MARCH 3, 2000 VOL. 26 NO. 8

Key To Reform
The Internet revolution unleashes a sea-change in Asian business

Last week's stampede by investors to buy shares in Hong Kong tycoon Li Ka-shing's Internet venture Tom.com, a China-related portal, brought back memories of the red-chip mania just before the territory's handover to Beijing in 1997. Reportedly half a million application forms were snapped up within hours by punters eager to board the bandwagon. Indeed, investors are pumping billions of dollars into Asia's mushrooming Internet stocks, anxious to get in on the international gold rush. On the surface, it would appear to be a colossal waste of money. Many of the region's Internet startups offer little more than the most rudimentary services. Assets are few and revenues are scant. It would be easy to dismiss the whole thing as just another stock-market fad, a way for a lot of people to get rich quick - but only on paper.

ALSO IN ASIAWEEK Cover: The Scapegoat? Blamed for the riots surrounding the fall of Suharto, controversial ex-general Prabowo Subianto tells his story - Investigation: No single "mastermind" was behind the May 1998 turmoil. There were many players, and many plots - Insight: Re-examining Prabowo's record in East Timor - Insider: How the general and son-in-law benefited - and was compromised - by being part of the First Family Editorial: The Internet is the most compelling agent of economic reform Editorial: A good year for Kim Jong Il - but watch out Malaysia: The real campaign for national leadership heats up - Anwar: A decision on Mahathir's testimony is put off again - Shadows: A play looks at Malaysia's troubled political soul Hong Kong: The former colony is starting to trust the motherland Taiwan: Beijing demands unification talks - or else Japan: Obuchi raises (but doesn't fire) the starting gun for polls Cambodia: A culture of violence and impunity undermines justice Fashion: The spirited new styles suit Asia's mood - Accessories: The rule is - there is no rule - Menswear: Casual, chic - and inspired by womenswear - Kenzo: The Japanese couturier bids farewell to the catwalk Tom.com: Investors rush for a piece of a Hong Kong company with no history, few employees and lots of hype Kosdaq: Korea's over-the-counter stock market soars Scandal: Can Manila recover from the BW Resources fiasco? Investing: Betting on the New India The Net: The freebie formula gets tested in Singapore Cutting Edge: A keyboard you can fit on your Palm Newsmakers: Japan's crown prince vents his anger Viewpoint: To fight corruption, reform China's politics     RELATED STORIES Asiaweek If it's in Asia, it's in Asiaweek TIME Asia Analysis and commentary from the Asian Edition of TIME Magazine CNN.com/ASIANOW Asia's most comprehensive source for latest breaking news and information

Asia's Internet fever, however, is much more than that. And it is not just because the Net and e-commerce are clearly here to stay. Significantly, the advent of the Internet is spurring reforms in the region's corporate landscape along lines that international economic experts have been advocating since the Crisis descended in 1997. The changes, however, are being driven by market forces rather than any high-profile requirements by the International Monetary Fund or government initiatives. In other words, the Internet revolution is altering the way Asia does business - but through the back door.

The evidence is all over the place, from restructuring to compensation policies to management practices. Last week, Japanese electronics giant Toshiba unveiled a major reorganization plan to focus its business strategies on such fast-growth industries as semiconductors and Internet-related services. The latter has become a major new profit center for the company. The restructuring could, said president Nishimuro Taizo, require layoffs in the land of lifetime employment. And some profitable businesses may be dropped so that Toshiba can concentrate on industries it feels will lead it in this new century. In South Korea, Samsung has not only set up an online shopping mall for employees, but also adopted e-commerce and networking technologies in many of its divisions, using information technology (IT) to trim bureaucracy and headcount.

The Net craze has brought fundamental change even to companies less technology-linked than the major electronics players. Conventional, old-line concerns that once had nothing more than a passing interest in high technology are starting Internet subsidiaries. In Hong Kong, it seems like every big property company is scrambling to "dot.com" itself. Tom.com, for example, is nearly two-thirds owned by property giant Cheung Kong and sister firm Hutchison Whampoa. Also preparing to list is Sunevision, which groups new high-tech subsidiaries of Sun Hung Kai Properties.

The Internet boom is already turning traditional ways of doing business in the region on their heads. Take stock options. Previously, they were almost unheard of in Asia, as owners of businesses wouldn't dream of giving away a part of the family patrimony to non-clan employees. But the need of new technology ventures for appropriate talent - and its scarcity - has begun to dent that tradition. Increasingly, stock options are becoming a part of the employment packages required to secure such people.

The high-tech revolution is also changing management styles. In launching their new ventures, many companies have had to import managers from Silicon Valley or other IT centers, usually in Western countries. In Hong Kong, it seems that every such business has its coterie of whiz kids. These managers bring a more open approach to running a business, as well as a leaner, flatter organizational structure where more responsibility and initiative rest with younger and lower-ranking staff members. More than ever, ideas and knowledge, rather than pedigree and seniority, are what determine an employee's success - largely because the stakes, for the company, are so high. And the use of e-mail has reduced the need for middlemen even in non-Internet ventures, which is trimming a lot of the traditional fat in Asian business.

For a long time, a key economic weakness of the region was its paucity of venture capital to fund bright but risky ideas, and the difficulty of money-raising through listing on the traditional bourses. Now the situation has been reversed. Nasdaq clones are proliferating throughout Asia's major financial centers, specifically designed to facilitate start-ups and high-tech ventures. It is no longer a problem of too little capital, but possibly too much of it chasing too few genuinely good opportunities. And amid the raft of new listings, Asian companies have been obliged to become more transparent and adopt higher accounting standards to attract international investors.

Asia's relatively quick rebound from the Crisis has sparked much concern that the region may be tempted to forgo painful but ultimately beneficial economic reforms. Now, the Internet revolution may have made that a moot point, forcing sweeping changes ranging from corporate restructuring and increased transparency to more flexible management styles and merit-based promotion yardsticks. The region looks set to come out much the better for it.