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Fast-growing cloud driving Asia’s digital transformation

451 Research says venture funding is following government investment into cloud computing in Asia.



Governments around Asia Pacific are increasingly betting on digital transformation to grow their economies, and investing in cloud solutions to get there.

In turn venture funding and bank and enterprise adoption is powering a massive digitalization, says Agatha Poon, senior research analyst at 451 Research, a unit of Standard & Poor’s.

She calculates that today’s cloud industry in Asia Pacific reached $34 billion in revenues in 2020, a figure that will almost double, to $67 billion by 2025. The top three markets (China, followed by Australia and Japan) are growing cloud businesses at a compound annual growth rate of 14.6 percent. More than 70 percent of this is for infrastructure services, with software and platform services accounting for the rest.

This has sparked a frenzy of dealmaking in the cloud and tech-vendor space. In Asia Pacific over the past 22 months, the top 15 vendors have engaged in 232 deals valued at $70 billion, Poon said.

Big companies such as Accenture, Microsoft, IBM and Tencent are snapping up specialists in artificial intelligence, information security, data analytics, and robotic process automation. These companies are also among the biggest corporate backers of startups in the region.

Public-sector led

In some respects Asia is still in catch-up mode. Although some places like Korea boast tech-savvy populations, the fact is that even in Japan and Singapore, only about 50 percent of the population have basic internet and computing skills – and less in emerging markets.

“The openness of governments [to cloud and digital] correlate to the pace of market innovation,” she said.

That is because, unlike the Americas or Europe, in Asia the public sector remains the biggest user of cloud, a trend she expects to continue. Enterprises including financial services are more likely to rely on internal servers, although more are taking a hybrid approach.

Cloud adoption is fastest in China and India.

China is the region’s biggest market, and if anything that margin will only widen. Governments are big supporters of investing in cloud infrastructure, including at the provincial and city level – and not just in rich cities like Shanghai but across the country. This is enabling more businesses in areas such as retail and manufacturing to incorporate artificial intelligence into their operations. It also supports country’s huge startup scene.

It’s a similar story in India, which 451 Research predicts will become the region’s third-biggest market for cloud services by 2025, overtaking Japan. India has around 53,000 startups, still a small number compared to China’s 1 million-plus, but still a large number and growing, with innovation happening across services, ecommerce, fintech, and many other areas.

Governments in the region’s wealthy markets such as Japan, Korea and Singapore are promoting digital initiatives, such as 5G and virtual reality in Korea and cloud adoption in Australia.

Adoption in emerging markets is more driven by the private sector, as big conglomerates adopt cloud and other digital tech to keep pace with consumer demand for digital as a result of COVID. This is creating new opportunities for the cloud services market.

Enterprises respond

The public sector is also the biggest driver of other technologies that benefit from widespread cloud adoption. China, Japan and Korea fund a lot of research in artificial intelligence and machine learning, while China and Singapore are at the forefront of designing rules and standards around AI ethics.

Smart-city agendas in places such as Beijing, Tokyo, Seoul and Taipei are also encouraging mobile penetration, which is setting the stage for Internet of Things and 5G applications; smart vehicles is one use case being tested in these places.

Although governments have been investing in cloud and other digital technologies for some time, the pandemic has speeded the demand side. Businesses worldwide are increasingly reliant upon flexible workplaces and collaborative technologies, while slashing corporate travel.

This is forcing companies to accelerate digital transformation, which includes a greater focus on cybersecurity, employee productivity, and business agility, according to 451 Research surveys.

It is not, however, having a big impact on things that companies like to talk about, such as environmental and social responsibility, or diversifying supply chains, Poon said. Digitalization is not having much impact on those feel-good stories.

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