Below is the transcript of a CNBC Exclusive interview with Stephanie Davis, Vice President, Google and Rohit Sipahimalani, Chief Investment Strategist & Head of South East Asia, Temasek. If you choose to use anything, please attribute to CNBC, Martin Soong and Sri Jegarajah.
Martin Soong (MS): Stephanie Davis is Vice President at Google, handling strategy and also operations across Southeast Asia. Rohit Sipahimalani is Chief Investment Strategist and Head of South East Asia at Temasek. Both of them join us from elsewhere in Singapore. Good morning to the pair of you. I want to ask both of you first to comment on what we've been talking about all morning long, which is this very, very positive news, at least on the surface, that Pfizer as well as the German pharma, BioNTech, their vaccine, coronavirus vaccine candidate, and late stage clinical trials has achieved 90% success. We know that the trends that you're going to be talking about more in just a couple of seconds, have in part, in large part, been driven by the coronavirus. Now that we are very much closer to a vaccine, the trends that you're going to talk about - more people going online, more new users as well and changing the way doing more of what we do everyday online - how much of that has structurally changed and how much is going to go back to sort of normal pre-Coronavirus if and when a vaccine does become widely available. Stephanie, start with you.
Stephanie Davis (SD): Yes, thank you and good morning. You're right. It has been an interesting year for all of us. We've been profoundly impacted by the global Coronavirus, but it has been heartening and encouraging to see that the resilience still exists in Southeast Asia's digital economy. So COVID did drive a lot of the decision making for consumers across Southeast Asia. As you mentioned, more came online and we also have a lot more who are purchasing online for the very first time or subscribing online. But to get to your question about how much of that will stick. We see really encouraging evidence. First of all, we don't see a lot of churn so far when we came out of circuit breaker. But also when we asked consumers why they chose to use e-commerce is just one example during Coronavirus. They share with us that yes, it was to avoid potential exposure to Coronavirus. But really importantly, and near the same percentage of people state that it is because it is efficient. And they found it to be helpful. So we think that there's going to be a stickiness, particularly when you combine that with online travel and the recovery that we will see over time. So we see that it's resilient now, but it is still poised for growth.
MS: Rohit, what do you think? Are these trends irreversible?
Rohit Sipahimalani (RS): Well, the one good thing about what's happened in the last year and the internet economy is that companies have realized that there are no digital and non-digital businesses, every business needs to be digital. You've seen that all over the world even in the US. I mean, this year, you've seen Amazon and Target sewing, triple digit growth in the e-commerce business. And on the other hand, Amazon will probably open more stores than any other sort of retailer in the U.S.. So really, the combination of physical and digital, the phygital world, has really come to being this year. And that trend I don't think is reversible. I think both companies and users have realized that this mixture of online and offline is here to stay. That's an integral part of all businesses.
Sri Jegarajah (SJ): Stephanie, if I can circle back to you. And speaking of structural shifts with digitization, to what degree do you feel 5G is going to be a game changer for the entire startup ecosystem in this region, particularly for those players that are leveraged to the Internet of Things.
SD: We do think that 5G will have a positive impact across Southeast Asia. If we look back to this year, we got a bit of a surprise, I would say with Thailand moving forward with at least commercial 5G. Some of us were expecting maybe Malaysia and Singapore to come first. But if we think about the reasons that Thailand chose to forge ahead, it was once again due to COVID. And it was how do you get telemedicine out to the rural areas into hospitals even faster. So we look at it from a commercial perspective or a health perspective and an education perspective as well - two categories that we saw really begin to flourish during COVID. We see 5G providing a boost for those. But also when you look at those in the digital economy across Southeast Asia on a consumer basis. They are really plugged in via mobile, more than 90% of the population who is online. They are mobile first and oftentimes mobile only. So 5G will really make a difference. I think also a third area that will make a difference is with our SMEs or our small merchants across the region. Just as many on the consumer side skipped, the laptop generation went straight to mobile, we're in a position where many can also skip here businesses, localize data and go straight to the cloud. And that's something that 5G will help us with with the region. But I'd like to add, we don't need to wait on it, there's still a lot of opportunity and growth before 5G.
SJ: Rohit it's interesting. And the report flags, healthcare and edtech is two areas that are really set to take off with the pandemic lowering the barriers to entry. But I've got to say these are very complex business models, especially when you consider issues like affordability, pricing, the quality of the service as well, that may be diluted by the sheer numbers of startups that are entering the area, just walk us through, Rohit, if you can, the due diligence process that Temasek guides you towards making the initial investments in these growth areas.
