Taking Asia Digital

The sons and daughters of the region's old-line tycoons have made big bets on cyberspace

For four generations, members of Thailand's Lamsam family have run their business empire the traditional way. The clan elders, ethnic Chinese who own Thai Farmers Bank and the Loxley industrial group, called the shots without much input from the hired help. To communicate with the top brass at Loxley, for example, nonfamily members had to penetrate a rigid hierarchy, using deferential memos cluttered with flowery Thai phrases. The layers of control helped the Lamsams retain a firm grip on operations and discourage anyone from taking risks that could rock the family business.

Today, Loxley is undergoing a cultural overhaul. Still chafing from debt accumulated before Thailand's financial crisis, the group aims to use e-commerce to boost sales and cut costs at its chemical, trading, and consumer-products businesses. Building on its hot Internet service provider, Loxinfo, the group wants to develop Thai-language portals and do procurement online. And by using the group's intranet, all employees can directly contact Chief Executive Dhongchai Lamsam and his cousin, Executive Vice-President Vasant Chatikavanij, using chatty English. Deference, caution, and stifling control are out. The new philosophy? "Try 10 ideas and fail at 7--that's no problem," says Vasant, 43, who has helped spearhead the change after studying and working for 14 years in the U.S. "We have to make sure we are not dead."

Old-line family business dynasties across East Asia are coming to the same conclusion. The Internet has become the answer for oligarchs who are questioning their business models as never before. The region's meltdown set back their dreams of building global corporate giants based on property, heavy industry, and retail. Until then, Asia's insular ethnic Chinese empires were in no hurry to adapt to the Information Age. But now, conglomerates such as Loxley are trying to transform their managements, flatten their organizations, conduct business online, and forge new alliances or subsidiaries to provide Net content and access.

The takeoff of dot.com stocks also is teaching them that some of the richest real estate is now in cyberspace. "Before, they were talking about how I have this piece of land," says Canning Fok, managing director of Hong Kong infrastructure, telecom, and retail giant Hutchison Whampoa, which has a slew of e-commerce projects. "Now, they are talking about how I have this portal."

NET ADVANTAGE. By using their considerable wealth and connections to grab early leadership stakes in e-commerce, the dynasties hope to prolong their dominance of East Asian business. While their assets have shrunk since 1997, the region's billionaires are still the best positioned to raise the cash needed to build the Internet service providers, high-speed networks, and Web sites needed for electronic commerce.

Next-generation clan members, often educated in the West, are leading the push. In Hong Kong, Hutchison Whampoa Deputy Chairman Richard Li, son of billionaire Li Ka-shing, has turned his Pacific Century CyberWorks into an Internet power broker. Henderson Investment's Peter Lee, son of Hong Kong property magnate Lee Shau-kee, has unveiled a plan to deliver broadband Net access through the family's gas company. Jeffrey J.L. Koo Jr., 35, is investing in U.S. and Japanese start-ups in a bid to turn his family's Taiwan bank into an online force. And Supachai Chearavanont, son of Charoen Pokphand Group Chairman Dhanin Chearavanont, is unveiling an e-commerce strategy to revive TelecomAsia, the debt-ridden subsidiary of Thailand's agribusiness and retail powerhouse.

"It's scary," says venture capitalist Peter Liu, founder of San Francisco-based W.I. Harper, which has a $70 million Asian investment fund backed in part by Hong Kong's Sun Hung Kai Property, run by the Kwok family. "Everyone and his brother is trying to be an Internet company."

To many analysts, that is plenty of reason to be suspicious. Often, the Internet plays of leading conglomerates appear to be little more than attempts to keep up with rivals or to cash in on the newest fad. Asian investors fawned over practically any company with an Internet angle last year, notes Hong Kong-based Lehman Brothers analyst Philip Tulk. He regards many of these companies' Net plans as "all noise" intended to boost stock prices. As Asia's e-commerce field gets more crowded and as giants such as Yahoo! Inc. and America Online Inc. gear up, many such entrants are likely to be pushed aside.

