Southeast Asia is on track this year to outpace China’s growth for the first time, expanding by 3.2% compared to China’s 2.8%. To keep that growth going, governments across the region are ramping up efforts to bring online connectivity and digital services to large areas still outside the digital fold, presenting an opportunity for companies like Cisco to cultivate new markets.
“Why are we prepared to invest in these countries moving forward? It’s because the countries are investing in themselves,” said Guy Diedrich, senior vice-president and global innovation officer at Cisco.
Diedrich spoke with Nikkei Asia while visiting Singapore to meet with stakeholders of its skills training and digital accelerator programmes. “This programme keeps growing in value and in terms of relevance to countries because they are just hitting their stride when it comes to digitalisation,” he said.
Cisco has 34 accelerator projects in Indonesia, Malaysia, the Philippines and Thailand, spanning digital solutions for hospitals, disaster communications and cybersecurity for critical infrastructure.
While Cisco declined to say how much the company is investing in the programmes, making inroads in these countries and tailoring its solutions to local needs will be key for revitalising its growth. Its quarterly revenue for the three months through July was US$13.1 billion, flat on the year, while profit for the quarter dipped 6%.
Its programmes have yet to reach Vietnam, which the World Bank forecasts to grow 7.2% this year. Vietnam struggles with adding local value to its high-tech exports, but Diedrich sees the region becoming “very quick innovators.”
“That leap from a manufacturing economy to a service economy to innovation has been going so much faster in the last 10 years than it ever did before,” he said.
But countries cannot reap the full benefits of digitalisation without universal connectivity. “You have to have a majority –if not all of your country – connected for the country to benefit from virtual health care and connected education,” said Diedrich. “Otherwise what you end up doing is making the digital divide worse.”
Cisco requires a government-led digital agenda before it launches a digital accelerator programme in any country.
“Service providers look for population density in order for their major investments to provide a return. That’s why it’s important for governments to get involved,” Diedrich said.
In Thailand, Cisco launched a digital accelerator program late last year to improve connectivity in the country’s underdeveloped northeast. The region known as the Eastern Economic Corridor has been the focus of the Thai government’s development agenda for the past decade. For Cisco, the EEC is a “living laboratory” for pilot programmes.
“We can test out projects in rural environments that will help those underserved in urban communities,” Diedrich said of the company’s EEC projects.
Those pilot programmes may in the future include an open, cloud-based fifth-generation mobile network, which Cisco developed in collaboration with Japanese e-commerce company Rakuten and rolled out in Japan.
The technology promises mass connectivity without the environmental or physical footprint of cell towers, an attractive prospect for emerging economies whose carbon emissions will grow with their output.
“Cisco is also looking at itself and looking at its own technologies, everything down to the packaging and the size of our equipment,” said Diedrich. “Certain sunk investments from years ago, they’re going to have to be refreshed,” he added, referring to telecommunications hardware.
Diedrich said the region’s regulators have been “progressive” in updating policy to remove barriers to digitalisation: “The leadership gets it. They already know what’s going to move the needle for them.”
But aside from connectivity, Diedrich said governments and industry still need to “flip a switch” and make the most of their “demographic advantages” through training and education.
A shortage of tech talent has dented the attractiveness of countries like Thailand and Indonesia to advanced industries.
“If you invest in technology without skilling up the population to be able to execute and maintain that technology, you’re just putting money down a technology black hole,” Diedrich said.
Cisco says its networking academies have trained 1.3 million students in Southeast Asia, with women comprising 30%.
“What it will take is government, industry and academia to flip the switch and say we’re going to train up all of these young, tech-savvy people,” Diedrich said.