RS: Well look, I mean, if take healthcare to start with, I mean, for context, you have a region where there is a tremendous shortage of both doctors and hospitals per person. So clearly it was a need to sort of leverage technology to be able to make that more accessible. Now that existed even before the pandemic, but people used to be concerned about, you know, wanting to physically meet the doctor. You know, doctors were worried about sharing sort of revenues with external platforms, doing video consultations, etc. But what happened during COVID was that, you know, that changed, because there was no choice. The only ways you could connect doctors and patients together, the number of cases was just through telemedicine, or through digital health. And what it did do was build up trust. And what you're looking for is not just someone a platform that can connect doctors and patients. But what can they do beyond that to make this a value added experience for both. So examples are, you know, digital prescriptions, having electronic medical records for doctors, you know, maintaining that, or using AI to help provide better patient care and identify where you need to sort of come and revisit the patient. All those technological tools actually can help a doctor be much more productive in dealing with patients and take a lot of administrative burden off them. And those are things that we're looking for, what is it? What is it that the vendor brings? What is it that the company brings beyond just an online consultation that will make it sticky for doctors to sort of stick with the platform, and that would give the users a much better user experience?
MS: Stephanie, look at that, bring it back to you, Sri couple of seconds ago talking about the enabling technology to allow these trends to continue blossoming, including 5G. Of course, I want to go the other way, though, and talk about some of the foundations. For Southeast Asia, I mean, we talked about the digital divide, right? You could slice it a whole number of ways. But in terms of demographics, age, Southeast Asia is largely young or younger, and in terms of wealth of Southeast Asia, enjoys a growing middle class, these two trends, does it make this part of the world Southeast Asia, and it's obviously a positive, but also does it make it an exception compared to other parts of the world?
SD: Well, I do think it is an exception, indeed, on both of the factors that you just mentioned. But I believe that the exception is overwhelmingly positive. What we see is because of youth and coming back to it being a mobile first or a mobile only region, we see consumers using the internet or using digital very differently in Southeast Asia. And they're really a bellwether, I think that they're showing us what digital economies will become. So this region is shaping the future of digital economies. And I think that's the region that we can look to to see what the future holds for us in terms of opportunity. So yes, as you mentioned, diverse population, it is a young population, connected, mobile first, and that is an exception, but shapes what we can see I think globally going forward, lots of opportunity. May I add also 70% are online now as you mentioned at the beginning, but if we compare that to the internet penetration other countries like Japan or the UK, where it's above 90%, we still see a lot of headroom. So that changing consumer dynamic will shape what happens between 70 and 90%. Internet penetration.
MS: Mm, a lot of headroom left.
SJ: Rohit, how would you characterize the regulatory landscape especially in China? Is there a risk that a more onerous regime could spill over into Southeast Asia especially when you consider what's been happening with Ant Group and the IPO postponements, the fact that it could depress valuations. Is winter coming then for the startups in China that are gearing up for entry into the online payments platform if there is more rigorous regulatory regime on the cards.
RS: You know, and make the point that what became very clear in the pandemic was that economies would have come to a standstill had we not had the digital economy out here. So I think governments have realized the value that this brings to the ecosystem, and to, you know, to both consumers and sort of companies. And that thing, I think, actually will frame regulation more positively. You know, you talked earlier about areas like health tech, I mean, clearly, there are regulatory factors out there to be considered. But governments found that, you know, let's take Indonesia, for example, you know, there were companies like Halodoc that were aggressively helping people test and then getting medicines to them and preventing hospitals from being overwhelmed. So I actually think that what we've seen in the last few months, actually has got governments to recognize the importance of digital economy, and will help frame regulation that is more positive. There may be exceptions here or there. And you will have to make sure that in a data driven world, where value can come from scale and having the maximum amount of data, they will be some tensions about making sure that all the value is not captured by a few large players. But that's a delicate balance. And I think governments will have to find that balance. But clearly, I think it has been overwhelmingly positive from a regulatory front, I would say, what we've seen in the last six to nine months, because the value that this economy has brought to everyone has been very, very clear.
MS: Rohit, let me ask you as Chief Investment Strategist at Temasek, to talk to us about what some investors are looking at. And that is this whole story that we've been talking about the last couple of minutes. And what underlies it, of course, and that is something pretty mundane - server farms, data centers, etc. Not a lot of people talk about or even really focus on it very much, not too sexy. But as an investment. And as far as investment potential goes is, is that something that Temasek is interested in.
RS: We do have several of our platforms that look at that infrastructure, you know, data centers and servers, as you so talked about it. We also have investments in other companies globally that are involved in the sector. But I would say the one of the risks that you talked about that, you know, that will be connected with the internet economy is cybersecurity. In fact, that's one concern that I do have, because a lot of trust that has been built up in the internet ecosystem very painfully and slowly over the last few years. And we've got to a point where people do trust the internet economy - that actually can be at risk, if you have sort of cyber problems, a lot of release of data. So that's another area where we are Temasek very focused on. We've set up a platform, which actually looks at cybersecurity and is actually working with companies around the world and in the region to see how they can help them.
SJ: Rohit, thank you very much indeed for that and all thanks as well to Stephanie Davis from Google and of course, Rohit Sipahimalani from Temasek. Thank you very much.
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