There also are pitfalls to having the same tycoons become the overlords of Asian cyberspace. In the U.S., Net trailblazers weren't lifelong toilers in Corporate America but brilliant young innovators who built companies such as Netscape and Amazon. In Asia, where government decision-making remains opaque, old-line families still have the guanxi, or connections, needed for access to capital markets, deals, talent, and government favors. They could crowd out new players, stunting creativity. There's also a risk that some Asian conglomerates will treat Net service as they did franchises in other sectors--as cash-spinning utilities to be milked rather than as engines of growth.

But one could also argue that the big families are helping online business grow more quickly in Asia. Savvy, new-generation tech mavens such as Li and Koo have become key patrons to dozens of young entrepreneurs. Many are helping finance startups in Asia as well as Silicon Valley, often working with Net-investment pioneers such as CMGI Inc. or Japan's Softbank Corp.

True, Richard Li's $1.6 billion Cyber-Port--an industrial park for information-technology companies--stirred controversy in Hong Kong because Li got public land without competitive bidding. But Li's entrance also "has really galvanized a lot of interest in the sector," notes Christopher Justice, CEO of Asiacontent.com, a year-old Hong Kong company that has local franchises of such sites as C-Net and MTV Asia.

Others have benefited more directly. Chih T. Cheung, 29, is founder and CEO of HelloAsia.com, a new portal. HelloAsia offers "loyalty points" that users can trade for advertisers' products. Cheung worked for Koo during a summer break from Harvard Law School and credits him with getting his company off the ground by leading a $20 million investment. The stake is a small part of Koo's e-commerce strategy to transform the family business into Taiwan's financial leader (box).

Hong Kong's Li family is making the biggest splash. Richard's Pacific Century CyberWorks plans to deliver high-speed Net access and programming across Asia via satellite and cable. CyberWorks has attracted such partners as Intel and DaimlerChrysler. On Jan. 25, it unveiled a pact with CMGI to develop Asian versions of AltaVista and other popular sites owned by the U.S. company. Meanwhile, father Li Ka-shing, whose net worth is estimated at $13 billion, is moving to ensure that family flagships Hutchison and property giant Cheung Kong Holdings also are at the forefront of the Net revolution.

The elder Li has joined with U.S. telecom company Global Crossing to hook Hong Kong to the U.S. with submarine fiber-optic cable to offer high-speed transpacific Net service for corporations. Li's new tom.com hopes to be the top Chinese-language portal for e-commerce. Cheung Kong and Hutchison plan to form a business portal with banking giant HSBC. A month earlier, family-controlled cellular operator Hutchison Telecommunications got a boost when Japan's NTT DoCoMo paid $410 million for a 19% stake. That should position Hutch ahead of local rivals in the rollout of wireless Net services, in which DoCoMo is a leader.

The Lis' retail empire needs the online business. ParkNShop supermarkets and Watson's drugstores are battling maverick businessman Jimmy Lai's adMart, a virtual retailer selling goods via fax, phone, and the Web at cut-rate prices. But Hutchison figures it has an edge: Late this year, its joint venture with Compaq Computer Corp. is to launch an exclusive service that will let Hong Kong citizens register for government services online--and also gain access to Hutchison retailers. For instance, ParkNShop and Watson's can offer baby products to new parents who use the site to obtain birth certificates.

By catching Hutch napping, Lai's bargain service illustrated a major challenge facing entrenched dynasties. Thriving for years against limited competition, Hutch didn't have to worry about customer service. That won't do in the Net Age. But developing a culture of speed, flexibility, and responsiveness isn't easy for an established conglomerate. David C. Michael, head of Boston Consulting Group's e-commerce practice in Hong Kong, argues that new initiatives won't mean much unless Asian blue chips also adopt a more relaxed workplace. "If everyone in the company wears a uniform and works 8:30 to 5:30," Michael says, "there is a very strong culture that isn't conducive to the kind of people you need to create an e-commerce business."

Thailand's Loxley Group is trying to address that problem head-on. Vasant and his cousin Dhongchai are dismantling barriers that prevented interaction within the group. Half of Loxley's 3,000 employees now use the company intranet. "Everybody has become more informal," says Vasant, who wears khaki pants and a polo shirt to work. "Informality creates a lot of idea flow."

