American Cloud Companies Face Challenge From China in Southeast Asia, Wall Street Journal, Feb. 13, 2023.
China’s Alibaba, Huawei and Tencent are investing hundreds of millions of dollars in developing markets including Thailand, Indonesia
U.S. cloud-computing companies, dominant globally, are facing intensifying competition from upstart Chinese rivals in Southeast Asia, offering a head-to-head look at how the two geopolitical rivals’ corporate champions stack up in a key technology.
China’s Alibaba BABA -0.06%decrease; red down pointing triangle Group Holding Ltd., Huawei Technologies Co. and Tencent Holdings Ltd. TCEHY -0.25%decrease; red down pointing triangle are planning to invest hundreds of millions of dollars in Southeast Asia in the coming years.
While Amazon.com Inc. AMZN 3.01%increase; green up pointing triangle and Microsoft Corp.’s MSFT 1.66%increase; green up pointing triangle cloud-computing arms still dominate in terms of market share, especially in Singapore, Chinese companies entered emerging markets such as Thailand and Indonesia before their American rivals. There, they are offering lower-priced products than their American rivals to win over price-sensitive customers, clients and industry analysts say.
By some metrics, Chinese companies have surpassed their American counterparts. Cloud companies refer to the number of so-called availability zones, or clusters of data centers, to show the scale of their network. In Southeast Asia, Alibaba, Tencent and Huawei each run more availability zones than Amazon Web Services, Microsoft Azure or Alphabet Inc.’s Google Cloud, data from the companies showed. In the cloud-infrastructure-services segment, Chinese companies have surpassed Google by market share in Thailand, data from Gartner showed.
Their move is the latest example of how Chinese tech companies—increasingly driven overseas by a domestic economic slowdown and tighter regulations—are pressuring American rivals in markets that they expand into.
Southeast Asia is a priority market for many Chinese firms, including cloud companies, as they see a better chance of turning profits there compared with mature markets including the U.S. and Europe, where Chinese tech companies face more scrutiny.
Alibaba Cloud, the biggest Chinese cloud-service provider, in September pledged a new investment of $1 billion to support its global partners in the coming three years. In January, the cloud arm also set up its international business headquarters in Singapore, while its parent Alibaba remains headquartered in Hangzhou.
Huawei is providing cloud services to government agencies in Thailand and Malaysia for their digital-government and smart-city projects. In November, the company said it would invest $300 million to develop cloud infrastructure in Indonesia.
When Astra Financial, an Indonesian retail financial service company, considered shifting its on-premise applications to cloud in 2019, Alibaba was the only cloud service provider that had data centers in the country.
Google launched its first data center in Indonesia in 2020, followed by AWS a year later. Astra Financial now also uses cloud services from other companies to reduce its risk, but Alibaba is still its biggest vendor.
“They gave us a good price,” said Daniel Gunawan, information technology head at Astra Financial. “Indonesia is sensitive to costs.” He said Alibaba also has been swiftly responding to his company’s requests.
Chinese cloud companies usually offer prices that are 20% to 40% lower than American firms on different products, resellers of cloud services in Southeast Asia said. That discount, despite eating into profits, has helped the Chinese firms expand in Southeast Asia where many clients are small- and medium-size.
Chinese companies are increasingly delegating marketing and sales functions to resellers, as these local partners help remove barriers and lower the cost of entering new markets, resellers and senior managers at cloud companies said.
Tencent has rolled out a global partnership program to recruit local companies in the fields of marketing, sales, technology and customer support to help it deliver and expand services to local customers.
Chinese cloud firms tend to target the industries in which they have more experience. Astra Financial’s Mr. Gunawan said Alibaba’s expertise in e-commerce and digital finance gave it an edge over other cloud vendors. Alibaba also helped Astra Financial develop an app for financial services in 2021, he said.
Tencent, which owns chat and social-media app WeChat, built on its expertise in audio and video technology to provide cloud services to live-streaming and social-media platforms in countries such as Vietnam and Pakistan. It also supports videogame companies in the region.
As competition intensifies, U.S. companies have started to invest more. AWS has said it would invest $5 billion each in Thailand and in Indonesia over 15 years to boost data centers and other cloud infrastructure in the two countries. Since last summer, Google Cloud has rolled out plans to build data centers in Malaysia and Thailand and has been supporting government projects for digitalization in Singapore and Indonesia.
Asked about competition with Chinese cloud companies, Google referred to its plans in Southeast Asian countries. AWS and Microsoft didn’t respond to requests for comment.
While the U.S. companies’ lead in the region won’t be overturned quickly, Chinese companies are in it for the long-term, said Jessie Tung, co-founder of Twimbit, a Singapore-based research firm that focuses on Southeast Asia’s cloud sector. Chinese companies are investing in cultivating local talent to familiarize them with the Chinese technology infrastructure and ecosystem, she said.
One industry-wide concern, including for American and Chinese companies, has been data and operation security. A recent data leak and a system failure linked to Alibaba’s cloud service have highlighted vulnerabilities.
An equipment anomaly in a Hong Kong availability zone hit cryptocurrency exchange OKX as well as websites and apps run by Macau’s monetary authority and other entities, Alibaba Cloud said. A vast cache of data on Chinese citizens allegedly siphoned from a police database on Alibaba Cloud was offered for sale last summer, The Wall Street Journal has reported.
“The nature of our business dictates that we must treat our customers’ trust as if it were our life,” Alibaba Chief Executive Officer Daniel Zhang told the company’s cloud staff in a December email, which was viewed by the Journal. “Once trust is lost, customers can leave us at any time.” An Alibaba Cloud spokesperson said data protection and security are its top priority.