Wednesdays and Fridays on TSC. In keeping with TSC's editorial policy, he does not own shares in any companies or mutual funds mentioned in this column. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback and invites you to send it to David Kurapka .