CEO Survey Reveals Mixed Outlook for Asia Pacific Tech Sector in 2011

While 54% of Asia Pacific's CEOs have a strong growth outlook for the next 12 months, 43% predicted weak or negative growth, finds Deloitte's annual Technology Fast 500 Asia Pacific CEO Survey. CEOs from China and India showed the strongest optimism, while those from Japan, South Korea and New Zealand saw a bleak future.


Even with the economic rebound this year, 35% of CEOs surveyed said they had mixed performance in the past 12 months and 10% said they saw overall decline in their business this year. The majority or 49% however, said they experienced strong growth this year.


“Over the nine years of this program, the prevailing attitude of CEOs has been of optimism and expectation of fast and sustainable growth. However, this optimism seems to have waned the past 12 months. As for the future, the CEOs see a mixed and cautious outlook, but they also see growth potential especially in exciting niche areas,” says Jolyon Barker, Deloitte Touche Tohmatsu Limited (DTTL) Managing Director for Global Technology, Media and Telecommunications (TMT).


External Factors for Growth


Most of the CEOs surveyed said they see opportunities for growth in the next 12 months as the industry sectors they are selling their products in, such as Green Tech, accelerate demand and rebuild inventories.


Many of them also said the continued economic recovery will boost business outlook for next year, as well as the diversification into new geographical markets, the growing availability of capital and qualified recruits, and lower input prices.


On the other hand, the CEOs said factors that can negatively impact growth include rising input prices, falling availability of qualified recruits, rising taxes (corporate and other levies), higher cost of capital, growing regulation and compliance requirements and political instability in the markets they are selling to.


“Each year companies in Asia Pacific emerge into tech leaders by innovating, overcoming obstacles, and excelling in diverse and amazing ways. Over the past year, the tech sector has been particularly resourceful in sustaining growth in the face of economic pressures,” says Yoshitaka Asaeda, Deloitte Japan partner in charge, Technology Fast 500 Asia Pacific program.


Back to the Basic Principles of Growth


The ranked companies remain firmly focused on business vision, strategy and operations even through recession. They have made sure their products and services are focused on fulfilling the needs of customers, and have positioned themselves in markets and niches that foster growth.


The power of a good product is seen across the region. More than half (58%) credit a strong product as a key factor for growth over the past five years, and 71% center growth prospects on new product launches. Selling capabilities are cited by 48% as another key contribution to past growth.


In years past, M&A activities would have out-ranked product and selling factors, but in 2010, M&A influenced growth by only 13% of companies, and it places a mere sixth place in terms of key changes needed to spur growth in the future.


More Hiring Ahead, But Not for Long


About 67% of the CEOs surveyed said hiring new staff will be a key priority for them to increase business growth next year.


The economic downturn, they say, made it easier for them to hire staff and at lower cost in the past 12 months. However, as the economy gets better, about 38% said finding the qualified staff will be a big challenge for them.


Capital Sources Point to a Worrying Trend


CEOs surveyed indicated that venture capital and public offerings have less relevance to them than in past years. This year, 89% said the main source of financing was their own cash flow from operations, higher than in past years, while angel and VC funding was ranked considerably lower as finance sources at 7% and 20% respectively, and IPOs at 14%. The outlook for next year remains similar.


When putting a dollar value on capital-raising plans, it is evident that ambitions are modest. One-third have no plans to raise capital and 26% are keeping it under US$5 million.


“It bears considering how much more growth these companies would have seen over the past three years if they had access to more growth capital in their formative years. Are we seeing weakness in the region’s venture capital ecosystem and what are the implications for the future of the Asia Pacific technology sector?” says Asaeda.


India and China Tech Regions Set Apart


Distinctions within the Asia Pacific regions were more apparent in this year’s CEO survey than in the past, with India and China presenting unique patterns of growth, challenges and opportunities.


Of the companies experiencing overall growth in their markets, 70% hailed from India and China. For next year, most of the 54% of companies predicting strong growth in their future come from India and China.


For CEOs in India, talent is a major concern. Just over half note the falling availability of qualified recruits will negatively impact their company’s growth outlook.


Carbon Credits and Cloud Computing


While carbon credits are a hot topic for many tech companies in other regions, 47% of Asia Pacific respondents claim they are not relevant to their business. It is a likely case of “wait-and-see” as 28% claim to be aware of carbon credits, and 13% indicate future markets in carbon credits are a major part of their strategic thinking.


“In a world where change is the only constant, the Asia Pacific tech sector seems to be closely monitoring new business paradigms shaping their industry,” says Asaeda.


This is true for cloud computing as well, which started shifting the fundamental business model of delivering and consuming IT services away from infrastructure-based computing. A healthy number of companies (23%) in the region claimed that cloud computing has helped them to grow more quickly and another 21% said it has reduced costs.








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