Vasant can point to results. Last year, several low-level employees contacted him with an idea to convert one of his failed projects--a smart-card system that Loxley employees were to use in the company cafeteria--into a new business. Within six months, Loxley rolled out iKooL, a card that allows users to access the Web from sidewalk kiosks. By yearend, Loxley wants procurement officers in all group companies to buy office furniture and equipment online, reducing paperwork and saving about $300,000 a year. Such savings would help Loxley, which is shouldering a $200 million convertible bond left over from the financial crisis.

Updating management is also a top priority for Yvette Ong, chief executive of New World CyberBase, the Net investment arm of the New World hotel, telecom, and property group. "This is not a property company. It can't be run like a traditional business," says Ong, 35, who isn't a member of New World's ruling Cheng family. She promises "a new-wave management style" and "an organization that moves at the speed of lightning." Ong has worked with consultants to create a culture that is different from the rest of the New World Group. CyberBase staff work in teams, avoid titles, and don't stick to specific roles. "This is like a startup, where people can be pulled together to innovate and easily mobilized to get things done," says Ong. CyberBase's main business is a service offering public videophones at Hong Kong's airport. Other deals are in store.

But don't expect the new culture to penetrate the entire group soon. CyberBase's management style "has no impact on the running of New World Development," the group's flagship, says Managing Director Henry Cheng, also chairman of New World CyberBase. Just because the group has Internet offshoots "doesn't mean we are adopting Internet functions in all parts of our company."

The hesitance to go all the way in transforming tradition-bound conglomerates does raise doubts about whether they are ready for the Net Age. Some come off as merely mimicking the lingo and management fashions of Silicon Valley. Other Net schemes seem contrived--or look like property deals with an IT twist. Take the proposed Cybercity Internet hub in Jakarta, backed by the Soeryadjaya family. The family once controlled Astra Group, whose businesses ranged from autos to electronics to agribusiness. It lost control in the mid-1990s, after Edward S. Soeryadjaya, son of founder William, lost hundreds of millions of dollars in property and finance schemes.

But Internet fever has given Edward, 51, now executive committee chairman of Singapore-listed L&M Group Investments, a shot at redemption. With help from Jakarta's city government, he wants to turn an abandoned airfield into an IT hub modeled on Li's Cyber-Port. The 430-hectare site seems an unlikely place for a tech haven. On a recent weekday morning, a handful of workers lounged in an empty square framed by old airplane hangars while loudspeakers piped in Bob Marley singing reggae classics such as I Shot the Sheriff.

Soeryadjaya didn't know what to do with this land. "How can it be developed?" he says. "To make it a Shoe City or a Garment City doesn't sound good." A Cybercity does. While neighboring Malaysia has had limited success in creating a similar IT hub from scratch, Soeryadjaya insists his plan can work in Indonesia, where only 1 in 700 people is online. "Indonesia can't escape being part of the global trend," he says.

Other Asian families seem more realistic. Thailand's CP Group was burned badly in the 1990s. Its TelecomAsia unit built too many phone lines and buried itself in debt it could not repay. Boston University-educated Supachai, the new CEO, insists the e-commerce push is "totally different." With its telecom concession, the government dictated the number of lines to install and got a big cut of revenues. Now, "we have a choice to start to invest in small portions and try out the market first, instead of running into a huge investment right away," he says. "We will be growing with the market."

Such caution is counter to the way most dot.coms were built. In the U.S., Net leaders took bold moves to make a splash, even if it meant losing gobs of money. Many Asian conglomerates burned in the crisis are not yet ready to take that kind of risk. So it may be harder for them to build up market share across the region. Still, the families have sizable advantages. During the depths of the crisis, few seemed capable of rising to the Internet challenge. But most were strong enough to weather the storm. Now that they've awakened to the new realities of a competitive world, the dynasties have a chance to build the commercial empires of the future rather than fade away as Asia charges into the new era.

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