Asia has become the hot expansion market for data center service providers. The region’s infrastructure growth trails its surging Internet population, which is why companies including Google, Amazon, Rackspace, Digital Realty and Equinix have all been expanding in the region.
But expansion decisions aren’t simple in the Asia-Pacific region, as providers must weigh multiple variables in audience and operating environment before investing millions of dollars in a new location. An interesting case study is provided by SoftLayer Technologies, one of the world’s largest hosting providers.
Global expansion has been a priority for SoftLayer in recent years. The company is based in Dallas, but 40 percent of its customer base is based outside of the U.S. While the customer base has been international, the company’s infrastructure has just recently started to extend beyond the U.S. Its quest to expand reveals the challenges and rewards many service providers face when choosing where to expand in AsiaPac.
More Infrastructure in Asia-Pacific
The company has a data center in Singapore, and added network locations in Tokyo and Hong Kong in 2011. ”Opening a data center in Singapore gave us an opportunity to do a few things in the region,” said Mark Quigley, SoftLayer’s Director of International Operations. “It’s a place for American companies to house their infrastructure.”
While the company has made significant advancements in its Asia-Pac business, Quigley discussed the unique challenges in setting up shop in Japan in particular. Quigley spent a lot of time in Asia during 2012 in order to help learn the culture and shape SoftLayer’s operations in the region.
He finds that in Japan, the culture breeds two contrasting business realities that create challenges and opportunities for companies like SoftLayer: Japan is insular and Japan is global.
Rapid Global App Deployment
Japan is insular because IT purchases there are made through either Japanese firms or foreign firms that have spent decades building trust and reputation. It’s hard for an outsider to establish a business quickly, and the process of getting established can be time-consuming and expensive. “A difficult part would be trying to figure out the telephony support,” said Quigley. “Asian business culture tends to value face time.”
However, as Quigley points out, Japanese businesses also have a huge need for global reach.
“The capital investment required to go global is negligible compared to their forebears, because they don’t need to build factories or put elaborate logistics operations in place anymore,” said Quigley. “Today, a Japanese company with a SaaS solution, a game or a social media experience can successfully share it with the world in a matter minutes or hours at minimal cost, and that’s where SoftLayer is able to immediately serve the Japanese market.”
That’s why SoftLayer isn’t yet planning to open an office in Japan. It has a network location in Tokyo, an existing customer base, and a number of relationships with existing partners like Parallels and Citrix who have solid footing there already. It will continue to seek the right partnerships to enable growing its business in the region.
Doing Your Homework
Right now, the company is doing its due diligence and seeking to understand the market in Japan. This reflects SoftLayer’s methodical approach to expansion decisions.
“It doesn’t make sense to make a push. It takes time,” said Quigley. “There’s Japanese business culture to contend with. We’d attracted some Japanese customers, but we haven’t marketed to the Japanese audience yet. If we were going to make a full on push, there’d have to be significant changes.”
One promising development is that Japanese companies are becoming more comfortable shifting their IT infrastructure from on-premises facilities to third-party providers.
“From a technology adoption perspective, we have in-country companies like KDDI, NTT, that are actively providing colocation services, dedicated hosting services, and have started cloud infrastructure (i.e. Nifty cloud by Fujitsu),” said Quigley. “All are seeing that Japanese companies are starting to outsource their infrastructure.”
SoftLayer wants its network within 40ms of everyone on the planet, and the Japan PoP is part of this, allowing it to “cross both ponds” to connect U.S. data centers and international facilities. The Japanese market is a great opportunity, but as Quigley discovered, it’s a tough nut to crack. It takes time and commitment to penetrate the market, and it’s one that remains almost paradoxically insular and global.